Technology Investor 

Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

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8:30 AM Friday, February 10, 2006: Around noon yesterday, someone pricked the "momentum" balloon and a bunch of "hot" stocks -- including my beloved Whole Foods, crashed. The market started the day by being disappointed with Whole Foods' 26% increase in earnings on a 22% sales increase. For that, it dropped the stock $4. Then, kapow, noon came and it dropped another $2.78.

This drop is way overdone. Unless it bounces strongly this morning, I'll be in buying some more. Whole Foods is nicely profitable, and growing strongly.

Fortunately, we had some winners yesterday -- Ormat Technologies and VistaPrint. Though momentum stocks, they continued to climb. On a value basis, they're way overpriced.

FBI, SEC Probe Web Sites offering large returns for looking at ads: You give them your money. They give you a 12% on your money each day. All you have to do is to click a few sites. Trivial. Remember the old motto. If it's too good to be true, it is. To read the Journal's piece, click here.

What is your house worth? Go to Put your address in. Some of my friends swear by it. I'm skeptical. It couldn't find either of my houses. It gave gross under-valuations for some of my friends' palaces.

Cut your energy consumption: Expensive oil is not going away. It's time to think of ways to save. Thoughts for today:

+ Replace incandescent bulbs with fluorescent ones. My wife still has not discovered my growing collection. 60 WATT fluorescents use only 15 WATTs of electricity, don't burn hot and last for years. That's a huge savings. Time to install more of these:

They're cheap at

+ If you live in the country, install a wood furnace. A friend did and hasn't used one ounce of oil this entire winter.

For more on these, go to a recent column, click here.

+ Blow icynene insulation into your house. Fiberglass leaks. Regardless of R-value, fiberglass leaves gaps and seams around framing materials where air can get in and out. This leads to huge energy loss. When warm outside air meets cool air-conditioned inside air, or when heated inside air meets cold outside air, it condenses, makes moisture buildup. Mold and mildew grow within the building cavity. Blow icynene into your walls. The stuff expands, fills every space and then hardens. This stuff is genuine magic. I've seen it in action. It's going into my new house. Read about it, click here.

Icynene gets blown in, fills all the holes, expands and hardens. When hard, it's rock hard. Make sure your wires are in before you blow this stuff in. This stuff is final.

+ Drive less, bike more. It's healthier to bike to the store. It's even easier to park.

Telecom's noxious odors still appeal: Everyone and his uncle still believe running a phone company is the most profitable business ever invented. With Vonage coming public -- though it has never earned a nickel of profit -- Forbes asks the question, "Is running an Internet phone company a good business?"

Vonage Holdings, the largest Internet phone company in the U.S., aims to convince investors it is, announcing plans today to go public and raise up to $250 million. At the same time, its prospectus provides a trove of new information about the financial struggles of a phone company that relies on the Internet instead of its own network to provide phone service.

In the three years and three months since Vonage began offering service, it has proved widely popular -- and wildly unprofitable. Over 1.4 million customers have signed up; its subscriber rolls more than tripled last year alone. Cumulative losses over the company's brief life: $310 million.

The bulk of the company's loss comes from a massive marketing push. The company was so aggressive that for most of last year, Vonage was the single biggest buyer of online ads in the U.S., according to Nielsen//NetRatings. Yet even if Vonage had never spent a dime on marketing, it still would have never turned a profit.

And Vonage can hardly afford to cut its recruitment efforts. It costs the company $213 to win a new customer. Just to stay even, the company would have to replace the quarter of its customer base that abandons its service every year. While that rate of defections might seem worrisome, the company paints its "churn rate" as an enviable statistic in its prospectus, calling its "loyal customer base" one of its key strengths.

The most common reason people leave the company is the complexity and dubious reliability of its voice-over-Internet Protocol (or VoIP) service. Vonage warned investors that its customers may experience lower call quality than they are used to from traditional wireline telephone companies, including "static, echoes and delays in transmissions [as well as] higher dropped-call rates."

Despite hopes that improving technology would lead to better quality and fewer defections, there is no sign of that trend in the numbers. Vonage's customer defection rate has not changed for the last two years. By relying on Internet lines it doesn't control, Vonage is largely at the mercy of cable companies and traditional phone companies to provide reliable, high-speed Internet connections.

Vonage's just-released data did hold out the hope that, as the company matures, its margins could eventually prove substantial. A typical Vonage customer with one phone line paid the company $26.63 per month last year. But because Vonage customers' calls ride for free over their high-speed Internet connections, the direct expense of providing that line was just $8.31, the company said.

But Vonage is likely to have trouble sustaining an average price that high for long. While VoIP is well cheaper than traditional phone service, dozens of competitors promise to offer an array of new calling options, some of them absolutely free. Comcast (CMCSA), Cox Communications and other big cable companies are working on VoIP offerings of their own. Time Warner's ( TWX), America Online, Google GOOG), Microsoft (MSFT) and Yahoo! (YHOO) have all launched VoIP-enabled instant messaging services, or soon will. Smaller competitors mimicking Vonage's business model also threaten to undercut its prices. Skype, recently acquired by eBay (EBAY), already offers calls for free.

Vonage also announced that company founder Jeffrey Citron will be stepping aside as chief executive officer to make room for Michael Snyder. Snyder was the president of ADT Security Services, a subsidiary of Tyco International (TYC), for the past nine years. Citron will remain as chairman and chief strategist.

A company spokesman did not immediately return calls for comment.

Explaining Judaism:

Q: How do you know when you are at an Orthodox Jewish Wedding?
A:. The mother of the bride is pregnant.

Q: How do you know when you are at a Conservative Jewish Wedding?
Answer. The bride is pregnant.

Q: How do you know when you are at a Reform Jewish Wedding?
A: The rabbi is pregnant.

Yet another tasteless old people joke:
After pigging-out on burritos at Taco-Bell the night before, an elderly couple was attending church services. About halfway through she leans over and says, " Boy, that Mexican food really gets to me. I just cut a silent fart, what do you think I should do?"

He replies "Put a new battery in your hearing aid."

Recent column highlights:
+ Munich, the movie. A must-see. Click here.
+ Identity Theft precautions. Click here.
+ Dumb reasons we hold losing stocks. Click here.
+ How my private equity fund is doing. Click here.
+ Blackstone private equity funds. Click here.
+ Manhattan Pharmaceuticals: Click here.
+ NovaDel Biosciences appeals. Click here.
+ Hana Biosciences appeals. Click here.
+ All turned on by biotech. Click here.
+ Steve Jobs Commencement Address. The text is available: Click here. The full audio is available. Click here.
+ The March of the Penguins, an exquisite movie. Click here.
+ When to sell stocks. Click here.

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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