Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, November 16, 2006:
It's getting time to take more off the table. Thus runup does not have the underpinnings
of sufficient solid growth in the economy for it to continue much longer. Cash
has rarely looked so good -- I'm earning 5.2% on one-week "CDs"
from my local Sovereign Bank. Ironically that 5.2% has way exceeded some of
my hedge funds.
My worst hedge
fund was down 30% to end October. After a disastrous first 15 days of
November, it's now down 38.1%. My commodities fund is break-even for
the year. But my conservative hedge fund is up 15% to end October, while
my young, go-getter hedge fund is up 43%.
The moral of this
lesson is old and simple. Diversification is key -- if you're not personally
in control. And you're not -- because no one listens.. Given also that you never
know, the rule should be no more than 5% of your net worth with one manager.
Not only do they not listen, but they often go nuts on you -- changing their
professed strategy for no apparent reason. For example, Private Capital Management,
a money manager out of Florida, was doing well until the boss fell in love with
newspaper stocks ... and you know what happened to those. They went down the
toitee -- though not as fast as some big pharmas have done recently.
My friend Ed,
who's also in the 38% disaster, did some figuring yesterday. This year,
he's up 22% and 20% in two other hedge funds, thus offsetting
the 38% disaster. Ed got me into real estate syndications -- both commercial
and residential. It's been our absolute best investment -- his and mine. Over
the past 13 years, he's been in 45 deals. He figures his IRR of
24%. That's an average of 24% a year for 13 years. And those 13 years
included the Tech Wreck of 2000-2002 in the stockmarket.
wrote this just before our election. It's worth reading now:
have Wall Street's seers been so split. Not only are they divided about where
the economy is headed, they even disagree about how it is faring today. Pessimists,
such as Nouriel Roubini of Roubini Global Economics, reckon output is slowing
from its already desultory pace of 1.6% a year in the third quarter and that
recession is imminent. Optimists say GDP growth is rising after a weak summer.
After analysing bond, equity and credit markets, Stephen Jen of Morgan Stanley
recently argued that the risk of recession was only 13%, down from 19% a month
How can opinion
be so divided? The glib answer is that America has two economies: residential
construction and car production are in a slump, but the rest is still chugging
along. Such resilience is why the jobless rate fell to 4.4% in October, its
lowest since 2001, and why both wages and hours worked grew smartly. But how
sustainable that is depends on whether the sectoral declines worsen and spread.
look at housing or manufacturing it is hard to avoid some pessimism. Despite
Alan Greenspan's recent declaration that the worst of the housing bust is
over, the evidence suggests otherwise. The pace of decline in residential
construction may (perhaps) have peaked, but the size of inventories and the
weakness of demand suggest builders will be cutting back for many months yet,
and that prices have farther to fall.
also of Morgan Stanley and a well-known contrarian, points out that less than
a third of the run-up in construction spending over the past decade has been
reversed. As a share of GDP, residential investment is still far above its
long-term average (see chart). And even if the worst is over for house builders,
it may not be for the construction industry as a whole. Up to now, non-residential
constructionthe building of offices and shopping mallshas been
booming. But September's figures suggest that this, too, is losing steam.
And the cuts are finally translating into fewer jobs. Overall, the construction
sector shed 26,000 jobs in September. More layoffs seem inevitable.
The news from
manufacturers is also likely to get worse rather than better. Industrial production
was flat in August and fell in September. Surveys of purchasing managers in
October bode ill for the coming months. Carmakers are slashing production
to reduce big inventories. The housing bust is hitting too. The production
of housing-related goodssuch as appliances and furniturehas fallen.
No matter, argue
the optimists. The overall labour market is tight, wages are up and petrol
prices have fallen. With wage income up almost 3% in real terms, spending
will remain firm and the economy will rebound from its third-quarter lull.
This logic is
sound, but there is little evidence, for now, to support it. Despite more
pay and cheaper petrol, there are few signs that consumers splurged in October.
According to Merrill Lynch, 62% of retailers missed their sales estimates.
Wal-Mart had a particularly feeble month and expects sales to be flat in November.
With their homes worth less, more Americans may be saving their wage gains
rather than heading to the mall. The household saving rate, although still
negative, rose from 0.8% in July to 0.2% in September.
picks up as Christmas approaches, demand growth in the fourth quarter of 2006
is likely to be little better than in the third. It does not mean, however,
that a full-blown recession is inevitable. Even if job losses in construction
and manufacturing begin to push up the unemployment rate, the labour market
will still be tight. With jobs plentiful and wages rising, consumer spending
is unlikely to collapse. Slow growth and gradually higher saving is a less
dramatic outcome than either the pessimists or optimists predict. But it has
the advantage of being just what the economy needs.
something for your business? Try www.BuyerZone.com.
They ask you some simple questions and then forward your lead to five or so
local suppliers, who will call you. You may or may not save money. You may or
may not get the lowest price, but you should get some interest in winning your
business. After all, the vendors are paying $10 to $30+ for each lead -- so
they are motivated to sell you something. Using BuyerZone is more convenient
than using the local yellow pages.
momentum plays continue: There are always "hot" sectors
in the market. Today's are the exchanges -- CME, ICE, ISE, NDAQ and NYX. For
more, see yesterday's column -- click
here and Monday's column -- click
here. It's like 1999 in tech all over again. CME -- the Chicago
Merc -- rose $18.79 or 3.66% yesterday. I don't know how long this madness will
last. But it's nice while it lasts.
How to treat your printer cartridges: Don't
buy too many. They don't have a long shelf life. Don't shake the cartridge before
you install it. Rock it gently. This advice from my friends at www.fixyourownprinter.com,
who also sell refurbished (cheap) toner cartridges.
to collect back taxes. I don't make this stuff up. Tax authorities
in Bihar, India have hit on a novel idea to collect back taxes: They hire a
troupe of singing eunuchs to serenade the debtor. Eunuchs are feared and reviled
in many parts of India, where some believe they have supernatural powers. Often
unable to gain regular employment, the eunuchs have become successful at persuading
people to part with their cash. The eunuchs will get a commission of 4% of any
of the BBC recently wrote that eunuchs from across India have gathered in Bhopal,
the capital of the central state of Madhya Pradesh to celebrate a unique festival.
More than 2,500 eunuchs will sing, dance and make merry for several days in
memory of their spiritual teacher, Haji Rahamatullah.
Eunuchs have long lived on the fringes of society. India has several hundred
thousand of the so-called "third sex" who are traditionally regarded
as auspicious. The venue of the meeting is significant as several eunuchs in
Madhya Pradesh have had a high profile over recent months. Shabnam Mausi has
become India's first eunuch to occupy a seat in a state assembly. And another
eunuch Kamla Jaan has been fighting a court battle to retain the mayorship of
the city of Katni in Madhya Pradesh.
Known as "hijras"
in Hindi, eunuchs are mainly either castrated men or transvestites. They mostly
earn a living by collecting cash gifts from people on occasions like marriages
But this is not
what has brought them to Bhopal. They are here as representatives of their society.
For eunuchs, this conference is a festival where they get to meet "their-own-kind"
from all over India. Asha, who has come all the way from Baroda in Gujarat,
said: "We don't have a son or a daughter at whose marriage we can expect
a get-together. It is this festival which fulfils our wishes."
the festival said discussions were also held on certain "internal issues"
but the media was not allowed to cover the debate. There have been some suggestions
recently that eunuchs are considering forming their own political party. Participants,
however, rejected suggestions that politics were discussed.
"If we get
into politics, who will sing and dance at marriages?", a senior eunuch
is a true and heartwarming Thanksgiving story. Try it with your friends
One year at Thanksgiving, my mom went to my sister's house for the traditional
Knowing how gullible
my sister is, my mom decided to play a trick. She told my sister that she needed
something from the store.
When my sister
left, my mom took the turkey out of the oven, removed the stuffing, stuffed
a Cornish hen,and inserted it into the turkey, and re-stuffed the turkey. She
then placed the bird back in the oven.
When it was time
for dinner, my sister pulled the turkey out of the oven and proceeded to remove
When her serving
spoon hit something, she reached in and pulled out the little bird.
With total shock
on her face, my mother exclaimed, "Patricia, you've cooked a pregnant bird!"
At the reality
of this horrifying news, my sister started to cry.
It took the family
two hours to convince her that turkeys actually lay eggs!
Reverse logic is the purest form of humor.
Here are my two best examples:
At a U2 concert in Ireland, Bono asks the audience for some quiet.
Then in the silence, he starts to slowly clap his hands. Holding the audience
in total silence, he says into the microphone..."Every time I clap my hands,
A child in Africa dies."
Finally a voice
from the audience pierces the silence.
clapping your hands."
The cold weather
"Susan, you're sitting next to the window. Please close the window. It's
I close it, will it get warm outside?
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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