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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 EST Thursday, July 13, 2006: Winston Churchill said, "However beautiful the strategy, you should occasionally look at the results."

Continuing yesterday's discussion of managers.
I checked around. No one knows when to fire a manager. Most people give a manager a wide berth, figuring his future performance will eventually fall into line with his past, good performance. There are sound reasons this may not happen:

1. Managers tend to have "styles they stick with -- even though their styles are no longer working.
2. Markets have changed. Valuations are much higher (if only measured by today's ridiculously high P/E ratios).
3. "Buy and hold," which worked brilliantly for years, died at the end of the 1990s. Markets are now volatile and dominated by animals called hedge funds, which didn't exist when today's successful money managers were building their firms and attracting the money they now mismanage.

Volatility is the biggest change. Investors, traders, money managers -- call them what you will -- are always seeking "hot" areas. Bird flu. Alternative energy. China. Housing. Killer locusts are invading the U.S. Who makes the killer locust killer chemical? Their stock will bounce -- for a short, tiny time. Then they will crash and burn.

You have to be there to ride the roller coaster UP and ride the roller coaster down.

The biggest difference between a money manager, a mutual fund manager and a hedge fund manager is that the hedgie will sell short. A money manager or a mutual fund manager stays long. A hedge fund manager
will be short or stay in cash when he thinks the market sucks. A money manager or a mutual fund never thinks the market sucks. He justifies this non-thinking nonsense by saying no one can time the market.

Conventional stockmarket wisdom today says the place to be is in large cap stocks. They haven't "benefited" by the upswing in recent years. Hence they now will (excluding yesterday, which was a temporary "blip").

One of my managers is in large cap stocks. That is their charm, their benefit or their idiocy. I looked at the stocks they own for me and asked myself, "Do I want to own these stocks going forward? Do I believe in large cap?" And the answer was a resounding NO. I fired them. I didn't wait two years. I didn't give them the benefit of the doubt. I fired them.

Managing managers, you have to be definite, firm and make your mind up quickly. Had I delayed my decision, I'd get busy with tennis, traveling, family... and only revisited them in several months -- when the value of my account would have been devastated. Yes, unlike them, I'm making a call. I can't see a single reason why big cap stocks will advance significantly in coming months. The economy is slowing down. The consumer is broke. And business spending is not picking up the slack. (See my columns this week for explanations.) I'm not forecasting a recession. I'm not forecasting gloom and doom. I'm simply saying I don't see an impetus to big cap stocks bouncing in coming months. And if they don't bounce, they will fall -- which they've been doing recently.

I am not good at managing managers. I admit that. But in the past I've found that if I ignore my gut feel and give them more rope. They will hang themselves. And I'll be poorer for my tolerance.

My friends tell me statistics show that over a 10-year period, 80% of active managers (those that pick stocks as against just buying the index) will underperform the market's indexes. The reason? Fees.

There's money in shorting, but your broker won't tell you: When you short, you sell, you get money. That money sits somewhere and earns interest. Unless you ask for the interest -- it's called a Short Rebate -- your broker will keep the interest on your money. When interest rates were low, the monies were irrelevant. But now interest rates are higher and this sucky market favors shorting, you ought to get your money.

Don't tell me you never learned anything from this column.

Never short a stock with under $1 billion in market capitalization. If you do, you'll get killed in the inevitable short squeeze. For more on how you might get your knackers in a vice, got to

Now you've learned something else. Thank you Dennis.

The latest con:
Reader Roy Rogers writes: "I just had a very persuasive email telling me that the domain names I have registered for my wife's business are about to expire and be sold. They wanted three times the actual cost."

Of course, the wife's domain names are NOT about to expire and the demand for money is a complete con.

I remember in the old days in the telecom business. Companies used to receive invoices for listings in nonexistent telex directories. The bills came from Switzerland which seemed to make it harder for U.S. police to stop.

The talk of Manhattan: The doctor was nuts. He was in a messy divorce. He didn't want his wife to get his beloved landmark house on chi-chi East 62nd Street. So he filled a room with gas. He lit a match and blew himself up with the building. He figured a double whammy -- suicide and keep the house from his wife.

Originally everyone thought it was terrorists.

It was a huge bang. The explosion blew out windows of adjoining buildings.

These pictures are from the New York Times, which wrote as a caption to this one, "Investigators continued to inspect the wreckage of Dr. Nicholas Bartha's town house on East 62nd Street on Tuesday. He had vowed to turn his former wife from "gold digger" into an "ash and rubbish digger."

The doctor's best-laid plans went a little awry. To wit:
1. He survived. Fireman pulled him out, alive, though in critical condition.
2. He'll probably go to jail for arson.
3. His wife will undoubtedly get the property.
4. And the biggest irony: The doctor did his hated wife a great service. He turned a landmark building with zero development potential into a highly-prized piece of property developers can now build a huge high-rise building on. By blowing it up, he bypassed all New York's strict landmark preservation laws and at least tripled the value of the site.
Read more here and here and here and here.

From the Times' Manhattan Diary:
Dear Diary:
While strolling down Park Avenue early one morning, I noticed an elegantly dressed and coiffed matron emerge from an apartment building. Dangling from the right sleeve of her jacket was what looked to me like a price tag. I decided that she should know and approached her.

After thanking me profusely for my gesture, she laughed, adding, "I'm on my way to a board of directors' meeting, and I'd hate for those cost-cutters to know what I paid for this suit." -- Marcia Magill

Dear Diary:
Walking down lower Fifth Avenue in the Village, we fell in behind two slightly paunchy men in leather on what sounded like a first date. We overheard the following conversation between them:
"Do you believe in reincarnation?"
"Yes, I do. At first I had difficulty accepting the idea, but as I became more spiritual I learned to accept it."
Then the first man, sincerely perplexed, asked his friend the following question: "But tell me, why would anyone come back as Paris Hilton?" -- Dr. Marta P. Scott

Step to Recovery
Along Fifth Avenue they march —
The latest news —
Trendy women bearing signs:
"Will work for shoes." -- Leon Freilich

How to get seated:
Because they had no reservations at a busy restaurant, my elderly neighbor and his wife were told there would be a 45-minute wait for a table.
"Young man, we're both 90 years old," the husband said. "We may not have 45 minutes."
They were seated immediately

There's always a way.

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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