A 'members only' Digest...

The difference between a great business and a bad business...

The difference between a great business and a bad business...

There's an easy way to figure out if a company has a great business or a bad business... And it's one of the most important lessons an investor can possibly learn.

In today's Digest Premium, Porter offers an example of each... and explains how to tell them apart.

To continue reading, scroll down or click here.

 One of the most important lessons an investor can possibly learn is the difference between a bad business and a great business.

An excellent comparison of a bad business and a great business can be seen on the Stansberry Radio Premium website, where I (Porter) contrast the economics of chocolate maker Hershey Foods and steel maker U.S. Steel.

 The core difference between a capital-efficient company (aka a great business) and a bad business, like U.S. Steel or a mining company, is that if you're U.S. Steel or Newmont Mining, production requires the elimination of your balance sheet.

If you look at the balance sheet of a steel company, a mining company, or any kind of commodity company, you'll see how the best assets on those balance sheets are inventory and property. But when the mine is being produced... when revenue is being generated... you're destroying that asset base.

 Those companies are like a snake that's eating its own tail. It's hard for a snake that's eating its own tail to grow much... because the mass being put onto the body is getting eaten by the head.

Hershey is a much different story. Its returns on capital invested are very high – and its balance sheet grows over time – because Hershey is taking cheap raw materials and making them into expensive, branded consumer items.

Companies like Hershey that are able to transform things by branding them and improving them are always better businesses than companies that just produce raw commodities.

 I call that difference "capital efficiency," but really what it comes down to is just understanding where value is added in a corporation... and understanding that the value of turning cocoa and sugar into premium chocolate is much higher value than turning iron ore into steel.

You can see how Hershey's favorable economics compare to U.S. Steel's economics in the six-year chart below. Hershey (black line) has soared... while U.S. Steel (blue line) has plummeted.

– Porter Stansberry with Sean Goldsmith

The difference between a great business and a bad business...

There's an easy way to figure out if a company has a great business or a bad business... And it's one of the most important lessons an investor can possibly learn.

In today's Digest Premium, Porter offers an example of each... and explains how to tell them apart.

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

  We have a special Digest today... which features "members only" content from a very popular new product, the S&A Digest Premium.

Earlier this year, we introduced this product with some simple goals in mind: To provide readers with actionable investment insight from S&A founder Porter Stansberry.

Published every weekday, Digest Premium also features insights from Porter's vast network of business contacts, stock analysts, hedge-fund traders, insurance specialists, and real estate experts.

So far, Digest Premium has been a huge hit. Readers love receiving "inside the room" access to Porter's daily market comments and insight. It's like receiving a daily note from Porter on where he's seeing great bargains... how to learn key wealth concepts... and how to value businesses.

In today's Digest, we're featuring some of the best Digest Premium pieces from the past few weeks. We hope you enjoy them...

Wednesday, June 26

 Many people accuse me (Porter) of being a "perma-bear." After all, I'm the "End of America" guy. It's true that I recently turned bearish again... But remember, I'm not always bearish...

If you will go back and read my letters that I wrote between November 2008 and March 2009, you'll see I was unbelievably bullish. In fact, I explained it was the greatest opportunity in my entire life to buy stocks. I was buying hand over fist.

I didn't pull back from that ultra-bullish mode until 2011, when the problems in Europe cropped up. But once the European banks started printing money that December, I was back to being bullish... I knew those actions would lead to higher stock prices. And we saw the same scenario play out in the U.S. And I remained in full "bull mode" until about a month ago.

 Why did I turn bearish? Well, I've been predicting for years that the ultimate outcome of the central bank money printing would be a collapse of the entire fiat money system.

The dollar has the most to lose because it is the world's reserve currency. So if the system breaks, America will lose the privilege it has had since World War II – of being able to legitimately pay off its debts in the money it prints. We're the only country in the world with that power... so we have the most to lose.

 We'll eventually see if my thesis is correct. But the world can't continue to function this way.

My bet is that the central banks overdo it. That's what's happened throughout history. If you study the history of paper money, you'll find that in every case, the people in charge of controlling the money supply give in to the temptations to inflate and print. By doing so, they lose control of inflation, they lose the confidence of the population, and the people abandon the money.

 The sure sign of that today would be a collapse in the 10-year U.S. Treasury rate, the benchmark interest rate for the entire world. It's what all fixed income is priced off... And if we continue to see rates soar from all-time lows, you'll see people begin to abandon our monetary system.

 As you can see in the chart above, last week, yields on the 10-year Treasury had their largest one-week jump in 10 years. While I don't believe this move signifies the end, it's emblematic of more than a simple correction in price. It's a move that indicates a change in the secular trend... People are beginning to lose faith in the dollar.

Tuesday, July 9

 One of my favorite trades to speculate on the ongoing crisis in Europe is going long Greece and going short France.

This isn't a trade for your rent money. But I (Porter) like this idea... And you can make this trade easily with exchange-traded funds in the U.S.

You can hold a basket of Greek stocks with the Global X FTSE Greece 20 Fund (GREK) and short French stocks with the iShares France Fund (EWQ).

 More specifically, I like this trade because everybody already knows Greece is broke. As a result, everything bad has already happened in Greece... It's priced in.

Interest rates have already soared. (One-year interest rates hit 1,000% last year. That's not a typo.) Stocks have already crashed. It looks like Greece is at a blood-in-the-streets bottom. (But we can't be certain. Things can always get worse.)

 France, on the other hand, is still expensive. It's trading like a free-market country, when it's actually a socialist paradise. And they always end the same way: bankrupt.

So I like the idea of hedging a European collapse by buying the economy that's already collapsed and shorting the economy that hasn't collapsed yet.

Wednesday, July 10

 Most people interested in finance and the stock market spend their time reading finance books. But I (Porter) think that's a mistake.

Don't get me wrong... You need a fundamental understanding of the markets to get started. And there are plenty of great books – like The Intelligent Investor – for that.

But if you want to be active in the markets, I think you'll benefit much more from history books.

 There are too many excellent history books to list. But here are some of my favorites...

A History of Money and Banking in the United States by Murray Rothbard is a good place to start. As the title implies, it's a great resource to learn about America's background in money and banking.

I also really like A History of Interest Rates by Sidney Homer and Richard Sylla, which will teach you about interest rates and lending.

These two books are classics.

 I'd also refer you to A History of the American People by Paul Johnson. They have several valuable chapters on economic and financial issues. Most notably, his histories of the Great Depression and the U.S. steel industry are excellent.

 These aren't commonly classified as history, but I would tell you that Warren Buffett's annual letters to Berkshire Hathaway shareholders are the best thing any businessman or investor could ever read... in part because they are a living history.

Buffett documents every important financial and economic situation over the last 40 years in his letters. And best of all, they're available for free on Berkshire Hathaway's website.

I'd also recommend buying Lawrence Cunningham's collection of Buffett's essays, which is called The Essays of Warren Buffett. He has a new edition out.

 I believe that if you understand the history of money and banking... you understand a bit of U.S. history, politics, and industry... and you understand the history of investing through Buffett, you'll be positioned for success in the markets today.

 In addition to these books, there's another new book you should read as soon as possible. I enjoyed the book so much that I've given several copies as gifts... and I've put together an extraordinary package for S&A readers, so they can get access to this book.

This new book is written by our friend Jim Rogers. In addition to making a fortune in the markets, Jim has also written some of the greatest investment books in history, like Investment Biker and Hot Commodities. That's why, when we heard Jim was releasing a new book, Street Smarts, we bought thousands of copies to give our readers.

When Jim Rogers speaks, you should listen. To have such a brilliant guy walk you through the problems happening today in our country and the steps you can take to protect yourself and your family is a gift.

 In his new book, Jim explains how a new law that took effect January 1 is essentially a sneaky form of currency control. This law will make it nearly "impossible for Americans to open bank accounts outside of the country."

He also shares what he considers the two most exciting economies in the world today. And most importantly, Jim tells readers specific assets they can buy to profit from government money printing... He calls one of the assets "one of the more important assets of any kind." And it's a great investment today thanks to new technological advancements.

 To learn how you can receive a copy of Street Smarts for free, click here... We only bought a small amount of these books, so you should act quickly.