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Harry Newton's In Search of The Perfect Investment Technology Investor.

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9:00 AM EST, Wednesday, October 29, 2008: I warn again about money market funds. Your money market fund may or may not be safe. As I mentioned yesterday, only monies you had in your fund on September 19 are insured by the Feds. Anything you put in later is not insured. Further, the insurance on your September 19 funds will expire on December 18.

In order of safety: Cash, Treasuries and money market funds invested in treasuries.

In order of importance in our lives: Our health, our family and our capital -- preservation is key.

The Feds will reduce interest rates at 2:00 PM today EST. In anticipation of that reduction the Dow rose nearly 11% yesterday on what's known as "a technical bounce" -- meaning it had descended consistently for too many days. Yesterday's bounce killed UltraShorts funds -- but the key to playing with Ultra-Short funds specifically and being short generally is constant vigilance and ultra-tight stops. If the market starts going against you, get out. There are three keys to being short:

1. Play with only a small portion of your portfolio.

2. Thoroughly research those stocks you think are doing poorly. Some of my favorite suffering industries include appliances, retailing, steel, coal and commodities.

3. Keep ultra-tight stops. Watch the tape. When the market goes against you, cover. Wait for another day. Yesterday's big boost gives you the wonderful benefit of having lifted the prices of shares and UltraShorts that will probably fall more -- like US Steel (up $3.98 yesterday), Tiffanys (up $3.16) and EEV (down $74.05).

"How Shall We Then Invest" by John Mauldin. He writes:

Warren Buffett says buy. Jeremy Grantham says it will get worse. Both are celebrated value investors. Who is right? It all depends upon your view of the third derivative of investing. Today we look at valuations in the stock market. ... While from one perspective things look rather difficult, from another there is a ray of hope. What can you expect to earn from stocks over the next five years? It should make for an interesting letter. Note: this will be a little longer than usual, but part of it is there are a LOT of charts. ...

You should read his entire long piece. Click here.

I sent Mauldin's piece to my friend, the ultra-talented professional money manager. He replied:

First of all, this is a very interesting and thoughtful piece. Thanks for sending it along. I will say, however, that your conclusion is not exactly his if I read it right.

First of all, his third dimension of time is one that you and he come at from very different angles.

You read all the way to the end for the key nuggets, right? There’s this one, which argues that while we will likely see a lot of volatility that will make trend-following (what I believe you call playing the next bubble and shorting it when it’s done) difficult, we have seen or will soon see a bottom in the absolute price:

“But sometime, whether it was last week, or a few quarters in the future, we are going to see a cycle low in terms of price.”

And then there’s this one that argues for hiring experienced professionals like us (though he clearly doesn’t like our kind very much) to find good relative value that’s out there:

“While I don't want to be long an index fund, if you are a stock picker (as Buffett is), then there is value out there.”

And finally there’s this one, which warmed my heart, because it’s where I’ve allocated a lot of our personal wealth recently:

“If you are going to put some money into bonds and other fixed-income instruments (not funds!), you should be doing it now. As I have been writing, there are simply steals out there in the fixed-income markets, as the margin clerks are forcing funds and individuals to sell any- and everything.”

As a reminder, I think the fixed income markets are opening up, which means the worst of the financial crisis is behind us. Unfortunately, the economic crisis that it will cause has barely begun. My thought is that you buy the opening fixed income market, which I have done with JFR, but perhaps I should do it with his recommended managers (again, he clearly hates funds).

Christmas shopping: Don't buy retail this Christmas. Every store and their uncle is holding a sale. Everybody will bargain -- on the phone or in person. My inbox is swamped with "new reduced prices on this season's best looks." (Words from Gap this morning.)

Don't sell anything to Nigeria: There's a Nigerian called Tunde Glover who keeps trying to buy things with fake credit cards. If you run a web site, be ultra-wary of selling anything to Nigeria. And I mean anything.

Think you're having a bad day?

Get some exercise today. Eat less. Rest more. Stress less. Kiss the spouse. Call the kids.

If you've just lost your job, think seriously about starting or buying your own business. There are huge opportunities out there. Most have to do with decent customer service. Item: My friend is rebuilding his house in midstate New York. It snowed yesterday. Not one of the contractors showed. Not one called with an explanation or an apology. Dumb. Stupid.

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 on this site. Thus I cannot endorse, though some look 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 Michael's business school tuition. Read more about Google AdSense, click here and here.