Why you probably won't make money in stocks...

I've got bad news. It's something that I've talked about before: Most of you will never get rich with stocks.

I'm fairly certain that, for most of you, investing in stocks will end up costing you money. If your experience is typical, you'll try investing in stocks two or three times in your lifetime. Each attempt will end in disaster. And then you'll swear off stocks forever...

How do we know this? The market research firm Dalbar has conducted mutual-fund studies for decades. The work consistently shows that actual investor returns are far worse than the fund's advertised averages. Actual returns for stock-focused mutual funds have been around 3% annually – worse than returns from bonds and barely above the inflation rate.

A separate big study from Blackrock shows essentially the same numbers.

You've got to remember that if the average return is 3% (or less), a lot of people, probably close to half, are actually losing money in stocks. And the folks who are most likely to suffer losses are the folks, like newsletter readers, who do the most trading.

Most newsletter publishers wouldn't dare draw your attention to these facts. But I feel a moral obligation to tell you... again and again. I believe my job is to tell you what I'd want to know if our roles were reversed. I'm also telling you because if you can identify why most people lose money in stocks, then you've got a much better chance of succeeding. I'd say it's almost a lock. So why do most people lose money in stocks?

The biggest reason individual investors lose money in the stock market is because the game is rigged against you. The financial industry does not exist to enrich its clients. The clients provide all of the wealth required to maintain the financial industry.

If you're doing business with a big brokerage firm, you've got to realize that its real clients are the companies who hire the firm to sell you their stocks and bonds. You're the patsy at that table. Likewise, financial firms make their profits by garnering the most amounts of assets to manage… even though everyone knows there's a negative correlation between an investment fund's size and its performance. The mainstream financial industry isn't your friend. They can't be trusted. They're leeches.

The second-most important factor is simply ignorance. Most investors have no idea how to value a security. Nor can they read financial statements. As a result, they always end up buying way too late and paying far too much. Or even worse, they buy stocks that have zero chance of long-term success.

It's not hard to learn. It's really not. It will take you about 20 minutes to figure out the basics – if someone would simply sit down and show you. Longtime readers know I don't believe in teaching – only learning. If you'd like to learn, you can now sit down with me... and I'll show you how I analyze stocks.

My team at Stansberry Radio recently recorded a screen-capture video, where I analyze two stocks I covered in my newsletter. One I recommended selling short in 2004, betting it would fail. It is now on the verge of collapse. The other I recommended buying in 2007. It has now doubled in price. In the video, I go through the numbers and show in simple terms how I knew one was a great business and the other would fail.

Anyone can use this video to become a vastly better investor. I urge everyone to watch this video. Here's the best part: It's free.

You can watch it as many times as you want until you've got all of the concepts. To get access to the video, all you have to do is try Stansberry Radio Premium. It costs $10 per month – or as we say, about the same as a ham sandwich and a bag of chips. Give up your lunch one day each month and listen to me on Stansberry Radio. You'll be healthier and wealthier.

Now... once you understand how to value a business... asset allocation… and risk management... the other thing you've got to have to make a lot of money in stocks is money to invest.

How can you get more money to invest? Rob a bank. No, seriously, there are a lot of proven ways to increase your income. Before you flood the mailbag with e-mails complaining that you've had the same job for a decade and your boss hasn't given you a raise in years, hear me out.

First step: You need to stop waiting on your boss to give you a raise. There are endless opportunities for intelligent and motivated people to earn extra money (sometimes considerable money) while still working a full-time job. And nobody knows more about this than my friend and mentor Mark Ford.

Mark is a serially successful entrepreneur. He's built three $100 million businesses and dozens of other successful small businesses – all while working full-time on other projects. He's also a New York Times bestselling author, who's written seven books on the topic of entrepreneurship. Mark is a master at the fundamentals of wealth creation. How do I know Mark's ideas work? Because I followed his guidance step by step as I built this business, which I founded when I was 26 years old. I know his ideas work.

The fact is, even if you're a great investor, it's almost impossible to get wealthy from investments alone. If you realistically hope to get wealthy in less than a decade, you MUST increase your income. And that means you need to know the principles and specific techniques of wealth creation.

To help move people along the path of real financial freedom, Mark – along with my old friend and publisher of our corporate affiliate The Palm Beach Letter, Tom Dyson – created the Palm Beach Wealth Builders Club. The club provides several individual programs on all the core aspects of building wealth.

It begins with a primer on how to spend the money you have now so that you are maximizing your wealth. It has another program on creating multiple streams of income. They have a series on rental real estate (which is where I have personally been putting a large part of my wealth)... and one on investing in entrepreneurial ventures (probably the fastest way to build wealth). Mark, who enjoys the finer things in life, even has programs on "living rich" as you're building up your wealth from zero.

This is just an outline of the programs they are providing for a single membership fee. And notice – none of what I've so far described has anything to do with stocks, bonds, or options. Mark and Tom are sharing the basic – and in many ways, more important – prerequisites for wealth. At Stansberry Research, we can help you become a vastly more successful investor. But to increase your income so that you've got plenty of capital to invest... I'd strongly recommend you get to know Mark Ford's ideas.

Nothing is more valuable than having an intelligent and successful mentor to help you advance your career. And with the Palm Beach Wealth Builders Club, you will have access to my personal mentor, who will show you step by step how to begin building your wealth. If you'd like to learn more about Mark's methods for growing your wealth, click here...

New 52-week highs (as of 4/25/13): Advent Claymore Convertible Securities & Income Fund (AVK), Berkshire Hathaway (BRK), WisdomTree Japan Smallcap Fund (DFJ), WisdomTree Japan Hedged Equity Fund (DXJ), iShares Singapore Index Fund (EWS), iShares iBoxx High Yield Corporate Bond Fund (HYG), iShares Dow Jones Insurance Fund (IAK), AllianzGI Equity & Convertible Income Fund (NIE), SPDR Utilities Sector Fund (XLU), V.F. Corp. (VFC), Prestige Brands (PBH), Automatic Data Processing (ADP), Loews (L), Brookfield Asset Management (BAM), Kohlberg Kravis Roberts (KKR), Union Pacific (UNP), and Target (TGT).

Have you enjoyed success with any unconventional wealth- and income-building strategies? Share your stories at feedback@stansberryresearch.com.

"Porter, you are 100% right about your comments on Goldman Sachsand their fraudulent way the manipulate the market with their advice on what to short not to mention their conviction buys and sells. I have followed your advice and read everything you publish because you have consistently been accurate and sincerely honest in what you print. I am a very successful investor only because I follow your experience, advice and have every confidence in your teachings. I will be forever grateful for you and your expert associates." – "Long-Term" paid-up subscriber, Murray

"I did the right thing for the past 40 years, set aside money in my IRA, and invested it well. The balance in my IRA is now twice the $3 million amount which President Obama believes is 'fair.' My fellow boomers who didn't save are now going to penalize me. There will be a hefty tax to withdraw shares like CBI and BAM out of my IRA. But I will continue to hold them in my taxable account. Within five years I will recoup the tax because these companies will build hundreds of thousands of dollars in shareholder value – mostly untaxed because they pay small dividends." – Paid-up subscriber Robert N

"I just wanted to pass along some info I received about gold in Hong Kong:

"My mother-in-law called this past weekend at midnight (noon for her because she lives in Hong Kong) to tell my wife and I that the jewelry stores in Hong Kong are out of physical gold. I would guess she means some types of non-jewelry physical gold (like 1 tael ingots or rounds or bars, but she did not specify). She did say the stores are allowing people to buy now and lock-in the current spot price, then come back and pick up their gold the next time the stores get a delivery.

"I find this very interesting. I don't know if the cause is a local supply disruption or a large increase in demand for a specific form of gold, but I wonder if we may soon see separation between paper gold prices and physical gold prices." – Paid-up subscriber Shanan

Regards,

Porter Stansberry

Greensboro, Georgia

April 26, 2013

Safe to buy Apple?...

Recent declines in Apple shares may have created a buying opportunity as the computer and consumer electronics giant prepares to return more cash to shareholders.

In today's Digest Premium, Porter explains why the stock looks attractive going forward...

To subscribe to Digest Premium and access today's analysis, click here.

As we've written... Apple shares are suffering through a six-month selloff... The stock has lost about 40% of its market value since its September highs of more than $700 a share...

And the iPad maker reported this week its quarterly earnings fell, despite stable sales. Chief Executive Tim Cook also disappointed techies when he ruled out the possibility of an upgraded iPhone this summer.

Still, the news isn't all bad. Apple has supersized its stock-buyback program, authorizing up to $60 billion in purchases from the previous level of $10 billion. And it raised its quarterly dividend by 15%. The buyback boost, in particular, was welcome... if somewhat overdue.

I (Porter) said in February that "I'd love to buy shares of Apple for less than $400." Now that Apple's hovering around that level and expanding its shareholder-friendly policies (dividends and share buybacks)... I'm more convinced than ever that this is a good level to buy Apple.

The company has no debt. Zero. Over the last few years, it has generated free cash flow of between $16 billion and $40 billion. I wouldn't want to project it to grow substantially from here because it's already so big. But I don't think $20 billion in free cash flow going forward would be surprising at all. That's especially true when you realize it's making about $12 billion alone from recurring iTunes revenue.

The thing I like most about Apple is the moat its iTunes software and download service create. I think that's Apple's primary valuation. Users who have bought and licensed content through iTunes will stay with Apple because iTunes works best with Apple products. They've already invested heavily in content with Apple. It would be impractical to switch to another content provider. That lock-in makes Apple much more of a consumer-brand company than a typical technology company.

I think it's still safe to buy the stock at this price. At less than $400 a share, the market is essentially telling you Apple's gigantic cash hoard will never, ever be distributed to shareholders – that it's worthless. That's probably an overly negative assumption.

Still, some people were willing to make that assumption. Clearly, the sellers believe Apple's future would be significantly less rosy than the past.

I think the cash factor is a red herring. Shareholders are always loath to give up any kind of asset. They typically get paid based on increases to earnings. If you have a lot of assets, it's easier to increase your earnings. So they always want to keep assets. That's why I pay a lot of attention to return on assets. I think it's one of the best measures of quality in any business.

Apple's return on assets is still more than 20%. Its management team could say in its defense, "We know what we're doing. We need to hold onto our cash so we can invest in new products and technologies at our discretion to maintain our franchise and our brand." Looking at the numbers, it's hard to argue with them.

– Porter Stansberry with Sean Goldsmith

Safe to buy Apple?...

Recent declines in Apple shares may have created a buying opportunity as the computer and consumer electronics giant prepares to return more cash to shareholders.

In today's Digest Premium, Porter explains why the stock looks attractive going forward...

To continue reading, scroll down or click here.