How to pick an advisor... Your last chance to sign up for DailyWealth Premium... Signs of a bottom in natural gas... A small delay on PSIA... Subscriber portfolio review... Time for caution...
On Fridays, I usually take a moment to talk about a particular kind of investing – like why I think individual investors should consider bonds before stocks and why following (legal) insider trading is such an effective strategy. I've enjoyed writing these basic investing memos, and the feedback from all of you has been overwhelmingly positive. But in today's Digest, I'm going to break from the form for just a minute. Instead of endorsing a particular strategy, I'd instead like to talk to you about your personal advisors...
It is extremely difficult to find anyone to give you reliable, consistent, and prudent investment advice – especially advice that's actionable. You want someone to review your financial plan at least once a year and give you sensible recommendations on ways to maximize your savings, investment returns, and financial safety. Unfortunately, most of the people (though certainly not all) licensed to give you advice (stock brokers, for example) have an enormous incentive to lead you astray.
While that doesn't mean they will, it is hard to imagine how they can keep their jobs and feed their families if they don't. For some insight into how the business of selling securities really works, I'd highly recommend reading Frank Partnoy's excellent book FIASCO. I've read every book ever written about Wall Street and this one is, in my opinion, the very best. It shows you how these firms really work and why you should never take investing advice from any of them.
You ought to take a couple of simple and sensible steps immediately to ensure your advisor truly has your best interests at heart. Start by asking your advisor how his firm makes money. Who is its real client? Does it do any investment banking? Does it raise capital for companies by selling securities (stocks, bonds) to investors? Never take advice from an employee of any firm that's in the business of selling securities. Only take advice from firms – like mine – that exclusively serve the interests of individual investors.
Next, make sure your advisor has plenty of experience and make sure he has a global view of the financial world. And look at his track record. How did his clients fare during the bear market of 1998... or 2002... or 2008? It is easy to make money in a bull market. It is tough to keep it during severe bear markets.
Finally... I'd urge you to pay close attention to how your financial advisor is paid. I would never do business with a financial advisor who was unwilling to accept a fixed fee. Paying a percentage of your assets for financial advice is tantamount to giving your advisor your wealth instead of him helping you build it. Now, believe me, I know financial advisors will hate to read this. But imagine if you went to the Mercedes dealer, and he quoted you a price that depended on the size of your liquid assets... Or imagine checking into a hotel room and being asked to pay for the room based on the size of your line of credit. Nothing else in life is priced the way investment management is priced – and it doesn't make any sense.
There's one place where you can get very sound, very safe, and very experienced global investment insights for $60 per year – our newest product, DailyWealth Premium. Yes, you can read DailyWealth for free – and you probably have been doing so for years. As you know, Steve Sjuggerud is the smartest and most conservative investment writer in our group. He has successfully led investors through bull and bear markets for nearly 20 years. He has been a stockbroker. He has been a mutual-fund manager. He has been a hedge-fund manager.
Why not spend $5 per month to get Steve's investment insights – plus nearly all of our stock picks – every day of the week? In my humble opinion, DailyWealth Premium is not only the greatest value available in the market for investment advice, it makes every other such advisory obsolete. And quite honestly, if you're not willing to spend $5 a month to get the best advice we offer every day, you're not really serious about building and keeping your wealth. You can sign up right here. It will take less than two minutes.
Oh, by the way... our $5 offer expires at midnight. We plan to raise the price to $10 a month. And continue to move it up as we add features to DailyWealth Premium. But if you are a charter subscriber, we won't raise the price on you.
Signs of a bottom in natural gas... Gas producers are now switching to oil exploration as the ratio of natural gas to oil prices is at a near high of 21 to 1. Last week, natural gas giant Chesapeake Energy leased 700,000 acres in the Rocky Mountains to drill for oil. "The economics just compel you to look for oil rather than natural gas right now," said Chesapeake CEO Aubrey McClendon. And last week, gas producer SandRidge Energy announced a $1.5 billion takeover of oil producer Arena Resources. SandRidge CEO Tom Ward recently told analysts at a major energy conference that producers can make "10 times more money" drilling for oil compared to natural gas.
In the next issue of my newsletter, I'll show you where most of the onshore oil and gas companies are drilling for oil – it could be the largest oilfield in the history of the United States. Dozens of critical test wells will be coming in by the end of this month. If they're successful, you will see the stock prices of these companies shoot up by 50% or more overnight. I planned to have the letter out today... but a minor travel snafu and a few last details have me delayed by a day or two. It will be published early next week – and it will only be available to my subscribers. Click here to sign up.
New highs: Fairholme Fund (FAIRX), WisdomTree Japan (DFJ), Financial SPDR ETF (XLF), ConocoPhillips (COP), San Juan Basin (SJT), McDonald's (MCD), Kinder Morgan Energy Partners (KMP), Banco Latinoamericano (BLX), Markel (MKL), Steak 'n Shake (SNS), Carpenter Technology (CRS), Westport Innovations (WPRT).
In the mailbag... Real results from an actual subscriber. How is your portfolio doing? Let us know here: feedback@stansberryresearch.com.
"I know you like to hear how subscriber's portfolios are performing so I will give you a first quarter report. What I call my trading account (it's long term investments and options positions) was up 8.32% in the first calendar quarter of 2010. The portfolio is 27% cash, 5% precious metal ETF's and 15% bond funds. My performance from last year, which included selling losers from my pre-Stansberry days, was +60%. All new purchases and options plays starting Jan 1, 2009 were from your team of analysts.
"The P&L volatility is quite low and has allowed me to stay with all but one investment. The one loss I booked this year was on IOC. I held on through the first hard down trade but decided on the second downtrade (on 8X normal volume) in late March that I did not want that volatility in my portfolio. My mistake on IOC was putting on too much size. Lesson learned. Porter, please stay with what you know is right even if it causes a short term subscriber drop-off. You are helping us make a lot of money out here (and avoid losses), especially when you tell us to go to the sidelines." – Paid-up subscriber RL
Porter comment: Those are great results, and they're roughly in line with how our S&A 16 Model Portfolio performed over the last 12 months. Remember though, it was a raging bull market, the sharpest we've seen since the end of the Great Depression. Going forward, those kinds of portfolio gains will be near impossible to repeat. I'd recommend going after "doubles" and "singles" in this market environment, not homeruns. It's more important now to follow position size and trailing stop guidelines, too.
At some point in the next 12 to 18 months, you'll see a big correction in stocks, as interest rates continue to rise. You can stay invested for now... but just remember, the big gains in this bull market have already been made.
Regards,
Porter Stansberry and Sean Goldsmith
Baltimore, Maryland and Panama City, Panama
April 9, 2010