Why Buffett Once Passed on This 10,000% Winner
Doc on how 'stretched' stocks really are... We're overdue for a correction... Is this crypto a fraud? Eric Wade's take... Why Buffett once passed on this 10,000% winner... Get Steve, Doc, and Austin's free stock picks for 2021... Video: A war of the financial worlds...
Picking up where my colleague Dan Ferris left off in Friday's Digest...
If you haven't already, please give Dan's latest Friday essay a read as soon as you can.
It's an instant classic for a number of reasons. And I (Corey McLaughlin) believe his big idea about considering "potential surprises" when investing – or doing anything, really – is timeless...
The ultimate point of making a list of potential surprises rather than making predictions is to point out events that current valuations, sentiment, and recent price action seem to indicate most folks don't even have on their radar screens...
By being ignorant to these potential surprises, they're vulnerable to risks for which they're totally unprepared.
Also, by focusing on the ways that the market might surprise you, it helps you avoid the typical human foible of believing the near-term future will resemble the near-term past... Anybody who thought that way last February was certainly bludgeoned about the face, neck, and wallet with what has easily been the single biggest surprise of my lifetime.
Dan's must-read advice reminded us of a pair of concepts that the Collaborative Fund's Morgan Housel, another one of our favorite financial writers, shared last year. As Housel wrote in May 2020...
Catastrophe can be larger than you ever imagined but adaptation can be bigger than you ever considered. Two months ago, the idea of shutting down most businesses would have seemed impossible. The idea that many could continue operating – even thrive – with every employee working from home would have sounded equally ludicrous.
History is only interesting because nothing is inevitable. The biggest lesson from the last three months is that whatever your view of the future is, it's probably wrong. Things change in ways people can't imagine at times they never considered.
Then, when these unexpected things happen, we say... "That's crazy."
But the part we want to pick up on specifically today is Dan's mention of 'current valuations'...
He talked about it as a glaring indicator of the expensive stock market we're witnessing today...
We wrote last week how U.S. stocks, in general, are expensive by historic measures... They're at levels not seen since the dot-com bubble. Even the most bullish of investors agree that's a reason for pause today...
The price-to-earnings ("P/E") ratio of the benchmark S&P 500 Index has been around 30 for a few weeks, meaning stocks are trading at prices 30 times their earnings. For perspective, over the past four decades, the index has had an average P/E ratio of 18.
Our colleague Dr. David "Doc" Eifrig and his research team added more detail to the discussion in the latest issue of his Retirement Trader service on Friday afternoon...
We have never seen a market like this one...
Valuations are hitting new all-time highs, while the economy is still recovering and... one in four companies aren't making enough to afford just the interest on their debt.
Doc highlighted a chart with his subscribers that shows the S&P 500's price-to-sales ratio – a preferable measure of richness of stocks for some investors – and its P/E ratio since the 1990s. Based on both of these metrics, you can see that stocks are more "expensive" now than during the dot-com boom...
And then, Doc shared another insightful chart... It showed the S&P 500 Index's market cap as a percentage of the world's gross domestic product ("GDP"). Take a look...
[It] can give a sense of how rich today's market is. As you'll see below, it just hit the same level as it did back during the dot-com peak.
Greed and euphoria are clearly driving today's gains – not fundamentals.
Doc went on to cite the recent astonishing measure of the Chicago Board Options Exchange's "put-call" ratio as well... Regular Digest readers might recall that this metric helps us to track sentiment among traders, based on their put and call option-trading behavior.
In other words, this ratio can tell us what the "herd" is thinking... so we can consider doing the opposite. This "contrarian" mindset has proven fruitful over the years. As Doc and his team said in Retirement Trader...
When too many people are doing the same thing, the opposite will typically happen shortly after.
Last week, this ratio hit an astonishing low of 0.34 times. Compare that with the nearly 1.3 times that it hit amid the COVID-19 scare in March. Today's low ratio means traders are bullish.
The put/call ratio has only reached this level four times in the past 20 years...
In sum, Doc said these numbers and indicators suggest, 'we are overdue for a market correction'...
But similar to Dan's thoughts from Friday, Doc also acknowledged that "just because something should – and needs to happen – doesn't mean it will happen right away."
In this case, it might sound crazy, but stocks across the board can still go higher in the face of record-high valuations.
After all, we've never seen this much money pumped into the financial system and low interest rates from central banks all over the world, including our own Federal Reserve... The biggest reason why stocks are measuring so expensive is that dollars are so cheap.
So in this month's Retirement Trader, Doc shared the details about an options strategy that should be used in the exact type of dangerous-yet-hasn't-popped market we're in...
If you want to learn more about this strategy and don't yet have a subscription to Retirement Trader, click here to see how you can get started. Right now, you can claim a one-year subscription for 65% off the normal price. (And existing subscribers, you can read Doc's most recent issue right here.)
Today, we should note that the major U.S. indexes traded sideways ahead of the heart of corporate earnings' season. We'll keep watching the numbers over the coming days.
In the meantime, be careful.
Moving on to our near-weekly crypto update...
The volatility in bitcoin prices that Crypto Capital editor Eric Wade has been warning folks to expect for the past month or so has arrived in force lately...
We've seen a pair of roughly 15% dips over each of the past two weeks... followed by brief rallies higher. The end result is that bitcoin prices are still up about $10,000 since Christmas.
Meanwhile, Ethereum – the world's second-largest cryptocurrency – hit a new all-time high of around $1,500 early this morning.
But prices aside, today, we want to discuss an interesting bigger-picture topic in the crypto world. We've seen some back-and-forth on this topic, and it recently reached our feedback inbox...
It all stems from this article, written by an anonymous author on the publishing platform Medium and alleging that the crypto Tether was "a highly probable fraud."
Essentially, the article claimed that Tether wasn't living up to its designation as a "stablecoin" – a crypto that's pegged one-to-one to a reserve asset, like the U.S. dollar. According to the author, Tether's provider doesn't have as many dollars on hand as needed for the coins it has issued.
If the article is true, this would be a big deal considering the amount of bitcoin trading that stems from folks first buying Tether – the highest stablecoin by volume – on various exchanges and swapping it for bitcoin. (However, in a way, that's not materially different than folks trading stocks with Fed-printed dollars.)
In any case, the story made the rounds on the Internet fairly quickly...
It got the attention of our friend and Empire Financial Research co-founder Whitney Tilson... He shared it in his free daily newsletter on Tuesday, noting that he would explore it more.
We've also received several messages asking for Eric's thoughts on the story... from folks wondering if it had anything to do with bitcoin's recent sell-offs, or if it could cause bitcoin to collapse – or even disappear.
Well, we have good news... In their latest weekly video update for Crypto Capital subscribers on Friday evening, Eric and lead researcher Fred Marion covered all the questions (Existing subscribers can check it out right here.)
For everyone else, we can give you the gist of Eric and Fred's view...
In short, they aren't putting a ton of stock in the "Is Tether a fraud?" story, for a few reasons...
First, Eric and Fred said they remember reading a story like this almost word for word several years ago, with this version appearing to simply have updated numbers. As Eric said...
It is a 2021 version of a 2017 story that's been floating around forever, for years... I like some of the questions [the author] brought up as in, 'Why isn't Tether on Coinbase?' I don't like all of his answers, though.
And Fred added...
We've known that Tether has had issues for a very long time. The story feels like a copy-and-paste [of] stuff we've read in 2017...
We won't get too far "into the weeds" on this today. But maybe the most important takeaway from this story and Eric and Fred's reactions is the unmatched depth and detail of our Crypto Capital service.
Fred went on to explain that when Tether emerged as the first major stablecoin in the market, regulators weren't really watching the space yet... But he still believes that even if all of its coins aren't backed by U.S. dollars, a significant enough percentage are.
And Eric said maybe the biggest takeaway is why Tether is a target for speculation like this. Essentially, it's because the coin's provider doesn't publish independent audits of its finances like others do...
This whole thing could be fixed with an audit... Could it be fraudulent? Sure. I haven't seen any evidence that it's not. I haven't seen any evidence that it is. Have they had banking problems? Of course. Are they easy to pick on? Sure.
That's why Eric reminded Crypto Capital subscribers that he has never recommended that folks hold their money in the Tether stablecoin, but does recommend holding U.S.-based stablecoins that do regularly publish third-party audit results.
In fact, he has published an entire special report on how to go about it as part of his Crypto Capital service. If you don't already subscribe, learn more on how to get started today.
Finally, we'll end today's Digest with a story about Warren Buffett...
It comes from our Director of Research Austin Root, whom we spoke with last week ahead of our "2021 preview" event that will go live tomorrow night.
This didn't make it into the question-and-answer portion of our Masters Series over the weekend (here and here), but only because it didn't seem to fit. It's nonetheless entertaining...
As part of a course Austin was taking while in business school, he traveled to Omaha, Nebraska years ago for the chance to visit Berkshire Hathaway's (BRK-B) offices... It was "a fantastic thrill," he says.
He got to spend some time around Buffett and his locally owned businesses – like the Borsheims jewelry store and Nebraska Furniture Mart. Austin also had an opportunity to eat with Buffett at one of his favorite restaurants, Gorat's, a no-frills steakhouse where simple food is the fare. As Austin said of the food there...
It's $2 steak for a reason, lathered in gravy. And you get one piece of white bread, not even toast.
Buffett was there for a group meal with Austin's class. The two met at the table for a brief chat, and Austin eventually pitched the legendary investor on the online travel-booking company Priceline.
This encounter happened back in 2005... and in the end, Buffett passed. As Austin recalled to me recently...
He actually totally appreciated the fact that that was the way travel booking was going to go. But at the time, he just really was a little bit averse to technology investments. It wasn't until Apple that he made a big technology investment.
In hindsight, Buffett may have wanted to heed the advice... Priceline, now called Booking Holdings (BKNG), is up 10,000% since Austin pitched the idea to the Oracle of Omaha.
Austin is an incredibly smart guy, which you hopefully picked up on in our interview over the weekend and in his regular work managing our Stansberry Portfolio Solutions products. And even better, he has a nose for picking fantastic companies ready to make it big...
That's something that subscribers to Austin's American Moonshots are well aware of. The publication's portfolio returned 115% in 2020, crushing its benchmark – the S&P SmallCap 600 Index – by roughly 100 percentage points.
Now, we're not sharing this story today as a way to talk down on Buffett... He's one of the greatest investors to ever live and buys what he wants and understands. That's a smart approach for anyone to follow. And of course, he's still freakishly rich – Priceline or not.
But we bring up the story as evidence of Austin's stock-picking prowess... In short, we would seriously consider his thoroughly vetted recommendations any day of the week.
That leads us to this friendly reminder...
Austin will join Doc and True Wealth editor Dr. Steve Sjuggerud in a little more than 24 hours for our biggest night of the year – our look ahead to investing in 2021. Even better, they'll each share their top recommendation for the year with everyone who tunes in.
That's right... Before the night is over, you'll get three stock tickers for free – no questions asked. You'll also get comprehensive insights from Austin, Doc, and Steve on the year that was 2020... what they're preparing for in the coming year... and much, much more.
The action starts tomorrow night, January 26, at 8 p.m. Eastern time. Again, it's absolutely FREE to attend... But we do ask that you reserve your spot in advance right here.
Fed Gone Wild: A War of the Financial Worlds
We're living in a war of the financial worlds, according to best-selling author and former Goldman Sachs managing director Nomi Prins. In this interview with our colleague Daniela Cambone, Prins explains that the Federal Reserve has been overstepping its boundaries since 2008. The questions now are, "Can the central bank be tamed? And how?"
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 1/22/21): Apple (AAPL), ARK Fintech Innovation Fund (ARKF), Autohome (ATHM), Booz Allen Hamilton (BAH), CoreSite Realty (COR), CommVault Systems (CVLT), Futu Holdings (FUTU), Alphabet (GOOGL), Green Thumb Industries (GTBIF), Harrow Health (HROW), Harvest Health & Recreation (HRVSF), Renaissance IPO Fund (IPO), iShares U.S. Home Construction Fund (ITB), Jushi (JUSHF), KraneShares MSCI All China Health Care Index Fund (KURE), KraneShares CSI China Internet Fund (KWEB), MSA Safety (MSA), MasTec (MTZ), NetEase (NTES), NVR (NVR), OptimizeRx (OPRX), Rayonier (RYN), Sea Limited (SE), Silvergate Capital (SI), First Trust Cloud Computing Fund (SKYY), and Scotts Miracle-Gro (SMG).
In today's mailbag, we're sharing some of the feedback on Dan's Friday Digest and thoughts on our recent Digest about taking care of your health. Do you have a question or comment? As always, shoot us an e-mail at feedback@stansberryresearch.com.
"Thanks for the health article, especially the reminder that we have immune systems that protect us.
"Back in the 90s, I heard a presentation that covered, among other things, the impact of sugar on our health. Although I unfortunately don't have sources to cite, the gist of it was:
* Around the turn of last century (~1900), Americans consumed about six pounds of sugar per person per year
* As processed foods began to become more normal, sugar consumption began to rise
* Doctors and scientists warned that this increased sugar intake would result in dramatic rises in cases of diabetes, heart disease, stroke, cancer, obesity, and more
* By the 1980s, sugar consumption had risen to about 196 pounds per person per year
* These 'epidemics' became a reality in the latter part of the 20th century, as predicted
* Sugar also greatly weakens the immune system, and overuse leads to depression due to repeated sugar crashes (prevalent during the holidays)
"The simplest, though not necessarily easiest, way to improve your health is to cut out the sugar. It is also cheaper and safer than a vaccine." – Paid-up subscriber Michael D.
"Corey, thanks for the recommendation of Bill Bryson's The Body: A Guide for Occupants. When searching for it, I also found the more recent When Things go Wrong: Diseases, a very short book but full of interest in these pandemic days." – Paid-up subscriber Allan D.
"Dan Ferris and I are thinking along the same lines. I haven't calculated a 23% drop in the SPX or proposed that the VIX will hit an all-time high in 2021, but I expect moves like that.
"My crash hedges are in place while I trade the market higher, knowing that every day it may be this bull's last. I look at my crash indicators daily and I am ready to sell part or all of each and every position if my VQ% stops are hit. I have Gold, Silver, and Cryptos for the long haul and look for dips to add more. Dry powder is ready and more will be tucked into the bunker if my stops are hit. Plan for the worst, hope for the best – but always be vigilant.
"Keep up the good work!" – Paid-up subscriber Jim K.
"Dan, I always enjoy your essays. The higher rips can't sustain. I have tried to position accordingly and hope others will as well. No doubt, you are on target.
"Thanks for another great one." – Paid-up subscriber Tim L.
"My response to [Friday's] newsletter is that it is exactly correct, timely and, maybe, a 'keep awake' call to all your subscribers. Keep the common sense coming." – Paid-up subscriber T.B.
"You definitely didn't waste my time. You always force me to view all angles within the limits of my aged brain." – Paid-up subscriber John W.
"Dan, please keep the brain waves coming." – Stansberry Alliance member D.D.
"Awesome Digest, Dan. In the past, I always looked forward to reading Porter's Digests and I can honestly say that you have filled those shoes. Hats off to Porter for finding a great replacement. Your writing style, like Porter's, is amazing, thoughtful, and very educating. 'Keyboard cowboy' made me fall off my chair laughing." – Paid-up subscriber Jeff D.
All the best,
Corey McLaughlin
Naples, Florida
January 25, 2021