Grading Our Trading Services and Portfolio Products

Grading our trading services and portfolio products... Sjug and Doc earn our highest marks... What happened with Stansberry's Big Trade?...

Editor's note: In yesterday's Digest, we revealed the grades for our monthly newsletters. If you missed it, you can read it right here. Today, we're handing out grades for our trading services, specialty publications, and Stansberry Portfolio Solutions products...

Stansberry's Credit Opportunities: A+

This is perhaps our least-understood product... Yet it is some of the best research we publish.

We launched Stansberry's Credit Opportunities in November 2015 with one simple strategy in mind: Buy high yielding bonds at a discount that enables us to collect dividends while we wait for either the issuer of the bond to pay us back in full... or for the market to return the price back to par or above.

If you've never bought a bond, the most important thing you need to know is this: Bonds are binary. Either they pay or they default. And sometimes, you can buy them at a discount to par – meaning you not only receive the promised income payments, but you can really boost your returns with capital gains.

The biggest challenge we face is convincing subscribers that they can earn higher annualized gains using this strategy than most folks ever achieve by investing in stocks. Our aim is to consistently earn double-digit gains. That's tough when the market has bid prices up on even the lowest-quality corporate debt.

Fortunately, our team has excelled. Its track record speaks for itself...

During the evaluation period for 2017's Report Card, we recommended 22 bonds for a 77% win rate with average gains of 13.6%. The annualized returns come in at an eye-popping 21% – doubling its benchmark.

Sometimes, we'll beef up the potential and use the remaining capital from the discounted portion of the bond and allocate it to the company's stock when it's been beaten down and we think the market has overreacted. That way we capture capital gains on the stock as well. Among the big winners we recommended using this strategy was resource firm Natural Resource Partners (NRP), which we closed out for a 99% gain.

If you think that was a fluke, consider this. In November, we recommended a convertible bond that matures in March (next month). At the time of the recommendation, it traded around $767 (a discount to par of about 23%). Today, it trades around $971. That's about a 27% gain so far. When the bond matures next month, the total gain will be about 40% in just over four months. That works out to an annualized yield-to-maturity of about 85%.

Many investors never earn those gains in stocks. Be honest. Before you write off fixed-income investing, ask yourself when was the last time you made those kinds of profits in a single stock.

It's important to have an analyst team that understands cash flow analysis to forecast a company's business and ability to pay back its debts.

Editor Mike DiBiase has done a superb job leading this effort.

The other critical component to analyzing bonds is having the legal expertise capable of reading the hundreds of pages of indentures that document the bond details, including covenants and where each bond lies in the priority of payments. You want to know where you stand in the capital structure should things turn south. Our legal analyst Bill McGilton provides tremendous legal expertise for this part of the analysis.

We've often said that once you learn the art of investing in discounted corporate bonds, you may never buy a stock again. If you want to learn how to do it successfully, you should follow Mike and Bill... they do a wonderful job with this publication.

NewsWire Premium: A

We launched Stansberry NewsWire as a supplementary service to our Stansberry Portfolio Solutions products. We hired Scott Garliss, John Gillin, and Greg Diamond – who collectively bring decades of professional trading experience – to follow the markets and report what's going on each day in real time.

In July, they began offering trade recommendations in real time to subscribers who paid for the "premium" version of NewsWire service. Based on the trends they identify and describe in the basic NewsWire, the team trades stocks, exchange-traded funds, and options (taking both long and short positions). They aim for short-term gains. (The average holding period is 19 days.)

Six months is a very short sample size to evaluate. But trading is different than receiving a monthly recommendation, so we decided to share with you their results so far...

In just six months, the NewsWire Premium team has made 37 trades with a 67.5% win rate for an average gain of 1.3%. That sounds like a lot of trades for a small gain. But here's the thing. With the average holding period of just 19 days, their annualized results show a truly impressive 77.8% gain.

So while we don't usually grade a service with such a short track record, this team has produced outstanding results and deserves an "A."

The feedback we've received from subscribers is overwhelmingly positive. In the past week, when the suddenly volatile market had many investors desperate for news and updates... many subscribers wrote in about how grateful they were for the real-time information NewsWire provided all day throughout the week. If you're a trader or just want to keep up with what's going on in the markets, you should download the free app. You can find the iOS version here and the Android version here.

Also, as we roll out the Stansberry Terminal later this year, you will be able to consume all their updates and trades in real time... while reviewing fundamentals and stock charts all in the one place. You're going to love it.

Retirement Trader: A++

To get an "A++," you need to do something special.

And Doc did it again this year with his trading service Retirement Trader. Since 2012, Doc has earned an "A+" or "A++" every year in Retirement Trader.

So how does he do it?

Doc shows investors how to generate safe income by using options – fundamentally by selling puts or covered calls.

New subscribers often get spooked when they hear the word "options." They think it's risky. But knowing how to trade options correctly is the key. Selling options on companies that you would want to own anyway allows you to earn income from investors who "pay you" a risk premium to buy the stock at a given date and price at some point in the future. The key to minimizing risk is understanding how to value the underlying stock and the premium you are prepared to accept for taking on the risk.

Doc earns readers lots of small amounts of income on his safest and highest-conviction ideas. To prove how safe his strategy is, you only need to consider his win rate – a massive 93.4%. That's not a typo. Over the evaluation period, Doc has been right 143 times out of 153. That kind of win rate is unheard of in trading circles. And that's what earns him an "A++" this year. His average return is 6.5%, for an impressive annualized gain of 44%.

The next time you think options trading is too risky, consider giving Doc's strategy a try. You will find he takes very little risk, and you will consistently earn lots of small profits – month after month.

Stansberry Alpha: A

We launched Stansberry Alpha in 2012 to take advantage of a misunderstood anomaly in the options market.

You see, people will pay more for the protection of loss than they will for the opportunity of gain. When fear hits the market, investors will pay big premiums for put options, which serve as a type of insurance. When fear rises, the price of the put option soars, while the price of the call option (used to speculate on higher stock prices) go down on the same stocks. Our best opportunities arise when fear hits the market and volatility spikes (like we saw last week).

We make an asymmetrical bet by selling the puts and using some of the capital we receive to buy an out-of-the-money call. We pocket the net difference in the option prices as income – which lowers our entry point if put the stock. Meanwhile, the call option provides us the opportunity to juice the returns and book big gains if the share price rises. The key here is to be able to trade on margin and only trade options on our highest-conviction ideas.

With a consistently high win rate (normally about 70% or better) since launching this publication, we have earned a "B+" or better every year. In 2013 and 2015, we gave the service an "A+."

Editor Alan Gula has done a great job continuing its success this year with a 75% win rate for average gains of 27% – annualized at 32% – more than double the benchmark's 14% return.

Over the past 12 months, we've booked 153% gains on Warren Buffett's Berkshire Hathaway (BRK), 146% on global mining giant BHP Billiton (BHP), and 158% on prestigious credit-card company American Express (AXP). Last month, we booked a 205% winner for our second-highest gain in Alpha history on discount retailer Dollar General (DG).

Over the past 29 months, we have made 24 trades with a 75% win rate, for an average gain of 27%. Those are outstanding returns to earn on your margin account that would otherwise be sitting in cash or earning roughly half that by investing it in an index fund.

Stansberry's Big Trade: F

This is a disappointing result. But before you throw stones our way, it's important to understand the strategy... and how to implement it.

First, this is a bear market strategy that some call "tail hedging." Traders use the term to mean buying insurance-like protection (i.e. puts) as a bet against market crashes. The idea is that when stocks crash, these puts will soar in value, thereby offsetting losses you suffer in other parts of your portfolio.

We launched Stansberry's Big Trade in November 2016 to take advantage of the looming downturn in the credit cycle we saw coming. We identified the worst corporate credit in America and companies with broken business models. As you know, our timing was off, and the bull market continued its march higher throughout 2017. We admit that betting on stocks heading lower in a raging bull market is no easy task. But we said from day one that we would have more losers than winners.

We hate losses as much as anyone. But as with all cycles, we continue to believe that a downturn is coming. So we keep the bigger picture in mind. We remain focused on identifying the worst corporate credit and broken business models, yet where the market still places an elevated valuation on the equity. When the market drops, these stocks will fall much harder. And when they do, the put options will soar.

The key here is to diversify and bet small. As we advised many times, you should not allocate any more than about 5% of your total portfolio to this strategy. And you must diversify across 10-20 positions. That way, each bet only makes up about 0.5% of your total portfolio. So if they expire worthless, they don't make a material difference to your overall performance.

For example, if all you did was go long the market through an S&P 500 Index fund last year, you made about 20%. If you allocated 5% of your portfolio to this strategy, your net gain would have been around 17%. For a hedged portfolio, those are outstanding returns.

Think of it as portfolio insurance. Yes, it can be a slight drag while stocks continue to soar. But when the market turns (and it will), you'll be delighted you held some insurance.

Still, this is an isolated publication. And we grade it like any other. Since launching the publication in November 2016 through December 2017, we made 16 trades. As at December 31, only 12.5% were winners and the average loss was -53%. We agree that when looking at the performance in isolation, it's a poor performance.

But consider this: Just last week, the market dropped by about 7%. In one day, the price of the puts soared and half the portfolio was in the black, when previously only one was showing a positive return. We took advantage of the spike in volatility (and put prices) and booked high double-digit profits on four positions last week.

A 7% decline in the market like this is normal. We can't know when exactly, but we expect a much bigger correction is coming. And when it does, these puts will skyrocket.

Stansberry Venture Technology: A+

Editor Dave Lashmet continues his incredible run of uncovering stocks with the potential to double, triple, or better.

Dave, with analyst John Engel, travels the world looking for small-cap opportunities, mostly focused on biotech and tech companies. This is in an extremely difficult sector of the market in which few investors succeed, let alone excel. Many are simply too scared to even try. If you are going to get involved, you want someone like Dave helping guide you through the minefield of disasters waiting for you.

Last year, Dave earned an "A" because he was right 60% of the time, and earned readers 11.6% on average.

This year, he improved on those already outstanding results – with a 66.7% win rate and an average return of 25.9%, earning himself an "A+" in the process.

These results on their own should speak for themselves. But there is something that doesn't show up in the numbers. Dave's strategy is to protect his subscribers' capital. So when he hits a double, he recommends selling half. That gives you back your original investment and lets you still participate in any future upside of the stock.

For example, Dave recommended graphics-card manufacturer Nvidia (NVDA) in May 2016, with the stock trading at around $45 per share. He sold half six months later when it shot up to $93 and has held the rest... with the stock now trading around $230. Taking into account the half-sold position, readers who followed his advice have received back their capital and are sitting on gains of around 250%. And they can still participate in any future gains from here.

We applaud the strategy. And we are thrilled to see readers be able to make these kinds of gains with the protection of booking capital and letting their winners run essentially for free.

Since unveiling the rebranded Venture Technology in November 2014, Dave has made 35 recommendations. Nine of those have doubled. In other words, one in every four picks Dave makes has gone on to double investors' original investment. That is an incredible feat for any investment strategy... let alone in one of the toughest sectors in the market.

We've always said this is one sector of the market where you truly do see stocks soar hundreds and thousands of percent over several years. Keep that in mind. Naturally, we can't promise those outrageous returns. But it does happen in this sector. And if anyone is going to pull it off – it's Dave.

Venture Technology isn't for everyone. It's our most expensive individual subscription ($5,500 a year), and we recommend people have significant capital ($50,000) to dedicate to these ideas. But if you like to learn more about subscribing and following Dave's latest ideas, you can get in touch with our sales team at (888) 863-9356.

Stansberry Venture Value: B

We launched Venture Value in February 2017 to focus on small-cap stocks with high-quality, capital-efficient business models.

As we've said with NewsWire Premium, grading a service that only has months (rather than years) of recommendations is a little tricky because most of the positions have not yet had time to play out. This is especially true for Venture Value, which is focused on finding well-run businesses that can grow steadily without constant investment of more capital. Editor Bryan Beach calls them "snowball stocks." But the key ingredient is time. They need time to build up momentum, and one year isn't enough.

Nevertheless, we want to share with you our results so far. During 2017, Bryan made 12 recommendations for a 66.7% win rate and an average gain of 9.7%. Given his lofty win rate, Bryan may feel his grade is a little harsh. But one stock went against him, causing a big loss that weighed down the portfolio's average gain.

Bryan does deep dive research on businesses and makes it easy for you, our reader, to understand. He has identified several stocks already showing high double-digit returns in just a few months. Venture Value is a great product and we're confident the long-term results will pay huge dividends for patient investors.

True Wealth Systems: B+

When we launched True Wealth Systems, our aim was to effectively "download" Steve's investment thesis and thinking into a machine... and improve on it. We spent millions in developing systems and resources. He follows dozens of different markets and figures out how the statistics can position him for any move in a particular market.

Steve's system does best in a trending market. Choppy markets are not very friendly to this kind of investing because when the trend breaks, even if only temporarily, it triggers a stop before the trend continues. That hurt True Wealth Systems in last year's evaluation period.

But this year, the trends have worked in Steve's favor... And we've seen significant improvements in performance.

Out of 39 trades, 24 were winners for a 61.5% win rate and average gains of 10.7%. That's a good win rate. And the average annualized gain is great – outpacing its benchmark. But to deserve a higher grade than B+, we want to see higher average gain.

Subscribers know that Steve's Melt Up Portfolio forms part of True Wealth Systems. And that portfolio is on fire. We haven't graded it separately here because we only launched the portfolio in August. Even with the recent pullback, the nine-position Melt Up Portfolio is showing a total portfolio return of around 15% so far.

True Wealth China Opportunities: A++

Steve launched True Wealth China Opportunities in September 2016.

He saw a huge opportunity to invest there. It is the second-largest economy on the planet (behind the U.S.), but virtually nobody invests there – yet.

But as Steve pointed out, that is about to change. More than $1 trillion should flow into Chinese stocks and bonds over the next few years. Steve and his team cover big themes, including tech stocks and real estate.

He has made 26 recommendations with 24 being winners – for an incredible 92.3% win rate. His average return is a massive 32.5%, trouncing the benchmark.

Without giving too much away, Steve's biggest winner is on a special backdoor way to buy one of his favorite stocks for a discount. Subscribers were up 67% at the end of December, and Steve says there is plenty more room to run.

We don't give away A++ grades lightly. You have to do something special. With this product, Steve has done just that.

We're delighted with his results. If you already subscribe, we hope you're enjoying some of these gains, too.

DailyWealth Trader: B

DailyWealth Trader is more than just a trading service.

Editor Ben Morris writes informative, educational pieces every day that every aspiring trader should read. Ben made 189 trades over the evaluation period with 124 winners for a win rate of 65.6%, with average gains of 3.4%. His average holding period is 142 days, giving him annualized returns of 8.7%.

Last year, Ben's win rate was slightly lower at 60% (still very good) and an average gain of 1.3%. Ben earned a "C" because we felt he was doing a lot of trading for little gain. We urged him to trade less, and to only trade his highest-conviction ideas.

This year, Ben did just that... and improved his win rate as well as doubled his average gain.

Ben goes long and short stocks as well as trades put and call options. Interestingly, his options trades yielded him an impressive 82% win rate for annualized gains around 8%.

Trading is a tough game. But a disciplined approach can yield solid annualized gains. As we saw this year from Ben's trading, less trading meant better results. We would encourage more of the same.

The Capital Portfolio: A+
The Income Portfolio: A
The Total Portfolio: A

In its inaugural year, our Stansberry Portfolio Solutions product performed exactly as we designed it. And we're extremely proud of the results.

This was a new product for us. It was unlike any or our traditional newsletters and trading services. The portfolios pull from a broad range of our advisories, culling the best ideas and presenting them to subscribers as a balanced portfolio... with detailed recommendations on individual positions sizes, allocations, and exit strategies. In short, it's a one-stop shop to understand how we would use our best advice.

In our first year, The Capital Portfolio led the charge with a portfolio gain of 21.2% for the year ended December 31... and beat the S&P 500's 19.3% over the same period.

The Capital Portfolio is designed to generate long-term capital appreciation and is our most aggressive portfolio. We take our best ideas from our leading publications, including Stansberry's Investment Advisory, True Wealth, Retirement Millionaire, Commodity Supercycles, Extreme Value, and Stansberry Gold & Silver Investor, and allocate across about 20 positions. We diversify across market sectors, geographies, and asset classes. This portfolio is filled with modern, high-quality, blue-chip stocks that should beat the market while providing lower volatility.

It's no easy feat beating the market when it soars almost 20%. But our Investment Committee did an outstanding job. And it achieved those returns with an exceptional 65.6% win rate.

The Income Portfolio includes access to everything in Capital Portfolio, plus Income Intelligence, and Stansberry Credit Opportunities. It includes a mixture of dividend-paying stocks, high-yielding corporate bonds, and hybrid bond/stock securities that currently yield around 4%.

This portfolio gives investors a low-volatility/low-risk combination of income and capital gains. We made 39 recommendations with 31 in a winning position at year-end for a win rate of 79.5% and an average gain of 11.6%. These are fantastic results for an 11-month period – especially in a world of near-zero-percent interest rates.

Some of the biggest gains came from dividend-paying stocks that also offered capital growth, including names like German insurance giant Allianz (AZSEY). We also saw 20%-plus gains in one of our corporate bonds. If you're looking for a portfolio that generates safe, steady income with some capital growth, this is your best bet.

In The Total Portfolio, we take everything from Capital and Income, plus select investment ideas from across our entire range of publications (except Venture Technology and Venture Value) to build an "all weather" portfolio that will perform well in a bull market, and also protect you in a downturn.

You can think of this as our hedge fund. We hold mostly long positions, but we sprinkle in noncorrelated, hedged positions and shorts to protect us on the downside.

This portfolio holds anywhere between 25 and 40 positions at any one time. Last year, we opened 85 positions with 44 winners for a win rate of 51.8%. Our average gains came in at 15.6% through December 31, 2017.

We booked 108% gains on the long side with Shopify (SHOP), while booking gains of nearly 50% on our short positions in car-rental firms Avis Budget (CAR) and Hertz Global (HTZ).

We know this portfolio will generally underperform the S&P 500 in a bull market. That's mostly because our hedged positions will cause a slight drag on the overall performance. But we would rather underperform the benchmark slightly in a bull market knowing that we're protected when things turn south. That is when you really understand and appreciate the benefit of holding hedges. When the market sells off, these positions rise in value, offsetting losses you incur in other parts of the portfolio.

Market declines and drawdowns are normal in investing. Since launching the rebalanced portfolios through yesterday's close, the market has sold off by 5.9%. Our portfolios declined... but by less than the overall market. The Capital Portfolio – our most aggressive portfolio – is down 5%. The Total Portfolio is down 4.7%. And The Income Portfolio is down just 3.3%.

That's the real beauty of these products. They perform well in both bull and bear markets. It's still early in 2018, but we are optimistic that whatever happens to stocks this year, our portfolio products will perform well with less volatility than the overall market.

And there you have the report card for 2017.

How did we do? We love to hear how you are doing with our research. Are we living up to your expectations? Let us know at feedback@stansberryresearch.com. We can't give individual advice or reply to every e-mail, but rest assured, we do read every message.

As always, thank you for joining us at Stansberry Research. We appreciate the trust you place in us to help you protect and grow your wealth.

New 52-week highs (as of 2/12/18): CME Group (CME) and Match Group (MTCH).

In today's mailbag, several subscribers weigh in on Part I of our 2017 Report Card. What do you think of this year's grades? Were we too fair or too harsh? Let us know at feedback@stansberryresearch.com.

"I agree with you (in particular with Steve's True Wealth). Starting with Steve's essay on the Melt Up, I have not even questioned his thesis. The results have been far in excess of the 'Win' rate quoted in your [report card]. All I can say is 'Thank You.'" – Paid-up subscriber Phil Stewart

"Hi Brett, I watched the webinar and liked the thoroughness of your evaluation. I agreed with your analysis, as far as those subscription[s] that I had actively traded/followed, since I had some context. Good job! If you are tagged to do this next year, a suggestion would be to add a metric on what the max and typical drawdown was during the period of evaluation per subscription. thx again." – Paid-up subscriber Dave T.

"Seems like an honest assessment of yourselves to me. My hat's off and here's a bow/nod to you." – Paid-up subscriber Jeff Martin

"Hi, I'm a Stansberry's Investment Advisory subscriber. I wanted to concur with you about this year's performance. It was much improved. 2016 was the worst year for investing I ever had – worse than 2008. I attribute it to Porter's cynicism and disdain for politics. He actually didn't think electing Clinton would make a bit of difference to the economy. Naive of him, and of me for following his lead. What a difference the election of Trump has made." – Paid-up subscriber Edward Musick

"Hi, thank you for your transparency in providing these grades. You're correct that no one else does, and it's admirable that you do! Two quick questions... Where can we see the grades for each year for each newsletter? Does the True Wealth grade include True Wealth Systems? If not, how can we see the results for that? Thanks!" – Paid-up subscriber Elizabeth L.

Brill comment: Thank you for the note, Elizabeth. You can access our archive of previous Report Cards right here. And no, the True Wealth grade does not include True Wealth Systems... As we noted yesterday, we saved the results of True Wealth Systems and all of our other trading and specialty services for Part II, which we shared in today's Digest.

Good investing,

Brett Aitken
Baltimore, Maryland
February 13, 2018