Technology Investor 

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

Previous Columns
9:00 AM EST, Friday, March 6, 2009. My tennis opponent yesterday told me he still has all his money invested in the stockmarket and all managed by Fisher Investments. Last year he lost 40%. He wanted, he told me, to go to cash when he was down 10%, but his Fisher "investment adviser" told him to hang in.

Did my friend not understand that his adviser got a fee if he was invested, but not if he was in cash and out of Fisher? Yes, he understood that, but the Fisher man was "so persuasive."

There are still people in stocks. There are still people (investors and money managers) whose only investment philosophy is to pray for a bottom and a turnaround.

Mark my lips: There is no early bottom and no early turnaround. There are a handful of managers who have been able to handle the downdraft. But their results are in line with sitting in cash, i.e. they've been flat. Most money managers (of hedge and mutual funds, etc. ) live in the fantasy world that they're better than Mr. Market. Berkshire Hathaway (that's Warren Buffett) is down 51% since its September, 2008 peak. I figure if Berkshire can't hack it, us mere mortals have little shot.

All this reinforces my inviolate 15% Stop Loss rule. When you're down 15% from the most recent peak, sell. Don't even think about praying, just sell.

Cash remains king. If you're inclined to "invest" 2% of your money, then short the obvious stocks -- such as tech stocks, like Research in Motion, Best Buy and Google -- and financials, like Wells Fargo, Deutsche Bank and JPMorgan Chase. I believe you should also have some money in gold. The best way to play that is GLD, the ETF. Its chart suggests that now is a good entry point.

Where do we stand? Floyd Norris is the New York Times chief financial reporter. Yesterday he published this piece:

Plunging Markets, Then and Now
The stock market tanked again today, and for 2009 has lost nearly a quarter of its value. And it is only early March.

To put that in perspective, assume that the market ends 2009 at today’s prices. This would be the list of the worst years since 1900 for the Dow industrials:

1. 1931, down 53%
2. 1907, down 38%
3. 2008, down 34%
4. 1930, down 34%
5. 1920, down 33%
6. 1937, down 33%
7. 1974, down 28%
8. 2009, down 25%
9. 1903, down 24%
10. 1932, down 23%

You will note that we have not had consecutive really bad years since 1930, 1931 and 1932.

Here are the rankings for worst two-year periods, again assuming 2009 ends at today’s prices:

1. 1930-31, down 69%
2. 1931-32, down 64%
3. 2008-09, down 50%
4. 1929-30, down 45%
5. 1973-74, down 40%
6. 1906-07, down 39%
7. 2007-08, down 30%
8. 1940-41, down 26%
9. 1916-17, down 22%
10. 1920-21, down 25%

That may mean that the market really is discounting a financial disaster.

Here’s another indication that investors feel more or less the way they did during the last disaster:

It has been 513 calendar days since the stock market peaked on Oct. 9, 2007. Since then, the S.&P. 500 is down 56 percent and the Dow is off 53 percent.

On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.

You will note, however, that the economic news now is not nearly as bad as it was in 1931. Could there be a tad bit of overreaction this time?

Finally, the good folks at would like to let you know that the weather is also reminiscent of the bad old days:

Dust Bowl II?
The weather pattern has some similarities to that of the 1930’s and given the state of the economy these days make it quite sobering. While modern farming practices and technological advances should prevent a 1930’s style dust bowl over the southern Plains, indeed some hardship lies ahead unless the current pattern breaks. The spring planting season begins this month in the region and crops need moisture to sprout and grow.

My son turned me onto Doug Short is a retired computer genius, who's obsessed with numbers and charts. Here are four charts from his site. The Dow is now at the record high of 1966.

Short writes "the current bear market, now nearly 17 months old, has set yet another new low. It continues to dominate our saga of the Four Bad Bears. In nominal terms, the decline in the S&P 500 matches the Dow Crash of 1929 over the equivalent time frame. In real (inflation adjusted) terms, it has surpassed the Dow decline."

You can see each of the bear markets in excruciating detail by clicking on this chart and then clicking on the individual bear markets.

Short writes on the next chart, "About the only certainty in the stock market is that, over the long haul, overperformance turns into underperformance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis to the question. Here's a chart of the S&P Composite stretching back to 1871. The chart shows real (inflation-adjusted) monthly averages incorporating data collected by Yale economist Robert Shiller. We're using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range. The regression trendline drawn through the data clarifies the secular pattern of variance from the trend — those multi-year periods when the market trades above and below trend.:

Is Obama a socialist? A pragmatist? An optimist? Or simply a man with lot resting on his shoulders and no easy answers? I suspect that idealism plays little role in the overarching urgent goal of getting this miserable economy back on some sort of track. Economics is called the dismal science because it's not a science. You can't do control experiments. You can can't feed California a bail out pill and feed New York a placebo, and see what happens. Everyone in Washington is flying blind. And they know it. Their hope is that something they do will stick, because if it doesn't, we'll be in a pickle for a long, long time.

Why nobody uses DSL broadband Internet service: It's just too slow. When we first moved in, the house had DSL service from Verizon. I ordered Time Warner cable modem service. Here are the results.

La Quinta, Coachella Valley, CA
Verizon DSL Service
745 Kbps
132 Kbps
Time Warner Cable Modem
24,487 Kbps
986 Kbps

To test your own speed, go to Speakeasy.

Cable speed is not all. Several things determine how fast you'll see stuff on the Internet:

1. The speed of your preferred site. Jon Stewart of Comedy Central's The Daily Show did a brilliant piece on just how awful CNBC can be. Go here: CNBC Gives Financial Advice. The piece is so popular it's overwhelming Comedy Central's computer servers and sometimes they hang. However, you must watch it -- even if you have to go back to the site at different times.

2. The speed of your computer. The more powerful your computer and its graphics chips, the faster it can assemble the onrush of bits into text, graphics and video.

3. The speed of your browser software. Allegedly Apple's new Safari browser is really fast, but cumbersome. I prefer Firefox 3.0. Susan likes Internet Explorer.

The Gotcha in Short Sales: Yesterday I wrote about being taxed on short sales. It's more complicated. It's called "cancellation of debt." This is what the IRS says:

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the canceled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

However in 2007, Congress passed The Mortgage Forgiveness Debt Relief Act. It said that cancellation of debt income was not taxable on qualified principal residence indebtedness. For more, go to the IRS's document.

All of Circuit City's stores will close for good by Sunday. Once Circuit City was the nation's second-largest consumer electronics retailer. Now it's gone. It is liquidating its remaining 567 U.S. stores and laying off 34,000 employees. That's a lot of families.

This is my new friend taking fixtures away. He paid $100 to fill his garage with very sturdy shelving.

Paradise in the Coachella Valley, CA. This is where we're staying for March. Start with the Number One exhibit, the thermometer. I took these photos yesterday afternoon.

This is the view from our backyard looking one way.

Then looking the other way.

Look closely and you can see La Quinta mountain golf course. It costs a lot more to play golf than tennis. There are rattlesnakes out there. They're friendly, so long as you keep your golf balls on the green part.

This place employs a veritable army of masked workers. This man came to blow away the leaves. I didn't see any before he came. And I didn't see any after he left. But he sure made a lot of noise.

This man came to spray for bugs. I haven't seen a bug yet. The stuff he had was positively lethal. We declined his services.

I took all the pictures with my new Canon G10. I underexposed most pictures by a stop or two to enrich the color.

Wonderful headlines that are not mistakes. Readers bemoan today's lack of proofreading. They send me newspaper headlines. What readers don't understand is this stuff is deliberate. Editors enjoy writing great, bad headlines. I know I wrote them once, also. Enjoy:

Man Kills Self Before Shooting Wife and Daughter (the man had a new skill).

Something Went Wrong in Jet Crash, Expert Says (You really think so?)

Police Begin Campaign to Run Down Jaywalkers (These jaywalkers do get in the way).

Panda Mating Fails; Veterinarian Takes Over (What a guy).

War Dims Hope for Peace (You think so?).

If Strike Isn't Settled Quickly, It May Last Awhile

New Study of Obesity Looks for Larger Test Group (They weren't fat enough?).

Kids Make Nutritious Snacks (Do they taste like chicken?)

Typhoon Rips Through Cemetery; Hundreds Dead (I could see that happening). I used to ask my children, "How many people are dead in the cemetry over there?" The answer, they figured early on, was "All of them." I have bright kids. Now, only if they would make me some bright grandkids.

This weekend. Don't read the financial section. Go online and find yourself and the spouse a cheap four-day cruise. Hug the kids. Play some tennis or golf. The economy will get better. It always has.

Home prices out here in the Coachella Valley are down 50%. Most places sell for less than it costs to build them.

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. 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 Michael's business school tuition. Read more about Google AdSense, click here and here.