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November 11, 2001

Holdings

	Nov-01
1	PFE
2	UN
3	YHOO
4	NKE
5	BA
6	VRSN
7	JDSU
8	CAT
9	JNJ
10	NSM
11	CA
12	FNF
13	MSFT
14	BRK-A
15	HMC
16	WMT
17	X
18	AAPL
19	P
20	WB

Performance of Individual Stocks For last 3 months

Nov-01
FNF	-1.98%
P	-1.78%
CAT	-9.39%
NKE	2.46%
LLY	0.74%
MMM	2.11%
JDSU	4.56%
YHOO	-11.02%
JNJ	8.63%
NSM	-9.15%
CA	-16.49%
PFE	2.79%
MSFT	-0.46%
BRK-A	1.50%
HMC	-13.96%
WMT	2.96%
X	-26.75%
AAPL	-1.68%
UN	-6.82%
WB	-15.53%

Total Increase (Decrease) since last quarter: -4.46

Additions: BA, VRSN

Subtractions: MMM, LLY

Commentary: This website is dedicated to investing, and so I try not to digress too much from the central topic. However, the past 90 days have seen an event that is sure to change the course of the decade: the attacks of September 11^th. I do not know how big the repercussions of these events will be, but one can only hope that the net result of them, decades from now, will be greater cultural understanding, and a solution to the root causes that breed the harmful aspects of Islamic fundamentalism. One must also hope that such events will also bring more wisdom to American foreign policy. However, I am convinced that the short term effects of these attacks will be disastrous. As an American, I realize that we have been spoiled through our history by not having seen the presence of a foreign threat on our soil since the war of 1812 (I suppose the Japanese attacks on Pearl Harbor and occupation of some of the Aleutian Islands and Pacific atolls could count). As a result, the effect of this attack are going to be blown way out of context for three reasons:

By its nature, terrorism is a nebulous and shadowy enemy. This is part of its strength as a tactic, since the threat or potential for violence engenders much more fear than the actual carnage. I fear we will see a reactionary conservatism spread in the USA similar to McCarthyism, since the USA has no homegrown mechanism for dealing with potential external threats other than collapsing on nationalistic ideologies and a culture of suspicion and fear.
From a political game-theory perspective, any major national politician will necessarily err on the side of caution when confronting terrorism since it is perceived as a new and poorly understood threat in America. In other words, a major politician has a lot more to lose by underestimating terrorist threats than by grossly overestimating them. I also think many Americans will respond favorably to decisive action against terrorism, whether or not this action is accompanied by wisdom of equal intensity.
The forces agitating for change in the Middle East and potentially the broader Islamic world that have the ear of Washington will use America’s newfound confusion and vulnerability to further their own interests. I would not be surprised if Israel further expands its territory in the Palestinian territories, or if there is a major upheaval in Iraq, Iran, Afghanistan, or Lybia (or more than one of them)

On a personal note, I am finishing up a semester abroad in Costa Rica, and I must say being out of the country at a time like this is a unique experience. On the one hand, I feel much more patriotic than I did back in the USA (my friends in the USA tell me that there is also an upwelling of patriotism in the USA, which, though heartwarming, tends to lead to irrational violence and a carte blanche for militarism in most societies). At the same time, I was disgusted by the media coverage of the event. Even here, watching CNN makes me anxious and tense, and I cannot imagine the type of hysteria that must be brewing back in the USA.

Though tragic, one of the negative effects of the September 11^th events will not be a collapse of the global airline industry. I think the market has reacted irrationally in this respect, especially with the pricing of Boeing (hence the acquisition). People will still need to fly, even if they are a bit scared right now. Additionally, I would bet that defense lobbyists will come up with a whole host of investment priorities for the Department of Defense that will be ‘necessary’ for fighting terrorism. In other words, defense dollars will fatten the coffers of many military equipments firms, and Boeing is going to be one of them. So, if anything, I believe September 11^th has perversely made Boeing a more attractive stock, exactly the opposite of the market’s reaction.

Also, I acquired VRSN in what I hope is a good timing play. I have no idea when it will hit bottom, but it is pretty low and I don’t want to miss the trough. The Internet is going to continue to grow, VRSN is well positioned to be a leader in Internet security, and well, if a year ago people were valuing the stock at 5 times its current price then surely some of the reasons justifying such prices will come back into favor in the coming years to push the price back up (in other words, I can’t believe the market was so irrational as to push up the price of the stock so much in the past 2 years. Therefore, I am hoping that the collective wisdom of the analysts out there who pushed the price of the stock up to such heights were at least partially grounded in reality. I could be foolish in following people who clearly were not very well in tune with reality, but, well, I would rather make this gamble now than kick myself for missing a low point in the future.

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