Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
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,
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%
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.
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.
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 its 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
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 its a violation of American democratic principles. This is
a good way to put yourself into a sanctimonious mood, and it offers some psychic
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, youll have plenty of company.
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 its nice to be a critic,
its also nice to have your own swimming pool. (The best is both, but
thats 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 companys
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. Frestons 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. Hes 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 its 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.
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:
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
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.
get to it by working in fields in which you can fix your wages, preferably
with the governments 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.
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.)
money by making money for people who already have money. This is another reason
finance is such a well-paid field. One good days work for a man who
has a $100 million account you are trading is worth far more than a lifetimes
work at the checkout counter at Wal-Mart. Yet, amazingly, managing wealthy
peoples money is far less difficult and stressful than checking out
customers at Wal-Mart. Its not even close. As my smart sister Rachel
says, you make money by making money. Its tricky, but its right.
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 dont 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 youre doing that)
or make them feel better (or that give the illusion of doing that on national
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
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 its
alright, Ma, if I cant please him. But if you do want to please
that inner him, now you have an idea of how to do it.
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:
for tennis elbow are largely ineffective in the long run, a new study has
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.
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 theres 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.
daddy home?" he asked.
whispered the small voice.
May I talk with
The child whispered,
wanting to talk with an adult, the boss asked, "Is your Mommy there?"
"May I talk
Again the small
voice whispered, "No."
Hoping there was
somebody with whom he could leave a message, the boss asked, "Is anybody
whispered the child, "a policeman".
a cop would be doing at his employee's home, the boss asked,"May I speak
with the policeman?"
busy", whispered the child.
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?"
answered the whispering voice.
going on there?" demanded the boss, now truly apprehensive.
the child answered, "The search team just landed a helicopter."
and a little frustrated the boss asked, "Who are they searching for?"
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 .
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