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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 Friday, June 9, 2006: I don't profess to understand why things have been so awful for equity markets in general and emerging markets in particular. I can show you pictures. First, you'll see that all the nice gains since early February have been wiped out.

The biggest disaster has been emerging markets. The Journal carries this quote this morning, "Last night was the broadest selloff I've seen since the 1998 meltdown," said Mark Headley, co-manager of Matthews Pacific Tiger Fund, referring to the Asian and Russian financial crises in the late 1990s.

Headley continued with this idiocy ""Painful, yes, but much-needed." He clearly also has zero idea what's happening or why or what to do about it. But he had to say something quotable to the Journal's reporter. His fund fell 12.7% in the past month but has averaged a 17%-a-year gain over the past five years. Which is fine.

The best (and only) good news is yesterday's markets. They opened up a little, then got weak, fell through the floor. At noon something magical happened. Buyers came in to scoop up the "bargains" or the sellers said "screw selling" or whatever and the markets bounced back -- marking their first day since last Thursday when stocks didn't decline. Though it had been off nearly 200 points by noon, by the end of the day the Dow was up 7.92 points. Here's how it looked yesterday.

Nasdaq, the S&P, the Russell 2000 all showed the same intra-day pattern.

There was some discussion among financial wizards that the markets had reached bottom yesterday at noon. That was wishful thinking, not science.

So, what do we know?
1. Markets are volatile. They go up and down.
2. No one knows why.
3. Ultimately, if earnings go up, markets go up.
4. Right now earnings are strong. I don't think they'll be as strong in six months, since inflation (especially energy) will take its toll.
5. Diversification in your portfolio is the key way to cope with volatility, i.e. what we've enjoyed since early May.
6. If you're comfortable with your diversification, stay the course.
7. If you're not comfortable with some aspect -- a manager change, a manager obsessing with idiocy (e.g. media stocks) -- than re-balance. Get out. Get into something else -- including cash and bonds.

For the first time since I started buying them in July last year, my Vanguard funds are losing money. At one stage I was "making" nearly $100,00 on them. Now look at them:

Newton's Vanguard Funds
June 9, 2006
International Value Fund (VTRIX)
Total International Stock Index (VGTSX)
Emerging Markets Stock Index (VEIEX)
Pacific Stock Index Admirals Shares (VPADX)
Mid-Cap Index Fund Admirals Shares (VIMAX)

Is it time to get back in? I have no clue. And neither does anyone else. To me, timing is a no-win game. Individual opportunities are key. If you see something unbelievably tempting, go for it. Keep your allocation/diversification broad. But make sure you feel comfortable about each and every investment -- and that nothing has changed fundamentally. (For now, I won't change Vanguard.) Here's my allocation from May 26:

Private Equity Funds
Leveraged Buyout Fund
Publicly traded Equities*
Mutual Funds
Muni Bonds
Closed end muni bond funds
Cash and floaters
Real estate syndications at cost
Distress Real Estate Fund**
Real estate loans
Private Equity Investments
Private real estate
* Includes money managers and hedge funds.
** No monies called yet.

As I wrote then, What makes me sleep well:
1. A broad diversification of investments.
2. Sufficient bonds whose interest will pay our family's lifestyle -- if everything else collapses.
3. Saying NO more often.

Interestingly while the markets have crashed in recent weeks, several of my real estate ventures have cashed out (i.e. sold), with huge IRRs -- over 22% to 50%.

And I think to myself... Isn't this the way it's meant to be? When one area crashes, other areas are meant to take up the slack. And if you're lucky, you'll come out ahead. I'm happy to report that, so far, my total portfolio is up this year. Not much, but up. And as they say in Australia, that's better than a slap in the belly with a cold fish.

Fiddling while Rome burns. I played 2 1/2 hours of great tennis yesterday. And last night I saw The History Boys, a fantastic play on Broadway. You must go.

The history boy students

P.S. Qwest actually rose 9 cents yesterday. I keep dipping in and buying a little more. I'm grateful for small mercies.

Tomorrow is my 64th birthday. I'm alive, healthy and my family still loves me (I think.) I don't owe anyone a penny. And I paid this month's maintance. What more could I ask for?

The French Open Tennis is continuing. The finals are this weekend -- women on Saturday and men on Sunday.

French Open Tennis
Time (EST)
Friday, June 9
1:00 AM to 4:30 AM
6:00 PM to 8:00 PM
Saturday, June 10
1:00 AM to 4:30 AM
9:00 AM to 12:00 PM
Sunday, June 11
9:00 AM to 2:00 PM
For more, click here or here.

And God created Earth:
"God was missing for six days. Eventually, Michael, the Archangel, found him, resting on the seventh day. He inquired of God, "Where have you been?"

God sighed a deep sigh of satisfaction, and proudly pointed downward through the clouds. "Look, Michael. Look what I've made."

Archangel Michael looked puzzled, and said, "What is it?

"It's a planet," replied God, "and I've put Life on it. I'm going to call it Earth and it's going to be a great place of balance."

"Balance?" inquired Michael, still confused.

God explained, pointing to different parts of earth. "For example, western Europe will be a place of great opportunity and wealth, while eastern Europe is going to be poor. Over there I've placed a continent of white people, and over there is a continent of black people. Balance in all things,"

God continued pointing to different countries. "This one will be extremely hot, while this one will be very cold and covered in ice."

The Archangel, impressed by God's work, then pointed to a land area and said, "What's that one?"

"Ah," said God, "That's Washington State, the most glorious place on earth. There are beautiful mountains, rivers and streams, lakes, forests, hills, plains, and coulees. The people from Washington State are going to be handsome, modest, intelligent, and humorous, and they are going to be
found traveling the world. They will be extremely sociable,
hardworking, high achieving, and will be known throughout the world as diplomats and carriers of peace."

Michael gasped in wonder and admiration, but then proclaimed, "What about balance, God? You said there would be balance."

God smiled, "There is another Washington..wait until you see who I put there."

Lawyers are wonderful. Soon my daughter will be one.
In a murder trial, the defense attorney was cross-examining the coroner:

Attorney: Before you signed the death certificate, had you taken the pulse?

Coroner: No.

Attorney: Did you listen to the heart?

Coroner: No.

Attorney: Did you check for breathing?

Coroner: No.

Attorney: So, when you signed the death certificate, you
weren't sure the man was dead, were you?

Coroner: Well, let me put it this way: The man's brain was sitting in a jar on my desk. But I guess it's possible he could be out there practicing law somewhere.

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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