A reminder about where to search for value...

A reminder about where to search for value... Stocks nobody wants and nobody can live without... The deranged man who is preventing your retirement...

In today's Friday Digest, I'm tackling the hardest thing to learn how to do with your investing.

The hardest thing to do in finance isn't learning to value companies. Watch a few of the videos I've made about how to do it and you'll be all set. The hardest thing isn't learning to analyze insurance stocks, either (although that isn't easy). The hardest thing to do in finance seems like it should be the easiest. But it's not. Oh, no. It's definitely not...

Ben Graham, author of Security Analysis (the bible of financial analysts) and the Intelligent Investor (a must-read for anyone buying stocks) explained that there's a crazy man out there – a raving lunatic, actually – who is doing his best to separate you from your wealth.

What does this mad man do? Well, it doesn't seem like much, but all he does is shout bids at you. "Hey, I'll give you $200 for your Tesla stock!" Then, moments later, he shouts a new bid at you. "Now I'm only going to give you $195 for your Tesla stock!" he screams. Again and again, in a never-ending cacophony, this raving lunatic will shout prices at you. He'll do so all day and all night if you let him. Graham called this guy, "Mr. Market." And he noted that Mr. Market frequently offers bids that simply make no sense whatsoever.

A few months ago, for example, Mr. Market was offering more than $250 for a share of Tesla. That price valued the company at nearly $50 billion – the same price as BMW, which also makes luxurious electric vehicles. BMW's cars, however, come with dealerships, service, and the backing of a 100-year-old business with a sound balance sheet and high-quality private owners. BMW's electric cars also come with a motor, so you don't have to worry about running out of batteries. There's a clever idea...

Mr. Market was offering a price for Tesla's shares that simply didn't make any sense given the competition the company faced and the tiny volume of cars the company had sold. BMW sells two times more motorcycles than Tesla sells cars! BMW also sells around 2 million cars each year around the world – about 40 times more than Tesla.

And BMW actually makes money selling its cars, while Tesla has been losing money, despite collecting millions of dollars in nonsensical electrical-car credits from the government. The point is... the bid Mr. Market was offering made no sense at all.

Watching this lunatic shouting bids, you could have made any of three choices. First, you could do nothing. Someone shouting bids at you doesn't create any obligation for you to take action. Living in Baltimore taught me this lesson. Several times a year, deranged homeless men will stand outside my office and scream at the top of their lungs at the passing traffic. No one has any idea what they're saying. I simply pretend that guy is Mr. Market. It helps me keep Mr. Market's lunatic bids in perspective.

Your second choice is the trap most people will fall into. Watching Mr. Market bid Tesla all the way up from $250 to more than $290, you figure maybe he's on to something. Maybe Tesla isn't really a car business. Maybe it's going to change the world by making batteries that never run out of energy. Maybe that's worth even more than BMW... Your mind starts going at the same speed as the lunatic's. "Maybe he's not so crazy," you think. "Maybe he's like Rain Man or something – a savant. Maybe I'm missing the boat," you worry.

And then you see fawning news coverage... And your friends tell you they bought back at $30 and now they're rich. You know what happens next. You buy at the top. This is what happened in 1999 and 2000 when high-quality stocks in the S&P 500 traded at nearly 50 times earnings – a truly insane number.

The same thing happened with Bitcoin three years ago. And the same thing is happening right now in biotech stocks and across the 30-plus stocks in our "victim's list" of companies whose shares trade at more than 10 times sales and have market caps in excess of $10 billion. When you see people doing stupid things with their money, don't follow them. Don't jump off that bridge. Mr. Market is a lunatic, not a leader.

Now, here's the fun part. The only rational thing to do when someone quotes an insane bid at you is to take it... by selling. If a guy walks up to you and offers you $100,000 for that Buick you're driving, the answer is "yes." That's the only answer. Every other answer makes no sense. You might argue that you like your Buick or that buying a new car is inconvenient. But those are not good enough reasons not to make three or four times your money on a car. If the lunatic wants to pay too much, you sell. It's the only logical response.

Hopefully, you understand and agree that the only rational response to someone offering way too much money for something you own is to sell. Sooner or later, at least nine out of 10 investors will get sucked into paying far too much for a stock because Mr. Market is shouting nonsensical bids... and yet, fewer than one in 10 investors will ever short a stock.

What about the opposite scenario? What about when Mr. Market is so depressed that he's willing to give away incredibly valuable properties for next to nothing? How many investors pile into sectors that are down 90%? Very few.

Consider our "Trophy Asset Monitor," where my analysts keep tabs on companies that own the most important physical assets in the global economy. These are companies that own the best copper mines, the best steel mills, the best real estate, etc. We've been publishing this monthly analysis (which is part of our supplementary Stansberry Data service) to allow people to see – in plain numbers – when it's time to buy these great assets. Here's a hint: You want to buy them when they trade at big discounts to their underlying net asset value.

Take Australian-based natural resource giant BHP Billiton, for example. Remember back in 2010 and 2011 when China was buying up hard assets all over the world and investors were bullish on the idea that China was going to take over the global economy? Who would provide China with iron ore and nickel? BHP, of course. Mr. Market offered absurdly high prices for the stock. It traded at an 87% premium to its tangible assets.

Today, Mr. Market is getting depressed. He's convinced that China isn't doing as well as everyone thinks. Maybe nobody is going to buy iron ore for a long time. BHP now trades at an 8% discount to its tangible assets.

Freeport-McMoRan – which owns the world's best gold and copper mine, as well as huge new hydrocarbon deposits in the Gulf of Mexico – traded at a 95% premium to tangible assets back in 2010, when everyone was interested in owning gold. Today, it trades at a 66% discount. Mr. Market is convinced that no one will ever want gold (or oil) again. What do you bet will happen next?

The best way to learn how to take advantage of Mr. Market is by learning more about the companies you own (or want to own). A great way to learn about these businesses is to follow them closely. That's why we provide monthly coverage of insurance stocks, trophy assets, capital-efficient companies, and oil companies in Stansberry Data. These are all areas of the market where Mr. Market frequently makes huge mistakes.

But the best way to take advantage of Mr. Market is to follow volatile sectors of the market – areas like technology and resources, where the bids for stocks can vary massively over three- to five-year periods. Right now, technology is ascendant and resources are in the dumps. So... what should you be studying?

My suggestion? Attend the upcoming Sprott/Stansberry Natural Resource Symposium in Vancouver this summer. Here you will meet the leaders of the global resource space – a group of companies and executives that have been hand-picked by Stansberry Research analysts and the folks at Sprott Resources – who are, without question, the best resource investors in the world.

We'll be hosting the world's foremost experts on gold and natural resources, including top CEOs, hedge-fund managers, mining and exploration experts, and other executives from some of the highest-quality resource firms in the world. You'll also hear from me, Sprott U.S. Holdings Chairman Rick Rule, Casey Research founder Doug Casey, billionaire resource investor Eric Sprott, and many more.

There, we'll be discussing the global currency war and why this year could prove to be one of the best times ever to invest in precious metals and resources. Click here for the details.

New 52-week highs (as of 3/26/15): none.

In the mailbag today... An explanation that's perhaps long overdue. Why do we insist on labeling our gentle readers as "paid-up" subscribers? Send your questions and comments to feedback@stansberryresearch.com.

"While I enjoy reading your mailbag, I would like to register my impatience with the custom of signing 'paid-up' Subscriber so-and-so. Is there any other kind? Are we supposed to admire these subscribers because they are righteously 'paid-up,' possibly implying that some of the rest of us are not? Do they think that 'paid-up' status makes their comments more interesting or worthy of admiration? Why do I need to know that they paid their bill, and why should I care? If it is true that they are subscribers, I already KNOW that they are paid up – otherwise they wouldn't be subscribers, and in any case I don't expect you publish many comments by non-subscribers. Please try to discourage this smug, redundant practice." – Paid-up subscriber Sebastiano Scarampi

Porter comment: That turn of phrase – "paid-up subscriber" – is a hat tip of sorts... an editorial nod, if you will... to Jim Grant. Jim's investment newsletter, Grant's Interest Rate Observer, is considered a must-read by the world's best investors. Jim, who is an inspiration to me, has, for more than 30 years, referred to his audience – including most of the world's wealthiest and smartest investors – as 'paid-up subscribers.'

I'm certain Jim isn't being smug, any more than when Bill Bonner (the chairman of Agora Inc. and my dear friend and mentor) addresses subscribers as "gentle reader." I believe these unique phrases are simply a kind of intellectual watermark. These are tiny distinctions – little, distinctive phrases that remind the reader that he's reading a personal journal. If there is any other hidden meaning, I'm certain it is irony – the real surprise is when an author feels that others are so interested in his work.

In any case, I hope this explanation goes some distance to convincing you that we shouldn't change this signature practice.

Regards,

Porter Stansberry

Baltimore, Maryland

March 27, 2015