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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 3: Markets rose again yesterday. We are moving into the traditional summer doldrums. Remember the quote from yesterday's column, "Sell in May and go away" (until October). That adage has worked most years. Please re-read yesterday's cautious advice:

1. Take some profits off the table, especially in stocks that have gone through the roof. Stock up on cash.

2. Sell short some stocks that look way overpriced. I'd say Dow Jones (DJ) is top of my list. I can't imagine the Bancroft family will ever sell it. I wouldn't.

3. Take some put options on key indexes like the DIA (Dow Industrials), QQQ (Nasdaq), and the SPY (S&P 500).

Return of capital: Two of my investments are returning some of my invested capital. I get cash. But it's tax-free, because it's not a dividend or a capital gain. The way it works: You buy into an investment. Over the years, it gets more profitable, more valuable. You borrowed money initially. But you can now borrow more because it's worth more. You borrow more. You use the borrowings to return capital to the investors. The downside is that you now have more interest to pay. If you play it right, your return on your money should rise, simply because you have less money invested.

The Wall Street Journal as mini-Bloomberg: Murdoch wants Dow Jones, he says, as much for the paper Wall Street Journal as for its on-line Internet site. The best finance site is clearly Bloomberg. Few of us can afford it. The second best site is probably the Wall Street Journal followed closely by Yahoo.Finance. Things I like about the Wall Street Journal's site:

1. The presentation of quick financial information on companies. Put in a symbol. You're into an overview page replete with stock price charts of various vintages. Hit "Quarterly Earnings." You get charts easy to eyeball financial progress. You can easily get to recent news and recent press releases on the company.

2. The ease of tracking your own portfolio. Every financial site lets you track your portfolio. The Journal is laid out logically (at least to my brain). It's easy to use. And it shows dividends -- how much and when they're paid.

3. The ease of finding information on all types of mutual funds, including Vanguard funds and ETFs.

4. The tailoring of news and indices to my preferences in My Online Journal.

5. The Markets Data Center has information on everything from currencies to commodities, from indexes to calendars, from past and future POs and their performance to even a really good Economic Indicators Archive.

6. The more you surf the Journal site, the more you find that you like. The Journal even has a mutual fund screener. It is weak on company screeners but Yahoo Finance has one.

You Don’t Have to Be Smart to Be Rich. Robert Frank of the Wall Street Journal on-line looks at this critical issue in his Wealth Report blog. His conclusions are re-assuring:

In an information economy, getting rich comes from being smart. Or at least that’s the conventional wisdom. Ideas are supposed to the new currency, with brainy billionaires such as Bill Gates, Warren Buffett and the Google guys are celebrated as the new IQ elite.

But do smarts really equate to wealth? And more importantly, are the wealthy really smarter than everyone else?

One of the most surprising discoveries for me in researching my book Richistan was that many of today’s rich didn’t do that well in school. In fact, many of them didn’t go to college — or if they did, they quickly dropped out. Granted, that doesn’t mean they weren’t smart. It just means they wouldn’t be considered good students.

But what about IQ? Aren’t today’s rich more likely to have higher IQs than the general population?

Apparently not. At least not according to a new study by Jay Zagorsky, a research scientist at the Ohio State University’s Center for Human Resource Research, which found that the wealthy aren’t more likely to have higher IQs than the general population.

Mr. Zagorsky studied data from 7,403 Americans who participated in the National Longitudinal Survey of Youth, a representative sample of Americans funded by the Bureau of Labor Statistics. Rather than participating in just a one-time survey, the people on the panel have been interviewed repeatedly since 1979 and the Zagorsky study is based on information through 2004.

In combing the data, Mr. Zagorsky found no meaningful correlation between large wealth and high IQ scores.

“Intelligence is not a factor for explaining wealth,” he said. “Those with low intelligence should not believe they are handicapped, and those with high intelligence should not believe they have an advantage.”

In a phone interview, Mr. Zagorsky joked that my definition of wealth and his definition were probably different. Indeed, his survey covers a broad base of people worth hundreds of thousands of dollars, but the sample size really thins out at the millionaire level. So it remains to be seen whether these results are sustained higher up on the wealth ladder.

Yet the most-fascinating part of the study is the disconnect between wealth and income as it relates to IQ. Wealth and income are fundamentally different measures: Someone can have a high income and low accumulated wealth (if they don’t save) or they can have a high net worth and low income (if their wealth is tied up in a business or illiquid assets, for instance).

Previous studies have found a tight link between people’s intelligence and incomes: i.e., smarter people are more likely to have higher incomes. In Mr. Zagorsky’s research, each point increase in IQ scores was associated with an additional $202 to $616 of income per year.

But the link breaks down with wealth.

Why? Mr. Zagorsky’s not sure. One reason, he says, may be that smart people are just as likely as others to make bad financial decisions with their money, like taking on too much debt or failing to save. So just because people have high incomes and high intelligence doesn’t mean they are better at managing their money.

“It was a surprise to me that highly intelligent people don’t have a superior ability when it comes to generating wealth,” he says.

Personally, I believe getting rich is a mindset. You form your own business. You treat your customers right. You run the thing with common sense. No one ever went broke treating their customers with kindess and respect, and returning their phone calls and answering their emails promptly. Readers have posted responses to Frank's blog: You don't have to be smart to be rich.

Don't believe everything you read: Remember I told you about Tom Wolfe's piece on the rich and famous hedge fund managers, published in the premier issue of Portfolio magazine? It's getting some criticism. Check out Daniel Gross' piece on Slate, "Bid Bad Wolfe."

Bought a new Apple MacBook recently? You may have battery issues.

The perils of honesty:
A mother took her five-year-old son with her to the bank on a busy lunchtime. They got behind a very fat woman wearing a business suit complete with pager. As they waited patiently, the little boy said loudly, 'Gee, she's fat!'

The mother bent down and whispered in the little boy's ear to be quiet.

A couple of minutes passed by and the little boy spread his hands as far as they would go and announced; 'I'll bet her butt is this wide!'

The fat woman turns around and glares at the little boy. The Mother gave him a good telling off, and told him to be quiet. After a brief lull, the large woman reached the front of the line. Just then her pager begin to emit a beep, beep, beep.

The little boy yells out, 'Run for your life, she's backing up.'

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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