Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Wednesday, September
28, 2005: October is often disaster
month in stockmarkets. No one can predict a disaster. Nor do I want to. But the
signs of impending gloom are everywhere -- consumer confidence down, gas prices
high, rising interest rates, housing slowdown, Katrina and Rita's impact, increasing
talk of a recession in 2006, continuing huge U.S. government budget deficits and
overseas trading deficits.
Yet, for all the disaster talk there is equal
talk of heavy insider buying (a good sign) and talk of sustaining our
present high government and trading deficits. This weekend's Economist has a big survey on the World Economy.
America is spending
while the rest of the world is saving.
But for how long? ... On March 10, Ben Bernanke—a former Princeton
professor who at the time was a governor of America's central
bank—addressed a gathering of economists in Richmond, Virginia, on America's
gaping current-account deficit. Its causes, he argued, were to be found abroad
rather than in American profligacy. In particular, Mr. Bernanke mused, the
world might be suffering from a “global
saving glut”. The phrase immediately caught on. Like the
famous remark about “irrational exuberance” by Alan Greenspan, the
chairman of the Federal Reserve, it has since helped to shape the global
And the Economist's conclusion?
The recent shifts in global saving and
investment patterns are not permanent, but nor are they likely to be reversed
overnight. Although Japan's economy is looking perkier, and China adjusted its
currency regime in July, the surplus of saving from Asia, and from the
oil-exporters, is unlikely to fall sharply in the near future. Nor is it likely
that the central banks that have been piling up dollar assets will suddenly
stop, let alone dump their greenbacks in a hurry. Both factors suggest that
America's creditors will probably allow the global imbalances to persist for a
in love with stocks is a serious mistake: The inviolate rule is: When it falls 15%, sell it -- irrespective.
Sometimes, you fall in love with a stock -- like I did with TriPath Imaging (TPTH) -- and violate that
rule. I did with TriPath. I've held on, knowing it had great management, great
products and was doing well. But, shit happens and it happened yesterday. The
company reported that the FDA called for more data for TriPath's application to
market a new imaging system called FocalPoint GS. Thus, TriPath withdrew its
premarket approval supplement filed with the FDA and said it intends to collect
additional clinical trial data to support the claims it is seeking. It is
talking to the FDA regarding about what data it wants. This request for more
info is not a rejection of
TriPath's new product, but a clarification. The company plans to submit the new
data in 2006, but said it was too early to determine the effect on its
financial forecasts. I hope to talk to management today. For now, I'm hanging
in. TriPath is the one stock I'm holding, though it has violated my inviolate
rule. My one little madness. Damn.
All about hybrid automobiles:
This weekend's New York Times Magazine ran the most fascinating
piece on hybrids. The basic conclusion: hybrids can save hugely on gas. But
a better sales idea is a hybrid car that performs well and still saves gas,
given its heady power. Excerpts:
+ In the last year the auto industry has
decided to drastically bulk up its hybrids. Car makers are ditching the
bumper-car designs that have thus far defined the genre, and in the next two
years, every new hybrid that hits the showroom will be a lumbering truck, a thundering
S.U.V. or a high-powered luxury car. There is nary a podlike bubble among them.
Normally these sorts of boats are infamous for their abysmal fuel economy. But
when tricked out with hybrid drivetrains, they can squeeze up to 50 percent
more out of a tank of gas. In essence, they are a compromise - nowhere near as
good with fuel as a Prius but nowhere near as bad as a regular S.U.V. gas
+ To understand how hybrid technology can
produce a muscle car, it's helpful to consider the basic engineering behind
hybrid drivetrains. A car like the Prius derives its superb mileage from an
elegant ballet performed between the fuel engine and the electric motor. The
goal is to let the gas engine work only when it is most efficient to do so,
which is when the car is running at roughly 20 m.p.h. or higher. A gas engine
is at its worst efficiency in two situations: when it's revving fiercely to get
a car moving from a standstill and when the car is idling at a stoplight and
The central genius of a hybrid is that the
electric engine steps in at these inefficient moments. An electric motor, as it
turns out, is far better suited to accelerate from zero because of a quirk of
physics - when pushing off from a dead stop, an electric engine has much more
torque than a gas engine. It's fundamentally suited to the task. Better yet,
when a hybrid is stopped at a red light, the gas engine can shut down
completely; it won't start up again until the electric engine has accelerated
the car to that magic 20 m.p.h. point. The upshot is that a gas engine operates
only in its near perfect window of efficiency, thereby burning substantially
less fuel than normal. When a car brakes, the electric motors switch to
"regenerative" mode, transforming the energy of braking into
electricity that recharges the batteries. The fuel efficiency of this
self-contained process in a Prius can be as high as 60 miles a gallon, or 66
miles a gallon in an Insight.
Yet as any physicist knows, efficiency can be
flipped on its head. If a hybrid system can squeeze more energy out of a single
unit of gas, then why not reverse the proposition? That is, instead of using
the extra juice to increase fuel economy, employ it to propel the car faster
+ As these experiments unfolded, the auto industry began to realize that
high-performance hybrids were not only possible but might also be the answer to
hybrids' enormous marketing problems. Sure, Leonardo DiCaprio and Harrison Ford
were lining up to buy Toyota Priuses. But surveys showed that hybrids would
never break into the mainstream because Middle America couldn't abide their
feeble performance. "Skinny tires, little engines - they looked arguably
more like a science project than a car you'd want to drive," says Anthony
Pratt, who covers hybrids for the car-industry analyst J. D. Power &
Indeed, Pratt's consumer surveys discovered
recently that, even with rising gas prices, "performance" was still
far and away the single most important factor in buying a car. J. D. Power polled
people who owned their cars for 90 days and asked them what the most important
part of their purchase was. Only 33 percent said gas mileage, and a mere 7.6
percent said "environmental impact." The No. 1 factor for 62 percent
of the respondents was "reliability and durability."
To the extent that consumers worried about low
fuel economy, it was as a matter of personal inconvenience: stopping to refuel
every few days was a big hassle. Before Lexus began selling its 400h S.U.V.
hybrid this spring, the company conducted a focus group to find out why
would-be buyers wanted a hybrid. The reason: convenience. "The big deal
was, I don't have to stop that much to fuel up. That was a primary purchasing
factor!" says Dave Hermance, executive engineer for environmental
engineering at Toyota's Technical Center. "It wasn't so much the fact that
'I'm going to save $600 a year in fuel savings.' Then there was the 'Oh, yeah,
it makes me feel very, very good about the environment. When my kids come home
from college, they don't chew on me as hard, because I'm doing something
environmentally correct.' "
In this new generation of high-powered
hybrids, you essentially get the same powerful S.U.V. drive you've always had -
but with slightly better mileage. For example, the Lexus 400h has a
six-cylinder engine, so it attains mileage of up to 27 to 32 miles per gallon.
But the electric motors endow it with the feel of a V-8, a car that would
normally get a measly 13 miles to the gallon. Similarly, Ford's Escape S.U.V.
has only four cylinders but drives like a V-6 and gets 36 miles to the gallon.
+ The biggest engineering challenge in any
high-performance hybrid is not really managing the drivetrain, however, or even
the electric motors. It is the batteries. They are the linchpin of how a hybrid
system performs, because they determine how long the electric motors will be
able to function.
Consider, for comparison's sake, a laptop
battery. It works very slowly, taking several hours to charge, then it holds
the charge for weeks at a time and dispenses it in a slow trickle. In contrast,
a battery for a hybrid needs to work in huge, rapid surges. It must rapidly
blast out a very big charge - the motors in the 400h require a heavy 150
kilowatts - and then recharge just as quickly by capturing regenerative power
while braking. If you could force the 400h to drive solely on batteries, with
no gas engine at all, they would last for only a minute or two. But this never
happens, because in reality the batteries are constantly inhaling and exhaling
energy; a single drive across town might involve a dozen such cycles.
If you wanted to endow a hybrid with
astonishingly high fuel efficiency, you'd charge the battery to its absolute
peak; that way, it could spell the gas motor for the longest possible period.
But a fully charged battery tends to swell with heat, and such wear and tear
would significantly shorten its life span. You would have to do open-heart
surgery on your hybrid, having a mechanic regularly install new batteries at a
cost of several thousand dollars. Customers, Hermance realized, would never
tolerate that. Indeed, surveys show they don't want to change the batteries for
seven years or more. So with the 400h, Lexus did what most hybrid automakers
do: they programmed the car's software to intentionally hobble the energy flow,
ensuring that the regeneration would never fill the batteries more than 60
percent. This means the batteries will last years - but potentially at the cost
of significantly reducing the vehicle's fuel economy.
So, how does it feel
like driving a high performance hybrid? Writes the author:
+ I turned the key in the ignition to start
the car and. . .nothing. No sound, no shudder of the engine awakening. Then it
hit me: of course there was no sound. The 400h uses its electric motors to push
off from zero, so even though the gas engine hadn't come to life yet, the car
was indeed "on." I gently stepped on the accelerator, and sure
enough, the car drifted forward, silent as a ghost. Half a block later, the engine
quietly began purring. I quickly discovered that the 400h really does perform
as if it were a full V-8. When I suddenly hit the accelerator to dart out of a
tight spot in traffic, the tires gave a satisfying squeal.
Yet in other ways, the experience felt subtly
different from a regular S.U.V. When I quickly sped up to get onto a highway
ramp, for example, the acceleration didn't push me back into my seat the way a
normal car would. This, as it turned out, is due to some intriguing physics in
the hybrid drivetrain. When a regular car accelerates, it goes through a
"shift curve." Each time it shifts up a gear, the transmission needs
to disengage for an instant, producing a moment of deceleration - followed by a
sudden fresh burst forward. It's that staggered, pulsed feeling that we
typically associate with speeding up. But the hybrid 400h has a considerably
more complicated "planetary" drivetrain, which organically weaves the
efforts of the gas engine and the electric motors together. You don't feel any
dead spots because whenever the gas engine is changing gears, the electric
motors prevent those tiny temporary decelerations.
on Broadway: Saw it last night. Jill
Clayburgh is great. Correction, the whole cast is great.
Moving into a retirement home:
An old gent moved into a retirement
community where good-looking, eligible men are at a premium. After he had been
there for a week, he went to confession: "Bless me father, for I have
sinned. Last week I had my way with seven different women."
The priest said, "Take seven lemons,
squeeze them into a glass and drink the juice without pausing."
"Will that cleanse me of my sins, Father?"
"No," replied the priest, "but
it'll wipe that grin off your face."
+ Blackstone private equity funds. Click here.
+ Manhattan Pharmaceuticals: Click here.
+ NovaDel Biosciences appeals. Click here.
+ Hana Biosciences appeals. Click here.
+ All turned on by biotech. Click here.
+ Steve Jobs Commencement Address. The text is available: Click here.
The full audio is available. Click here.
+ The March of the Penguins,
an exquisite movie. Click here.
+ When to sell stocks. Click here.
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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