The Bottom Line on the Facebook Scandal

The bottom line on the Facebook scandal... 'Most users have remained loyal'... Raise cash or stay long?... What to make of our 'contradictory' advice... A warning from Dr. Richard Smith... In the mailbag: Have we 'jumped the shark'?

We wrote it. Did you buy it?

In mid-March, shares of social media giant – and Stansberry's Investment Advisory portfolio recommendation – Facebook (FB) plunged following news that the personal data of more than 50 million users had been improperly used as part of an effort to influence the 2016 U.S. presidential election.

Within a few weeks, shares had fallen nearly 20%, shedding more than $98 billion in market value in the process. Worse, some analysts warned further declines were likely as users began to leave Facebook in droves.

But Porter and his team weren't worried. As they explained in last month's issue of Stansberry's Investment Advisory, published on April 6...

So it's time for us to recommend you sell the shares as well, right? Wrong. We sell when we hit our stop or when the story changes. Neither has happened in this case. Our fundamental thesis for owning Facebook shares remains intact...

Facebook's scale, growth, and profitability are truly in a class by themselves. And so as long as the news flow isn't so bad that a substantial number of users delete their accounts, we will want to own shares.

Our research suggests no such exodus is even close to occurring. Sure, we hear isolated anecdotes of "this advertiser leaving" or certain user groups pushing for change (including a #deletefacebook campaign that appears short-lived). And that might slow profit growth and soften user metrics, causing continued choppiness in the stock over the short term. But the long-term capital-efficient machine is intact. So for those with a longer-term investment outlook, Facebook remains a "buy"...

New data suggest Porter's team was exactly right...

According to a nationwide poll, the recent scandal has had little significant impact on Facebook users' behavior in the U.S. As news service Reuters reported over the weekend...

Most of Facebook's U.S. users have remained loyal to the social network despite revelations that a political consultancy collected information about millions of accounts without owners' permission, a Reuters/Ipsos poll released on Sunday showed...

The national online poll, conducted April 26-30, found that about half of Facebook's American users said they had not recently changed the amount that they used the site, and another quarter said they were using it more. The remaining quarter said that they were using it less recently, had stopped using it or deleted their account.

That means that the people using Facebook less were roughly balanced by those using it more, with no clear net loss or gain in use...

Facebook shares have rebounded more than 13% in just over a month since Porter and his team published that note. As of yesterday's close, Stansberry's Investment Advisory subscribers are up as much as 50% in about 17 months so far.

Of course, regular Digest readers know Porter is cautious on the stock market today...

In fact, he issued one of his strongest warnings to date in his most recent Friday Digest last month. And yet, as you've seen, he and his team continue to recommend owning shares in a number of companies like Facebook.

If you're a new Stansberry Research subscriber, this advice could be confusing. It likely appears contradictory, at best... or even negligent. But rest assured, it is neither. As they explained in the latest issue of Stansberry's Investment Advisory, published Friday...

If you read [the April 27] Stansberry Digest, you know we're worried about the stock market. American companies have never owed more debt, relative to the size of the economy. Three times as many of the largest public companies in the U.S. can't afford the interest payments on their debt as before the last financial crisis. Several hundred of these "zombie companies" are destined for bankruptcy...

You should take steps to protect yourself. You should reduce your exposure to stocks to less than 60% of your portfolio. And you should own "portfolio insurance" by shorting these zombie companies...

[But] that doesn't mean you shouldn't continue to invest in the stock market. The best businesses will survive. That's why we've been investing in elite businesses with world-class brands when they go on sale... No one can predict precisely when the bull market will end.

In other words, while they believe the end of the rally is near, it's hard to know for sure in advance...

And despite clear fundamental problems in both the equity and credit markets, nearly all of the reliable early warning indicators that have signaled prior bear markets continue to give the "all clear" for now.

The "Melt Up" could resume as Steve Sjuggerud predicts... And if it does, folks who sell all their stocks and move to cash too early are likely to regret it.

Instead, they recommend a balanced approach...

Raise some cash. Hold some "hedges." But stay long high-quality, capital-efficient stocks – stocks that can do well no matter what happens next – and let your trailing-stop losses tell you when it's time to sell.

There may be no better example of the value of this advice than Porter's recommendation of Hershey (HSY)...

As longtime subscribers may recall, Porter originally recommended shares of the capital-efficient chocolate maker in December 2007.

This was just weeks into the most severe bear market since the Great Depression. Between November 2007 and March 2009, the U.S. stock market – as measured by the benchmark S&P 500 Index – plunged nearly 60%.

This was one of the worst times in history to recommend buying a stock. And yet, Stansberry's Investment Advisory subscribers who took his advice have done surprisingly well.

Despite the huge drop in the broad market, they were never stopped out of this position... and they've gone on to nearly triple their money to date. Better yet, they're now collecting an annual dividend "yield on cost" of around 6.5% and growing.

But Porter and his team aren't alone...

Our friend and TradeStops founder Dr. Richard Smith is also urging caution today.

He says we're no longer in the phase of this bull market where "everything is going up." Instead, he says investors need to be much more vigilant and selective now. And he says it is more important than ever to have a clear risk-management plan in place for every position you own.

This Thursday, May 10 at 8 p.m. Eastern time, Richard will be joining Porter and Steve to explain why he believes the risk of a bear market is rising... and show you how his TradeStops system can help you make more money with less risk no matter which way the market moves next.

This online event is absolutely free for Stansberry Research subscribers. Click here to learn more and reserve your spot now.

New 52-week highs (as of 5/7/18): Apple (AAPL), Automatic Data Processing (ADP), Amazon (AMZN), Cisco (CSCO), Genco Shipping & Trading (GNK), and Okta (OKTA).

Another day, another accusation of duplicity and malfeasance. How have we disappointed you? Let us know at feedback@stansberryresearch.com.

"First, you signed up thousands (?) of subscribers at $2,500 a pop for your cryptocurrency letter, through Stansberry-Churchouse. Now E.B. Tucker comes out, trashing the entire crypto space, followed by the Bitcoin Zero! promotion, predicting that in July, the entire sector is going to zero. Let's say they're right. So where does that leave all of your $2,500 a year subs? Will they get a refund as your left hand cuts off your right hand, just to shake the subscription tree one more time for some remaining low-hanging fear-induced fruit?

"As someone who has read just about all of your work in the public space, and quite a bit of it in the subscription space for a number of years, I understand what you have to do to put food on the table, but I think this one finally jumps the shark!

"I'd like to think that your organization holds a stronger ethical position than what Henry Ford evidenced when he was asked, 'How much is enough?' As I'm sure you know, his response was, 'just a little bit more.'" – Paid-up subscriber David S.

Porter comment: David – I can definitely understand your point.

In a perfect world, I'd be clairvoyant and would know "the truth." Every publishing company associated with me and every employee in these companies would always say exactly the same things – the truth, as expounded by me.

Unfortunately, the world doesn't work like that.

First, I don't know "the truth." I don't think anyone does.

And second, being an investor in a business doesn't mean you control it. The fact is, I don't have anything to do with Tama Churchouse's work on crypto assets or anything to do with the day-to-day operations at his company, Stansberry Churchouse. Likewise, I don't have anything to do with E.B. Tucker or his work at Casey Research.

I am a shareholder in these businesses – that's it. It's no different than you owning shares in Apple or Disney. Owning shares doesn't mean you decide which movies to make or which new iPhone to build.

In fact, I don't even routinely read their newsletters. Though, when I do, I'm usually impressed. For example, I thought the work E.B. Tucker did on shorting Signet Jewelers (SIG) was superb. He correctly forecast the company would have a big accounting snafu around offering its customers credit. He was right.

Likewise, I don't think anyone in the crypto world is as well-connected or as well-informed as Tama. He's introduced me to the most successful crypto entrepreneurs in the world – even had one come to my office to meet me. Very impressive.

But what if I did? What if I worked with them directly? Would anything change?

Even if both men worked for me at Stansberry Research, I wouldn't expect them to agree. Smart people, working independently and honestly, are rarely going to agree on anything – not even on what to have for lunch. Trying to force a consensus view on what the future holds for a brand-new technological asset class would quickly lead me to having zero smart or talented analysts.

Nobody knows what's going to happen with cryptos. Just like nobody knows what the weather is going to be next week. The future is uncertain.

Would you like me to employ a bunch of toadies? I wouldn't. Nor would I want to read folks like that.

Meanwhile, you should note that my publishing company (Stansberry Research) hasn't recommended buying any crypto assets. Not a single one. I don't personally believe they are "investable" yet. There's not enough legal certainty, in my mind, surrounding these assets. Not yet. But that's just my view. I accept the fact that I don't know everything. I accept the fact that what for me is an unacceptable risk is an opportunity to other people.

And I do believe those other views should be published, so that readers can decide for themselves.

If you want to know my view, it's all right there for you to see in The Total Portfolio. If you want my opinion on what your portfolio should look like, it's right there for you – down to the number of shares.

If you want other information and other ideas, published by other companies, I encourage you to subscribe to these other publications.

What you shouldn't do, however, is expect different people, working for different companies, all around the world, to agree on the future just because they have a single shareholder (me) in common.

That's absurd.

Regards,

Justin Brill
Baltimore, Maryland
May 8, 2018