A few great investors are buying

A few great investors are buying... A test for the commercial property market... Why selling puts is a better deal than buying them... Praise for our conference call...

Despite the carnage overnight in Asia (Hong Kong was down 15%), Verizon, one of my favorite long-term investments, and one of Rob Fannon's "Stalwart" portfolio picks, is thriving. It was up 10% today. The company announced its profits were up 35% from a year ago. As I've said many, many times, "If you don't own Verizon, you shouldn't call yourself an investor."

We're not the only investors bullish enough to recommend buying great businesses now, despite the volatile market. On Friday, the Wall Street Journal polled some of the world's best mutual-fund managers. Jean-Marie Eveillard is buying American Express. Tom Marsico of the Marsico Growth Fund bought new positions in Wal-Mart and Target, figuring consumers will seek value during tough times. Wally Weitz, the other "Oracle of Omaha," – who usually stays away from tech – bought Microsoft because "it's safe and has a fortress balance sheet." Finally, David Winters of the Wintergreen Fund is buying Swiss food giant Nestle and Germany's Schindler Group, which makes and services elevators and escalators. "For those who are brave and do the work, there are some fabulous opportunities," he says, "because despite all the prophesies of gloom and doom, the sun will come up tomorrow."

Putting a lot of money on the wager that the sun will in fact come up tomorrow, famed value investor Marty Whitman and his wife recently put more than $2 million into their Third Avenue Value Fund. Whitman said he owns companies that are "absolutely insulated from the credit crisis." In Japan, he owns Toyota Industries and holding company Mitsui (among others). In the U.S., he cited the property manager Forest City Enterprises and oil driller Nabors Industries. They don't need access to capital markets, and they're trading for huge discounts to "readily-ascertainable net asset value."

CNBC recorded an interview with Whitman, Eveillard, and Charles Royce. You can watch it here, here, and here.

Another famed value investor, Seth Klarman of The Baupost Group, increased his position in RHI Entertainment (RHIE), a company that produces made-for-TV movies, mini-series', and other television programming, from 23.2% to 25.77%.

We may soon get a glimpse at what Las Vegas commercial real estate is really worth. General Growth Properties, a Chicago-based REIT, recently shuffled its management and announced it would sell its portfolio of Las Vegas properties, including the Fashion Show Mall and The Grand Canal Shops at The Venetian, both high-end retail locations.

The latest addition to the S&A editorial lineup is a big hit. We recently created Jeff Clark's Direct Line, where Jeff posts his thoughts on the market in real time – ensuring subscribers receive his invaluable insight immediately. Jeff's been using the Direct Line to predict where the market will head and which sectors are poised to gain. This service is free to all S&A Short Report subscribers, and we're currently offering Jeff's Short Report at a large discount... but the offer ends tonight at midnight. To learn more, click here.

New highs: none.

In the mailbag... Praise for our "no B.S. attitude." As far as I can remember, that's the first time we've gotten an explicit compliment for our stubborn insistence on telling the truth. Send your praise (or your blame) here: feedback@stansberryresearch.com.

"Excellent interview with Rick Rule. Rick's point about the oil market being controlled by certain national oil companies who currently supply 25% of the world's energy exports, and who won't be able to export any energy in 3-5 years, was worth the cost of the S&A subscription. Thank you for the perspective. All I want is one or two great ideas from your service each year. That was it." – Paid-up subscriber Robin

"I have been taking your advice to add a little to my portfolio so I have acquired some Exxon, Microsoft and some others you and your analysts discussed on your call last week. I also reviewed my PSIA and noted that BUD is still a buy. I know I am missing something. The stock is trading, as I type this e-mail, for $57 even though the acquisition price in InBev's deal is $70, and InBev just reiterated its commitment. I believe I recall from a prior response to my question from another writer that you saw no reason for this. My reason for saying I've got to be missing something is that this looks like a back-up-the-truck moment and a smart investor should buy all the stock or calls one can afford. Since this appears to be too good to be true I am assuming it is. What am I missing?" – Anonymous

Porter comment: Nothing, as far as we can tell.

"Great call on Gannett. Instead of shorting the stock, I purchased April 15 puts and I'm up 196%. I religiously sold half at 110% so I'm riding the gains now. I'm glad I bought the puts because had I simply shorted the stock, my gains would be *only* in the double digits. My question is: By buying the puts, what increased risk (if any) did I expose myself to instead of shorting the stocks outright per your recommendation? I've recently become an S&A Alliance member, and I can't tell you how happy I am to have access to most of your research publications. My only regret is that I hadn't joined earlier. Keep up the great work." – Paid-up subscriber Hiroshi

Porter comment: What if the company's stock didn't decline before your puts expired? You would have lost 100% of your investment. That's a big risk we didn't face simply being short the stock. My favorite companies to short have business models or balance sheets (or both) that are fundamentally and irreparably broken. No matter what management does, it has no way to save any of the company's equity value. These stocks are literally zeros.

By taking a short position, I have zero fundamental risk: The equity I'm borrowing to sell short is actually worthless. On the other hand, I can't know with any real precision when other market participants will recognize what's already apparent to me. And that's why, except for in very rare circumstances, I never recommend buying naked options, whether calls or puts.

On the other hand, I know out-of-the-money options expire worthless about 90% of the time. And that makes selling options a very smart risk to take when you can get a high premium... like you could last Friday when I recommended selling puts on five different companies. For more information about the options I recommend selling, you've got to read my new weekly advisory, Porter Stansberry's Put Strategy Report. To learn more, click here.

"I was impressed [with the conference call]. You are the first advisory group I've dealt with that actually seems to have some concern for its clients. Not that I think that we necessarily need to be held by the hand, but an honest appraisal is appreciated. This as opposed to selling them another newsletter that's miraculously going to correct everything, and doesn't. I like your general attitude of cutting through the BS and telling it like it is. An increasingly rare commodity." – Paid-up subscriber John

Porter comment: In regards to the no B.S. attitude... I'm glad it's finally paying off. Any number of former teachers, college professors, athletic coaches, employers, professional mentors, and ex-girlfriends were certain my complete intolerance for any kind of B.S. would lead me to ruin. It's amazing how many people will teach you and encourage you to lie as long as it means avoiding hurting someone's feelings. I'm lucky; my parents weren't in this camp. They always told me the only way to avoid getting in trouble was to always – always – tell the truth. (Obviously, my parents have never been sued by a federal agency. It's said that truth is the first casualty of war. That's almost correct. Actually, truth is the first victim of any government action.)

Regards,

Porter Stansberry

October 27, 2008

Baltimore, Maryland

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