Perot: America to be 'taken over'...

Perot: America to be 'taken over'... Investors are still terrified of stocks... Live at the Value Investing Congress... Einhorn: Two shorts, two longs...

 As one of the most widely read newspapers in the country, USA Today is practically in the business of highlighting contrarian investment signals.

Last May, USA Today published a front-page story about how mom-and-pop investors were abandoning stocks, pledging never to return. I (Dan Ferris) was elated to hear that, of course! Good riddance, I said. Let the great bovine herd thunder over the cliff and give us the chance to buy equities at decent prices and hold them for the long term.

I called that a "contrarian indicator" because if the second-most widely circulated paper in America is giving voice to widespread fear about equities... that's bullish for the future of stocks. And you can see what the benchmark S&P 500 stock index has done since then...

 The USA Today is at it again...

In a rare interview, 1992 presidential candidate and billionaire Ross Perot told the newspaper, "The last thing I ever want to see is our country taken over because we're so financially weak, we can't do anything."

This is world-class fear mongering. Has any country in history had a military approaching the size of the United States'? Who'd be dumb enough to try to invade the United States? Is this guy serious? I'm almost embarrassed for him.

 Perot's comments are another reminder... Just because someone's wildly successful in one walk of life, doesn't mean he has a monopoly on wisdom. Berkshire Hathaway Vice Chairman Charlie Munger once suggested – with a totally straight face – that we should carpet the country with solar panels, the absolute worst power-generation technology available. It's horribly inefficient, and most of them are made of pure toxic waste.

And remember several years ago when media mogul Ted Turner gave $1 billion to the United Nations? The toothless and corrupt U.N. should have been padlocked and fumigated years ago, not given $1 billion.

Like Turner and Munger... Perot built a multibillion fortune through the businesses he founded – Electronic Data Systems and Perot Systems. He's also a fount of all sorts of nonsense.

I must admit, though, he characterized the U.S. government's financial problems well when he said, "It's like a guy who's drinking – sooner or later, he's got to put a cork in the bottle, right?"

 I'm attending the Value Investing Congress at the Marriott Marquis hotel in New York City. I attended the one-day workshop on Sunday, and the first day of the two-day Congress yesterday.

I try never to miss a Value Investing Congress. It's two days of some of the world's best investors laying out their investment ideas in detail. For example...

Yesterday, we saw some excellent presentations... Barry Rosenstein of New York-based hedge fund JANA Partners presented his case for owning Canadian fertilizer-maker Agrium. Rosenstein's work is legendary. As an activist investor, he and his firm take large equity stakes in companies and then pressure management to make changes to improve performance. Rosenstein said his firm has made about 50 activist investments, "and they've all done what we wanted them to do." His firm has outperformed the S&P 500 by 10% a year, over several years.

With Agrium, Rosenstein wants to split the company into two parts – wholesale and retail. The retail side of the business is misunderstood and undermanaged, he said. Rosenstein estimates the stock has about 50% upside, maybe more, if the company takes his advice. Rosenstein's entire presentation is available right now, free of charge, at www.JanaAGUanalysis.com.

 Like most companies Rosenstein invests in, Agrium's management isn't too happy about being told it could do better. After the presentation yesterday, Agrium filed a letter saying it didn't hear anything new in Rosenstein's presentation and doesn't think it needs to split the company up.

It was funny when Rosenstein reported how he told the company its retail business was worth a lot more... and the company actually disagreed with him! Can you imagine trying to fend off an activist investor's campaign to improve your business by telling the world the company isn't worth so much? Rosenstein says that might be the first time in history a corporate management team used that defense to ward off activist investors.

 Another Wall Street heavyweight, Bill Ackman – who heads the Pershing Square Capital Management hedge fund – spoke on a Byzantine "situation" between three public companies.

I'll be spelling out what's happening and its significant implications for individual investors in the next issue of Extreme Value, due out on Friday. My research partner, Mike Barrett, and I have studied the situation... and we'll share exactly what actions investors should take immediately. (I'll also share details about the brief exchange I had with Ackman shortly after his presentation.)

 More than one speaker here has pointed out what I've been telling readers off and on for months: Investors are terrified of stocks and deeply manic for bonds. Alexander Roepers of Atlantic Investment Management updated us on this idea...

I like Roepers. His firm focuses on just a few companies at a time, and his clients have made 18% a year net of fees over the last 20 years.

Citing data from the nonprofit research firm Investment Company Institute, Roepers said U.S. investors have pulled $555 billion out of equity mutual funds since 2008 and poured $1.1 trillion into bond funds. He loves this, as I do. He says it's why he's been able to invest in so many good businesses at good prices the last few years.

 Finally, well-known hedge-fund manager David Einhorn noted that his name has become a verb. To be "Einhorned" is to see your stock's price get hammered if he reveals a new short and soar if it's revealed he's long.

He spent the first several minutes of his presentation telling the audience to do their own homework and warning them against following anyone blindly into any investment. (That goes for the investment advisory business, too... You should always use our research as a starting point for your own due diligence. We're not doing our job if we don't tell you the same thing.)

Einhorn reiterated his short thesis of coffee-machine maker Green Mountain Coffee Roasters (GMCR). Einhorn noted the September 16 expiration of its patents on the K-cup coffee packs that fit their single-serving coffee makers.

"I think Green Mountain has succeeded in making their financials indecipherable," he added. "And they don't generate any cash..." We haven't researched Green Mountain like Einhorn has... but that sure doesn't sound good.

He also made cases for going long General Motors (GM) and health-insurance company Cigna (CI). He finished by presenting his case for shorting Chipotle Mexican Grill (CMG).

 Overall, I'm once again supercharged with ideas and eager to get back home and dig deep into them. I like to work alone, but it's also good to surround yourself with exceptional individuals and pick their brains for a few days. I'm sure I'll have a few more comments in Thursday's Digest about what I learned at the Value Investing Congress.

 New 52-week highs (as of 10/2/12): Fidelity Select Medical Equipment & Systems Fund (FSMEX), Sandstorm Gold (SSL.V), Virginia Gold Mines (VGQ.TO), Guggenheim China Real Estate (TAO), IBM (IBM), CVS Caremark (CVS), Walgreens (WAG), Sysco (SYY), and GenMark Diagnostic (GNMK).

 In today's mailbag... subscribers write in with questions about two of our favorite wealth strategies – selling covered calls and owning precious metals. We never get tired of recommending these ideas. And send us any feedback you have to feedback@stansberryresearch.com.

 "I am a 'newbie' at purchasing gold and silver. I understand that when you purchase other commodities like corn or soybean, you don't actually buy the items, but it is different with gold and silver since the purpose to me would be to have the asset as you say as 'real money.'

"What do people do with the physical gold that they purchase? Keep it in a bank? Keep it under their mattress? Can you advise me in this regard?" – Paid-up subscriber John Fries

Ferris comment: Congratulations on your decision to buy gold and silver, John. We recommend keeping it out of the government banking system (which means out of most every bank in America). Instead, you should keep it in a private vault, a secure safe that cannot be easily moved off your property, or buried in a safe place on your property. Wherever you choose to stash it... keep it a secret. Only tell one or two trusted family members where you keep your gold.

 "I love Doc ... he has made me plenty of money ... but the truth be told, you are fudging on his track record and you know it! Selling a put that then has the shares assigned... and then taking whatever time it takes to ultimately show a profit by selling covered calls... great strategy in the long run... eventually in a winner... but my god... fess up! Hardly what I would call a winner for the record!" – Paid-up subscriber Art Masella

Ferris comment: We get this question a lot. We explained in the September 24 Digest how Doc sells covered calls to generate long-term income and turns those positions into winners. We urge everyone to read it.

But we're curious, Art. You describe selling covered calls as a "great strategy in the long run" for creating a "winner." So why don't you count all that cash you're piling up? You didn't send it back to your broker, did you?

Regards,

Dan Ferris

New York, New York

October 2, 2012