A secret way to look at the stock market... What The Outsiders have in common... A 230% gain in health care stocks... A lesson from John Malone... The importance of a network... An update from Patagonia...
Last May, Porter gave Digest readers a secret way to look at the stock market...
It's a method many of the most successful CEOs in the world used to build empires and generate incredible wealth.
That Digest was inspired by one of the best business books we read last year, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike.
It all starts with ignoring share prices. Most folks look at a stock and see a nominal share price. They don't know anything about that company's underlying value.
And if you don't know the value of a business, you can't make a wise investment.
In the May 17 Digest, Porter presented a chart of how he looks at securities...
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Thorndike's book consisted of case studies of great CEOs who paid attention to their businesses' underlying value and allocated capital accordingly – weighing their options between buying back stock, acquiring new business (and whether to use cash or stock), issuing debt or equity, etc. From that Digest...
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As Porter pointed out, all these CEOs managed their companies (and their lives) in a similar fashion. And they all viewed investing in the same way...
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In his latest letter to investors, billionaire hedge-fund manager Larry Robbins of Glenview Capital praised one of the "Outsiders," media magnate John Malone.
Robbins' flagship fund returned 42.8% last year, making it the top-performing fund among its peers. Robbins was heavily invested in health care. The Dow Jones Health Care Index was up 40% in 2013, beating the S&P 500's 30% gain.
And Steve Sjuggerud's True Wealth subscribers participated in the bull market in health care through shares of the double-long ProShares Ultra Health Care Fund (RXL). As you can see from the following chart...
True Wealth readers are up 234% on the position since March 2011.
In Robbins' letter, he told a story about Malone to explain a lesson he learned about investing in the 2008 crisis...
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Malone didn't make his profits by betting on his macroeconomic views during the crisis (though the few managers who made the correct call made huge profits). He simply did the same thing he had done for decades... When he believed shares in his companies were trading for less than their true value, he bought them back.
It's easier said than done. Think back to 2008, when investors were fleeing the market, fortunes were lost, and the media declared it "the death of buy and hold." Meanwhile, Malone bought back stock in his businesses at huge discounts and nearly quadrupled his net worth over the next five years.
The CEOs detailed in Thorndike's book also understood how important it is to surround yourself with the right people... If they didn't have competent managers they could trust, men like Malone and Warren Buffett couldn't dedicate their time to what they do best – allocating capital. In other words, they understood the importance of having a strong network.
On that topic, I'd like to end today's Digest with a note from Gray Zurbruegg, one of the member liaisons for The Atlas 400, the club Porter and I started five years ago. Gray recently returned from Patagonia with 16 of our members. He wanted to share some stories from their experience abroad...
If someone were to ask you to close your eyes and imagine what Patagonia looks like, what would you see?
If you imagined snow-covered mountain ranges... glaciers streaked with vibrant shades of blue... clear skies... vast grasslands and rolling hills... you're exactly right.
The only way to describe the scenery on the most recent Atlas 400 trip is "picturesque." From arrival to departure, members were awestruck by the sheer vastness and beauty of their surroundings.
The Patagonia region is located at the southern end of South America. It's comprised of expansive grasslands (called pampas) that seem to reach beyond the horizon, and towering Andes mountain ridges, capped with snow and often milky-blue lakes at the foot from the glacial runoff.
The region is also home to the Southern Patagonian Ice Field, which runs from Argentina to Chile. It's made up of 48 different glaciers and is the world's third-largest freshwater reserve.
Patagonia is considered one of the most beautiful places on earth... And after visiting with 16 of my Atlas 400 friends, I agree...
Our adventure began in Buenos Aires, where we stayed in five-star accommodations while trip participants explored the rich cultural offerings in the "Paris of South America." We shared an amazing dinner at Fervor, one of the best restaurants in Buenos Aires' Recoleta neighborhood. The group's dinner was a small feast – perfectly cooked grass-fed steaks (Argentina's specialty), fresh seafood, organic vegetables, and great red wine. And thanks to Argentina's rampant inflation, dinner was only $1,850 for the entire group.
We spent the next five days traveling the Patagonia in Argentina and Chile. We stayed at the world's foremost eco-friendly lodges located at the foot of the Andes.
Most of our members had never done anything like this before... We traversed the Perito Moreno Glacier, zipped back and forth over a mountain ravine on South America's longest zip line, and challenged ourselves during a 13-mile-long, 5,000-foot-elevation-change hike to the base of Torres Del Paine, one of the largest national parks in the region.
Our activities involved risk and adventure. At times, our days were surreal. But what we found to be the most important aspect was the bonding that took place during these challenging activities.
To watch a group of 16 individuals – many of whom had never met before – grow close and create lasting, real relationships is something special... It's the actualization of one the Club's most basic goals.
It's also our goal to maximize your personal time. Atlas is a vehicle through which we facilitate shared experiences, personal growth, and help to create an unparalleled network of highly successful people.
The way you spend your free time is important. In a world of constant communication and demanding work schedules, your free time should be used to travel... to learn... to share experiences... and to build new meaningful relationships.
And in my opinion, you should only spend time with people who will enrich your lives, share knowledge, and add tremendous value.
Fortunately, there's an easy way to achieve all of this.
Traveling and sharing new experiences is one of the most effective ways to get to know someone. To foster this relationship-building, Atlas members travel the world several times a year... participating in once-in-a-lifetime experiences that are completely "off limits" to the average person.
We've raced BMWs on the company's top-secret development track in Germany during Oktoberfest... Fished the sapphire waters off of the Panamanian coast for colossal marlin... Hunted red stag and wild grouse in the hills of Scotland... And recently toured some of the best wineries in Tuscany.
And that's just to name a few. Plus, we still have three events coming up this year...
This summer, we're headed to Santa Barbara. It's going to be a weekend full of yachting, paddleboarding, farm-to-table cooking classes, and vineyard visits. In September, the Club is headed to France for an exclusive visit to Bordeaux. Through our connections, we've arranged tastings at chateaus not typically open to the public... Think Petrus and Smith Haut Lafitte. It's a wine and food lover's dream excursion.
And in late fall, we're headed to Austin, Texas. Details are still being finalized, but our trip is going to be a "fast" one... We're going to rent the Formula One track and race Ferraris.
Plus, The Atlas 400's annual meeting is coming up next month in New York City at the St. Regis Hotel. It's our largest event of the year. More than 80 people have already confirmed their attendance.
That's the idea behind The Atlas 400: To grow this network of friends... to have incredible experiences together... and to deepen relationships.
However, we're truly careful about how we grow Atlas. Thus far, the club has grown by a single member at a time. We receive hundreds of applications each year. However, we want to grow a great club... And we refuse to sacrifice quality to grow our membership.
Relationships take work... and Atlas is no different. If you're willing to try to add value to this relationship, it may be a perfect fit for you. That's how our current members view it.
Thanks to the world of modern communication and transportation, social clubs and social networks aren't defined by place, but instead by passions. People of like minds and similar interests can now easily join together.
We're only eight spots away from our 100th member... At that point, we're increasing our initiation price. But if you apply today, we'll honor the original pricing. You can submit an application to The Atlas 400 by clicking here.
New 52-week highs (as of 4/4/14): Anadarko Petroleum (APC), Johnson & Johnson (JNJ), and ProShares Ultra Utilities Fund (UPW).
In today's mailbag, once again, a reader accuses us of front-running our own recommendations. Of course, we do nothing of the sort. Send your e-mails to feedback@stansberryresearch.com.
"I am convinced that many of the recommendations your various newsletters make are never really available to us subscribers. We are being 'front-runned.' How many times have I read the following 'disclaimer': 'Don't chase our recommended price. The price will often rise as a result of our recommendation. Be patient and it will come down in a few days.' Very often it doesn't. In checking my option chains I see a sudden 1,000 or 2,000 contract purchase. I doubt this is from your subscribers. How many can put up – let's say $200,000 (on a $2.00 option) or $500,000 (on a $5.00 option) minutes or even an hour after the reco hits the net? I think somebody is pumping and dumping on your backs and leaving us simple subscribers in the dust. Would love your comments on this." – Paid-up subscriber Michael Feinerman
Goldsmith comment: Unfortunately, when you make investment recommendations (especially involving smaller, less liquid companies) to our 500,000-plus subscribers, prices are bound to move.
Our No. 1 priority at Stansberry & Associates is to help our subscribers learn about investing and making money in the markets. We want our subscribers to be happy. After all, the only way we stay in business is if you decide to renew your subscription. Front-running would run counter to those goals.
This is a serious accusation, and it's one we've received before. In fact, a few years ago, we wrote two Digests on the topic, which you can read here and here.
Regards,
Sean Goldsmith
New York, New York
April 7, 2014
Why big, institutional money started investing in housing...
As regular Digest readers know, private-equity firms have started buying up single-family housing.
Today's Digest Premium features insight from the head of one of these companies, who explains why these firms got into the housing trade... and how they make their purchase decisions.
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
Why big, institutional money started investing in housing...
Editor's note: Longtime Digest readers may recognize George Huang's name. He previously worked for a major New York hedge fund as a senior analyst and senior vice president in the biotech sector. He also worked at S&A as co-editor of Phase 1 Investor and the S&A FDA Report. Today, George serves as a founding partner at Bridge Tower Partners, a private-equity firm dedicated to purchasing and leasing single-family housing.
In today's Digest Premium, he discusses why private-equity firms got into the housing trade... and how they make their purchase decisions.
My company buys distressed single-family homes, remodels them, and then turns them into rentals. That generates a cash yield for investors. The single-family-home-rental business has been around for a long time... but it has typically been done by Mom and Pop investors.
We looked at housing in 2012 and thought it was a great trade to be in, but there weren't really any public vehicles at the time.
In January 2013, I (George Huang) decided to get into the trade right around the time private-equity firm Blackstone and others were gearing up and starting to buy in bulk. My business partner and I talked to investors who actually wanted to seed us, but didn't want to be in the hedge-fund trade anymore. They didn't want the volatility that was associated with it. They wanted to be in an income trade. But there really isn't much left to chase in the income world. At the time, junk-bond yields were at 5% and Treasurys were at 2.5%.
A lot of people got burned in the 2007-2008 meltdown in the stock market. A lot of these investors just wanted a fixed-income type of vehicle with stock-market characteristics. And that's what Blackstone's investors will tell you. That's what Blackstone was really looking for when it started buying single-family homes. Blackstone raised around $30 billion to make the trade... And I think it was looking for the same things our investors were.
We decided to focus solely on Dallas to begin. And we chose that because Dallas has always been the most stable real estate market in the U.S. From the 2006 peak to the 2010 trough, home prices in the area dropped 10%-12%.
You almost never have a 10%-plus deviation in home prices. And that was attractive because if investors wanted to get out in a heartbeat, there's a consistent market there and prices won't be too far away from where you purchased a home. Texas has also done very well with population growth from an immigration perspective. That's always important if you want to get into a single-family-home business. And obviously job growth has been great from the shale gas industry. You have some of that gas in Fort Worth and to the west. And the area has also directly benefited from service jobs in the energy sector in general.
Also, a lot of the northern corporations have moved their back-office operations to Texas because the cost of living there is so much lower for their employees.
Overall, we thought the macroeconomics made sense. The housing prices were cheap in Dallas compared with the U.S. median home prices, but there is also a strong demographic push. With all of these factors combined, we didn't see much risk in the Dallas housing market historically or in the future.
– George Huang
Editor's note: In tomorrow's Digest Premium, George will discuss the process of buying and renting a home from start to finish... and the specific deals he looks for.
Why big, institutional money started investing in housing...
As regular Digest readers know, private-equity firms have started buying up single-family housing.
Today's Digest Premium features insight from the head of one of these companies, who explains why these firms got into the housing trade... and how they make their purchase decisions.
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 04/04/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 329.7% | Extreme Value | Ferris |
| Constellation Brands | STZ | 06/02/11 | 297.0% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 281.8% | The 12% Letter | Dyson |
| Ultra Health Care | RXL | 03/17/11 | 233.7% | True Wealth | Sjuggerud |
| Ultra Health Care | RXL | 01/04/12 | 191.5% | True Wealth Sys | Sjuggerud |
| Altria | MO | 11/19/08 | 180.4% | The 12% Letter | Dyson |
| McDonald's | MCD | 11/28/06 | 176.9% | The 12% Letter | Dyson |
| Hershey | HSY | 12/06/07 | 175.9% | SIA | Stansberry |
| Fluidigm | FLDM | 08/04/11 | 160.9% | Phase 1 | Curzio |
| Blackstone Group | BX | 11/15/12 | 155.6% | True Wealth | Sjuggerud |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 2 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 2 | True Wealth | Sjuggerud |
| 1 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |
| 1 | Phase 1 | Curzio |
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
| Investment | Sym | Holding Period | Gain | Publication | Editor |
| Seabridge Gold | SA | 4 years, 73 days | 995% | Sjug Conf. | Sjuggerud |
| Rite Aid 8.5% bond | 4 years, 356 days | 773% | True Income | Williams | |
| ATAC Resources | ATC | 313 days | 597% | Phase 1 | Badiali |
| JDS Uniphase | JDSU | 1 year, 266 days | 592% | SIA | Stansberry |
| Silver Wheaton | SLW | 1 year, 185 days | 345% | Resource Rpt | Badiali |
| Jinshan Gold Mines | JIN | 290 days | 339% | Resource Rpt | Badiali |
| Medis Tech | MDTL | 4 years, 110 days | 333% | Diligence | Ferris |
| ID Biomedical | IDBE | 5 years, 38 days | 331% | Diligence | Lashmet |
| Northern Dynasty | NAK | 1 year, 343 days | 322% | Resource Rpt | Badiali |
| Texas Instr. | TXN | 270 days | 301% | SIA | Stansberry |