Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Friday, June 13, 2008: Yes,
it's Friday, the thirteenth. Don't do anything stupid. I know you won't. You're
not Lehman Brothers, which continues to do stupid. Try this latest escapade:
For months Lehman's lady CFO (chief financial officer) has gone public with
outrageous (and very optimistic) lies fed her by the CEO. When the lies finally
no longer worked (see stock price chart), the CEO fired her, and for good measure,
the company's COO (chief operating officer). The board, of course, should have
fired CEO. Isn't he where the buck stops?
Wall Street Journal writes,
The good news
about Lehman Brothers Holdings Inc. is that it's no Bear Stearns. The firm
won't disappear overnight. The bad news is its survival will still be pretty
painful for shareholders. ...
dilution that has resulted from raising new capital will mute returns for
years to come. At the same time, Lehman is cutting back on the use of borrowed
money, which will act as a further drag on profitability. That makes it tough
to see how Lehman can hope to achieve anytime soon the midteen returns on
equity that Ms. Callan (the ex-CFO) pledged earlier this year.
There also is
the continued threat that Lehman's capital won't prove sufficient in the face
of losses that could still hit its books. (I called Lehman Brothers the
classic cockroach stock. The Journal is more polite.-- Harry Newton)
When it releases second-quarter results Monday (that's next Monday),
Lehman is expected to report, for example, that it still has about $30 billion
in residential-mortgage assets and about $35 billion in commercial-real-estate
leave it vulnerable to the vagaries of the real-estate market and to further
write-downs. So any earnings power the firm musters might simply offset losses.
A strong board
of directors could have helped steer Lehman Brothers away from the worst of
the credit storm that has crushed the firm's stock and led some (like many)
to question its survival.
board lacks members with recent, hands-on experience in markets, risk management
and accounting. And shareholders now have to ask whether the board will hold
Lehman Chief Executive Richard Fuld accountable for management's mistakes.
age of Lehman's 11 board members is close to 67 years -- and the average tenure
of its outside board members is nearly 10 years. Age can add wisdom, but what
Lehman might have benefited from was directors acquainted with the massive
changes on Wall Street over the past 20 years.
(I hate the
above paragraph. I just had a birthday. I'm now 66. The Journal is saying
I'm now stupid. Not funny. -- Harry Newton)
One of Lehman's
biggest mistakes: buying large amounts of commercial and residential mortgages
well after the credit crunch began, suggesting senior executives didn't
appreciate its severity. ...
the board has to grapple with now is what to do with CEO Mr. Fuld, who contributed
to his firm's struggles by allowing poor decisions to get made.
This board has
shown no indication that it will hold him responsible, however.
My Lehman shorts
continue to blossom.
stockmarket is not for longs. It's for shorts. I curse myself. The
moment I read that Yahoo had a irksome severance plan, I knew I should have
sold the company short. But I played tennis and forgot. The severance plan calls
for payments to employees who are terminated or leave after a change of change
of control -- like when Microsoft might buy it. Carl Icahn estimates the plan
might cost $2.4 billion. Which is a hell of a lot of money for executives of
a floundering Internet company. Its 2007 earnings were 37% less than its 2005
numbers, and 26% less than its 2006 numbers.
Icahn called the
plan reprehensible. He's right. Management has set the company up for its interests,
squarely against the interests of its shareholders. Last night Yahoo
closed at $23.52. Microsoft had offered to buy it at over $30.
To further ensure
Microsoft won't buy it, Yahoo has now done a deal with Google to supply Yahoo
with some search advertising, in competition with Yahoo's own miserable search
advertising. The deal stinks for Yahoo, is lovely for Google and will undoubtedly
be kiboshed by the Department of Justice on anti-trust grounds. By then Microsoft
and Carl Icahn will have, hopefully, gone away. Meantime Yahoo's shares will
slide and slide. Heh, maybe it's not too late to short Yahoo!
wary of online brokers: . They purport to be
cheap. They quote $10 (or so) a trade. But that's for 1,000 shares. Buy more
(irrespective of the price) and you get zapped big time. Fidelity actually caps
their brokerage at 5% of the value of your trade -- which is huge. The lesson
here is don't trade penny stocks through online brokers, like Fidelity.
A nice man at Fidelity called Gary Wilde gave
me a one-time dispensation yesterday when I sold 200,000 Goldspring at two and
a half cents a piece. But it took excessive begging. Reminded me of the old
definition for Jewish foreplay -- 20 minutes of begging.
oil at $130, new options become economical. Like
geothermal. I figure we're now looking at a five-year payback.
a stupid name. It's not Yellowstone and hot bubbly springs. It's basically a
heat exchange system. The ground under your house stays at a nearly constant
temperature of 50°F to 70°F through the year (depending on where you
live). Stick down some pipes. Circulate water. You drag up warm water in winter,
and cool water in summer. You have a gadget in your house which exchanges energy
between your home and the earth as you need it for heating or cooling. Figure
you save 50% of your energy bills. Much of what you don't save will be used
by the unit (it runs on electricity) to run the pump to circulate the water,
the heat exchanger and moving hot or cold air around your house.
If you're building
a new house, you must check Geothermal out. Start with ClimateMaster's
web site. If you're in the Northeast, call Martin Orio on 603-378-9122.
He's one of ClimateMaster's distributors and very knowledgeable.
hybrids make sense? From today's Wall Street
Journal. If you drive more, your years to break even drop.
can read The
Wall Street Journal's piece.
new view on global warming. Are you listening,
Al Gore? From a reader:
my car outside a certain London valet parking establishment one day last week,
I overhead a glossy lady, laden with expensive and large shopping bags, utter
a technical view on her giant and Panzer-like 4x4 as it was brought to her.
"I don't know what all the fuss is about," she said to her equally
chic shopping companion. "If it's so bad for the environment, why does
it have climate control?"
Drunkard's Walk. Or another view at randomness. There are two types
of investments (according to my thinking) -- those you control and those you
don't. For those you don't, diversification makes sense. For those you control
(like owning your own business), making a big bet makes big sense. There have
been a gazillion books on randomness. The most recent one is this:
of The New York Times wrote a review of the book. In it, he wrote:
In all these
cases, people err by assuming a situation is more random and unconstrained
than it really is. More often we make the opposite mistake: overestimating
the amount of control we have over life. Mlodinow tells the story of a Paramount
executive, Sherry Lansing, who presided over the companys motion picture
group during a string of blockbusters: Forrest Gump, Braveheart
and Titanic. She was hailed in the Hollywood press as a genius,
until she suddenly lost her touch. After a series of box-office disasters,
she was replaced. The studio appeared to be justified in its decision when
it went on to have its best summer in a decade.
But not so fast,
Mlodinow cautions. More recent winners, War of the Worlds and
The Longest Yard, were in production when Lansing was still in
charge. Like so many things in life, the success or failure of a movie is
heavily influenced by factors beyond anyones control. Fortunate events
like a string of hit movies are most likely to be followed by more ordinary
events. Lansing, Mlodinow writes, was a victim of what statisticians call
regression toward the mean.
Anyone who has
ever bought a mutual fund because it has been on a roll or bet that a racehorse
will extend its winning streak has fallen into the same confusion. Chances
are the champion will regress toward the mean and another will have its glory
day. In all lifes games, some players are better than others, but randomness
maintains the upper hand.
fine art of entrepreneurship. This is what
happens when your business model relies on your web site selling advertising.
No one believes you. And no one gives you money.
networking is the rage on the Internet. Post your hobbies, your interests
and your photo and bingo, you'll have instant friends, instant love and zillions
of dates. Image editing programs like Photoshop are the tools of choice. Here
are "after" and "before" shots. Marvel at the creativity.
Once upon a time there lived a beautiful Queen with beautiful breasts.
Nick the Dragon Slayer obsessed over the Queen's breasts. He knew that the penalty
for his desire would be death should he touch them. One day he told his secret
desire to his colleague, Horatio the Physician, the King's chief doctor. Horatio
said he could arrange for Nick to satisfy his desire, but it would cost him
1000 gold coins. Without pause Nick agreed..
Horatio made a
batch of itching powder and poured a little into the Queen's bra while she bathed.
Soon after she dressed, the itching commenced and grew intense. Upon being summoned
to the Royal Chambers, Horatio informed the King and Queen that only a special
saliva, if applied for four hours, would cure this type of itch, and that tests
had shown that only the saliva of Nick the Dragon Slayer would work as the antidote
to cure the itch.
The King, eager
to help his Queen, quickly summoned Nick to their chambers. Horatio then slipped
Nick the antidote for the itching powder, which he put into his mouth. For the
next four hours, Nick worked passionately on the Queen's magnificent breasts.
And the Queen's itching was eventually relieved, Nick left satisfied, hailed
as a hero.
to his chamber, Nick found Horatio demanding his payment of 1,000 gold coins.
With his obsession now satisfied, Nick couldn't have cared less. He knew Horatio
could never report this matter to the King. With a haughty laugh, he Horatio
to get lost.
The next day,
Horatio slipped a massive dose of the same itching powder into the King's underwear.
The King immediately summoned Nick.
The moral of this
charming story: Pay your bills.
for the weekend.
+ The journey of a thousand miles begins with a broken fan belt and a leaky
+ It's always
darkest before the dawn. So if you're going to steal your neighbor's newspaper,
that's the time to do it.
+ Always remember
you're unique. Just like everyone else.
+ If at first
you don't succeed, skydiving is not for you.
+ Give a man a
fish and he will eat for a day. Teach him how to fish, and he will sit in a
boat and drink beer all day.
+ If you lend
someone $20 and never see that person again, it was probably worth it.
+ Everyone seems
normal until you get to know them.
+ There are two
theories to arguing with women. Neither works.
+ Never take a
sleeping pill and a laxative on the same night.
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 on this site. Thus I cannot endorse, though some look interesting.
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you do. That money, if there is any, may help pay Michael's business school
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here and here.