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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 Wednesday, October 18, 2006: Oil? Some readers think it will drop under $40. And some think I'm full of doo-doo. Meantime, OPEC is meeting to figure how to put a floor under the present sliding price. Or at least that's what they say. The only thing that will happen between now and the election on November 7 is that oil's price will probably slide further. Hence, we have plenty of time to figure which way to play oil's long-term rise -- if that's what we believe. Meantime, please read this book.

To buy it from Amazon, Click here. I should finish the book today and should be able to report on it tomorrow. I also promised to show you returns from money managers for the September quarter. That's proving more difficult than I thought, but it's coming along. The good news is that my commodities fund has finally inched into positive territory for 2006 -- it's up 0.16% Whoopee!.

Buy what you love. Don't buy what you hate. This concept of stockpicking is simple. Peter Lynch, Warren Buffett and other great stockpickers have used it for eons. I've used it as much to buy stocks whose products I love (e.. Whole Foods) or to avoid stocks whose products/service and/or business strategy I dislike, e.g. Intel. HP and Yahoo. On balance it works.

For example, my personal experiences trying to buy a company from Intel were ultra-stinky. Try this: Intel buys Dialogic in 1999 for $800 million. In 2006, after seven years of ultra-bad Intel management, Intel puts Dialogic on the market -- without the hindrance of an investment banker or a controlled auction. In a sweetheart deal, it sells the company for $75 million -- less than one-tenth of what it paid seven years earlier. To cover up its total incompetence, Intel announces the terms of the deal are not public -- thus deliberately concealing its incompetence from its shareholders. Thus it was no surprise that last night Intel announced its latest quarterly profits had dropped 35% because Advanced Micro Devices has been kicking its tushy. Of course, if Intel had produced a faster Pentium chip in the past year, Toshiba would have made a new line of laptops and I would have bought one.

In all this, there is one caveat: Regime change. If the company finally recognizes that things are a disaster and reaches outside for great, new management, then it's time to revisit the No-Buy Decision. A classic case is HP. Regime change was hugely positive. It wasn't so successful for Yahoo, which last night reported a 38% drop in profit. Yahoo can't compete with Google. But any idiot can see that. When did you last use a Yahoo search engine?

At last week's DigitalLife show in New York, I asked the HP "tech support" folks how to get my HP scanner working reliably. They didn't know. But, yesterday a nice man called Dan from Hewlett Packard's Executive Customer Relations help center called me and actually helped. My scanner is too old, he told me, HP no longer supports it. But he was sweet and he called back to give me his number -- 1-800-756-0608 Option 7. If I have any other HP problems -- like those on products it still supports (if there any), I should call. I won't be buying any more HP products ever. But -- if you have problems with your HP stuff, there's the number. Write it down.

Don't you just love Wall Street's analysts? Citigroup this morning is pumping IBM after last night's report by IBM of a 46% rise in net profit. What am I missing? I thought Citigroup analysts were paid to tell us what to buy before we knew what to buy ourselves. I can be a great Wall Street analyst, too after the fact.

You Can Complain, or You Can Make Money. Ben Stein wrote this piece in last Sunday's New York Times. You may want to pass it along to your kids:

THERE is extreme income inequality in this country. It is hard to say whether it’s the fault of President Bush, since there was also extreme income inequality under former President Bill Clinton, and in fact there has always been extreme income inequality.

Just to give you an idea of current inequality, statistically speaking, the top 1 percent of all income earners in this great land earn roughly 20 percent of the total income. The top 1 percent of wealth holders have close to one-third of all wealth. The top 5 percent of wealth holders have very roughly 50 percent of all wealth in this country.

As you can see, that does not leave a lot for everyone else.

There are a number of ways to respond to this situation. You can become indignant and say that it’s a violation of American democratic principles. This is a good way to put yourself into a sanctimonious mood, and it offers some psychic satisfaction.

I’m not sure that there is any historical basis, though, for believing that the founders of the nation wanted everyone to have equal wages. Certainly, many of them were wealthy men, and the Father of Our Country was said to be the wealthiest man in the colonies from his land and slave holdings. But, again, if you want to be exercised about inequality, you’ll have plenty of company.

Another way, possibly more satisfying in the long run, would be to ask yourself how the top 1 percent of wealth holders and income earners got to be that way, and then to try to do it yourself. My own observation, having been both a critic and a moderately well-paid person, is that while it’s nice to be a critic, it’s also nice to have your own swimming pool. (The best is both, but that’s another story.)

In other words, look at two recent business stories and decide which side of them you want to be on. Sumner M. Redstone, the chairman of Viacom, recently fired the company’s chief executive, Tom Freston. Mr. Freston was a pioneer at MTV, immensely well liked — people on the Paramount lot literally wept when he said good-bye — but Mr. Redstone decided that he had to go because he had not done a good job for the stockholders and the stock had languished.

In the last paragraph of an article about his departure, The Wall Street Journal dryly noted that Mr. Freston’s severance package would be about $60 million and his pay this year was about $20 million.

An even more recent story has been about Brian Hunter, a commodities trader for the large hedge fund called Amaranth Advisors. Mr. Hunter made big bets in natural gas trades and had been getting good returns for his investors. Then the market turned against him and he lost roughly $6 billion — yes, billion — for his investors within a few weeks. He’s no longer at Amaranth, and the fund is being dissolved. However, it was noted that his pay for 2005 would have been between $75 million and $100 million. Yes, you read it right. (Harry's note: It was $100 million.)

That is, Tom Freston, an undeniably great guy, gets $60 million for leading a company whose stock performance was deemed unacceptably poor (although it’s been good lately). Brian Hunter is presumably still a wealthy man despite leading his investors to disaster.

You can be furious about that, and you should be. But you might also think how nice it would be to make that kind of money, or even a small fraction of that sort of wage.

For students slogging their way through school, here are the merest hints of how you can and cannot reach that top 1 percent, that place where you are paid well even if you make mistakes:

• You do not get to it by studying African feminism in the 19th century, whether or not you are at an Ivy League college. You do not get to it by studying Bulgarian poetry. You do not get to it by any field of endeavor or study that is esoteric and has no connection with helping other people either become healthy or make money.

• You do not get to it by being a civil servant unless you are the kind of civil servant — say, a cabinet member or a United States Senator — who can use his or her connections later to lobby for well-heeled clients. You do not get to it by a lifetime of work in any field in which there are government price caps on earnings.

• You do get to it by working in fields in which you can fix your wages, preferably with the government’s help. These include law, where you need a license to practice, and thereby can lift yourself out of working for free-market wages. (Everyone in this country pays homage to the free market, but no one wants to work for free-market wages.) They also include medicine, where a far more difficult license is required, and where desperate patients will pay almost anything to look and feel good. They also include accounting at the C.P.A. level.

• You are always better off working in a field where torrents of money are sloshing through and you can grab a handful as it goes by. That means Wall Street. Finance is the ultimate great business. (Warren E. Buffett famously said that you are always better off being mediocre in a great business than great in a mediocre business, and he easily could have been talking about Wall Street.) Money pours through Wall Street in vast oceans. Even if you take off a tiny helping, you are going to wind up in that 1 percent. If you can do the daily double and work on Wall Street and be in a position to fix your own wage — say, by being in high management at a major Wall Street firm that has such prestige and connections that it can control its fees and other compensation — you will wind up living a great life, at least money-wise. (It is very difficult in many other ways, and I do not envy the people who do it. The tension is just far too much for little me.)

• You make money by making money for people who already have money. This is another reason finance is such a well-paid field. One good day’s work for a man who has a $100 million account you are trading is worth far more than a lifetime’s work at the checkout counter at Wal-Mart. Yet, amazingly, managing wealthy people’s money is far less difficult and stressful than checking out customers at Wal-Mart. It’s not even close. As my smart sister Rachel says, you make money by making money. It’s tricky, but it’s right.

• You make money by learning skills that lead to any of these: making people feel and look better, learning how to draw their wills, learning how to manage their money so they don’t underperform the bogey terribly, learning how to make complex things like computer parts in ways that lead your employer to make money and reward you with stock options. This is by no means an exclusive list. You also make it by manufacturing cardboard boxes and selling scrap metals. But usually, education in finance, medicine, law, accounting, electrical engineering — something in which you learn to add value instead of having fun in school — is the key.

YOU can try to get into that 1 percent by acting, playing drums or shooting hoops. That rarely works. The sure way is to learn skills that allow you to help make money for other people (or that give them the illusion you’re doing that) or make them feel better (or that give the illusion of doing that on national television).

But if you are not one of these people — if you feel better making pottery or teaching school or policing the streets — you can have a fabulous life, too. In fact, from what I have seen, you can have a better life if you just stop thinking that everyone is supposed to make the same wage and just feel happy with who you are.

Or, with apologies to the big dogs at Goldman Sachs, and quoting the genius Bob Dylan, “I mean no harm, nor put fault, on anyone that lives in a vault, but it’s alright, Ma, if I can’t please him.” But if you do want to please that inner him, now you have an idea of how to do it.

Tennis Elbow. More advice. Some days my elbow gets better. Some days it gets worse. If I lay off tennis to rest the elbow, I get fat. If I play because I like to play, my elbow hurts. Somewhere there's a better solution that inactivity and obesity. One thing I have learned steroid injections don't work long-term. From yesterday's New York Times:

Steroid injections for tennis elbow are largely ineffective in the long run, a new study has found.

Australian researchers randomly placed 198 people with tennis elbow, ages 18 to 65, in one of three groups: the first received eight 30-minute physiotherapy treatments over six weeks, the second received a corticosteroid injection (with a second injection a week later if deemed necessary) and those in the third were told to wait and see how the injury healed while using analgesic drugs and avoiding activity that would aggravate their pain.

The study appears in the Online First edition of The British Medical Journal.

The group that received the injections showed significantly better effects at six weeks than the other two groups, but the recurrence rate thereafter was 47 of 65 subjects, or more than 72 percent. Recurrence rates for physiotherapy and for wait-and-see were less than 9 percent.

“Most people ask about an injection,” said Bill Vicenzino of the University of Queensland, the lead author of the study. “I tell them that in the short term it may be helpful, but there’s a high probability of recurrence, and the long-term outcome is not that great. Based on a number of studies, I would recommend avoiding corticosteroid injections entirely for tennis elbow.”

After one year, 90 percent of the wait-and-see group rated themselves as either much improved or completely recovered. So did 94 percent of those who received physiotherapy. But only 68 percent of those who received an injection thought they were that much better a year later.

Time to call in
A boss wondered why one of his most valued employees had not phoned in sick one day. Having an urgent problem with one of the main computers, he dialed the employee's home phone number and was greeted with a child's whisper.


"Is your daddy home?" he asked.

"Yes," whispered the small voice.

May I talk with him?"

The child whispered, "No."

Surprised and wanting to talk with an adult, the boss asked, "Is your Mommy there?"


"May I talk with her?"

Again the small voice whispered, "No."

Hoping there was somebody with whom he could leave a message, the boss asked, "Is anybody else there?"

"Yes," whispered the child, "a policeman".

Wondering what a cop would be doing at his employee's home, the boss asked,"May I speak with the policeman?"

"No, he's busy", whispered the child.

"Busy doing what?"

"Talking to Daddy and Mommy and the Fireman," came the whispered answer.

Growing more worried as he heard a loud noise in the background through the earpiece on the phone, the boss asked, "What is that noise?"

"A helicopter" answered the whispering voice.

"What is going on there?" demanded the boss, now truly apprehensive.

Again, whispering, the child answered, "The search team just landed a helicopter."

Alarmed, concerned and a little frustrated the boss asked, "Who are they searching for?"

Still whispering, the young voice replied with a muffled giggle........"ME."

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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