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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 Thursday, May 18, 2006: My son, Michael, blames me for yesterday's swoon on Wall Street. On Tuesday I wrote:

We're moving into the summer doldrums: Most years, the market goes sideways between now and October. Most years some of my friends start leaving the market around now. I suspect that some of the squirrelness of recent days has been a combination of leaving and profit taking. The issue remains -- what to do with the money in the meantime? Fortunately short-term interest rates are up. Short-term muni bond triple tax-free floaters are now paying the equivalent of 4.89% taxable -- which, as they say in Australia, is better than a slap in the belly with a cold fish. Call Seth Wernick on 202-857-5459 for floaters. He's good.

Everyone ascribed the shockwaves to April's 7.2% annual rate rise in retail prices. Yesterday's decline in the Dow -- 214 points -- was the biggest daily point drop in more than three years. Nasdaq is now at its low for the year.

It's hard to see a continuing serious rout in the stockmarket. Earnings are up. The economy is healthy. Interest rates are still handle-able. Most importantly, we're is awash in money. There's oodles of cash "on the sidelines" ready to pounce and grab the "bargains." The key is to wait for the rout to be over -- which I'm guessing won't be too long. But perhaps not till the fall.

The BIG question is where will the opportunities be? There is discussion that the recent mania for "exotic" (i.e. risky) investments -- gold, emerging markets, energy exploration, etc. -- might now be ebbing and we might start favoring dull, consistent earners like the old-line manufacturers, health care and transportation (which is actually up this year).

Meantime enjoy the great Spring weather. Don't get bummed out over the market. Michael and I went biking late last night along the Hudson River on the west side of Manhattan. It was hugely wonderful.

Remember cash is king in squirrelly markets.

The fever for exotic stocks:
Many of us have looked abroad to heavy exotica.

I squeezed this New York Times chart. You'll find the original here.

Today the Times has a piece called "The Fever for Exotic Stocks." It begins:

Simon Nocera runs a hedge fund that invests in emerging markets, and so, perhaps not surprisingly, prides himself on having a keen appetite for risk. But even he had to draw the line when his broker tried to get him into Zambian treasury bills.

"It was pure, baseless speculation," said Mr. Nocera, who has been investing in developing markets for more than 15 years. "If I am going to play the casinos, I would rather go to Las Vegas."

Mr. Nocera did not make the trade, but a number of his even more adventuresome peers did. Propelled by a boom in copper prices, Zambian government bonds, denominated in kwachas and yielding 25 percent for five-year paper, returned more than 40 percent this spring for those with a stomach strong enough for such a risky venture.

Four years into what has become the longest bull market in the brief, turbulent history of investing in emerging markets, investors from hedge funds to mutual funds to public and private pension funds have shown a willingness to take on increased levels of risk in developing markets. Benchmark stocks in the largest markets — like Brazil, Russia, India and China, collectively labeled B.R.I.C. — have experienced gravity-defying run-ups, prompting return-starved investors to look farther afield. Now in vogue are banks in the former Soviet republic of Georgia, airline companies in Kenya, oil refineries in the central Russian republic of Bashkortostan and start-up stockbrokers in India that go by the name of Indiabulls.

How short memories can be.

This week, a round of mini-devaluations in Turkey, South Africa and Indonesia was a reminder that emerging markets, despite their improving economies and stabilizing currencies, remain volatile and unpredictable. Seasoned investors note that while the Mexican devaluation of 1994, the Asian currency crisis in 1997 and Russia's default of its debt in 1998 were ultimately spawned by faulty policies in each country, the pandemic nature of these blow-ups was deepened by the panicked selling of unsophisticated investors.

Now, in the eyes of some, this combination of record capital inflows and indications that investors have once again have become indiscriminate in their buying, spells trouble.

For the New York Times' full piece, click here.

Be wary of playing Sony BMG CDs on your PC.
Some of them had spyware that put your PC at risk. You'll know if the CD is dangerous because it insists on putting software on your PC. You can't play its songs with your normal software. Sony put the damaging software on the CD (and then on your PC, if you agree) because it wanted to stop you from pirating its songs. In fact, the resulting furor in the computer industry caused Sony to drop the software -- but not until it had distributed several million CDs. For the amazing story of one company's amazing stupidity,
Click here.

Push them a little, it's good due diligence. Yesterday I wrote about three key concerns of your due diligence:

1. The management, especially the CEO. What's been his history?
2. What are they spending the money they're raising on? The business or themselves?
3. What's the total market cap of the company after raising all the money? And who'll own what percentage? In particular, how will your shares (should you invest) be watered down?

There's a fourth: Push them in some way. Make a ridiculous request. Raise questions of technical competence. Whatever you can think of. Gauge their response. Often it's immature -- they're hurt, they get annoyed. You're looking for an entrepreneur who can take weird stuff in stride, with a sense of humor. After all, that's what business life is all about.

The technology of timing
She was in the kitchen doing the soft-boiled eggs for breakfast.

He walked in.

She said, "You've got to make love to me NOW -- this very moment."

He thinks, 'This is my lucky day,' and gives it his all on the kitchen table.

He says afterwards, "What was that all about?"

She says, "The egg timer's broken."

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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