The S&A Digest

Our "Hall of Shame"... Gross says the credit boom is over... Buffett: Eat the rich... South Carolina, center of the financial world?... Another casino in Macau... Nokia, not Apple... The only legitimate sovereign power...

What subscribers really want to know... we frequently can't tell them... They want three or four stocks they'll never have to sell, that will go up steadily with nary a down day, making them wealthy enough to afford all of life's pleasures. They think we know which stocks to buy... Sometimes we do.

Bloomberg says RadioShack (RSH) is one of the two top-performing stocks in the entire S&P 500. I wanted to pull my hair out...

I identified RadioShack as a world-class investment about a year ago. It was dirt-cheap – trading for about six times cash earnings. It has a terrific competitive advantage – it operates more than 7,000 RadioShack locations, one within five miles of 95% of the U.S. population. Best of all, to me, Wall Street hated the stock: It was one of the most heavily shorted on the market. These factors led the company's management to buy back stupendous amounts of stock – nearly 30% of the float over the last five years. If you'd asked me when I recommended the shares, I would have told you that RadioShack was the kind of stock everyone should own: It was totally safe, it was set to soar on valuation and buybacks, and eventually Wall Street would reverse its opinion of the stock, setting up the opportunity to make 30%-50% per year for the next five years. It was perfect... until the CEO admitted having lied on his resume. Uncertainty about the company's leadership caused the shares to fall from $25 all the way to below $14. We were "stopped out" at a loss. Today, the stock is sitting near $35 per share... about 50% above where I initially recommended it.

Even when you get everything right about the business... sometimes it doesn't work out as an investment. Life's not fair, is it?

Bond king Bill Gross predicts that the subprime crisis will leak out of the housing industry to hurt consumption and new home building. Gross expects the Fed to cut rates to deal with the problem within the next six months.

At a fundraiser last night for Hillary Clinton, Warren Buffett rallied for... higher taxes. The billionaire explained that he makes $46 million a year in income and pays only 17.7% in taxes. Meanwhile, those who work for him and make considerably less, pay an average of 32.9% in taxes. While on stage, Buffett offered $1 million to anyone in the audience to offer an example where one of the nation's wealthiest individuals pays higher taxes than one of his subordinates. Buffett pays little in taxes because, relative to his equity holdings, he doesn't have a large income. What Buffett is asking the government to do is to tax wealth directly – to tax net worth, not income. I can't imagine the government doing anything scarier.

People are already lining up outside of two New York Apple stores to buy the new iPhone – four days in advance of its release. Apple will launch its much-anticipated iPhone on June 29 at 6 p.m., across all time zones. Apple plans to sell 10 million phones in 2008, capturing 1% of the market. Prediction: The iPhone won't improve Apple's bottom line... and shares of Nokia will outperform Apple over the next 12 months.

"What happens in Vegas, goes to China," reports The Wall Street Journal in response to the news that Las Vegas Sands Corp (LVS) is building a $2.2 billion "Venetian" casino in Macau. The casino will replicate its Nevada namesake, but will be 30% bigger, with 1 million square feet of high-end retail shops. That's "an area big enough to host simultaneous football games by all 32 teams in the NFL," the paper reports. Of course, our own Steve Sjuggerud recently returned from a trip to Macau and has found the single-best way to take advantage of the booming real estate trend. Sjuggerud Confidential subscribers can find the details in the May 2007 issue, called The Greatest Growth Story on the Planet.

12% Letter pick Citigroup (C) is in advanced talks to buy Automated Trading Desk, an electronic trading firm, for $700 million. Citi wants to do away with its human traders. The Mount Pleasant, S.C.-based ATD uses high-trading volume, up to 200 million per day, and thin profit margins to make money for its clients. Last year, the firm was responsible for 6% of trading in U.S. stock markets.

New high: Vector Group (VGR).

In the mailbag... our worst. Unlike almost everyone else in our business, we publish annual reviews of our actual recommendations. We show you, each year, how we've done. Why people would read financial research that didn't publish such information, we can't fathom. But, we do our part. And today... we open the kimono in a most embarrassing way: A list of our worst. Did you buy these dogs? Let us know: feedback@stansberryresearch.com.

"I see quite a few e-mails from subscribers that indicate happiness with the various picks from the newsletters. I've been an alliance subscriber only since the beginning of 2007 and, frankly, I expect good things to come from my subscription – I have no intention of canceling. But I must confess that in a mere six months I have already managed to have 14 positions that have lost 10% or more including one, considered conservative, that is down over 25%. Another two are down 32% (since sold) and 35%, and one hasn't traded for over a month after dropping 14%, so who knows where it will eventually trade. A few of these have been sold. For the record these positions are HR, USG, GGP, VRNM (formerly DVSA), AAAGY (AAA), ARCC, MCGC, OPX, DIL, SVA, PTIE, ESPZF, CDE, and OHB. An S&A rogues gallery I suppose. Porter, your advice to newbie investors is right on. Don't go for the home run right out of the box. If you hit one, you'll take years to get over the self-delusion that follows, and it will be very expensive. Annual gains in the 10-15% range are as good as it gets for real investing. I've been at this for 30 years and can still come up with mistakes like the ones above (though I don't take all the credit)!" – Paid-up subscriber J McDonald

Porter comment: Well... we thought your list was the most extraordinary we'd ever seen. How, we wondered, did you manage to buy nothing but our dogs and warts? Did you miss any? Check our "Hall of Shame" below:

"Would you mind giving more information about your following quote?

Independent studies of actual mutual fund performance show that investors make about 5% a year in funds, on average (which is far less than you'd make in bonds, never mind value stocks).

"It's from your June 19th edition of the S&A Digest. Since when do good equity funds only average 5% per year? I've usually done much better than that with my fund investments. I have no problem at all with your position that individual stocks can make you a lot more money than funds. (What else would you say being a newsletter publisher?) Frankly, I agree with you. But to say the average fund investor only makes about 5% per year on average? That seems unduly low. Where does that come from?" – James McGovern

Porter comment: The information comes from the Dalbar, a mutual fund market research group. Its studies focus on actual customer returns, not individual fund returns.

"Subscribers who doubt your production forecasts for oil shale might want to take a drive along Interstate 70 between Grand Junction, Colorado, and Glenwood Springs. I counted over 20 rigs (they show up like beacons after the sun goes down) that I don't recall seeing there two years ago. Obviously, the oil companies feel they are on to something and have found a way to work around the environmental issues." – Paid-up subscriber S. Jackson

"OK, I've salivated through your mouthwatering brisket descriptions even though there isn't a decent brisket available within hundreds, no thousands, of kilometers. I've chuckled over your "lead-paint marinade" (just kidding) beer-stuffed chicken and gnashed my teeth over some other writer's recommending "affordable" $35 bottles of wine... (not to put you into a class with that pompous Cramer Wannabe)... But please, torture me some more... give us a rundown on real Irish beer, ales & stouts. If brews you can "make a meal out of " aren't your thing, surely somebody in your Traveling Will-BERRYS party has a nose for what Bud Lite isn't." – Paid-up subscriber Murph

Porter comment: We drank Guinness. Signs all over Ireland proclaim "Guinness Is Good For You." Beats me if that's true... but none of us got sick.

"I agree with your comment that the U.S. government and foreign policy is the pawn of multinationals. Regarding overthrowing Chavez – well, certainly the CIA would like to give it another go. But remember that this was already done once (2002 – with overt support from the U.S.) but a popular uprising quickly brought him back into power. It would seem that Venezuela has more popular support for [its] government than we have here in the U.S. Gosh – that's what most people think a democracy is!!" – Paid-up subscriber Ed

Porter comment: Government with unlimited power is a travesty against human nature, regardless of its popularity or the form it takes. The only legitimate sovereign is the individual.

Regards,

Porter Stansberry

Baltimore, Maryland

June 27, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame

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

As of 06/27/2013