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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 31: Amtrak's expensive, fast Acela train to Boston has the worst seats ever invented. My back is killing me. Two Advils will solve that. Rule number one: Take pillows when you travel. We went to Boston to look at properties. The idea was we'd buy a house; Michael would live in it for two years while at business school. He'd rent out rooms to fellow students. We'd use the rents to pay the mortgage. In two years we'd sell the place and pocket a 16% IRR return -- what our numbers showed for the investment.

The house was great, even bigger than we thought. But there were difficulties, chiefly involved with managing it. All those kids, collecting rents, handling maintenance... The location was great, but not perfect. We remembered that Michael was gong to Boston to learn to be an MBA, not learn to be a slumlord. In the end we opted for renting a nice apartment we found closer to his school. So much for being a landlord. It had worked when Michael went to Dartmouth as an undergraduate. We bought a two-bedroom apartment, rented out one bedroom and sold the thing at a handsome profit two years later. That investment was a "no-brainer." This one wasn't. These days I only like "no-brainer" investment, with as little fuzz as possible.

The good news was that my Verizon Broadband access worked flawlessly on the train.

It's an amazing feat of technology to be on a train whizzing along at 100 MPH and have emails flowing into your laptop. This is the best gadget ever invented for travel. If you travel a lot, you could happily skip paying for a DSL line or cable modem at your house and use Verizon's broadband access service when you're at home also. This way the $60/month service charge will seem more affordable. This service now works overseas using the new BlackBerry 8830 as a tethering device. More about that later.

More Pain at Goldman’s Flagship Hedge Fund: They don't all come in the same flavor. They aren't all "hedged." Their naming can be misleading. Some take big (i.e. excessive) risks. Even the biggest, the most prestigious and the most touted can screw up and do. The moral of this story: If you invest in a hedge you'd better find out what they "invest" in and how much money they borrow (preferably nothing in my view). If they talk about taking "bets" more than they talk about "value investing" it's time to run for the exit. Many hedge fund managers think they have a license to print money using your money as their stash. Many hedgies simply don't have the skills to make your more money than you could earn on a simple index fund. See "How Harry's Money Managers are performing in 2007."

You don't hear much about hedge funds (except the successful ones). So it's useful to read these two stories today. First, from The New York Times:

It often seems as if Goldman Sachs, the highly profitable securities firm, knows how to pluck money from thin air. But the firm is losing its touch with Global Alpha, its flagship hedge fund, which manages money for some of Goldman’s wealthiest clients and employees.

After putting in a weak performance in 2006, the investment pool has fallen 3.4 percent in the first four months of this year, hurt by losses in the currency markets, Bloomberg News said, citing a report sent to investors last week.

By contrast, the average hedge fund gained 4.9 percent in the same four-month span.

All told, Global Alpha, managed by Mark Carhart and Raymond Iwanowski, has dropped 12 percent since 2005, a blow-out year when it rose 40 percent after fees.

“Typically, an investor will accept one down year,'’ Gregory Dowling, vice president for alternative investments at Fund Evaluation Group, told Bloomberg. “After two years, investors may get concerned about the stability of the investment team and client base.”

Investment banks have been moving deeper into the hedge-fund business, which involves managing private pools of capital for wealthy and institutional investors. The returns can be highly volatile, however, and their operations are often opaque, making it hard for analysts to gauge the inherent risks. Because so much of a hedge-fund manager’s fees come in the form of a chunk of the fund’s profits, a losing year means leaving a lot of money on the table.

Goldman has many moving parts, and last year’s weak returns at Global Alpha did not stop it from reporting record earnings — and doling out big bonuses to its top employees. In addition, the fund has eight months to recoup the losses it has racked up so far in 2007.

Goldman slipped to the number two spot on Alpha magazine’s annual list of the biggest hedge funds, released this month. Still, the publication noted that Goldman’s hedge fund business is hardly shrinking. Alpha said that Goldman showed $11 billion more in assets than last year, but it slipped in the rankings in part because of the weaker performance of Global Alpha.

The story from Bloomberg:

Goldman's Global Alpha Hedge Fund Falls 3.4% in 2007, By Jenny Strasburg

May 30 (Bloomberg) -- Goldman Sachs Group Inc.'s largest hedge fund fell 3.4 percent in the first four months of this year, trailing peers because of losses on bonds and currencies, according to a report sent to investors last week.

The decline in the Global Alpha fund compares with the average hedge-fund advance of 4.9 percent, data compiled by Chicago-based Hedge Fund Research Inc. show. The fund has dropped 12 percent since 2005, when it rose 40 percent and attracted more than $3 billion of new cash.

The $10 billion fund, managed by Mark Carhart and Raymond Iwanowski, struggled in a 16-month stretch when the Standard & Poor's 500 Index climbed 22 percent. Global Alpha's decline has cut into fees that reached $700 million after the gains of 2005 and has made New York-based Goldman, the biggest U.S. securities firm by market value, vulnerable to client withdrawals.

``Typically, an investor will accept one down year,'' said Gregory Dowling, vice president for alternative investments at Cincinnati-based Fund Evaluation Group LLC. His firm isn't an investor in the Goldman fund. ``After two years, investors may get concerned about the stability of the investment team and client base.''

Goldman spokesman Peter Rose declined to comment about the fund's performance.

Carhart and Iwanowski, both 41, must recoup the losses to collect incentive fees on the cash that followed the 2005 rally. Their management fees, which equal 1.5 percent to 2 percent of assets, have been reduced by the fund's decline.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

Global Alpha, which started in 1995 with $10 million, advanced 0.4 percent last month on bets that global stocks and metals prices would increase, according to its latest investor letter. Hedge funds globally gained an average 2 percent in April, according to Hedge Fund Research.

The Goldman fund's profits were trimmed by wagers that currencies, including the Canadian dollar and Norwegian krone, would decline. The Canadian dollar gained 4 percent against the U.S. dollar in April, and the krone gained more than 2 percent.

Global Alpha's returns also were hurt by so-called market- neutral investments in fixed-income and equity markets, according to the latest monthly update. A market-neutral strategy attempts to generate consistent gains regardless of whether prices rise or fall.

The U.S. equity market-neutral strategy "detracted from performance as our earnings quality and valuation themes performed poorly,'' Global Alpha managers said in the letter.

The fund makes high-risk bets often based on computer- driven models, which can lead to swings in performance. One of its objectives is a low level of correlation, or degree of shared fluctuation, with the S&P 500. Goldman has marketed Global Alpha as having a target annual return of 20 percent, according to two investors who declined to be named because the fund is private.

Goldman uses the one-month U.S. dollar-based London interbank offered rate, or Libor, as a benchmark for Global Alpha, according to the investor update. In the 12 months ended March 31, the benchmark yielded 5.49 percent as Global Alpha declined 20 percent, according to the client report.

Goldman's hedge-fund assets, which are part of Goldman Sachs Asset Management, rose 48 percent to $32.5 billion in 2006, making it the second-largest U.S. hedge-fund manager after New York-based JPMorgan Chase & Co., according to a survey by Absolute Return magazine. JPMorgan managed $34 billion at the end of December.

More great talks from TED: TED is THE BEST technology conference of the year. Fortunately they video their talks. In previous columns, I've highlighted talks I loved. Here are three more they've just put up from TED2007.

+ John Doerr's impassioned talk on the business implications of the climate crisis.

+ Blaise Aguera y Arcas's short-but-astonishing demo of his Seadragon and Photosynth technologies -- seven minutes that generated huge buzz in Monterey.

+ Ngozi Okonjo-Iweala's powerful vision of Africa's future. Ngozi is the former Finance Minister of Nigeria.

There's also an introduction to TED.

P.S. Don't think about applying for TED2008. They're totally booked out and then some. Watch the videos for now.

Obsessiveness is one of my endearing traits. I'm clearly obsessed with MetroNaps' EnergyPod. Before I finally tell you how much they cost, let me quote the "benefit statement' email that came with the quote:

Napping improves alertness, productivity, and mood. Researchers recently discovered a nap a day can also decrease chances of dying from heart disease by 37% (Trichopoulos, Harvard School of Public Health, 2007). Thanks to MetroNaps, you can now act on this knowledge by installing the MetroNaps EnergyPod in your workplace.

MetroNaps will rent you a 20-minute nap in one of these things for $14, or sell you one for -- wait for this -- $12,800. That includes the built-in sound system ($495) and privacy option visor ($1,995), which you can see below closed.

You can also buy this:

This Swedish camp cot from LLBean folds, has a 2 3/4" mattress and costs the grand sum of $99. Who am I to say they won't sell millions of EnergyPods?

The Jewish Bra
A man walks into the women's department of Macy's. He tells a saleslady, "I would like a Jewish bra for my wife, size 34B."

With a quizzical look the saleslady asked, "What kind of bra?"

He repeated "A Jewish bra. She said you would know what she means."

"Ah, now I remember," said the saleslady. "We don't get as many requests for them as we used to. Mostly our customers lately want the Catholic bra, or the Salvation Army bra, or the Presbyterian bra."

Confused, and a little flustered, the man asked, "So, what are the differences?"

The saleslady responded. "It is all really quite simple.

The Catholic bra supports the masses.

The Salvation Army bra lifts up the fallen, and

The Presbyterian bra keeps them staunch and upright."

He mused on that information for a minute, and asked, "So, what does the Jewish bra do?"

"The Jewish bra," she replied, "makes mountains out of molehills."

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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