Why I'm leaving the newsletter business forever... The unfortunate reality of financial publishing... A fact about our business you probably don't know... An exciting new step for Stansberry Research...
'Do you have a bank account in Switzerland?'
I (Porter) was eating breakfast in the tallest hotel in the world. It was 1999. China was just beginning to take off. I was on my first research trip to the mainland.
I couldn't believe my eyes: The Pudong financial center (across the Bund from old Shanghai) was the most modern urban area I had ever seen. It was like being on Mars. A blimp had actually flown underneath me as I was jogging on a treadmill a few moments earlier in the gym.
I knew it would be difficult (or impossible) to explain the scale of the wealth creation I was seeing... And I knew that China would become one of the most important and central economic themes of my life.
But that wasn't the most important thing that happened on the trip...
One of the members of our group was an investment banker...
There were about 12 of us total – bankers, writers, and investors. One of the investment banker's clients was a Chinese pharmaceutical company. We had visited the company's offices and its modern factory.
It was impressive. Its business model was to knock off advanced, "biologic" drugs – like Amgen's (AMGN) EPO – and sell them into markets where a company hadn't bothered to file for patent protection or where its exclusive rights to a drug had expired. It was an interesting model, one that had worked for earlier generations of foreign generic drug companies with small molecule (pills) drugs. Maybe it would work with biologics (proteins), too.
The company's investment banker, however, didn't want to take any chances...
He offered me a large number of the company's shares as a gift. All I had to do, he explained, was open a foreign bank account in the name of a trusted friend. (That's why he was asking about Switzerland.) Or I could incorporate in a place like Panama, where the actual owner of a business can be legally hidden.
He would introduce me to lawyers in Vancouver, Canada who could handle all of the paperwork. The important thing was that I would end up with 50,000 shares... And when the stock hit $10 or so, I'd make windfall profits. Plus, of course, I'd be doing my subscribers a favor. I'd be recommending a great business – the next Amgen!
I don't begrudge the investment banker for trying. It's his job to drum up interest in his clients' stock. And as long as I disclosed my interest in the business (instead of hiding it), I wouldn't be doing anything against the law. I also wouldn't have been doing anything wrong, at least in the eyes of most longtime financial-newsletter editors.
For most of the history of the investment-newsletter industry, that's just how business was done...
Newsletter writers got tipped off to interesting new opportunities by insiders, which made their letters worth reading. And the business model worked, because by getting shares for pennies, virtually every recommendation made a lot of money for the writer. Sadly, as I suppose many of you who are longtime newsletter readers will remember, almost none of these kinds of recommendations worked out at all for the subscribers.
I remember it vividly...
At the turn of the last century, a well-known financial-newsletter group (now out of business) published a list of a dozen small companies that they "believed" would come to dominate their markets. I was appalled. Many of the companies were Russian penny stocks. (Russia had defaulted on its international debt in 1998, sending its currency into the gutter.)
Another company on the list was promising to transform Brazilian rainforest discoveries – new tree barks, mostly – into blockbuster drugs. Really? Testing tree bark one sample at a time? Meanwhile, cutting-edge pharma companies like Vertex Pharmaceuticals (VRTX) were pioneering rational drug design and automation to test thousands of potential drug targets hourly. Vertex was trading at around $18 in January 2000. Today, it's trading at close to $150 per share. The Brazilian rainforest developer? It went bankrupt within 12 months.
In fact, within 12 months of publishing this report, every single company on this firm's list of the top 12 stocks of the next century went bankrupt. All of them. I doubt anyone can be that unlucky. I suspect that these writers were more interested in recommending companies that would offer them stock than they were in serving their readers.
As I reminded you last week, this is a personal financial journal...
(Thank you very much for all of your kind notes about Ringo. I read hundreds and hundreds of them and shared many with my wife.)
I'm writing today's Digest to share something extremely personal with you. I doubt many entrepreneurs or business owners would share this with their customers.
To understand why I'm doing this... and why I'm making the decision to leave the financial-newsletter business... you have to understand why I created Stansberry Research in the first place.
It all started with my friend, Sjug...
Today, you know him as Dr. Steve Sjuggerud, the market savant. The man who predicted this bull market in 2009 and stuck with it the whole time. The man who predicted a similar huge bull market in gold back in 2001 and saw gold move from $250 to almost $2,000. The man who accurately predicted the tech-market top in January 2000. The man who got into not one, but two, giant bull markets in biotech over the past 20 years. The man who most recently predicted a new, huge bull market in China – making ridiculous gains over the past 18 months.
In all honesty, I've never seen Sjug blow a major market call. Sure, he's been early from time to time... But I've never seen him be wrong. (Wish he could say the same about me...)
You rightly know that Sjug has been the greatest and most successful financial writer of the past two decades. But when I met him, he was 15 years old. Already a giant, (about six-foot-four), he hadn't begun to fill his frame. He was all knees, elbows, and ears.
But that's not what I noticed. Even though I was only 13, when Steve came shuffling into my family's tiny beach house with my older brother, I immediately noticed his eyes. If you've ever met Steve, you'll know what I mean when I tell you that his incredible intelligence and character is written all over his face and projected by his eyes. I knew, even at that age, that Steve was going to be an amazing person and that I wanted him to be my best friend.
You'll have to ask Steve what he ever saw in me...
He was the best surfer from our hometown. I was among the worst. He was an A-plus student, a state-champion rower, and the best guitar player I've ever seen. Let's just say I was none of those things. I was the clumsy sidekick who broke his gear or tripped over his guitar.
But I loved Steve. Any time he wanted to do anything, I was ready to go. Trips to the beach at 5 a.m.? Let's go. Skateboarding in a drainage ditch with cracked concrete that should have killed both of us? Sounds like fun. You guys are rotating your tires with a hand jack? Can't wait. I'll be there.
Steve was so brilliant that he finished college before I even got there...
By the time I finished college, Steve had gotten his masters, been a successful international stock broker, and led a global mutual fund, managing hundreds of millions of dollars. All before he was 25.
In 1996, the year I graduated from college, Sjug abruptly quit working on "Wall Street" and decided to write an investment newsletter instead. He explained his decision to me over a plate of barbecue at a friend's house during a party in one of those intense Florida afternoon thunderstorms. I can remember it like it was yesterday...
"Porter, Wall Street is rigged. These funds spend crazy amounts of money on 'commissions.' The fund pays for all of these fees. It's all legal, but it's completely crooked. The fund owner makes a killing and gets all of these kickbacks from the brokers, like tickets to sporting events and lavish gifts. I don't want to be involved in a business like that," he told me.
"And these guys are worse," he said as he gestured to a handful of well-known financial-newsletter editors. "They don't even write their letters. Brokers do. I've watched them do it. The brokers tell the newsletter editor what to recommend and offer him kickbacks for doing it, because it drives commissions. Plus, a lot of the companies give the newsletter writer shares. It's completely crooked, and most subscribers don't know what's really going on."
"I'm sure that if I'm simply honest, I can write a way better newsletter," Steve told me. "These guys don't even know anything about finance or investing... They're just promoters."
Well... it wasn't as easy as Sjug thought it would be...
It turns out that being honest isn't an advantage in marketing a financial newsletter. Within a few months, he reconsidered trying to start his own newsletter business and teamed up with one of the few honest newsletter publishers, Bill Bonner. Sjug hired me shortly thereafter in July 1996. We've been a "package deal" ever since.
When I left Bill's firm to start Stansberry Research in 1999, I brought Sjug over as soon as I could. We launched his newsletter, the one he had dreamed of writing since 1996 at that party in Orlando, on September 11, 2001.
Our timing could have been better. But we stuck together. We stuck to it, and kept doing what we knew was best for our subscribers – again, and again, and again, and again.
Trust me, most of our competitors thought we were daft...
"What?!" they'd exclaim. "You don't own the stocks you recommend? Don't you know that's why you write the letter? How are you ever going to make any money just selling newsletters?!"
We tried to explain... We told them that being independent – not managing money, not owning the shares, not accepting advertising – offers us the most rational and ethical platform to provide thorough and profitable investment research. We might be wrong about a stock, but we'll never be paid to be wrong. That fact alone will set us apart from almost every other business in finance.
"How do you know that's going to work?" they'd ask. Well, we didn't. But we had a hunch. It's what we'd expect if our roles were reversed. If we were subscribers, we'd expect that the research we were buying had been thoroughly vetted, that it contained the best possible ideas of the writer, and that, most important, the writer didn't have any conflicts of interest.
That same principle still guides every decision we make. Our families and our closest friends depend on our work. Our subscribers – especially our Alliance subscribers – have given us the only career we've ever known and are responsible for our financial success. In return, we pour everything we have into our work. We put our subscribers first and always try to give them the information we'd want most if our roles were reversed.
We don't know any other way to do business.
Fortunately, as you know, it did work...
Stansberry Research became the largest independent financial-research firm in the world in less than 10 years. We've served millions of paying subscribers and currently reach investors in 172 different countries. We've reinvested heavily in the quality of our staff, growing our research team to dozens of experienced analysts and experts. (Just read one of our newsletters from 10 years ago and compare it with one from today.)
As we've gotten bigger and better, we've put a lot of former rivals out of business, and we've also bought out a lot of competitors, too. Our size, reputation, and the quality of our work has put us in an interesting position in our industry. And that's what set the stage for us to leave, as I'll explain in a moment.
First, though, here's something you probably don't know about our business or how it works...
I've always known that we couldn't compete and win if the game was going to be all about selling "hot" tip sheets for $99. Our competitors would always be able to write nonsense in their marketing that we simply couldn't publish and look ourselves in the mirror in the morning.
As an example, one of the bestselling newsletter promotions out currently features an editor who is promising that a tiny $200 million company is going to rise 20,000% by 2020. Trust me, it's complete nonsense. But it has generated something like $50 million in sales this year. Eventually, those subscribers are going to realize there's nothing behind the hype... but probably not before their refund period expires.
I knew that for our model to work – thorough research, presented honestly and without any conflicts – we needed long-term subscribers who would stick with us. Besides a "hot tip," there's little I can do to serve an investor in a single 12-month subscription. Oh, we try. We educate as much as we can. And we give subscribers between 15 and 20 investment ideas, typically, in a single year.
But customers who pay us $99 or so for a one-year subscription and then move on don't do us (or themselves) any favors. Investing is obviously a lifelong pursuit. To be successful requires capital, time, and knowledge. We supply the knowledge. But you have to be willing to put up your capital, and you have to invest time. We can't do much for folks who need to retire next year.
To build a research company capable of serving its subscribers well for the long term, we needed customers who were willing to bet on us for the long term...
So we started selling lifetime subscriptions that included everything we published, plus everything we decided to publish in the future – with only one exception. We excluded our micro-cap research service, which is now called Stansberry Venture.
We called this membership tier the "Alliance." We've always thought of these long-term subscribers as our partners. Initially, we offered this lifetime subscription for only $2,700. And as we grow our staff and as the quality and breadth of our work increases, so does the price of joining us as an Alliance member, or as we call them, "partners."
Year after year, we've honored our commitment to these partners...
With every new product we launched, no matter how much it cost, it was included for free to existing Alliance members. We also began hosting lavish annual conferences, featuring first-class food, entertainment, and booze. Every year, our budget for this conference increases – but it's always been free for Alliance members to attend. This year, we hosted more than 500 of them and threw a huge poolside party with prime rib and entertainment at one of the nicest hotels in Las Vegas.
A lot of Alliance members have recruited their friends and family members to join the program because it has proven to be such an outstanding value. As a result of the success of our Alliance offer and our other lifetime subscriptions, we now have more than 70,000 lifetime subscribers. These are real investors, looking for real investment research – not just a hot tip. They are the reason we've been successful and they are our most important subscribers.
For these folks, our business and the service we offer is about to get unbelievably better.
You see, as I mentioned before... we're getting out of the newsletter business – forever.
The financial newsletter industry was built on top of the U.S. Postal Service ("USPS")...
The industry used USPS to distribute and market its products. I got my first big break in the newsletter business in 1999 with a sales letter that I wrote about the build-out of fiber-optic networks around the world. The letter might have been about the Internet, but the distribution was all about "snail mail" – not e-mail. And if you think about how the industry still works, that legacy distribution and marketing system still heavily influences it.
Newsletters are typically 12 to 16 pages long. That's because printers need four-page spreads. They're typically published monthly. That's because printing and postage is expensive, especially when you have hundreds of thousands of subscribers. The subscription terms are, likewise, designed around these schedules: one year, 12 issues.
None of those things makes any sense anymore. We reach our subscribers multiple times every day. Our Stansberry NewsWire product publishes about market-moving events in real time. Our e-letters (DailyWealth, The Crux, and The Digest) are published every weekday, providing massive amounts of content – probably too much. And our newsletters? Reading a monthly newsletter makes about as much sense today as reading last week's newspaper.
I knew we needed to completely rethink how we serve our subscribers. Does it make sense to have three different daily e-letters and a separate NewsWire service? All that's going to do is confuse the hell out of new subscribers and make finding the content you want difficult. Likewise, does it make sense to hold valuable information just because we have a monthly publishing schedule?
No, no, no!
These decisions – discrete e-letters, monthly publishing schedules – they are all vestiges of the newsletter business of the 1990s. It reminds me of when movie cameras were first developed. Nobody knew what a movie should be... so they just bolted the camera to the floor of the theater and filmed the most popular plays of the era – in silence. It took decades for Hollywood to develop movies as an art form completely different from live theater.
We are at the same moment in our industry. Nobody really knows what financial research should look like in an era of ubiquitous global connectivity. But we do know that more subscribers read our newsletters on their cellphones or tablets than on their computers. We've had to build new websites and adjust our graphic design to accommodate these changes. But that's just like bolting the camera to the floor of the theater.
And I have a much, much better idea...
Back in the late 1980s, Bloomberg built a computer terminal to sell to Wall Street...
It became the dominant provider of market data and pricing to institutional investors because of a deal it made with Merrill Lynch. Merrill Lynch got 20% of the company in exchange for agreeing to sell Bloomberg all of its capital-markets pricing data – that's the price of bonds, asset-backed securities, mortgages, and other similar financial instruments.
Building a digital window into these opaque markets and offering a huge database of historical prices, U.S. Securities and Exchange Commission filings, fundamental information, charting services, etc., made Bloomberg the most dominant financial news and information business in the world.
Each Bloomberg terminal costs about $25,000 per year. More than 350,000 subscription terminals are in use. That's more than $8 billion a year in revenue. Bloomberg has wisely reinvested a lot of this capital in building out its proprietary news and information services.
We have several Bloomberg terminals in our offices. But they're difficult to use, based on old technology, extremely expensive, and they no longer provide data you can't get elsewhere. The capital-markets data that made Bloomberg a "must have" on Wall Street for years can now be purchased through several different vendors.
I'm moving Stansberry Research out of the newsletter business next year and into the financial-terminal business...
We're going to compete with Bloomberg – and we're going to win. We're going to do three things much better than Bloomberg does today.
First, we're going to compete effectively on price.
Retail investors, small independent brokers, and even plenty of hedge funds can't afford to buy a Bloomberg terminal for every research analyst they employ. The other, cheaper alternatives – like Reuters – are still expensive. And all of these big institutional providers lack their own sophisticated financial research. They sell information, data, and news. They don't sell knowledge. They don't offer advice. They don't teach anyone how to invest. They don't show anyone how to build a portfolio.
We can provide five to 10 thoroughly researched new investment ideas each month, in addition to entire portfolios of balanced (and even hedged) investments. We can also provide all of the proprietary analytical models that drive these recommendations, plus all of the other kinds of information you currently get from a Bloomberg terminal – real-time prices, historical prices, news, charting, etc.
And we can provide this superior product for a fraction of the cost Bloomberg is charging – less than 20% of Bloomberg's price, in fact.
Second, we're going to compete on superior portfolio-management tools. By including the full suite of TradeStops portfolio-management technology, our new terminal will allow you to do things like completely rebalance your portfolio using custom risk-adjusted position sizing and trailing stops with the click of a mouse.
You'll be able to send one e-mail to your broker that will include all of the trading instructions necessary to execute the rebalance. What would take you hours of careful calculations and trading will happen in less than a minute. This will give our subscribers the power of an entire hedge-fund trading floor.
This terminal will be the best way to access our content because it will allow you to search and sort everything we publish by keywords and stock tickers. You will be able to add new investments to your portfolio by simply clicking on them in the terminal. It will make using our newsletters and managing your assets seamless. You'll wonder how you ever invested without it.
Finally, we're going to win with technology. Our new terminal is completely cloud-based. It requires no additional hardware. You'll be able to access the Stansberry Terminal wherever you have Internet access, anywhere in the world, on any device – even your cellphone.
As we roll out this new innovation, we're reshaping our business around the way we fulfill...
With a single terminal, it makes little sense to offer more than a dozen different individual subscriptions. Instead, our goal is to provide you with as much information as possible, now that you have the proper tool to use it.
That's why we're going to include the ability for you to add content from other publishers (if you choose) directly through the Stansberry Terminal. TradeStops subscribers have already seen this feature: You can access recommended portfolios from more than a dozen different newsletters. No more waiting for e-mails to come at the end of the month. No more sorting through dozens of different e-mails and websites.
Instead, you'll simply open your Stansberry Terminal application (or website) and you'll see all of the information you've paid for in your subscription feed, right next to the Dow Jones third-party newsfeed and the Stansberry NewsWire real-time updates.
You'll be able to search all of your subscription information, using keywords and stock tickers, and the results will populate on a per-paragraph basis, meaning that if you're looking for information on the latest earnings report from iPhone maker Apple (AAPL), you won't have to read an entire 12-page newsletter to find it.
If you'd rather continue to receive our newsletters exactly as you do today, we will, of course, happily continue to serve you in that way...
However, we would urge you to at least try using our new Stansberry Terminal. You'll see it's extremely easy to use and completely intuitive. And by bundling our service at different levels, you'll be able to get a lot more from us at a lower total cost.
Going forward, we plan to market our service at three different, holistic levels. For around $1,000 a year, you can receive all of the research you're getting now from our "front end," lower-priced newsletters (Stansberry's Investment Advisory, True Wealth, Retirement Millionaire, Commodity Supercycles), plus Extreme Value (which by itself costs $1,500 per year!), The Capital Portfolio, and all of the Stansberry Data models that we use for most of our fundamental research.
For around $5,000 per year, you'll be able to get all of that research, plus practically everything else we publish, except The Total Portfolio, Stansberry's Credit Opportunities, and our Stansberry Venture micro-cap research products.
To get absolutely everything via the Stansberry Terminal will cost around $10,000 per year – still less than half of Bloomberg's price.
So for around $1,000 per year... you'll be able to use the Stansberry Terminal – with all of the news, data, and portfolio-management tools you need – and you'll have access to outstanding fundamental investment advice, plus you'll even be able to see how we'd put all of this information into a sensible, allocated portfolio If you also want our more exclusive research, you simply have to pay a bit more. But it's still vastly cheaper than a Bloomberg terminal... And it's still far easier to use – with no extra hardware to buy.
Like I said... if you want to continue doing business with us the way you always have, that's fine, too. But I hope you'll try our new Stansberry Terminal when we launch to the public next year. (We just started testing the product with actual subscribers this week.)
We've always been innovators in this business. We've also sought to provide genuinely useful and profitable research to our subscribers. This is simply the next step in that evolution. We're doing what we would want you to do for us, if our roles were reversed.
I sure hope you're excited to see what we've done. It's far better than anything I've seen anywhere else in terms of its range of capabilities and its ease of use.
I need to note one thing...
We honestly don't know yet exactly what the pricing for Stansberry Terminal access will be, because providing things like real-time pricing across the world's financial markets isn't cheap. As we're negotiating these prices, it's impossible to say exactly what our final pricing model will be.
But as I mentioned, our Alliance partners are the main reason our business model of constantly putting our subscribers first has been so successful. Your long-term commitment to us has allowed us to continually build better products and better tools.
The new Stansberry Terminal is the ultimate manifestation of that commitment. So we will continue to honor it by giving Alliance partners basic access to the Stansberry Terminal for free.
Finally, let me reiterate what a tremendous honor it is to serve you...
We understand that investing is incredibly important. Your money is at stake. We never forget the real-world importance of the information and advice we offer you. It's a sacred trust. Thank you so much for your business.
This is my last Digest of 2017. I'll be taking the next few days off to spend with my wife and sons. I hope you'll enjoy the holidays... and take a break from the tough world of investing.
I'll be back on the beat early in January. I'll have the annual Report Card ready (where we detail the actual results from all of the advice we've offered lately) and an all-new version of The Total Portfolio shortly thereafter. If you missed your chance to invest with us in 2017, please don't miss that opportunity again in 2018.
New 52-week highs (as of 12/14/17): Altius Minerals (ALS.TO), Boeing (BA), First Trust Nasdaq Cybersecurity Fund (CIBR), Grubhub (GRUB), Invitation Homes (INVH), iShares Investment Grade Corporate Bond Fund (LQD), and short position in Duluth (DLTH).
We'd love to hear how you fared with our recommendations this year. Please send us a note to feedback@stansberryresearch.com.
Regards,
Porter Stansberry
Baltimore, Maryland
December 15, 2017