More reading homework

More reading homework... BRK's cheap... Wal-Mart up 29%... The bottom in Miami?... Mobius likes Thailand... Gold-buying season is here... "Welfare geese"...

On Tuesday, I urged you to read Chapter 8 of Benjamin Graham's The Intelligent Investor. Today, take a look at www.activevalueinvesting.com. It's Vitaliy Katsenelson's website. Click on "AVI Presentation" in the lower right portion of the screen.

I can take or leave Katsenelson's theory of "range bound markets." But I do agree that for the next several years, you either understand (1) how to value a business and (2) how to handle stock market ups and downs, or you will suffer.

My last two issues of Extreme Value dealt solely with the valuations of two world-dominating franchises, based on their cash flows and the market for world-dominating businesses over the last few years. I didn't even recommend them at current prices. I examined their values and told readers how cheap they'd have to get to become Extreme Value recommendations.

You'd better start making a list of stocks you'll buy if and when they get cheap enough. That's the strategy that's going to kick ass for the next several years. If you want to read what I wrote about the world dominators, click here.

One world dominator everyone should know about is Warren Buffett's company, Berkshire Hathaway. It is one of the best stocks on Earth right now. It has about $90,000 per share in cash and investments and 70+ subsidiaries, pounding out billions in free cash flow. It did $4,000 per share in pretax earnings last year. Take out the cash and investments, and you get a current share price of something like seven times pretax earnings. That's absurdly cheap, when you consider it's run by the greatest investor of all time.

If there's one stock you should always pile into when it's down, it's Berkshire Hathaway.

Last year, I said Wal-Mart was the best stock on Earth. Now, it's up 29%. The Financial Times reports today that most retailers had a lousy August... except Wal-Mart, whose August sales rose 3%.

Hey, Porter, the bottom you seek in Miami real estate appears to be forming... A Philadelphia private-equity firm bought 120 condos last month, breaking the logjam for vulture investors.

Jack McCabe, the Florida real estate guru, thinks "there's a purging going on. It's my belief that the vulture buyers would form the bottom of the real estate market, and we're almost there. That bottom may last for three years as foreclosure sales go on." McCabe estimates investors are holding $30 billion earmarked for distressed Florida real estate.

The phone just rang. It was one of those recorded sales calls. The recording began, "Don't be alarmed, but this is your final notice for lower interest rates..."

That's funny. The caller is right. Low interest rates are a huge financial mistake, one the Fed keeps making. Without the central bank's interference in the credit markets, there's no way interest rates would be this low right now.

I think the recorded call should have said, "Be alarmed, because there's no way 10-year Treasury yields below 4% will adequately compensate investors for the next ten years. But we don't care about that, so we're going to make the inexcusably stupid mistake of lending you money at a small spread above the current 3.7% 10-year Treasury yield. We don't know you at all, but we're cold calling you with money that's almost free of charge. Is this a great country or what? To take us to the cleaners, press 1..."

Mark Mobius, manager of Templeton Asset Management, will buy more Thai stocks if antigovernment protests cause prices to fall farther. Mobius is currently "sitting tight" on his Thailand investments, including the country's two largest banks. The Thai stock market is down 24% so far this year.

Mobius is dumping shares in Aluminum Corp. of China. He cut his stake for the fifth time since May, according to a recent filing. Chalco, as the company is known, is the second-worst performer in the benchmark Hang Seng Index this year.

Why aren't the big TV networks showing us all the storm troopers in riot gear outside the Republican National Convention in Minneapolis, arresting peaceful protestors? One bit of video I saw yesterday showed a young storm trooper in full military regalia shoving a woman who looked like she was about 70 and who, by all appearances, had done nothing wrong. I also noticed people in camouflage clothing with armbands that said, "MP," military police. In Minneapolis. At a political convention.

And what are these designated "free-speech zones" located blocks from the actual conventions? I thought the whole country was supposed to be a free-speech zone. This country is one giant, occupied zone. You know, like the airport. It becomes less and less free every day.

Either way, gold and silver are looking better all the time. No wonder the U.S. mint can't meet the demand.

Traders follow all kinds of seasonal trading strategies. Jeff Clark never trades gold on a full moon. Ian Davis was keen to cash in on Nike's traditional pre-Olympic rally. Then there's the Santa Claus Rally that boosts stocks after Christmas – based on the assumption people are happy and spending bonus checks. Here are two more to add to the quiver: Buy gold during Indian wedding season and vegetable oil during Chinese festival season.

JPMorgan released a report saying gold will rise 10% by the end of the year, driven by demand for jewelry during India's wedding season. The season has boosted prices every year since 2002, with September as the strongest month. India is the world's biggest bullion buyer. And China, the world's largest vegetable-oil importer, may double demand in the next two months as traditional festivals spur more cooking.

New high: Covidien (COV).

We got a lot of birthday wishes for Bill Bonner in the feedback and some positive notes about our first issue of Retirement Millionaire. But where's the vitriol... the rancor... the scorn? How have we offended? Let us know here: feedback@stansberryresearch.com.

"As a goose hunter of many years, I would suggest that the geese you saw during your dinner with the doc had recently lifted off of Caves Valley golf course or some such place and were looking for a place to rest after a day of leisure on the fairways. Canada geese aren't even close to leaving the north Canadian tundra, which is why 'resident' goose season is allowed until almost October. Typically you can tell the 'real geese' by the altitude at which they are flying (which is very high) as opposed to the local welfare geese." – Paid-up subscriber Kurt Zanelotti

Ferris comment: A Baltimore science teacher discovered and documented many years ago that when a goose falls out of flying formation because he's sick, tired, or wounded, two geese go with him. They stay until he's rested or dead.

Of course, these animals are merely doing what their genes tell them. They're no more noble than my dog is courageous when he hurls his little 18-pound body at the would-be intruders he thinks he hears in the backyard, all the while barking to beat the band.

Still, I doubt most humans could cut it in the goose and dog communities.

"Too often I have to scroll down to figure out who is writing. 'To be precise, he insisted on coming over to the house and cooking dinner for my wife, Andrea, and me.' Whose wife? Who is 'me'? It'd be nice to see the day's author's name at the top of the digest." – Paid-up subscriber BF

Ferris comment: There are worse things in life than a little scrolling. I'm on Tuesday and Thursday. Porter is Monday, Wednesday, and Friday. Sean Goldsmith does a good chunk of the work every day of the week, and 100% when we're not available.

Regards,

Dan Ferris

Medford, Oregon

September 4, 2008

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