Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
Previous
Columns
8:30 AM Monday, March 13, 2006:
Suck it up. That's all you can when one of your
managers buy you stocks you wouldn't touch with a ten-foot pole. Private
Capital Management put too much of my money into newspaper stocks. At that
point they had two choices: sell the stocks at a loss or get aggressive and
sell the entire company. They tried for the latter. They bought me a bunch of
Knight Ridder for $71.13. This morning we'll hear how Knight Ridder
is being sold for $67.50 to another newspaper group called McClatchy.
That $67.50, while still at a loss, is a lot better than the $52
Knight Ridder hit back in November. In short, suck it up and hope they do better
elsewhere, now they're less distracted.
A
few BIG decisions determine the quality of your life: They
are:
1. Who you marry.
2. How long you stay together in a bad marriage.
3. If you have children in a bad marriage.
4. If you get a job or become an entrepreneur.
5. How long you take to undo your bad decisions, i.e. your mistakes.
In recent weeks, I've had lunch with several old, old friends and I've asked
"how it's gone." I've heard horrible stories of marriages broken after
35 years, of retirement nest eggs destroyed by divorce and outrageous lawyers'
fees.... Yet, in all cases, my friends knew the mess they were in from early
on -- but inertia, children and career obsession delayed the inevitable breakup,
making it more painful, emotionally and financially.
Cockroach stock: Nortel said
it uncovered more accounting mistakes and will restate financial results
going back at least three years. The company also posted a $2.21 billion loss
for the fourth quarter. I instance this not because I own Nortel, but because
there's a critical lesson here. When a company reports its first accounting
irregularity, you know it's a Cockroach Stock and time to get out
immediately -- if not sooner.
Another
cockroach stock: A little-known federal agency charged with protecting
patients in medical research has expressed ethical concerns about a study of
a Northfield Laboratories blood substitute being given to hundreds of
trauma patients without their consent.
GM
Cockroaches emerging again and again: General Motors Corp. is recalling
another group of its best-selling pickups to fix tailgate cables that may break
and cause injuries, bringing the number of U.S. vehicles recalled for the problem
to an incredible 4.47 million.
Cheap ways of calling overseas: The cheapest way to call overseas
is to use your VoIP line. Most calls to most places are free. But, if you must
pay, buy yourself a calling card from CallingCArdPlus.com.
Buy the minimum because the cards expire quickly. It's easy to buy more of them.
Google
Alerts are great for watching stocks: They're free.
Go here.
What
you can do to avoid the Avian Flu. No one knows how
bad it will be. But it's definitely coming.
+ Don't
touch blood, body fluids, secretions, excretions and other potentially contaminated
items
+ Wash with either plain or anti-microbial soap and water or use alcohol-based
products (gels, rinses or foams) that contain an emollient and do not need water.
+ Don't touch your eyes, nose, mouth, or exposed skin with contaminated hands.
+ Don't touch doorknobs and light switches.
+ Make sure building ventilation systems are well maintained to protect people
inside from airborne threats.
Stock up with
enough nonperishable and prepackaged food products to last four weeks.
Supplies should include bottled water, canned meats, fruits, vegetables, soups,
protein or fruit bars, dry cereal, granola and fruit bars, crackers, peanut
butter or nuts, canned juices, canned or jarred baby food and formula, and pet
food. Stockpile prescription drugs (keep them in your refrigerator) soap and
water or alcohol-based hand wash, anti-diarrheal medication and fluids with
electrolytes and vitamins.
Harry
Browne wrote a lot of bad financial books -- including How
You Can Profit from the Coming Devaluation. But he's now dead and
it's worth revisiting his 16 Golden Rules for Financial Safety, which
actually make sense:
Rule #1: Your
career provides your wealth. You most likely will make far more money from
your business or profession than from your investments. Only very rarely does
someone make a large fortune from investments. Your investments can make your
future more secure and your retirement more prosperous. But they can't take
you from rags to riches. So don't take risks with complicated schemes in the
hope of multiplying your capital quickly. Your investment plan should be aimed,
first and foremost, at preserving what you have -- preserving it from
investment loss, government intervention, or mismanagement.
Rule #2: Don't
assume you can replace your wealth. The fact that you earned what you have
doesn't mean that you could earn it again if you lost it. Markets and opportunities
change, technology changes, laws change. Conditions today may be considerably
different from what they were when you built the estate you have now.
Rule #3: Recognize
the difference between investing and speculating. When you invest, you accept
the return the markets are paying investors in general. When you speculate,
you attempt to beat that return to do better than other investors are
doing through astute timing, forecasting, or stock selection, and with
the implied belief that you're smarter than most other investors. There's nothing
wrong with speculating provided you do it with money you can afford to
lose. But the money that's precious to you shouldn't be risked on a bet that
you can outperform other investors.
Rule #4: No
one can predict the future. Events in the investment markets result from
the decisions of millions of different people. Investment advisors have no more
ability to predict the future actions of human beings than psychics and fortune-tellers
do. And so events never unfold as we were so sure they would.
Rule #5: No
one can move you in and out of investments consistently with precise and profitable
timing. You'll hear about many Wall Street wizards, but the investment advisor
with the perfect record up to now most likely will lose his touch the moment
you start acting on his advice.
Rule #6: No
trading system will work as well in the future as it did in the past. You'll
come across many trading systems or indicators that seem always to have signaled
correctly where your money should have been, but somehow the systems never come
through when your money is on the line.
Rule #7: Don't
use leverage. When someone goes completely broke, it's almost always because
he used borrowed money. In many cases, the individual was already quite rich,
but he wanted to pyramid his fortune with borrowed money. Using margin accounts
or mortgages (for other than your home) puts you at risk to lose more than your
original investment. If you handle all your investments on a cash basis, it's
virtually impossible to lose everythingno matter what might happen in
the world.
Rule #8: Don't
let anyone make your decisions. Many people lost their fortunes because
they gave someone (a financial advisor or attorney) the authority to make their
decisions and handle their money. The advisor may have taken too many chances,
been dishonest, or simply incompetent. But, most of all, no advisor can be expected
to treat your money with the same respect you do. You don't need a money manager.
Investing is complicated and difficult to understand only if you're trying to
beat the market. You can preserve what you have with only a minimum understanding
of investing. You can set up a worry-proof portfolio for yourself in one day
and then you need only one day a year to monitor it. Allowing the smartest
person in the world to make your decisions for you isn't nearly as safe as setting
up a safe portfolio for yourself. Above, all, never give anyone signature authority
over money that's precious to you. If you should put money into an account for
someone else to manage, it must be money you can afford to lose.
Rule #9: Don't
ever do anything you don't understand. Don't undertake any investment, speculation,
or investment program that you don't understand. If you do, you may later discover
risks you weren't aware of. Or your losses might turn out to be greater than
the amount you invested. It's better to leave your money in Treasury bills than
to take chances with investments you don't fully comprehend. It doesn't matter
that your brother-in-law, your best friend, or your favorite investment advisor
understands some money-making scheme. It isn't his money at risk. If you don't
understand it, don't do it.
Rule #10: Don't
depend on any one investment, institution, or person for your safety. Every
investment has its time in the sunand its moment of shame. Precious metals
ruled the roost in the 1970s while stocks and bonds were in disgrace. But then
gold and silver became the losers of the 1980s and 1990s, while stocks and bonds
multiplied their value. No one investment is good for all times. Even Treasury
bills can lose real value during times of inflation. And you can't rely on any
single institution to protect your wealth for you. Old-line banks have failed
and pension funds have folded. The company you think will keep your wealth safe
might not be there when you're ready to withdraw your life savings. We live
in an uncertain world, and surprises are the norm. You shouldn't risk the chance
that a single surprise will wipe out a large part of your holdings.
Rule #11: Create
a bulletproof portfolio for protection. For the money you need to take care
of you for the rest of your life, set up a simple, balanced, diversified portfolio.
I call this a "Permanent Portfolio" because once you set it
up, you never need to rearrange the investment mix even if your outlook
for the future changes. The portfolio should assure that your wealth will survive
any event including an event that would be devastating to any individual
element within the portfolio. In other words, this portfolio should protect
you no matter what the future brings. It isn't difficult or complicated to have
such a portfolio this safe. You can achieve a great deal of diversification
with a surprisingly simple portfolio.
Rule #12: Speculate
only with money you can afford to lose. If you want to try to beat the market,
set up a second separate portfolio with which you can speculate
to your heart's content. But make sure this portfolio contains no more of your
wealth than you can afford to lose. I call this second pool of money a "Variable
Portfolio" because its investments will vary as your outlook for the
future changes. It might be all or part in stocks or gold or something else
whatever looks good at any time or just in cash. You can take
chances with the Variable Portfolio because you know that, whatever happens,
no loss can be devastating. You can lose only the money you've already decided
isn't precious to you.
Rule #13: Keep
some assets outside the country in which you live. Don't allow everything
you own to be where your government can touch it. By having something outside
the reach of your government, you'll be less vulnerable and you'll feel
less vulnerable. You'll no longer have to worry so much about what the government
will do next. For example, maintaining a foreign bank account is quite simple;
it's little different from having a mail or Internet account with an American
bank or broker.
Rule #14: Beware
of tax-avoidance schemes. Tax rates are still low enough in the US that
you might gain very little from the risk and effort of constructing elaborate
tax shelters. And a great deal of money has been lost by people who hoped to
beat the tax system. The losses came from investments that provided special
tax advantages but didn't make economic sense, and from tax shelters that were
disallowed by the IRS incurring penalties and interest on top of the
liabilities. There are a number of simple ways available to minimize taxesthrough
such things as IRAs and 401(k) plans. These plans are effective but non-controversial.
They won't come back to haunt you.
Rule #15: Enjoy
yourself with a budget for pleasure. Your wealth is of no value if you can't
enjoy it. But it's easy to spend too much while the money's flowing in. To enjoy
your wealth, establish a budget of money that you can spend yearly without concern.
If you stay within that amount, you can feel free to blow the money on cars,
trips, anything you want knowing that you aren't blowing your future.
Rule #16: Whenever
you're in doubt about a course of action, it is always better to err on the
side of safety. If you pass up an opportunity to increase your fortune,
another one will be along soon enough. But if you lose your life savings just
once, you might never get a chance to replace it.
The rules of safe
investing are little different from the rules of life: recognize that you live
in an uncertain world, don't expect the impossible, and don't trust strangers.
If you apply to your investments the same realistic attitude that produced your
present wealth, you needn't fear that you'll ever go broke.
Don't
waste your time seeing MatchPoint, the movie:

It is both tasteless and offensive. A poor man inveigles his way into a rich
family, marries the boss's daughter, secures good job from daddy, has an affair
he shouldn't have, kills his lover who gets pregnant and ultimately gets away
with the crime -- but ends up as a very unhappy, though rich, camper. P.S. The
star is a good actor, but a lousy tennis player -- though he's meant to have
been a pro. Hence the name of the move -- Match Point.
The
Pacific Life Open / Indian Wells Tennis Tournament continues.
ESPN2
|
|
Date
|
Start
Time (PST)
|
|
|
|
|
|
Mon,
March 13
|
11:00am
|
Live
|
Early
Round Coverage
|
|
Mon,
March 13
|
7:00pm
|
Live
|
Early
Round Coverage
|
|
Tue,
March 14
|
1:00pm
|
Live
|
Early
Round Coverage
|
|
Tue,
March 14
|
8:30pm
|
Live
|
Early
Round Coverage
|
|
Wed,
March 15
|
11:00am
|
Live
|
Women's
Quarterfinal
Men's 4th Round
|
|
Wed,
March 15
|
9:00pm
|
Live
|
Women's
Quarterfinal
Men's 4th Round
|
|
Thu,
March 16
|
11:00am
|
Live
|
Women's
Quarterfinal
Men's Quarterfinal
|
|
Thu,
March 16
|
7:00pm
|
Live
|
Women's
Quarterfinal
Men's Quarterfinal
|
|
Fri,
March 17
|
11:00am
|
Live
|
Women's
Semifinals
Men's Quarterfinal
|
|
Fri,
March 17
|
7:00pm
|
Live
|
Men's
Quarterfinal
|
|
Sat,
March 18
|
2:30pm
|
Live
|
Women's
Final
|
|
Sun,
March 19
|
11:30pm
|
Delay
|
Men's Semifinal
|
|
Sun,
March 19
|
11:00am
|
Live
|
Men's
Final
|
|
Fine dining
A man and woman were having dinner in a fine restaurant. Their waitress,
taking another order at a table a few steps away, suddenly noticed that the man
was slowly sliding down his chair and under the table, but the woman acted unconcerned.
The waitress watched
as the man slid all the way down his chair and out of sight under the table.
Still, the woman dining across from him appeared calm and unruffled, apparently
unaware that her dining companion had disappeared.
After the waitress
finished taking the order, she came over to the table and said to the woman,
"Pardon me, ma'am, but I think your husband just slid under the table."
The woman calmly
looked up at her and said, "No, he didn't. He just walked in the door."

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.
Go back.
|