Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Wednesday, November 1, 2006: Ownership
remains the key. Without it you'll stay poor. Owning real estate is the easiest
ownership. To hike its value, you must change its use, improve it, hike
the rents, make it more valuable. That involves creativity. That's the bit you
add. Bargains in real estate are already emerging. Don't be too eager. Buyers
take time to drop their prices. A friend recently bargained 32 acres down from
$350,000 to $225,000. He'll use the land to build something the world needs
and endless riches will be ours.
I'm angling to be in on this one.
concept of sunk cost: I budgeted $8 million
for Technology Investor Magazine. When we spent it, I closed it down.
My competitors dilly-dallied around for another two years, always eyeing what
they'd invested, not the abysmal future they faced. They lost $25 million+ before
they finally got the message and closed down.
What you spent yesterday is gone. Today, we decide, Do we hold (which means
buy) or do we sell (which may mean close it down)? Too many of us worry more
about what we've already invested than our prospects going forward. Too
many of us worry about what we have invested than checking out a better
use for the money going forward. There are always plenty.
You should apply sunk cost reasoning to everything you do. You can (and should)
apply it to war. This week, the Economist tried.
For Mr. Bush,
the Iraq war has in one sense already been lost, whatever result the mid-terms
bring. This president's legacy will forever be tainted by what he overpromised
and how much he underperformed. The voters of America are entitled to judge
and punish his party as they see fit. But Americans would be wrong to extend
this punishment to the people of Iraq, who have suffered so much already.
Even if it was a mistake to blunder into Iraq, it would be a bigger mistake,
bordering on a crime, for a nation that aspires to greatness to blunder out
now, without first having exhausted every possible effort to put Iraq back
together and avert a wider war.
As a country, Iraq is an artificial creation of the British. Hence, it needs
an ultra-strong hand to keep it together, Personally, I'd like to see Iraq broken
into three pieces -- Kurd, Sunni and Shiite -- and work a deal on the oil. This
way all the warring factions could get something of their own.
reporters (and people) say what they say. The New York Times
yesterday ran a 16-page advertisement to tell us it has 1,250 reporters, editors,
critics, news columnists, Op-ed columnists, photographers, designers, etc. The
ad appeared coincidentally in the exact same issue it carried a news story:
The upshot of declining
circulation is declining editorial budgets and declining story quality, which
only exacerbates the problem. Which is why the Times sought to assure its
readers that its editorial is not declining. However, there are many people who
won't read the Times because they believe its editorial is slanted to the
left, i.e. it doesn't like everything the Bush Administration believes in.
of the nations daily newspapers plunged during the latest reporting
period in one of the sharpest declines in recent history, according
to data released yesterday. The slide continues a decades-long trend and adds
to the woes of a mature industry already struggling with layoffs and facing
the potential sale of some of its flagships.
The issue of editorial slant is one we all (as writers) face. We're meant to be
objective, to be "reporters", reporting on the news. We're not. We never
have been. We pick and choose to write those stories that interest us. We pick
those we can write before our deadline runs out. Sometimes we have an agenda.
This comes from the Sydney Morning Herald, Sydney's leading newspaper.
There's clearly an agenda.
mining boom's over, says Costello.
has declared the commodities boom that has powered government revenue for
the past four years is over. The Treasurer warns there is a false impression
that the minerals boom will run on indefinitely.
we've reached a high point and I think prices are going to return to more
normal levels," he told the Herald in an interview.
in commodity prices, the mining boom that was the story of the last couple
of years, I don't think will be the story of the next couple of years."
The boom has
added more than $100 billion to revenue over the past four budgets, a bonus
of 12 per cent a year, according to the ANZ Bank chief economist, Saul Eslake.
This has given the Government tremendous latitude to increase spending and
hand out tax cuts every year. But with a slackening in commodity prices, "government
revenues will moderate", Mr. Costello forecast.
the Government will be more constrained in next May's budget before an election
due in the second half of the year.
The chief economist
at HSBC, John Edwards, speculated that the (Australian) Treasurer might have
political motives for his pronouncement. He suggested Mr. Costello might
be lowering expectations to discourage "other ministers in the Government
from hopping in and spending" in the next budget.
And Dr. Edwards
asked, sarcastically: "He couldn't possibly be trying to send a message
to the Reserve Bank, could he?"
the commodities boom over, Mr. Costello is implying that inflationary pressures
will ease. If so, the Reserve would have less need to raise interest rates.
There is a universal expectation that it will raise rates next week, on Melbourne
Cup day, the fourth time since the 2004 election.
said the end of the commodities boom would be one of three forces dragging
down the rate of economic growth. "In my assessment, if you put three
factors together, the globe is probably moderating, we've seen the peak of
commodities, and the drought is knocking growth, so I'm just saying that I
have no expectation at all of a boom in the years ahead - we will have moderate
you were Cramer, would you be bullish nor bearish? Which helps your
ratings more? This is Jim Cramer's latest piece from New York Magazine:
One Goes to Thirteen
Falling oil prices, a halt in interest-rate hikes, and a wave of hedge-fund
buying sent the Dow above 12,000. Now theyll take it higher.
Go ahead, dismiss
Dow 12,000. Virtually everyone I know on Wall Street will tell you to do so:
Small-time index, relic of another era, not important to signal a change.
To which I say, Nonsense. The Dow is not only the most representative
snapshot of the American economy, but the venerable, oft-quoted index is still
the one that entices people into the market. The broader averages will now
follow the Dow higher, perhaps much higher, because after six years in purgatory
courtesy of everything from dot-com bombs to cooked books to crooked research
to hidden option paydays, Wall Streets back making people fortunes again.
Except this time, its not just the bankers. Its everyone who owns
name-brand stocks. The additional cash flowing in, like the first trickles
of water seeping through a fissure in a dike, could turn into a torrent now
that weve taken out that benchmark.
How did we get
here? More important, why am I so certain that theres much more ahead?
Because weve had an awesome number of things go right in the past year,
and the trendalways your friend on Wall Streetpoints to more of
the same in the coming months.
that lifted us to 12,000 is a mighty, strange brewa bullish recipe that
includes one part lower oil and housing prices and stabilized interest rates;
one part higher corporate profits; and one part incredible negativity of big-time
money, including many of the hedge funds out there (Ill explain the
role they play in a minute). While some of these factors may eventually reverse
themselves, dont count on any of them going away in the near future.
why this rally has staying power, you need to get beyond the obvious negatives,
at least to Wall Street, of a potential Democratic sweep in Congress, a constant
worry of terrorism, and a president paralyzed by the morass in Iraq. First,
just four months ago, traders were petrified that gasoline at $3.25 would
go to $4.25 and that the economy could be crushed by it. Consumers had vanished
from stores and restaurants; car sales plummeted. A recession seemed to be
just months away. At the same time, the slowdown in housing became an outright
stoppage, with home sales plummeting and inventories climbing to levels not
seen in fifteen years. With that glut so visible, those still holding on to
the belief that property could trump stocks finally gave up the real-estate
dream, and the Federal Reserve, determined not to be the cause of a recession,
put its relentless increase in interest rates on hold at last.
With the Fed
on hold and housing losing all luster as an investment, the unthinkable occurred:
Oil dropped almost $20, and gasoline fell by more than a quarter. Consumers
flooded everything from Wendys and Red Lobster to JCPenney and Nordstrom,
and on Wall Street that translated to upside surprises against
lowered earnings estimates. No one cares about how earnings forecasts get
beateven if theyre reduced by fleeting factors like a cessation
in rate hikes or gasoline declines. The better-than-expected earnings quickly
fueled higher stock prices. When you consider that of the 30 industrials in
the Dow Jones, only one, ExxonMobil, gains from higher oil prices and 29 gain
from lower ones, you can see why the move had oomph. And when you consider
that almost no Dow stocks get hurt by lower housing sales but all benefit
from the declining interest rates that a slowdown in housing causes, you know
the oomphs going to be turbocharged.
All that good
news wouldnt have mattered if stocks were expensive. But weve
seen years of pretty decent earnings for companies without much of an uptick
in stocks. Thats because 29 of the 30 stocks in the Dow have had buybacks,
some of them huge (and some ongoing). Only General Motors hasnt had
one (and thats the only Dow stock that actually needs cash). The rest
just throw off scads of the stuff. These buybacks are literally shrinking
the supply of stock out there dramatically. When the buyers came in, courtesy
of the declines in oil and housing and the flattening of interest rates, there
wasnt enough stock to go around, forcing buyers to move stocks up to
get them. The companies that had bought back the most, Hewlett-Packard, Coca-Cola,
AT&T, IBM, and Microsoft, have been responsible for much of the gain weve
though, whether the upward move would have the velocity it has if it werent
for another group of buyers: the hedge funds. The managers of these funds
pride themselves on betting against, not with, stocks, and the declines since
the May 10 peak in the averages were a license for these shorts to print money.
But the swift decline in gasoline caught the hedgies with their shorts up
and, they, too, had to scramble to buy, lest their negative bets wipe them
out. Their purchases squirted acetylene on an ¬already roaring fire.
What makes me
so sure that we arent done with this rally? First, oils still
going lower, even as opec tries to stem the decline. Long term, we could head
higher again, but right now the worlds awash with oil pumped to take
advantage of high prices. But theres no room to store it, so the price
comes down to move it. Second, housings still trending down, chilling
the Fed even as consumers are feeling flush because of the relative cheapness
of gas. Companies are still buying back stock, even post-12,000, as theres
not much else they can do with the cash. We also have more mergers and acquisitions
now than ever before, and private-equity firms buying companies at an unbelievable
pace. That takes out even more stock. Finally, the hedge funds have just begun
their capitulation. We just saw the published short-interest figure numbers
(a count of all the shares being shorted), and they remain at all-time highs.
Theres more to be bought, and it will be bought higher.
stocks in the Dow now have open-field running, including Altria, which is
splitting into three companies; Hewlett-Packard, which is killing Dell; Boeing,
which is winning by default because Airbus cant make the darned A380
superjumbo jet; and AIG, which is now finishing a thorough Spitzer-izing that
cleaned out top-level management and is ready to roll. (Not all Dow stocks
are poised to rise. Id steer clear of Alcoa, for instance, because its
so poorly run. Management has consistently missed its earnings targets, even
though the business fundamentals have looked great.) As the markets
gale-force momentum continues to build, the public, which has just started
embracing this rally, will be sure to take stock prices even higher. By my
count, with just a small continuation of the current trends, I can see the
headline this time next year: DOW BREAKS 13,000.
endless charm of English. From today's New York Times:
A scene from a city sidewalk? Wrong. Its a Ruehl No. 925 clothing store
inside the Tysons Corner Center mall in McLean, Va. Says the Times, Its
hard to window shop without the windows. But in malls across the country, chains
forgo window displays for town house look and shack chic. (My emphasis).
and the Guru
Marvin was a deeply spiritual man, a seeker of truth. He went to
synagogue every week for years, but eventually realized his soul needed more
than Judaism could give him. He tried Buddhism, Christianity, Islam, a wide
assortment of New Age religions, but he still felt spiritually empty.
One day, he heard
about a great guru living atop the highest mountain in India who had all the
answers. He sold all his worldly possessions, bid goodbye to his friends and
family, and headed east. Once on the subcontinent, he learned that the guru
would agree to see only one person a year and that person would be allowed to
ask only one question. There were many other truth-seekers ahead of Marvin,
so he had to wait nearly twenty years to see the great man. During that time,
he lived in poverty, at the base of the mountain begging and doing menial tasks.
When his turn finally came, he made the perilous journey up the snow-covered
mountain, and waited for a week in the freezing cold in front of a cave, until
the guru emerged.
your question, my son?" the guru asked.
Marvin had been
rehearsing this for years, and said, "Oh, wise one. What is the meaning
son," said the guru ponderously, "is a deep well."
Marvin's jaw dropped
open. He could not control his shock and anger. He screamed at the guru, "'Life
is a deep well?' That's it? I've given up everything I owned, abandoned my friends
and family, spent years living in abject poverty, even lost my toes to frostbite
getting up here, and that's the best you can do? 'Life is a deep well?!'"
The guru looks
at him quizzically. "What? You mean it isn't?"
than the Rothschilds
"You know, Moishe, if I were as rich as the Rothschilds, I'd
be richer than the Rothschilds."
How do you figure that, Heshie?"
"I'd do a
little teaching on the side."
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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