The S&A Digest

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/01/2013

Dean Food jumps... Bud expands in China... Moody's revision... Cubs for sale... The Valhi spinoff... "I lost money on Dendreon"...

Dean Foods (DF) is trading ex-dividend today. It was up 5% at one point in midday trading... another confirmation of our S&A Dividend Grabber strategy. New Grabber subscribers received a letter today detailing all of our open and recommended positions.

PSIA pick Anheuser-Busch (BUD) will open a new brewery in Foshan, China, to keep up with the rapid growth there. Bud plans on doubling its distribution by expanding to 100 new cities, each with at least 1 million people.

Another double in China... Pepsi plans to double its workforce in China over the next five years. Right now, the company directly employs 15,000 people in China and indirectly employs 150,000 (distributors, truck drivers, etc.).

Ratings agency Moody's will change the ratings of 40 to 50 banks after J.P. Morgan and Merrill Lynch said that its system was flawed. The system came into question after Moody's rated three banks in Iceland the same as the U.S. Treasury and ExxonMobil. The company will announce the new strategies today.

For all of you baseball fans... Shortly after Sam Zell won ownership of the Tribune Co. (TRB) yesterday, the company announced – on Major League Baseball's Opening Day – that it will sell the Chicago Cubs baseball team. Analysts and bidders expect the team to bring in $600 million.

PSIA pick Valhi (VHI) shot up 12.88% yesterday. After the company spun off its shares of Titanium Metals (TIE), VHI shares began trading ex-dividend on March 27, dropping to $11.80. Since then, shares have risen 26% to $14.90.

New highs: Anglo American (AAUK), Macquarie Global (MGU), Annaly (NLY), Xcel Energy (XEL).

In the mailbag today... a real gem. Someone found a way to lose money on Jeff Clark's incredible Dendreon trade. What's got you riled up? Let us know here: feedback@stansberryresearch.com.

"You can crow about your brilliance on Dendreon, but you led me astray! I hate losing money on a trade, but it's all part of trading. What I find disgusting is losing significant money on a trade you recommended, and you guys brag about how brilliant it was and how much money you made for everyone. I challenge you, as a disgruntled subscriber, to tell me where I am wrong." – Paid up subscriber Joe Longino

Porter comment: We couldn't figure it out, either. The situation made us feel like a gift horse... so we asked Jeff Clark to look into it more carefully. According to Jeff, "If he had sold within the first half hour of trading on Friday (as was recommended), he could have closed the trade for a $2,400 profit. The issue now is that the spike in the volatility of the shares has increased the premium on the May contracts more than it's increased the Aprils. That works against a ratio spread. As the volatility comes back down, so too will the premiums and the trade should work out. But I doubt it will ever be as profitable as if he had sold early on Friday."

"I don't know about other markets, but Fidelity will place trades for stocks that trade on the Toronto market. James Dicaprio simply needs to call them and speak to a representative. I am a Fidelity customer and know this from experience." – Paid-up subscriber Ken McGaha

"If you believe that one should not put more than 4% of a portfolio in a single idea, then shouldn't you publish at least an S&A 25 to get a representative portfolio of your ideas? I would think it would be fun to have an S&A 30 and compare it with the DOW – makes the most sense to me."

– Anonymous subscriber

Porter comment: The literal answer to your question is, we don't think it's prudent to put 100% of your assets in stocks. A good asset allocation to start with is 60% stocks and 40% fixed income. Assuming a normal asset allocation, there are more than enough stocks in the model portfolio. But a real-life answer to your question would point out that as stocks appreciate, they inevitably become larger than 4% of your portfolio. Our 4% rule applies to your original allocation – not your maximum allocation.

"I've finally figured it out – you caused Global Warming and made Barney Frank a gay pimp because you wrote other people's research papers in college. In my humble opinion, that makes you immensely qualified to oversee the best group of individuals producing investment advice. (I haven't seen you accused of bludgeoning baby harp seals, but there is still time before the polar ice caps melt and drown us all.) Thanks for a great service; you and your associates are making me a great deal of money. Not drunk, Not a relative, Don't even know ya." – Paid-up subscriber Mark Aiken

"Porter – I'm a current subscriber to your Investment Advisory (and before that, True Wealth and Oil Hunter). I currently manage related portfolios totaling near eight digits, and I'm the principal owner of a company that asset allocates portfolios for clients that's also in the eight digits. This I do aside from running my mainline businesses (which is in financial, tax, and IT consulting.) I get tons of investment materials from Morningstar, Merrill, Credit Suisse, Wells Investments, etc. etc. Yet, I continue to subscribe to your service(s) because I admire the way you and your team do your fundamental research. And how you're not abash in recommending your picks. It reminds me of how the good 'old school' brokers were. They did their own independent research and, although not always right, managed to do better then the general market for their clients. It's very refreshing from the watered-down recommendations that are so prolific today." – Paid-up subscriber Peter Ling

"About formal education... Here's a quote I like, 'The measure of a man's intellect is what his library looks like after the professors are finished with him.'" – "Happy" subscriber Louis Jagoe

"With all due respect to Ian, I'd like to ask a couple of pertinent questions about his study... While studies like this can be useful, they are often fraught with statistical problems. Did Ian control for survivorship bias? When last I worked with DataStream, their database, when looked at going back a certain number of years, did not include companies that had disappeared. A special effort was needed to first find the companies that were gone, or dropped from the list, and then get all their data going forward. This in itself in many of our quant studies, made the difference between one type of result and its opposite." – Paid up subscriber "Jim"

Porter comment: We can't guarantee the quality of the data, but we did use the best available. Additionally, our study focuses on the 12-month average return of special-dividend paying stocks. Survivor bias should have a much greater impact on studies looking at long-term average returns.

Best,

Porter Stansberry

Cockeysville, Maryland

April 3, 2007

Stansberry & Associates Top 10 Open Recommendations

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