Masters Series: Why Donald Trump Is a Genius
Editor's note: Donald Trump is undoubtedly one of the most controversial men in America.
But no matter what you think of him, Trump has also made millions of dollars using certain super-profitable techniques.
Today's Masters Series essay features an exclusive interview with Stansberry Research Resource Report editor Matt Badiali. In the first of this weekend's two-part series, Matt shares two of Trump's most lucrative strategies... and explains how you can start using them right away...
Why Donald Trump Is a Genius
Sam Latter: The other day, I heard you call Donald Trump a "genius." You normally don't talk politics. I wasn't sure what to make of it. Are you endorsing The Donald?
Matt Badiali: No, no. Absolutely not. When I said he was a genius, I was referring to his ability to find clever ways to make money. He has made billions of dollars through a strategy I've coined the "Monticello Technique."
I call it that because he bought what's now known as Trump Winery – a 1,300-acre estate in central Virginia, just down the road from Thomas Jefferson's historic Monticello property – for just $6.2 million. At the time, it had a $28 million mortgage on it. It's what we call a "trophy property." It's a one-of-a-kind asset that would be nearly impossible to replicate without spending huge amounts of money.
I don't know if you're a classic-car guy, but back in 2012, a 1955 Porsche 550 Spyder sold at auction for $3.7 million in the small coastal Florida town where I live. Now, if you found one that was for sale for $370,000 because of a divorce settlement or a bankruptcy liquidation, it would be a no-brainer to go and buy it.
Buying unique assets like that for pennies on the dollar is one of the safest ways to make a fortune.
Sam: But you're our resource guru. What does any of that have to do with resources?
Matt: Well, we're actually seeing these kinds of opportunities in the natural resource sector.
In the last bear market in natural resources, which stretched from March 2011 to January of this year, we saw the Toronto Venture Exchange – the "Dow Jones of small resource stocks" – fall 90%. Take a look...
Resources are highly cyclical. They routinely go through huge booms and busts. When supply outpaces demand, prices start to fall. Sometimes, prices fall to the point where it's uneconomic to mine the asset.
For instance, it might cost a company $65 a barrel to produce oil. But if oil prices are trading for $30 a barrel like they did earlier this year, it's costing that company $35 a barrel. If prices stay low for too long, some companies end up going bankrupt. From January 2015 to August of this year, for example, more than 100 oil and gas producers filed for bankruptcy. More than half of those bankruptcies occurred this year.
Eventually, though, supply falls and meets demand... which pushes prices higher again.
Take Freeport-McMoRan (FCX), for example. It owns a 90% stake in Indonesia's Grasberg mine. It's the world's largest gold mine and third-largest copper mine. Freeport estimates its reserves – resources that can be produced at a profit – at the Grasberg mine include about 28 billion pounds of copper, 27 million ounces of gold, and 107 million ounces of silver.
At today's prices, the gold alone inside Grasberg would be worth $34 billion. And yet, in January, the company's market cap was just $5 billion. That was the value of all of Freeport's assets, not just Grasberg. The stock traded for less than $3.75 a share. That was a fire-sale price. It's like seeing that $3.7 million Porsche Spyder with a $370,000 price tag on it. It made no sense. Today, Freeport shares trade for $10. By buying this trophy asset so cheaply, you would have made almost 170% in nine months.
To be clear, it'll cost Freeport some time and expense to extract these ounces at Grasberg. I'm not suggesting it can swoop in tomorrow and pull them out of the ground. But that $34 billion doesn't include the copper, silver, oil, cobalt, molybdenum, etc. the company owns at Grasberg and all of its other projects. Yet, today, Freeport's market cap is still only $13.5 billion.
Sam: So are trophy assets your favorite way to invest in commodities?
Matt: Trophy assets are great. But I also love investing in royalties.
The New York Times reported that Trump makes somewhere in the neighborhood of $10 million a year on royalties, primarily from licensing his name to hotels and buildings.
Royalties exist in natural resources, too. Royal Gold (RGLD) is a $5 billion gold-royalty company. It doesn't mine any gold of its own, so it doesn't have any of the costs associated with exploring and producing gold. It gives money to gold miners in exchange for a percentage of a miner's production.
As long as miners are producing gold, Royal Gold's revenues and thick profit margins will continue. That means companies like Royal Gold enjoy all of the upside of a bull market in gold while taking on much less risk than traditional miners.
Royalty companies are also a lot more diversified than miners. Instead of betting its entire future on a single mine, Royal Gold has a stake in 38 producing mines across North America, Chile, and the Dominican Republic. That doesn't count the 24 mines its partners are building and the 131 earlier-stage properties it has interests in. That kind of diversification makes royalty companies a much safer investment than pure producers.
Sam: Is Royal Gold your favorite royalty company?
Matt: Royal Gold is a great company. It's well run, and it has generated big capital gains and paid out some dividends as well over the years. But there are plenty of royalty companies out there that are similarly high-quality.
In fact, I'm heading to Ireland this week to go check out a royalty company. This is a small company – its market cap is less than $1 billion – and many of our readers probably have never heard of it before. But it has more than a dozen stakes in mines across the world with a variety of different resources.
During the bear market, it spent money acquiring several royalties. Like Trump, this company bought high-quality assets when the rest of the world didn't want them. And as the bull market in resources gets underway, that's really going to pay off, as the company could use those growing royalty payments to buy new royalties. It would have a snowball effect.
In fact, its projected royalty revenues next year are up more than 10 times what they were just a few years ago. It's really impressive and speaks volumes about how management knows exactly what it's doing. And based on my conversations with management, I believe it's likely they'll return a big chunk of the money to shareholders, too.
Out of fairness to my Stansberry Research Resource Report subscribers, I can't reveal the name here. But I plan to discuss it in depth in next month's issue.
Editor's note: Matt dug through Donald Trump's recent public financial disclosure report. What he found on page 15 of the report was one of Trump's huge income secrets. He also discovered the full details on Trump's best investment ever – netting total gains of more than 19,000%. Get the details – and see how you can start putting these techniques to work immediately – right here.