The S&A Digest: The view from Rancho Santana

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

As of 06/20/2013

The view from Rancho Santana... Ceviche, churasco, y cerveza... Stocks you'll hold forever...

As you can see below, our office in Nicaragua has a vastly more pleasant view than our regular St. Paul Street address in Baltimore. I miss the smell of hot garbage that lingers over the city in the summer. The bougainvillea and wild rosemary just don't compare...

My wife and I lived here at Rancho Santana for six weeks in 2005. Most people looked at us sideways when we told them where we were going. Why would you want to live in Nicaragua? Well, it's the safest country in Central America. It's a very conservative, family-oriented culture. The country's natural beauty is extraordinary – especially its beaches. But... the best thing about living in Nicaragua is the lifestyle.

Food and labor costs are unbelievably cheap. A good cook costs $20 per week. You can afford to have a driver, a gardener, a cook... all for only a few dollars per day. In Nicaragua, it's still possible to lead a life of luxury on the budget of the average middle-class American. Property is cheap, too. Here in Rancho Santana, many ocean view lots are still available for less than $200,000 – lots that would cost at least 10 times as much in the U.S. And here, there's a very good chance that property will continue to appreciate. I know it's easy to scoff at the idea of living in Nicaragua – until you see it for yourself.

Goldsmith comment: I'm just happy to be at the house – which is gorgeous by the way. We drove almost four hours to reach Rancho Santana. We drove the first half through foggy, winding hills on the skinniest two-lane road I've ever seen. We were dodging enormous trucks, local buses (which are hand-painted with colorful designs), motorcyclists... and pedestrians – the locals enjoy standing in the middle of the road at night. Two and a half hours later, we turned at the Rancho Santana sign. We were the only car on the road, but the road was muddy, bumpy, and equally winding. Porter almost killed two cats, a few dogs, opossums, and other rodents on the one-lane dirt road into the compound. And we almost fell off a bridge after Porter went full speed into a mud puddle, covering our entire 4x4 and completely blinding us.

Once we hit Rancho Santana, we went directly to the restaurant and ordered a pile of food and more Toñas. The power went out for a few minutes, and the entire sky was filled with fireflies. It was so bright, I didn't know what they were at first. We ate our meal to the sound of bad reggae music and waves crashing 50 feet away. It's afternoon now, and the place is absolutely amazing. It's sunny with a constant breeze to cool you down. The beaches are pristine, and the waves (which peak around eight feet) are world-class. I'm working up the courage to surf them now... It will be my first time on a surfboard.

PSIA pick Hershey (HSY) jumped 9% yesterday on speculation the company may consider a joint venture with a larger partner – presumably Nestle or Kraft. PSIA readers are about breakeven on the stock. I'm not worried. I expect to hold this stock for a very long time. Like I said in my issue:

Today's investor would make 400% in capital gains in 10 years, assuming he didn't reinvest the cash dividends... this stock could easily become the best investment you make in your entire life.

I don't know the details of the possible merger, but I hope Hershey doesn't dilute our equity too much – and I'd hate to see a takeover. I'd prefer to hold Hershey forever. The same goes for Anheuser-Busch. Belgium-based InBev, the world's largest brewer, is considering taking over Anheuser-Busch.

These types of companies will generate steady, increasing earnings for your entire life. Owning stocks like Hershey and Anheuser-Busch for 20 years will make you rich.

New highs: Sadia (SDA), Sabine Royalty Trust (SBR), Exelon (EXC), Anheuser-Busch (BUD).

In the mailbag... As we expected, most of our readers are skeptical about Nicaragua. That's OK with us. You won't find great real estate deals in places where Trump is building towers. More on Nica, in the 'bag, below. Send your comments: feedback@stansberryresearch.com.

"Looking forward to the photos of your development in Nicaragua – Rancho Santana. Sounds like a dream. Does your investment come with a nice photo of your future landlord, Daniel Ortega?" – Paid-up subscriber Jeff M.

Porter comment: I've been coming to Nicaragua for more than 10 years. Each time I visit, the roads are a little better, the people are a little richer, and it's a little more crowded with tourists. Keep in mind, "crowded" is a relative term. We ate lunch yesterday at one of the 10 best restaurants in the country. The ceviche was the best I've ever had. The churasco was melt-in-your mouth tender. And the view, a 3,000-foot perch overlooking the pacific coast, framed by wild-growing hydrangeas, was second to none. We were the only people in the entire restaurant. The gourmet three-course lunch, for six, including drinks, was less than $100.

Regarding Danny and the Sandinistas... The average American's opinion of life outside of the U.S. is based on what he sees on TV and is laughably naive. The Sandinistas are no more communists than the Chinese. They're a political party. They were legally elected. And if they screw up the economy, they will be legally replaced. Nicaragua has had successful free elections since 1990. The fastest-growing tourist destination in the country, San Juan del Sur, which is about 20 miles south of Rancho Santana, has had a Sandinista mayor since 2004. From direct experience I can tell you America's politicians are the most corrupt in the world. No, the politicians here aren't much better. But living in Nicaragua, I have far more personal liberty than I have residing in the "land of the free."

"Don't sell us short. They may all be made by the same company, but we have three beers, not two: Cerveza Toña, Cerveza Victoria, and Cerveza Premium!" – Paid-up subscriber C. Davis

Porter comment: That's very true. I actually prefer one of the beers Goldmsith didn't mention yesterday, Premium. But to be fair to young Goldsmith, this is his first trip to the country, and the first restaurant we visited was only serving two of the country's three beers.

"I am one that thinks investing in Vietnam is wrong. I did not fight in Vietnam; I fought in Korea. For all the men who did fight there and died, is wrong for us to invest in. We as capitalist forget what happen there all too quick. I think that is one country we could stay away from? There are a lot of other countries we could invest in that would do as well." – Paid-up subscriber Wayne King

Porter comment: Commerce, trade, and investments are examples of mutually beneficial exchanges, which individuals should be free to engage in with whomever they chose. This is the essence of liberty. And history clearly shows where you find trade, you find peace. The best way to start a war is to outlaw commerce. Seems like a veteran of war would be first in line to support trade.

"How can I find out if a 125-year-old stock certificate has any value? It is for 2,950 shares at $10.00 each and is dated Sept 29, 1883. The company is 'THE BULLION MOUNTAIN SILVER MINING COMPANY' incorporated in Colorado. The certificate was recently found among my family's belongings from many years ago." – Paid-up subscriber Carl

Porter comment: Beats me. Subscribers... do you guys have any ideas?

"I've tried to follow Mike [Williams'] recommendation in True Income, however, the two institutions I dealt with, Wells Fargo and Fidelity, both said they could not complete the order because all these bonds were not in their inventory. Could Mike help to provide a list of brokers, preferably discount online brokers who have large inventory and can reliably provide the bonds recommended in True Income?" – Paid-up subscriber Zhong Wang

Williams comment: Some of you have had occasional difficulty buying one of the True Income recommended bonds. While this is frustrating, to be sure, I think this is actually very good news. It means there is very little competition in these types of investments, so we can easily establish positions.

Investments banks, such as Lehman Brothers, Goldman Sachs, and Morgan Stanley, are dealers in bond markets. Dealers are the market makers. They originate new issues, hold inventory, and stand ready to either buy or sell just about any bond that exists.

Typically, these dealers do not offer retail accounts to individuals like you and me. We have to establish a retail account with a broker, who will act as our agent and contact one of the dealers to arrange for our bond purchase.

Some large brokers like Fidelity, Schwab, and TD Ameritrade hold inventory. As it is expensive to buy and hold inventory, these brokers own bonds that are popular and easy for them to sell. In general, we aren't interested in these kinds of bonds. So, do not expect your broker to hold a True Income bond. He will get it from one of the dealers.

Alliance members can read the Bond Investing Basics on the S&A website for more information on buying bonds. We don't recommend brokers, but if you don't have a broker who can help you buy fixed-income instruments, I suggest you use a large and reputable company to make these trades. Here are the names and contact information of three national firms that advertise fixed-income expertise. Ask for the fixed-income specialist.

Schwab: 866-232-9890, www.schwab.com

Fidelity: 800-343-3548, www.fidelity.com

TD Ameritrade: 800-669-3900, www.tdameritrade.com

Regards,

Porter Stansberry

Rancho Santana, Nicaragua

May 28, 2008

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