Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
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
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).
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.
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
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
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.
The ease of finding information on all types of mutual funds, including Vanguard
funds and ETFs.
The tailoring of news and indices to my preferences in My Online Journal.
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
6. The more you
surf the Journal site, the more you find that you like. The Journal even has
fund screener. It is weak on company screeners but Yahoo
Finance has one.
Dont 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 thats 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 todays rich didnt do that well in school. In fact, many of
them didnt go to college or if they did, they quickly dropped
out. Granted, that doesnt mean they werent smart. It just means
they wouldnt be considered good students.
But what about
IQ? Arent todays rich more likely to have higher IQs than the
At least not according to a new study by Jay Zagorsky, a research scientist
at the Ohio State Universitys Center for Human Resource Research, which
found that the wealthy arent more likely to have higher IQs than the
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.
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 dont 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).
have found a tight link between peoples intelligence and incomes: i.e.,
smarter people are more likely to have higher incomes. In Mr. Zagorskys
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. Zagorskys
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 doesnt mean they are better at managing their
a surprise to me that highly intelligent people dont have a superior
ability when it comes to generating wealth, he says.
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.
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
a new Apple MacBook recently? You
may have battery issues.
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
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 .
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