Technology Investor 

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 Thursday, September 7, 2006: The U.S. Open tennis is engrossing and utterly time-consuming. Thank God I don't have a day job.

The entrepreneurial explosion continues: I have two beliefs.
1. Work for yourself.
2. Don't borrow or beg for money. It's humiliating and diluting.

Sometimes you have to.

Lately I've seen some startups with great products. Raising money is more difficult than running the business. Investors are soured from their Tech Wreck losses. They're less willing to part with their money -- even though many of them have more of it (see yesterday's column) Money-raising needs special skills and special attention. Keys:

+ Your track record. Have you made money for yourself and investors in the past?
+ Your personal and business references. Are they primed?
+ Your money raise. Will it be sufficient? Especially if you go down the wrong marketing path three times -- as you will.
+ Your company's valuation. Is it too high? Will there be no upside for me, the investor?
+ Your receptiveness. Will you listen? This is a hard one. Most entrepreneurs don't listen. That's why they're entrepreneurs.
+ Completeness. Do you have answers at hand?

Fred Hickey is bearish on technology: He writes The High-Tech Strategist newsletter. I respect his work. He believes consumer spending is slowing because of the tightening in housing. He likes put options, not shorting. His present put option names: Best Buy (BBY), CDW Corp. (CDWC), Freescale Semiconductor (FSL), SanDisk (SNDK), Texas Instruments (TXN), Lam Research (LRCX), KLA Tencor (KLAC), Nvidia (NVDA), Garmin (GRMN), Research in Motion (RIMM), NetLogic Microsystems (NETL), IBM, Apple Computer (AAPL), Intel (INTC), Microchip Technology (MCHP), STM Electronics (STM) and Amazon (AMZN).

He also has put options on financial-related stocks: Bear Stearns (BSC), Goldman Sachs (GS), Capital One (COF), Countrywide Financial (CFC), AmeriCredit (ACF), New Century Financial (NEW), Novastar Financial (NFI) Colonial Bancgroup (CNB) and MGI Investment Group (MTG). He writes "these financial put options have fared very well of late due to recent disclosures of lower mortgage activity and sub-prime lending difficulties."

He likes Newmont Mining (NEM). Personally I prefer my smaller Australian mining stocks, including Kagara Zinc (KZL) and Minara Resources (MRE). For more on Australian stocks, check out Yahoo Australia (click here) and the Australian Stock Exchange (click here). Nice thing about the ASX's site is that it lets you track your chosen "Watchlist" in Australian dollars.

FedEx is going down the toi-tee: That's my unhumble opinion. First, I read a piece by a young man who worked there for several weeks. He talked of the gross manhandling of packages by employees. Second, my experiences yesterday. I send a package to Kansas. It doesn't arrive. Online tracking is useless. I finally reach an FedEx operator. He tells me "the plane was late and will be there tomorrow," i.e. today. I ask why no one called or emailed me. His answer: "We don't have enough staff to do that." I say, "So, void out the charge." He says "call another number (800-622-1147) for that." I say, "You gotta be kidding." He says "that's the way the system works and hangs up on me."

When companies get big and successful, they lose their "oomph." If FedEx treats its other customers like it treated me yesterday, it's a great short:

Today's Top Investment Traps, courtesy the North American Securities Administrators Association (NASAA):

+ Affinity Fraud. Members of closely knit religious, political, or ethnic groups are targeted frequently by con artists. Their pitch is essentially, “since I am like you and believe like you, you can believe in me and in what I say.” When an investment is presented in this context, the potential investor should be extremely wary. This pitch seeks to substitute an emotional appeal for careful analysis and critical thought.

+ Churning. An abusive sales practice in which unethical securities professionals make unnecessary and/or excessive trades in order to generate commissions. Most churning occurs where a broker has discretion to trade the account. In such cases, it is not necessary that the broker receive prior approval from the client to complete a transaction.

+ Equity Indexed Certificates of Deposit. Remember the days of FDIC-insured, bank-issued certificates of deposit with guaranteed principal and interest? Equity Indexed CDs are not the same product. These hybrid securities products offer an interest coupon payment or return that is based on a stock market index, usually the S&P 500. Returns are not FDIC insured. They are dependent on the performance of the stock market. These are complex securities that promise a rate of return calculated over a defined period of time based upon some form of securities market index. A declining stock market means the possibility of no return on your investment. As a result, these products pose liquidity problems and are therefore, not suitable for seniors who may need the money for retirement living.

+ Oil and Gas Investment Fraud. High oil prices mean oil and gas scams will continue to attract victims. Oil and gas deals are complicated investments that generally require a significant investment, often requiring a minimum deposit of thousands of dollars. Increasingly, these deals are being promoted via the Internet with claims of attractive tax advantages. Sales materials with “official-looking” surveyor maps and “geologist” opinion letters touting the likelihood that the “managers” of the drilling enterprise will hit pay dirt are sent regularly to prospective investors more than 1,000 miles from the region being “prospected.” Overall, these deals are highly risky, but the lure of high profits often proves irresistible to investors.

+ Personal Information Scams. The first step in separating a victim from his or her money is convincing the victim to divulge personal financial information. When the sales agent is a local tax preparer or unaffiliated insurance agent, he or she enjoys a position of trust in the community. Con artists not enjoying such a position of trust frequently style themselves as “senior specialists” or adopt a pretext of preparing “living will” or a “living trust.” A pretext that is of current concern to insurance and securities regulators is the offer to help senior citizens qualify for prescription benefits by preparing forms. In the guise of filling out forms, the scamster may ask unnecessary questions about personal financial assets. To the con artist, this information provides a comprehensive laundry list of what is available for the taking.

+ Prime Bank Schemes. These schemes often promise high-yield, tax-free returns that are said to result from “off-shore trades of bank debentures.” Investors are told that only very wealthy people can get the benefit of these programs but the promoter is able to make it available to the victim. Sometimes the victim is required to execute a “confidentiality agreement” in order to invest and is told not to consult an attorney, accountant or financial planner because they keep these programs for the “big boys” and will deny that they exist. There are no such programs, no such debentures and no such high-yield trades. These prime bank schemes are the securities equivalent of a purse snatch. Once the seller has your money, it’s gone “off shore” forever.

+ Pump and Dump Schemes. Unethical broker-dealers frequently “pump” up the value of low-priced securities traded on the NASDAQ “pink sheets” and then “dump” the stock after naïve investors have purchased the stock at inflated prices. The balloon breaks when the promoters no longer maintain the myth that there is value in the shares and investors are left holding worthless shares. These schemes frequently appear through unsolicited e-mail messages.

+ Recovery Rooms. Scam artists buy and sell the names and financial information of victims who have lost money to “recovery room” operators who promise, in return for a fee that the victim must pay in advance, to recover the money lost in a worthless investment. These “sucker lists” are bought by crooks who know that people who have been deceived once are vulnerable to additional scams; especially scams that give hope of recovering lost money. If you have been the victim of a fraud, never give out your credit card or other personal information to someone who contacts you with a promise to recover your money. Remember, in the scam world this caller is known as a “reloader” and he is setting you up for a second bite at the apple.

+ Registered High-Interest Promissory Notes Publicly Advertised. Generally, the higher the return promised, the greater the risk to your money. A track record of paying high interest and repaying principal is not an assurance that you will get your money back if the company fails. These notes are not suitable for retirement funds.

+ Sale and Leaseback Contracts. In an attempt to avoid the investor protections of securities laws, some investments are structured to resemble the sale of a piece of equipment such as a payphone, ATM machine or Internet booth located at a remote venue where the investor cannot service and maintain the equipment and must enter into a servicing agreement. In order to make the deal more attractive, investors are told that after a given period the equipment can be sold back to the seller at the investor’s original purchase price. The investor is also promised a specific rate of return. In a variant of this scheme, a real estate interest such as a long-term lease in a resort community is sold instead of physical equipment. Frequently the equipment or property does not exist and the seller lacks the financial capacity to keep the promise of repurchase.

+ Self-Directed Pension Plans. Many types of securities fraud require the victim to remove funds from legitimate investments such as stock brokerage accounts, mutual funds, insurance policies, deferred compensation plans and mutual funds so that they can be invested in a worthless scam. This scam may begin with advice to convert an employer-sponsored pension into a self-directed pension plan. While these plans may serve legitimate investment purposes, all too often they only serve to benefit the scam artist.

+ Variable Annuities. Variable annuities are tax-deferred investments that typically place mutual funds inside of an insurance wrapper for tax deferred potential investment growth. While these products are legitimate investments, regulators are concerned about their popularity in the sales community. Commissions to those who sell variable annuities are very high, which provides incentive for sellers to engage in inappropriate sales. Variable annuities are only suitable for a very small percentage of the investing public and generally are not appropriate for most seniors. The steep penalties for early withdrawals also make variable annuities unsuitable for short-term investors. Be especially wary of any broker who wants to sell you a variable annuity to hold inside a 401(k) or IRA. You are already getting tax-deferred growth in an IRA or a 401(k), and the variable annuity simply adds a layer of cost with no additional tax benefit.

The US Tennis Open is on. Nadal is out. Roddick is in. Here is the TV schedule -- only it varies, depending on the length of the matches and if it's raining. Today is sunny. For today's Schedule of Play, i.e. who's playing, click here.

US Tennis Open 2006 -- TV Schedule for August
All times are Eastern Standard
Thursday, September 7
 11:00 a.m. - 4:00 p.m.
 Men's Quarter Final & Mixed Doubles Final USA
Thursday, September 7
 7:00 p.m. - 11:00 p.m.
 Men's Quarter Final & Women's Doubles Semifinal USA
Thursday, September 7
 12:37 a.m. - 1:07 a.m.
 Highlights CBS
Friday, September 8
 11:00 a.m. - 6:00 p.m.
 Men's Doubles Final, Women's SF CBS
Friday, September 8
 12:37 a.m. - 1:07 a.m.
 Highlights CBS
Saturday, September 9
 12:00 p.m. - 6:00 p.m.
 Men's Semifinal CBS
Saturday, September 9
 8:00 p.m. - 10:00 p.m.
 Women's Final CBS
Sunday, September 10
 1:00 p.m. - 2:30 p.m.
 Women's Doubles Final USA
Sunday, September 10
 4:00 p.m. - 7:00 p.m.
 Men's Final CBS

Nebraska economics:
A Nebraska farmer got in his pickup and drove to a neighboring farm and knocked at the farmhouse door. A young boy about nine opened the door.

"Is yer Dad home?" the farmer asked.

"No sir, he ain't," the boy replied "He went into town."

"Well," said the farmer, "is yer Mom here?"

"No, sir, she ain't here neither. She went into town with Dad."

"How about your brother, Howard? Is he here?"

"He went with Mom and Dad."

The farmer stood there for a few minutes, shifting from one foot to the other and mumbling to himself.

"Is there anything I can do fer ya?" the boy asked politely. "I knows where all the tools are, if you want to borry one. Or maybe I could take a message fer Dad."

"Well," said the farmer uncomfortably, "I really wanted to talk to yer Dad. It's about your brother Howard getting my daughter, Pearly Mae pregnant."

The boy considered for a moment, "You would have to talk to Pa about that," he finally conceded. "If it helps you any, I know that Pa charges $50 for the bull and $25 for the hog, but, I really don't know how much he gets fer Howard."

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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