Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Tuesday, February 8, 2005: The
most popular part of my Saturday talk in Phoenix was ripping into Wall Street.
There's much dissatisfaction with Wall Street out there in the hinterlands. My
Wall Street friends say everyone has short memories and at the first sign of an
uptick, all will be forgotten. I wonder. I'm not alone in my concerns about Wall
Street and its ethics (or lack thereof). Read the following piece with several
things in mind: Most mergers fail. Mergers and acquisitions (M&A) are Wall
Street's most profitable business. Senior executives of bought or buying companies
typically get handsome bonuses when the deal is done. You and I, the small shareholder,
typically lose out. Today's Wall Street Journal has a piece:
"The nation's largest public pension fund said regulators should bar investment
banks from judging whether mergers and acquisitions are fair to shareholders when
they also act as a main adviser that stands to reap big fees if a deal goes
forward. The proposal by California Public Employees' Retirement System (Calpers)
came as other big investors also demanded that the National Association of Securities
Dealers overhaul its rules governing the process of producing what are known as
fairness opinions, which critics say is riddled with conflicts of interest. Wall
Street firms defended how the opinions are produced, saying they have strict
guidelines to ensure the integrity of their views.
The NASD released
comment letters yesterday that added to a growing debate over the lucrative
but controversial business on Wall Street of rendering fairness opinions
in mergers and acquisitions. The self-regulatory organization for brokerage
firms has proposed limited rule changes to require more disclosure of "significant"
conflicts of interest by investment banks and what firms are doing to counteract
those conflicts. ...
Some investor activists say the NASD proposal doesn't go far enough. Echoing
Calpers, the investment office of the AFL-CIO, or American Federation of Labor
and Congress of Industrial Organizations, called changes in the system long
overdue and said the process had become tainted by "egregious conflicts."
Calpers oversees $180 billion in pension-plan assets and unions affiliated with
the AFL-CIO sponsor pension plans with more than $400 billion in assets.
The two investor
groups took aim at the dual role that big Wall Street firms routinely
play as both the adviser to companies involved in mergers and acquisitions
and as provider of an opinion blessing the deal as "fair" to shareholders.
Bankers wearing both hats often make the lion's share of their fees only if
a deal gets done. "There is a very large incentive for an investment bank
to find that a transaction is fair, regardless of the circumstances, when the
bank will receive the bulk of its fee only if the transaction is successful,"
Calpers Chief Investment Officer Mark Anson wrote.
which can reach tens of millions of dollars, are known as "success fees."
Fairness opinion fees can range from tens of thousands dollars to several
million. Critics say fee-hungry bankers rubber-stamp the deals their clients
want, sometimes acquiescing to ill-conceived transactions that ultimately erode
shareholder value or force thousands of unnecessary layoffs but that may enrich
top executives of the companies involved. Fairness opinions have become the
standard tool used by corporate boards to protect themselves against
lawsuits and investor criticism of a deal's terms. ..."
another merger gone south: In case you think I'm crazy generalizing
about deals going south, the New York Times has a piece today about my
least favorite Wall Street firm, Morgan Stanley:
hundreds of top current and retired Morgan Stanley executives gathered at a
memorial service for Richard B. Fisher, the former chairman, who masterminded
the 1997 merger of his old firm and Dean Witter. In the front row at Riverside
Church sat Philip J. Purcell, the current chief executive and Mr. Fisher's partner
in designing a deal that was seen then as a template for the diversified global
investment bank. Yet later at the reception, even amid the fond remembrances
for Mr. Fisher, who died in December, there ran a vein of discontent about the
how the underperforming businesses from Mr. Purcell's old Dean Witter,
like the brokerage and credit card units, were creating a drag
on the steamrolling profits being generated by the banking and trading divisions
that Mr. Fisher had made the envy of Wall Street. A result has been a flagging
stock price that has badly trailed that of Morgan Stanley's peers. Of course,
grumbling among ambitious Wall Street executives is not unusual, especially
after a merger. But in this case, the merger occurred eight years ago, time
enough for warring factions to unify.
What makes Morgan
Stanley's case different is that the divisions between the white-shoe Morgan
Stanley bankers and the more Main Street Dean Witter bankers have become wider
in recent years, highlighting a widening culture gap as well as a disparity
in profits as Morgan Stanley's core banking business has thrived while the Dean
Witter units have not.
At the same time,
American Express and Citigroup - companies that once defined the concept of
the financial supermarket that has long been dear to Mr. Purcell's heart - have
spun off and sold their lagging business units in an attempt to get the market
to attach a higher valuation to their faster-growing core operations. Now, the
disclosure that Mr. Purcell was awarded $22 million in total compensation
last year highlights questions about his strategy and performance.
an issue of real franchise decay," said Scott Sipprelle, a hedge fund investor
and former Morgan Stanley employee, who wrote a letter to the Morgan Stanley
board this month proposing that the firm sell or spin off its lagging units.
"I think there is a lot of disenchantment with the strategic direction
of the firm."
criticized Mr. Purcell's compensation. "Morgan Stanley's stock declined
4 percent in value last year and yet the C.E.O.'s pay was increased by
57 percent," he said in a statement. "In the context of this
decision, this board has abjectly failed to implement a compensation policy
that is performance-based, shareholder-aligned or fair."
estate syndication deals tighten: I'm looking at syndication
offering annual returns between7.3% and 10.2% over the next ten
years. The kicker will come when the building is sold. Let's say 10 years out.
Making conservative assumptions, that still means an IRR of just under 10% for
the life. Yields are tightening as prices continue up, and great deals are harder
IRAs and real estate and you. There
are reasons to have real estate in your IRA -- it's often a far better investment
than the stock market. There are reasons not to -- namely it's complex. You
can't personally use the place. But you can swap use of it with your brother
father-in-law, or other people.
Latest airline tips:
+ Even with the new "easier" rules, book well in advance. Last
night we tried booking a round-trip from New York to Columbus for this weekend.
Cost $855. Book it for a few weekends later and you'll pay only $252.
+ The best JetBlue seats are in rows 1, 11 and 12. The second best are in rows
13-26. They have two inches more than the worst seats on the flight, rows 2-10.
+ Nonrefundable tickets aren't refundable -- unless you get sick and
are at death's door. And then it's problematic. Today's Wall Street Journal
says airlines work with customers on a case by case. Which means perseverance
usually works. The squeaky wheel gets the most attention.
+ Airline gate agents have the power to change your ticket and get you on the
plane -- with or with levying a hefty fine. A little begging will often save
For previous airline tips, click
Just what my son's dog needs: Every
morning at 8:00, my son drops his 85lb white Lab off. And every day we babysit
the dog -- walk it, peeh it, pooh it, exercise it and wash it when it rolls
around in the mud once too often. It's a retriever, which means it will retrieve
tennis balls endlessly. Throwing them ruins shoulders. So we have endless gadgetry
-- from tennis racquets to "chuckits." My latest gadget might turn
out to be a $150 gadget called the GoDogGo. This machine can hurl balls
from 15 feet to 30 feet. You even get a TV-type remote control. Sit on the patio
and exhaust your poor pooch while you sip martinis. Just what the doctor ordered
-- for you and it. If you really want one, Click
here. That's Winnie on the right. All 85 lbs of her. Cute, until you
have to take care off her and curb her eat-anything (including the cat's do-do)
instincts. Why are dogs sooooo stupid?
Winnie, 85lbs and not overly bright, but a great, enthusiastic licker.
ultimate bad diet?
A doctor was addressing a large audience in Tampa. "The material we put
into our stomachs is enough to have killed most of us sitting here, years ago.
Red meat is awful.
Soft drinks corrode your stomach lining. Chinese food is loaded with MSG.
High fat diets can be disastrous and none of us realizes the long-term harm
caused by the germs in our drinking water.
But there is one thing that is the most dangerous of all, and most people have,
or will, eat it.
Would anyone care to guess what food causes the most grief and suffering for
years after eating it?"
After several seconds of quiet, a small 75-year-old man in the front row, raised
his hand and said, "Wedding Cake?"
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
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will help pay Claire's law school tuition. Read more about Google AdSense,
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