Goldsmith on vacation...
Goldsmith on vacation... Nine 'Friday' Digests in a row... The seven best ETFs in the world... The Fed's biggest fear should be yours, too... In the mailbag: Boo-hoo... We disappoint everyone, per usual...
Well, my friends, I'm sad to say that we still give employees at Stansberry Research vacations. I've done my best to talk the employees out of taking time off... to little avail. Anyway... Sean Goldsmith is out for the next two weeks. He's squiring his lady friend – an attractive, young heart surgeon from New York City – around Paris and the south of France. Subscribers in France... If you see Goldie at Cap d'Antibes, say hello.
That leaves you with me (Porter) for the duration. If you like the Friday Digests I've written over the last few years, you might be pleasantly surprised. If you abhor my work – and many people do – you will want to change the channel for the next nine weekdays. Whatever you decide... I will be here... working diligently, pecking away on these keys.
Over the next issues of the Digest, I'm going to try to teach you at least one valuable thing that we've either never written about before or have never put together in this way. I'd like to give you essentially a small book about how to be a better, smarter, and more sophisticated investor. I hope you'll read the next nine Digests carefully. I'd even suggest printing them out and keeping them as a collection – something we might offer for sale if I do a good enough job over the next several days.
Also... very important... if you'd like to see me write in detail about any particular topics during the next nine days, reach out to me. Problems you've faced are ideal. I will be reading our inbox carefully: feedback@stansberryresearch.com.
One more thing before we begin this nine-day series... I know that my work, my big personality, my strong opinions, and the growth of my business often upset people. Fans of the government, for example... folks we wouldn't hire... folks we wouldn't endorse. People who are jealous of our success... or threatened by it. People who disagree with us, and haven't learned how to disagree without being disagreeable.
Every successful businessman in America makes enemies. And it seems that I've got more than my share. One leading banker in the U.S., for example, told a good mutual friend that he looked forward to visiting me in prison! Believe me, when you write the things I do about the most powerful people and corporations in the world, you are going to make some powerful enemies.
So over the next nine days, while I'm writing the Digest, I'd like to hear from my enemies. As I always do, I'll be laying out my best ideas in a big glass house – the Internet. If I make a mistake... or say something stupid (a mortal lock, sooner or later)... or if I simply hold an opinion for reasons that you find ludicrous... please let me know. Let me have it. Don't spare my feelings.
If I've ever let you down... if you've ever felt like I was doing anything wrong, nefarious, evil, or stupid... send us a note. I promise to read it. And I promise to publish some of the ones with merit. I learn far more from my enemies than my friends could ever teach me. So please, be generous with your criticism. Direct the fire hose of hatred here: feedback@stansberryresearch.com.
We'll start off our nine-day series with a topic that I bet will surprise you... a review of the world's best exchange-traded funds (ETFs). I'm going to give you seven well-run ETFs that you can buy safely and enjoy their outstanding investment performance... even if you know absolutely nothing about investing and you have no desire to learn. This is for all of our readers who don't want to manage their own assets, but want better-than-reasonable returns on their savings.
If you aren't familiar with ETFs, they're investment funds that can hold any of a variety of assets (like stocks, but also bonds or commodities). The key feature is their shares trade on public stock exchanges, so you can buy shares of them just as you would shares of an individual company's stock.
What we're looking for in our list of the seven best ETFs isn't necessarily diversification or the cheapest possible fees... we're looking for funds that help investors succeed. We're looking for funds that are based on solid financial research and follow strategies that make sense to us.
Most investors don't know this, but most of the money that goes into index funds and ETFs ends up being managed around the basis of the S&P 500 Index. That index, maintained by credit-rating giant Standard & Poor's, isn't designed to help investors. It's designed to help sell S&P's bond ratings to issuers – i.e. large public companies.
The index is "weighted" toward the stocks with the largest market caps. Funds copying this index put most of their capital into the largest and most expensive stocks. That just doesn't make sense. They are literally deciding to "buy high" instead of trying to find smart ways to "buy low." Also, there's very little indication of the overall quality of the business. Bigger isn't necessarily better.
Let's jump in...
No. 1: Cambria Shareholder Yield Fund (SYLD)
The basic idea here is simple... instead of buying the entire S&P 500, our friend, fund manager Meb Faber, has organized an ETF that owns nearly equal stakes in the top 100 highest "shareholder yield" stocks in the U.S. The list is determined by looking at the market cap (the value of all outstanding shares) and the combined value of the capital the company has returned to shareholders through dividends and share buybacks. Over time, this keeps investors' capital in the stocks that are treating their shareholders best and that are fairly priced. The result? Nearly guaranteed outperformance of the S&P 500 without lifting a finger.
For more information on SYLD, see the May 2013 issue of True Wealth.
No. 2: WisdomTree Emerging Markets Equity Fund (DEM)
The approach here is similar to Meb's SYLD, but instead of investing in large-cap U.S. stocks that treat shareholders well, DEM owns the top 100 highest-yielding emerging-market stocks. Its top holding today? Russia's huge natural gas company Gazprom (5.6% of the portfolio).
Investing in emerging markets is hard because of the huge volatility, the poor disclosure, and the difficulty transacting in foreign markets. On the other hand, over most market cycles, emerging markets vastly outperform U.S. stocks. This fund allows you to own a huge basket of only the best emerging-market stocks. And it pays a large dividend (more than 4% currently) to reward you while you wait out the volatility. Companies in the index are weighted based on actual cash dividends paid. It's also currently a "buy" in True Wealth. See True Wealth editor Steve Sjuggerud's July 2013 issue for more details.
No. 3: U.S. Commodity Index Fund (USCI)
You've got to be very careful when you buy a commodity fund – like the U.S. Oil Fund (USO) or the U.S. Natural Gas Fund (UNG). These ETFs sometimes do a terrible job of converting gains in commodity prices to profits for investors. That's because they invest in futures contracts on their specific commodity. So they have to roll their futures contracts forward. These markets are often in "contango" – meaning that the forward months' prices are much higher. In these situations, the cost of rolling their contracts forward eats up all (or most) of the profits.
The U.S. Commodity Index Fund (USCI) overcomes that problem by investing in a range of different commodities – and only when their forward-pricing curves are in backwardation. That's the opposite of contango, and it allows the fund to make easy profits, even when commodity prices are flat.
The fund invests the other half of its assets in commodities whose prices are moving higher at a rapid pace. By hopping on some of these trends, the fund can still make money (most of the time) despite the contango. There are a lot of moving parts here, as you can see, so for a full overview, I encourage you to read Steve's June 17 essay in our free e-letter DailyWealth where he published a full write-up on this unique commodity ETF.
No. 4: Blackstone Mortgage Trust (BXMT)
OK, this one is not really an ETF... it's a mortgage real estate investment trust (REIT), meaning it's a business that invests in mortgages. But it might as well be an ETF...
It's managed by Blackstone, whose real-estate head (Jonathan Gray) is the most impressive Wall Street executive I've ever met. This is a leveraged fund that invests only in top-shelf commercial properties by owning their mortgages. It does so in a unique way that eliminates the big risks faced by most leveraged mortgage REITs. Unlike residential real estate, commercial property has very little pre-payment risk. So the fund is able to lock in its interest-rate spread by using both floating-rate financing and floating-rate mortgages. I've written about BXMT in the Digest before. The fund is currently yielding more than 6%.
No. 5: Market Vectors Unconventional Oil & Gas Fund (FRAK)
Simple story here: The ongoing shale boom in the U.S. is going to get bigger – far bigger than anyone realizes, even now. We've recommended our favorites in our newsletters. But one ETF gives you immediate exposure to all of the leading shale drilling firms – FRAK. Its top 10 holdings include most of our favorites: Anadarko, EOG, Devon, Pioneer, Noble, and Chesapeake. Careful... this will surely be a volatile ETF as it is focused on a booming sector that's very dependent on higher oil prices. Nevertheless, we think this is one of the best bets in the global markets right now.
No. 6: PowerShares International Dividend Achievers (PID)
This ETF owns 100 of the highest-yielding international stocks that have shares listed on one of the major global exchanges. It weights its fund into the highest-yielding stocks. (Two of its largest positions currently are units of Teekay Shipping, a company whose LNG shipping business has been a long favorite of my Investment Advisory newsletter).
By sticking with only companies paying a good dividend and trading on major exchanges, a lot of the risk of buying foreign stocks has been removed. Also, by holding 100 companies, it offers plenty of diversification. The weighting toward higher dividends should help produce index-beating results over time.
Lately, of course, this ETF has underperformed the U.S.-centric S&P... which might indicate it's a good time to buy. Certainly, this looks like a cheap index fund: The average price-to-earnings (P/E) ratio here is only 13 times earnings. And the average price-to-cash-flow ratio is a stunningly low 7 times.
No. 7: SPDR Dow Jones International Real Estate (RWX)
There's no really great international real estate ETF... yet. So in the meantime, I'd recommend just getting the broadest possible exposure to the best managers. This fund fits the bill. Here you're getting 100 of the biggest and best real estate firms in the world – Japan's Mitsui Fudosan, Canada's Brookfield Asset Management, Hong Kong's Link REIT, and the British Land Co. These are all legendary real estate firms... and you're getting all of them, from around the world.
Over the past five years, the returns have been very good: 15% annually. Of course, that's the rebound from the global real estate crisis. But even so, I suspect the returns here will continue to be double-digit or better over the next 10 years at least.
What you have here – with just six ETFs and one U.S.-based REIT – is a group of funds that offer you value, diversification, and smart investing strategies. What you'll pay for these funds is next to nothing. You don't need a broker. You don't need an asset planner. You don't even need to read our newsletters (although we hope you'll continue to do so anyway).
Put equal parts of your portfolio into these seven investment vehicles, and you'll rarely have a down quarter. Year after year, you'll beat the international stock indexes. And in almost every year, you'll beat the S&P 500. Try to learn to allocate additional capital to this plan when other investors are panicking. But either way, learn to save something regularly – every month or every quarter at least.
My advice? Just allocate funds to whichever has performed the worst over the previous three years. If you do this for 15-20 years, I have no doubt you will end up with far more money than you ever dreamed was possible. If you do this for 30-40 years (you've got to start early), you'll end up stupendously wealthy.
There's no real trick to investing if you're disciplined enough to save, and if you only buy good assets and good companies at reasonable prices. These funds enable you to do that, and do it well, in what I consider to be all of the major areas of equity finance: U.S. stocks, foreign stocks, emerging-market stocks, U.S. real estate, global real estate, commodities, and energy.
What's really missing in this list is the fixed-income component. I'm not recommending any fixed-income funds, as I consider bonds (both sovereign and corporate) to be in the middle of a huge bubble. What should you do for income? We'll work on that later in this series.
Speaking of the bubble in fixed-income vehicles... The U.S. Federal Reserve is afraid of what's going to happen to certain leveraged bond funds and other bond ETFs and mutual funds when interest rates rise (as we know they will, eventually).
Currently, bond-fund investors can withdraw their money on demand. But... just because the investors want out doesn't mean that there will be any buyers (any liquidity) in the market at that time. The result could be a catastrophe as bond funds show net asset values that bear no connection with reality. Imagine that your bond fund says it's worth $30 a share, for example... but the bids on all of its portfolio holdings would only add up to, say, $25 a share. Who will take the $5 loss across $10 trillion of corporate bonds?
The answer is a hot potato. We could hear the chorus of "not me's" from hundreds of miles away. Jeremy Stein, a former Fed governor, put it this way "It may be the essence of what shadow banking is... giving people a liquid claim on illiquid assets." U.S. retail investors have placed more than $1 trillion into bond funds since early 2009. At the same time, broker/dealer bond inventory has fallen sharply. According to New York Fed data, bond-dealer inventories have fallen from $235 billion in 2007 to approximately $60 billion today.
When the bond market finally rolls over, it will cause the greatest disaster in the history of finance. Think end-of-the-Roman-Empire bad. The Fed thinks some kind of fee is going to staunch the tide? No way. All we can say is that you've been warned... both by us (hundreds of times) and now by the Federal Reserve.
One more thing... I was being facetious about begrudging Sean his vacation. In fact, I don't begrudge any of our employees their vacations or their pay. They've earned both, and I'm very grateful that they've decided to spend a major portion of their life helping me build a great business. On the other hand, if you ever want to get a job anywhere, you only need to do two things:
No. 1: Come with something valuable to offer. That could be your resume, your contacts, your new business, even a very good idea. Whatever you have to offer, give it away freely for an opportunity merely to prove yourself.
No. 2: Offer to work for free with no time off for a certain period of time to prove yourself. Few successful entrepreneurs would turn down that offer. And if you have enough talent, you'll end up with a great career 90% of the time.
This is how I got my first job in financial research. I worked for free for two weeks, writing up stock recommendations in Latin America. To get the opportunity, I gave my first boss (Justin Ford) a manuscript I'd written in college. It was good. It proved I could write narratives. And then I worked, without a single day off, for four years. Most of that time, I lived on a sofa in Steve Sjuggerud's living room. Then I "graduated" to a $250-per-month walk up apartment in the most dangerous ghetto in Baltimore (North Avenue).
This is also how we found our most valuable employee – our Editor in Chief, Brian Hunt. So don't tell me you can't do it. That's crap. I did it. And Hunt did it too.
New 52-week highs (as of 6/16/2014): Apache (APA), British Petroleum (BP), C&J Energy Services (CJES), Comstock Resources (CRK), Carrizo Oil & Gas (CRZO), Chevron (CVX), ProShares Ultra Oil & Gas Fund (DIG), Devon Energy (DVN), Eni (E), Freehold Royalties (FRU.TO), Halcón Resources (HK), Intel (INTC), Microsoft (MSFT), Sabine Royalty Trust (SBR), Sanchez Energy (SN), Superior Energy Services (SPN), Triangle Petroleum (TPLM), Targa Resources (TRGP), The Travelers Companies (TRV), and Williams Partners (WPZ).
In the mailbag... per usual... folks are disappointed in us. But maybe, just maybe, they really don't know what they're doing. You be the judge. Send feedback to us: feedback@stansberryresearch.com.
"I am pretty new to this, but my father has several of these advice newsletters he subscribes to. Maybe I just didn't read the fine print correctly or something, but it seems like every time I click on one of your links in an article, all I end up with is a long-winded talk about a great investment that at the end I can't actually know unless I spend more money to receive it. This is just wasting my time.
"I am a small fish trying to make a little extra money, not keep spending more money. So do I just ignore links within newsletters? What if I miss something... how do I know what advice I have already paid for and what is going to cost me more? I have had my subscription less than a week, and I have already been asked to spend more money for more advice five times. As I said ... I am a bit disappointed." – Paid-up subscriber David W
Porter comment: David... I'm afraid you've never seen one of our actual newsletters. Try going to www.stansberryresearch.com. Log in to our website using the username and password we sent to you. If you can't figure it out, call our customer service group. On this website, you'll find every single issue of the newsletter you subscribed to. All of them. Full archives. And the current issue too, of course.
You should find virtually no advertisements for any other publication in our newsletters. You will only find the information you've paid to receive (or your father paid to receive... it's not clear from your letter).
On the other hand, we also publish several free e-letters, like this one (the S&A Digest) and DailyWealth. Many subscribers are willing to read our ads (or at least to delete them) in exchange for receiving our free e-letters. But reading the e-letters isn't required. If you don't want any e-mail advertising from us, just cancel your e-letter subscription(s). You can do so easily. The instructions are at the bottom of every e-mail we send.
"Your investment advice has been spot on at times, but your investment choices have, for me, been spot wrong. I have lost more money from your advice then I've gained. Your articles and explanations are often too long and difficult to comprehend; therefore I no longer read them. I will be leaving your service soon. From a disappointed customer." – Paid-up subscriber JBP
Porter comment: James, we're sorry to lose your business. Over the last five years especially, the track records of our products have been stupendously good. I find it hard to believe you've lost money following our advice – especially if you did the first two things we recommend: Use small position sizes and trailing stop losses (see www.tradestops.com for more information).
I'd love to know what actually happened... what went wrong. Please, e-mail me the details. If you do, I'll give you a year's subscription to my Investment Advisory, for free. I don't believe there's anyone we can't turn into a successful investor.
Regards,
Porter Stansberry
Baltimore, Maryland
June 17, 2014
How Mark Cuban earned millions despite "partying like a rock star"...
In today's Digest Premium, billionaire and entrepreneur Mark Cuban reveals how he turned $3 million into $20 million, despite his hard-partying ways...
To subscribe to Digest Premium and access today's analysis, click here.
How Mark Cuban earned millions despite "partying like a rock star"...
Editor's note: Today's Digest Premium is adapted from episode 24 of The James Altucher Show, which featured billionaire and entrepreneur Mark Cuban. On the episode, Cuban shared with host James Altucher how he managed to turn $3 million into $20 million, despite "partying like a rock star"...
So after selling my company MicroSolutions for $3 million, I (Mark Cuban) bought a lifetime pass at American Airlines. All I wanted to do was party like a rock star. And that's what I did. I was a beast. I went everywhere.
I'd go to L.A. I took acting classes, so I could meet hot girls. I'd go out, party, and I'd be like, "Hey, let's just go to Vegas. I've got a pass on American Airlines. Let's just go." I'd grab some people, we'd go to Vegas.
Another time, it was "Let's go to Moscow." So we hopped on a plane and then we would hop on a plane to Barcelona... then Mexico... I used to go to Puerto Vallarta every other weekend.
I had my lifetime pass, and it was actually a great cost savings. It cost me $125,000 for essentially unlimited miles, first-class. So I was able to take me and anybody who I wanted to take. I was guaranteed a seat for both of us on American Airlines for the rest of my life for $125,000. It netted out to about $0.12 a mile when I figured it out, and it was a great deal. It saved me a boatload of money, and like I said, I got to party like a rock star.
While I was doing that, I was trading stocks and just killing it... This was a period in the early '90s when the tech market really started to take off. I was buying and selling names to the point where I was at Goldman Sachs and somebody took my track record and brought me in as a partner on a hedge fund. We did really well for a while, and then we sold that to somebody else. I'm not allowed to disclose which hedge fund, but it's still in business. I was past the $20-something million mark when we started AudioNet, which turned into Broadcast.com.
It was great. I pretty much funded AudioNet when we first started, and that's why I had the lion's share. Todd Wagner was my partner, but I put up more of the money. That's why, when we sold, it was a killing for me. We had brought in some friends who were strategic for us at $30,000 a pop. We sold about 10% of the company to them, and I had the majority of the rest.
– Mark Cuban
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