Technology Investor 

Harry Newton's In Search of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

Previous Columns
8:30 AM Friday, March 17, 2006 -- St Patrick's Day: Private Capital Management, an erstwhile successful money manager, lost me 0.48% last year. This year they're flat. Should I fire them completely, reduce my holdings with them, or stick with them? That's what I've been wrestling with in the past several days.

Private Capital has been in the news because they made a huge (and ultra-bad) bet on the newspaper industry. Eventually they got active (or desperate?) and organized the sale of Knight Ridder to a McClatchy, thus saving some face and a little (not all) their clients' money.

Back to my question: What do I do with them? The overwhelming temptation is to stay with them. Their track record has been good long-term -- though erratic short-term. They come roaring back from a bad year.

Private Capital's Ten-year Performance

This averages out well. Their ten-year annualized performance through December 31, 2005 was 20.3% net of fees -- after paying fees. This 20.3% compares supremely well with the S&P's approximate 9.5% annual return over the same period.

How does one manage money managers? I've spent two days on the phone asking everyone and their uncle. There are various theories:

1. The ultra-forgiving. They've done well. Leave well enough alone.
2. The big manager/little manager theory. Managers with oodles of money do worse than those with less. My experience bears this out. Take three of my managers. One has $10 million. One has $30 million. PCM has $30 billion. And that's the order they've been performing. The one with the least money does the best. And the one with the second least does second best. You can figure why: The smaller managers with less money play in smaller stocks. They're new. They have oodles of great ideas.
3. The Harry Newton Jump Ship theory. In the late 1990s/early 2000s, I was tolerant. I didn't jump ship fast enough. One manager lost me 50% before I woke up, figured he was an idiot and I bailed. That was the time I developed my 15% stop loss rule. Get out when you're down 15% from the peak. That rule saved me a bundle on Cisco, which I owned a big parcel of. I bailed at what turns out now to be nearly twice what Cisco is selling for today.
4. The Peace of Mind/The Perfect Logic theory. If it's keeping you up at night, get out. If you're worried about their logic of what they're investing in and why, after listening to their explanations, get out. This theory is precisely why I have recently built an inviolate portfolio of muni bonds. This portfolio is big enough to pay my current living expenses (though not capital living expenses -- like building a new house we don't need). It's inviolate because I've promised Todd, who put it together for me, that I'm not going to mess with it -- irrespective of where interest rates go, or more importantly, where I think they're going to go. (I tried that prediction in recent years and lost. Now I'm convinced I can't predict anything -- stock prices, interest rates, etc. That's the bad news. The good news is that no one else can, either.)

You want the really weird irony to all this? My Vanguard mutual funds are kicking ass, especially the International Value Fund and the Mid-Cap Index fund. Vanguard wasn't my idea. It was my son's idea, who spent 15 minutes scouring the Vanguard site. Why Vanguard? Because he's cheap. A chip off the old block and all that. Thank you Michael.

The second irony is that some of my own stock picks -- like InSite Vision, Novavax and Hana Biosciences -- have been doing phenomenally. Now, if only my tennis game were doing as well.

General Motors is my favorite Cockroach Stock: GM reported last night (after the market closed) that it was increasing its loss for 2005 by $2 billion (yes, you read correctly) to over $10 billion and will restate earnings from 2000 through the first quarter of 2005 due to "recently discovered" accounting errors. It will also delay releasing its 2005 annual report. At some stage, GM stock will plummet. GM is a classic Cockroach Stock.

Northfield (NFLD) is another of my Cockroach Stocks. Also on its way down.

I suspect the same for Google (GOOG).

Neat juggling: Turn up the volume. Click here.

The Pacific Life Open / Indian Wells Tennis Tournament continues. I wish I had Federer's backhand.


Start Time (PST)



Fri, March 17



Women's Semifinals
Men's Quarterfinal

Fri, March 17



Men's Quarterfinal

Sat, March 18



Women's Final

Sun, March 19



Men's Semifinal

Sun, March 19



Men's Final

In honor of St. Patrick's day.
Two men were sitting next to each other at a bar. After a while, one guy looks at the other and says, "I can't help but think, from listening to you, that you're from Ireland "

The other guy responds proudly, "Yes, that I am!"

The first guy says, "So am I! And where about from Ireland might you be?"

The other guy answers, "I'm from Dublin , I am."

The first guy responds, "Sure and begora, and so am I! And what street did you live on in Dublin?"

The other guy says, "A lovely little area it was, I lived on McCleary Street in the old central part of town"

The first guy says, "Faith & it's a small world, so did I! So did I! And may I ask, to what school would you have been going?"

The other guy answers, "Well now, I went to St. Mary's of course."

The first guy gets really excited and says, "And so did I. I thought you looked familiar. Tell me, what year did you graduate?"

The other guy answers, "Well, now, let's see, I graduated in 1964."

The first guy exclaims, "The Good Lord must be smiling down upon us! I can hardly believe our good luck at winding up in the same bar tonight. Can you believe it, I graduated from St. Mary's in 1964 me ownself."

About this time, Vicky walks into the bar, sits down, and orders a beer.

Brian, the bartender, walks over to Vicky, shaking his head & mutters, "It's going to be a l-o-n-g night tonight!!!!"

Vicky asks, "Why do you say that, Brian?"

"The Murphy twins are drunk again."

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.