Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Friday, October 14, 2005: The
lesson of what you're about to read is fourfold:
When in doubt stay out.
2. Sell some investments. Get more cash.
3. Get stronger investments.
panic. All this is pure fantasy.
People are playing around with all sorts of gruesome charts to forecast a major
stockmarket plunge. The plunge is scheduled for next week. The "logic"
is the bursting of the housing bubble. As an analogy, after The Tech Wreck
of 2000-2002, NASDAQ was down 78%, the S&P had lost 50%,
and the Dow had fallen 38%.
On October 19, 1987 -- Black Monday -- the Dow dropped 22.6% --
the largest one-day percentage drop in history.
Lots of people had lots of theories for the 1987 crash -- from the weakening
US dollar, high P/Es (they were around 20), SEC insider trading probes, the
deteriorating US trading deficit, the explosion of derivatives and computer
or program trading (in which the computer automatically pulls the plug and sells
mindlessly). But there were no important events or major news
prior to Black Monday which precipitated the crash.
The crash basically just happened.
The 1987 crash marked the end of a five-year bull market that had seen the Dow
rise from 776 points in August 1982 to a high of 2,722.42 points in August 1987.
Unlike what happened in 1929, the market rallied immediately after the crash,
posting a record one-day gain of 102.27 the very next day and 186.64 points
on Thursday October 22.
However, it took two years for the Dow to recover completely; by September
of 1989, the market had regained all of the value it had lost in the 1987 crash.
Here are a couple of charts. Basically you can prove anything with charts:
to do? In the last few days I've made some
recommendations. A very smart and very successful ex-hedge fund manager, now
living in Japan writes:
things get as bad as I think they could? Yes. Will they? I don't know. No one
does. What am I talking about? The explosion of debt and credit in the US, the
housing bubble (There are 450,000 licensed realtors in California; this year
there will be 650,000 home sales.), overpriced stocks, the coming collapse in
stock prices, recession (depression?), a dramatic fall in the US dollar. The
evidence is everywhere, for example as of yesterday the major stock indices
are now all down for the year. Take a look at a chart of Walmart's (the biggest
retailer) or Fannie Mae's (the engine of the mortgage market) stock price.
In the spirit of better safe than sorry, I recommend the following courses of
1) Open a
Treasury Direct account. Requires no money up front. This is an account
with the US Treasury that enables you to buy Treasury bills and notes directly
and electronically. You can use this form
www.publicdebt.treas.gov/forms/sec5182.pdf to open an account,
or another one on their website if you want to buy securities at the same
time. Why is this better than going through a broker? Because a broker or
bank may fail, making it difficult for you to get at your holdings. It is
much less likely that the US Treasury fails. By the way, if you think that
your money market account is the same, think again. Almost all money market
accounts invest in commercial paper. If companies fail, they don't pay off
their debt. (There are a few that invest only in Treasury paper, and so if
you want the flexibility of such an account, that's fine. dreyfus.com
Dreyfus 100% U.S. Treasury Money Market Fund)
2) Find a
place where you can buy physical gold and silver. I think it's too early
to do so now. The market is too bullish and so I think prices are in for a
sharp fall before bottoming. Also, it will be a while before the currencies
fail, so there's no need to rush into metals now. If and when currencies do
fail i.e. people lose all confidence in paper money then it
will be time to own precious metals. Here's one: milesfranklin.com
3) Set up
a way to buy Rydex Funds. They offer several inverse funds, i.e. as the
market goes down, the value of these funds goes up. You can purchase directly
from them rydexfunds.com or
go through a broker. A broker is easier because they have a lower minimum.
4) Set up
an account with Everbank.com. everbank.com
They let you convert funds into foreign currency deposits. Again, when
the dollar starts to collapse, this will be a good idea for cash.
5) Sell all
REITs. When the property market collapses, these will lose all their value
your stock holdings.
your fixed income holdings. All but the strongest are vulnerable in such
a downturn. (Look at what happened to GM's debt this past May.)
irregularities...get the hell out. And get the hell out FAST. Item:
Refco shut down one of its key units and the New York Stock Exchange halted
trading of its shares indefinitely. The government charged the departing CEO
with fraud. Five days ago, Refco had a market cap of $3.8 billion. Now it has
effectively a market cap of zero! And you can't sell the shares if you're stupid
enough to still own some.
virtue of Social Security
Having reached the age of 65, a friend went to apply for Social Security
last week. After waiting in line for a very long time, he finally got to the
counter. The woman there asked me for his driver's license to verify his age.
He had left his wallet at home. "I have left my wallet on the nightstand
in my bedroom. I'll go get it and come back later."
She replied, "Unbutton your shirt."
My friend was confused, but he opened his shirt, revealing lots of curly silver
She said, "That silver hair on your chest is proof enough for me,"
and with that, she promptly processed the application.
When my friend got home, he couldn't wait to tell his wife about his experience
at the Social Security Office.
She listened to the whole story and then said, "You should have dropped
your pants. We might have gotten disability, too."
another dumb blonde joke
A young ventriloquist is touring the clubs and one night he's doing
a show in a small town in Arkansas.
With his dummy
on his knee, he starts going through his usual dumb blonde jokes when a blonde
woman in the 4th row stands on her chair and starts shouting: "I've heard
enough of your stupid blonde jokes. What makes you think you can stereotype
women that way? What does the color of a person's hair have to do with her worth
as a human being? It's guys like you who keep women like me from being respected
at work and in the community and from reaching our full potential as a person.
Because you and your kind continue to perpetuate discrimination against not
only blondes, but women in general..and all in the name of humor!
ventriloquist begins to apologize.
The blonde yelled back, "You stay out of this mister! I'm talking to that
little shit on your knee."
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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
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