Possibly the most important issue we'll publish in 2013...

 I (Porter) started writing about capital efficiency on almost a monthly basis in 2007. And I've been studying the concept for the better part of my professional career, actually. I think it's the entire secret to understanding how to have great long-term investments.

 But capital efficiency, by itself, is not the most important factor to consider when you buy a stock. The most important factor is time: How long can you reasonably expect to continue compounding your returns in an individual stock? That's the first and most critical question for any long-term investor to answer.

 To answer that first, critical question, you must understand how the business works. Only by understanding the business – its marketing, its products, its pricing, its management – can you begin to evaluate and forecast whether or not it's likely to be a very long-lived corporation. The best example I can give is Hershey (HSY).

 It's not hard to understand how Hershey makes its profits: It developed a high-quality brand and sells a product that's cheap and relatively addictive. For just a buck, you can get a little sugar high and caffeine jolt. Human beings have been doing that for a very long time, and they are sure to continue doing it for as long as I can imagine.

 To maintain that business, all Hershey really has to do is safeguard its brand. And that's relatively simple, assuming its management has the proper incentives. As you'll see... that's certainly the case here. So I have every reason to believe that my grandchildren will be customers of Hershey's chocolate. And that makes me interested in owning the stock.

 Hershey is essentially run by a charitable trust. The state of Pennsylvania passed a law that blocks the trust from selling Hershey's stock or diluting its stake. So here we have a controlling shareholder that can literally never sell. As a result, management is extraordinarily dedicated to the long-term value of the business.

 I measure capital efficiency by looking at what a company makes in sales versus how much profit ends up in the shareholders' pockets. If you subtract the cost of making the chocolate and distributing it, you end up with what's known as the "gross profit." Now, out of that profit, the company has to pay executive salaries, administrative costs, capital investments, and interest on debt. So you ask, "Out of that gross profit, how much ends up in the shareholders' pockets?"

 Hershey is a fantastically capital-efficient business where about $0.20 out of every candy bar is returned to shareholders via cash dividends and share buybacks. That's a very high rate of capital efficiency. When you add this factor to the others – Hershey's high-quality business, its commitment to creating value, and the unique situation of its controlling shareholder – you see why I believe Hershey will eventually become my most successful stock recommendation.

Its success is nearly assured because it has an endless time horizon, a dedicated, highly invested owner, a high-quality product, and great margins. Its capital efficiency is produced, in part, by all of these factors.

 Now... you can't just buy capital-efficient companies at any price. You want to make sure you buy them at less than 10 times cash profits. Hershey generates about $1 billion in cash from operations in an average year. So you'd want to buy it when it's trading for a market cap of around $10 billion. Right now, its market cap is nearly $20 billion.

 It's hard to find capital-efficient companies trading at good prices today. They've all run up so much. I would probably point you in the direction of Wal-Mart as one possibility in today's stock market.

 This is a good business – but not a great business. It only earns about 9% a year on its assets – which is lower than we'd prefer. These lower margins (typical of all retail stocks) mean that Wal-Mart will never be as capital efficient as Hershey is.

 In 2012, Wal-Mart produced gross profits of a little more than $116 billion. (This is a huge, global business.) From these gross profits, the company earned about $25 billion in cash. The company re-invested roughly half of that cash in itself and returned roughly half ($13 billion) to shareholders. So its capital efficiency was 11.2%.

Again, that's not nearly as capital-efficient as Hershey's (at 20%). All other things being equal, you are likely to earn more money over time with Hershey. However, today, you can buy Wal-Mart for only eight times cash earnings. Hershey trades for around 14 times cash earnings.

At these prices, I'd favor Wal-Mart. Besides price, the other core issue is that Wal-Mart's capital efficiency will greatly increase over time. The company is building fewer new stores each year. Going forward, there will be a lot more capital available to return to shareholders.

 The tougher question to answer is whether Wal-Mart can continue to be a dominant force in retail. There's never been a very long-lived retail concept. Retailing seems to change with every generation of shoppers – for example Amazon, Wal-Mart's most significant competitor.

Unlike with Hershey, long-term investors in Wal-Mart would have to watch the company's management and results closely to make sure the company wasn't losing its dominant position as America's largest retailer.

– Porter Stansberry with Sean Goldsmith

The first question you need to ask before buying a stock...

As much as Porter has championed the investing concept of "capital efficiency"... it's not the most important factor to consider when buying a stock.

In today's Digest Premium, Porter explains the first and most critical question for long-term investors to answer.

To subscribe to Digest Premium and access today's analysis, click here.

Possibly the most important issue we'll publish in 2013... The one idea that is absolutely necessary to your investment success... A stock poised to become one of the world's best income investments... A fantastic new resource for S&A readers...

 Today is an important day at Stansberry & Associates.

I (Brian Hunt) want to share two major announcements with you...

The first announcement is that Dan Ferris is unveiling a new "World Dominator" buy recommendation. It will be in this month's issue of Extreme Value, due out Friday after market close. And this new recommendation is special... It could turn out to be Dan's best ever.

Before we get into the details, we need to discuss why a new "World Dominator" recommendation is a big, big deal for our best readers and our staff...

 Longtime subscribers know that our firm recommends more than 100 different trading positions and investments per year. We cover growth stocks, value stocks, options, corporate bonds, exchange-traded funds, oil and gas royalties, real estate stocks, mining stocks, and currencies.

Some folks aren't interested in our options research. Navigating the options market requires a level of sophistication that some folks will never reach... and aren't interested in reaching. And that's fine. While we believe adding options knowledge to your investor "tool box" is a great thing, an investor can do fine without it. The same goes for buying individual corporate bonds, resource stocks, and many other investment/trading vehicles.

But one idea that is absolutely necessary to your success as an individual investor is a deep commitment to buying extremely high-quality businesses at good prices. You need to know how to spot great businesses. You need to know how to value them. You need the patience to hold them for years... to allow compounding to work its magic. A reminder: Compounding is the most powerful financial force on the planet. (Read about it here.)

When an investor makes this commitment to buy and own quality stocks (usually only after years of trying everything else), he reaches an important level. He graduates to a level of knowledge that most people never reach. He "joins the club." He joins wealthy, successful investors like Warren Buffett and his business partner Charlie Munger.

 Over the years, we've written volumes on how to identify these businesses.

Porter's writings on "capital efficiency" contain some of the most important ideas we've ever published. Doc Eifrig's phenomenal "118 for 118" Retirement Trader track record is built around these exceptional businesses.

And Dan's work on "World Dominators" like Coca-Cola and Wal-Mart is a revelation to many people. It has guided thousands of readers to safe gains of more than 10% annually, year after year after year.

Dan's Extreme Value track record is ridiculously good. It's full of 40%... 50%... 70%... and 100%-plus winners. And readers earned all of these gains while sleeping soundly at night... rather than watching green and red lights flicker on a screen all day.

That's the power and safety of buying "World Dominators" at great prices. When people "get" this idea, they often refuse to buy any other kind of stock. Why eat bologna when you can have filet mignon?

 This is why we all get excited when Dan introduces a new World Dominator recommendation.

Dan's standards are extremely high. (This is just the second new Extreme Value recommendation this year.) He's extremely patient waiting for bargain prices. He waits for rare times when you can buy trophy beachfront estates for ghetto prices.

These opportunities are rare... but they do occur in the stock market. When you see them, don't hesitate. They don't last long. Take advantage of them with substantial position sizes. These positions can help build a lifetime of worry-free wealth.

To many of us, "new World Dominator recommendation" might as well read "incredible buying opportunity."

 In his next Extreme Value issue, Dan is recommending a controversial stock. Dan calls it one of the "most misunderstood" businesses in the world today.

Because of this misunderstanding, this World Dominator is trading at a price that Dan says offers "an enormous margin of safety." He says this is the cheapest price for a World Dominator that he's ever seen.

This World Dominator is also a solid dividend-payer. Its dividend isn't eye-popping right now, but Dan expects the payments to grow so much that in a few years, it will be regarded as one of the best income investments in the world.

Dan describes how this company has all the financial attributes of a wonderful business... consistently thick profit margins... consistently high returns on invested capital... tremendous free cash flow generation... a fortress balance sheet... and it rewards shareholders with dividends and share buybacks.

 Out of fairness to Dan's paid-up subscribers, we can't say much more about this stock. Only once you learn the story, you'll be amazed at how this company is poised to be one of the world's top income investments... and why it's currently one of the world's safest stocks.

 The second announcement regards a new milestone in our misguided, thankless efforts to help readers understand basic investment ideas.

We've covered why these efforts are extremely unpopular. Remember, learning is work. It can be painful. Most people just want a fish... They don't want to learn how to fish.

Most newsletter readers just want to hear about the next Facebook... or the next great gold mine... or the magic strategy that will make them rich overnight. They reject our efforts to teach key concepts, like proper asset allocation, business evaluation, position sizing, and stop losses.

As Porter has said many times, if you want to run your publishing business into the ground – if you want to receive piles of angry letters telling you to shut your mouth and just pick stocks – try to help people learn.

Still... despite the abuse we receive... we press on. We want to share the ideas we'd like to hear from you if our roles were reversed.

We also know that unless you see the value and importance of learning the basics of finance, you'll never read our work carefully or internalize its meaning. Unless you understand the basics, our newsletters won't help you. The most valuable information we can provide isn't just a stock tip. It's the understanding of how to use that tip.

 That's why this week, we're introducing the Stansberry & Associates "Education Center."

In the Education Center, you'll find a large collection of our best essays and interviews about timeless investment concepts. You'll find our best essays on how to identify and value great businesses. You'll find our best pieces on "unconventional" investments, like timberland and royalty companies. You'll find interviews that cover the most important trading concepts, like sentiment analysis, short selling, and "anaconda" trading.

You'll also find general wealth ideas, like Steve Sjuggerud's popular "Seven Secrets From the Best Businessman I Know" essay.

These pieces contain knowledge you can use to achieve a lifetime of success in the markets and business.

In addition to our essays and interviews, you'll also find our Recommended Reading list. This is a list of our favorite books on investing, trading, history, and economics. Collectively, S&A analysts have read more than 1,000 books on these subjects. This list contains 50 or so of our favorite books. These are the best of the best. We plan to add to the list over time... and add Analyst Favorite lists.

 Now... an embarrassing admission. We're very good at analyzing the markets. But we've struggled with developing the perfect website. Right now, our "Education Center" section is ONLY visible if you are not logged into our website. To find it, you'll have to log out as a user. You'll find the link at the top of the log-in page, below the boxes where you enter your user ID and password. You can also simply click here.

We're moving into 2013 with our website technology, but we're not fully there yet. Our apologies in advance.

Please... take 10 minutes and check out our Education Center. It's a work in progress. Let us know what you'd like to see more of. Let us know what improvements we can make.

And please let us know if you'd like to see more educational material from Stansberry & Associates. Or if you're like most people, write an angry letter that tells us to shut up and just send along the latest stock tip. We read every letter. Thank you in advance for your feedback. Send it to feedback@stansberryresearch.com.

 It's confirmed: Komrade Obama is spying on you. He's ordered telecom giant Verizon to give the National Security Agency detailed records of all U.S. and foreign telephone calls made by Verizon customers between January 19 and April 24.

The order was published in The Guardian, a U.K. newspaper.

We now have tangible evidence that the constitutional scholar we put in the White House is in clear violation of the Fourth Amendment to the U.S. Constitution, which states:

You see those four words "but upon probable cause"? How can you have probable cause to spy on millions of people? You can't.

If you don't use Verizon, maybe you're not being spied on... this time around. But if the government can spy on every Verizon customer without probable cause, trust me... it'll get to you sooner or later.

This might still be the home of the brave, but I (Dan Ferris) can't keep calling it the land of the free with a straight face. On days like today, I feel like I'm just waiting for some government agent to kick in my front door. But I guess they don't have to do that. They can just seize the phone company's assets for their own use any time they want. That's fascism, isn't it?

 New 52-week highs (as of 6/5/2013): None.

 As we said before... Let us know what you think about our Education Center. What do you like? What did we miss? What do you want to read more about? Write us at feedback@stansberryresearch.com.

 "I am a subscriber to your newsletter and read Faber in recent Barron's. I can't figure out why he has 25% investment in cash in the dollar. Apparently, he feels the dollar is the best of the worst as opposed to Canadian, Australian, etc., which others are recommending over the dollar. What is your feeling about this? – Paid-up subscriber Bill Vrooman

Ferris comment: The U.S. dollar is the worst currency in the world... except for all the others.

 "I can confirm Eric's suspicions. Here deep in the NW Louisiana stripper oil fields, the Chinese and their agents are paying absolute top dollar for every worn out stripper oil well they can lay their hands on. A big Canadian consortium just made a big deal as well. I'm beginning to feel like a stranger in my own backyard." – Paid-up subscriber Jim

 "I really appreciate the many good references and sound investing tips you come up with in your reports. One book your readers might appreciate and like is The Richest Man in Babylon by [George] Clason. The book is an entertaining and very useful guide to life-long prosperity." – Paid-up subscriber A. Nollan

Hunt comment: As a matter of fact... You'll find Clason's book listed among the Recommended Readings in our new Education Center. It's an outstanding book on wealth-building and personal success.

Regards,

Brian Hunt and Dan Ferris 
Delray Beach, Florida and Medford, Oregon 
June 6, 2013

The first question you need to ask before buying a stock...

As much as Porter has championed the investing concept of "capital efficiency"... it's not the most important factor to consider when buying a stock.

In today's Digest Premium, Porter explains the first and most critical question for long-term investors to answer.

To continue reading, scroll down or click here.

The first question you need to ask before buying a stock...