Our latest 'bad to less bad' victory...

Why one expert is selling stocks and buying gold coins...

Editor's note: Today's Digest Premium is excerpted from Episode 124 of Stansberry Radio.

 For the first time in maybe 10 years, I (Van Simmons) sold some stock... just to put the money in coins. I shouldn't say coins will go up more than stocks, I don't know... But I think the coin market is very underpriced. It's hard for me not to buy.

 Before I discuss what I'm buying, I want to explain a bit about the collectible-coin market and the different grades. There's a big price difference between the different grades of collectible coins...

You can buy one coin at an MS-65 grade for $500, and the same coin at MS-67 or MS-68 grade for $20,000. It's hard for me to justify the extra bump of $20,000 by a couple of grades on some coins. But it all depends on the coin.

 There are a few different categories of gold coins... There are the proof gold coins that were made for collectors in the year of issue. If you go back to around 1889 or 1907 and you find a $5 gold piece or a $10 gold piece, collectors would actually go to the Philadelphia Mint and buy them back in the late 1800s.

These proof coins were made from a completely different set of highly polished dies, just like the proof coins today. So proof gold is a rare thing because not a lot of people could keep them. If you bought a proof $20 gold piece, paying $22 for it in 1905 was a lot of money.

And then when you had the depression in the late 1920s and early '30s, most of these coins got stamped because the cost of acquisition was so low. So to find them in high grades is pretty rare. Rare-date gold coins and early-date gold coins – gold coins from 1795 to about 1839 – are all very rare. And then some of the rare-date gold coins – like Carson City gold coins – are very, very desirable.

– Van Simmons

Editor's note: Van recently appeared on Stansberry Radio Premium, where Porter frequently talks to many of our most successful contacts about their best ideas. To learn more about Stansberry Radio Premium, click here. Tomorrow, Van will share some of his favorite coins to buy today...

Why one expert is selling stocks and buying gold coins...

Van Simmons knows gold coins better than just about anyone. When he tells us to buy, we take note.

In today's Digest Premium, he explains why he's so bullish today...

To continue reading, scroll down or click here. 

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As of 01/20/2014

Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.

Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)

Why one expert is selling stocks and buying gold coins...

Van Simmons knows gold coins better than just about anyone. When he tells us to buy, we take note.

In today's Digest Premium, he explains why he's so bullish today...

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here. 

Our latest 'bad to less bad' victory... Three-minute trading expert... A great way to get out of the dollar... South African strikes send platinum to a three-month high... Bring on the Report Card accusations... Porter's long rebuttal to a subscriber...

 DailyWealth Trader subscribers are profiting on another big "bad to less bad" trade. This time, it's in a sector most folks wouldn't buy under any circumstances.

Before we discuss the latest winner, it's critical to understand why sophisticated investors and traders are interested in situations where most folks won't buy under any circumstances. It's one of the great secrets of low-risk, high-reward investing...

 Longtime readers know we believe "bad to less bad" trading – a term coined by our own Steve Sjuggerud – is one of the greatest investing strategies in the world. It isn't a complicated trading system... And it has nothing to do with predicting market movements.

Instead, it's a basic framework for looking at the market... one that works with both short-term (a few weeks to a few months) and long-term (a few months to a few years) trading. It's the ultimate way to find low-risk, high-reward trades.

In fact, if you do nothing else but obsessively scour the market for "bad to less bad" trading opportunities and use intelligent position sizing and stop losses, you're practically guaranteed to win big in the markets.

 As we noted in the August 26 Digest...

In "bad conditions" – where sentiment is extremely negative – you can often buy an asset for one-third or half of its book value... or trading for three to five times annual earnings.

If you step in and buy during these market lows, you can double your money if just a bit of interest returns to the market. It only takes a little buying interest to send depressed assets up 100% or 200%. It doesn't take "great" news... or even "good" news to double the price of a cheap, hated asset... It just needs things to go from "bad to less bad."

 But the greatest benefit from this type of setup is how little downside risk you take on. More from the August 26 Digest...

 Late last year, it was tough to find two sectors more hated than steel and aluminum producers. Both sectors suffered huge declines from early 2011 to mid-2013. Both suffered bear markets due to industry overcapacity and worries about the global economy. It was during this time that DailyWealth Trader co-editors Amber Lee Mason and Brian Hunt recommended big steelmaker U.S. Steel (X).

Since their original recommendation, U.S. Steel has staged a big "bad to less bad" rally. It has gained 46% in five months.

In October, Amber and Brian recommended big aluminum producer Alcoa (AA). Since then, shares have staged a big "bad to less bad" rally.

 And as of midday trading today, shares of Alcoa jumped more than 7% after an analyst from investment bank JPMorgan upgraded the stock. (DailyWealth Trader subscribers are up 42% in just three months.)

In a note from analyst Michael Gambardella, JPMorgan increased its 2014 estimate for Alcoa's earnings from $0.40 to $0.78 per share. It raised its rating from "hold" to "buy" and increased its 12-month price target from $9 to $15 a share.

The bank recently cut its global aluminum surplus estimate by 46%, improving its outlook for Alcoa, the world's largest aluminum producer.

 Both rallies show how quickly gains can pile up when you buy assets the investment crowd hates. It's the magic of Steve's "bad to less bad" approach.

 This is such a lucrative strategy, we produced one of our "Three-Minute Trading Expert" videos about it. This goes into more detail about how to use the strategy... and it walks you through a few more examples...

Each installment of the "Three-Minute Trading Expert" series lasts about three minutes... and it teaches an important investment or trading lesson. It's part of our ongoing efforts to help subscribers learn timeless wealth ideas. You can see more "Three-Minute Trading Expert" videos right here.

 One of our favorite ways to diversity out of the dollar, platinum, hit its highest point in almost three months yesterday. Before we get to what drove the price increase, a bit about platinum's fundamentals...

Platinum is about 16 times rarer than gold (annual production is between 125 and 175 tons a year). And around 80% of total production is used in automobiles (namely catalytic converters).

 We discussed platinum with rare-coin and collectibles expert Van Simmons in the December 30 and 31 Digest Premiums. (If you don't subscribe to Digest Premium, you can do so here... It's only $10 a month.)

From the December 30 Digest Premium...

 In addition to getting your money out of the U.S. dollar, platinum is also a way to go long political instability in South Africa and Russia. (That's a safe bet to make.)

 South Africa's Association of Mineworkers and Construction Union told mining companies yesterday that workers would begin a strike on Thursday if their demands weren't met.

Workers want to raise entry-level salaries from 5,000 rand (around $460 U.S. dollars) a month to 12,500 rand ($1,150 USD). Union President Joseph Mathunjwa said it would call off the strike if mining companies agreed to the pay raise by Thursday.

 The strike would hurt the world's three largest platinum producers – Anglo American Platinum, Impala Platinum Holdings, and Lonmin – which together account for about half of global production.

 "With [platinum] prices currently... above $1,450, any coordinated strike action across the three biggest producers could help platinum push toward $1,500 in the coming days, and possibly further extend platinum's premium to gold, which currently stands at a 2.5-year high of 16%," Mitsubishi precious-metals strategist Jonathan Butler told the Wall Street Journal.

 New 52-week highs (as of 1/17/14): Altius Minerals (ALS.TO).

 Despite our best efforts to be transparent with our readers via our annual report card (you can read Part I of our 2013 Report Card here), we always receive critical e-mails from readers who think we're trying to pull a fast one. You'll see Porter's long reply to one such subscriber in today's mailbag. As always, send your notes to feedback@stansberryresearch.com.

 "Porter, your analysis of publishing, at least for-profit publishing, is brilliant. You have just exposed the reason why the football magazines, every summer without fail, tell their audiences and prospective customers that THIS is the year Notre Dame can/will win the National Championship. Doesn't matter if it's bogus, wrong, or inaccurate, as it always is. They know what the market wants to hear. I subscribe to your publication, because I know you will publish what NEEDS TO BE SAID, not what I might want to hear. As a former boss of mine used to say, 'with facts you make decisions.' Many thanks and best always." – Paid-up subscriber PM

 "The returns from your S&A newsletters were not compared to the customary and very ordinary benchmark of the S&P 500. They should have been because the concern of the usual investor is simply this: invest in a S&P 500 index ETF or something else? The usual investor has no commitment to any particular sector, he is just trying to make money. It doesn't matter to him whether it was made from banks, software, Mexican stocks, or guano mining.

Using other benchmarks is biased. It would be fair to include a second benchmark for each newsletter, related to the specialty of the newsletter, such as small cap stocks.

The 2 year return of the S&A newsletters you quoted in the Friday 'Report Card' pales next to the return of the S&P 500 over the past 2 years. Including dividends that return is almost 50%. The 2-year return of the Russell 2000 is 50%. These are your rightful benchmarks.

Regarding Mr. Badiali's [S&A Resource Report] advisory, he was not obligated to recommend buying precious metals stocks. He could have advised shorting them. He could have focused on other natural resources. You should put 'risky' in the title of his newsletter, or at least 'volatile.'" – Paid-up subscriber Conrad Swartz

Porter comment: I will repeat what I've previously explained in this year's Report Card: Newsletter track records are not directly comparable to stock indexes. That's because newsletter track records evolve through time. They do not have a fixed start date, nor a fixed ending date. And unlike stock indexes, whose compositions rarely change, newsletters generally add new positions on a regular basis.

Consider my Investment Advisory portfolio. We've made seven recent recommendations that outpaced the total return (including dividends) of the S&P 500 over the last two years. The S&P 500 is up an incredible 47% over 730 days – one of the greatest two-year performances in history.

None of my market-beating recommendations, however, were included in my portfolio as of December 31, 2011. Thus, all of these recommendations beat the S&P 500 in less time – in some cases, far less time. While that's an outstanding result, it isn't an apples-to-apples comparison. On average, these market-beating recommendations were only "in play" for around 400 days.

Overall, looking at all 49 of my recommendations over the past two years, the average holding period was only 249 days. Comparing the results of 249 days of investing against 730 days of the S&P 500's results is clearly not going to yield a meaningful result.

You suggest that what really matters to investors is whether they would have made more money buying the S&P 500 Index or buying our recommendations. A clear answer to this question can be discovered by simply measuring the individual returns of every recommendation we've made against a matching period of the S&P 500's return. That is precisely why we report the "weighted" S&P 500 return. That return, compared with our average annualized return, shows you exactly what an investor could have made buying the S&P 500 instead of buying our recommendations.

As you can see, the recommendations in my newsletter over the last two years beat an investment made at the same time in the S&P 500 by around 300 basis points, on average. I consider this an important achievement, one that's in line with the long-term results we've generated in my newsletter over many years. But... there is a critical difference between my newsletter's recommended portfolio and the S&P 500.

My newsletter included seven different "short" positions – recommendations that are designed to hedge our portfolio against the risk of a bear market. And we carried the burden of a significant number of other "hedges" – mostly positions in gold-mining stocks. These recommendations clearly do not have the same kind of economic characteristics we look for in an operating business. They should, however, offer us a significant amount of protection against inflation and other kinds of macro risks.

I would suggest that your supposition that all investors care about is performance (not how it was earned) is a sign of a long bull market.

Believe me, back in 2002 and 2009, investors cared greatly about the risks their advisers were taking in stocks. I suspect your opinion on this issue will change one day soon.

Finally... you claim that the results we reported for our various newsletters "pales" in comparison to the S&P 500 over the past two years. It's true that my newsletter is the only one that beat the S&P 500 on a weighted, annualized basis. But with the notable exception of the S&A Resource Report, all the other letters reported results that were very close to the weighted S&P 500 result. (Again, though, I would urge investors to look at how our results were earned – not only the raw data.)

For example, Doc Eifrig's portfolio was up 21.9% annualized against a weighted S&P 500 return of 23.3%. Given that Doc's portfolio included only the very safest blue chips and several fixed-income positions, I'd estimate his portfolio had only about half the volatility of the S&P 500. To earn almost as much as the S&P 500 while taking on just half the risk is a substantial achievement, one that almost no other investment manager in the world can equal.

Regards,