The power of doing nothing...

In today's Friday Digest, we'll discuss the importance of doing nothing. Yes, you read that right, dear subscribers. I want you to learn how not to buy stocks. How not to trade commodities... how not to sell options or buy corporate bonds.

You probably think you've opened the wrong e-mail… "Porter is always telling me to do something... to buy this stock, or that one… to learn how to sell puts or buy corporate bonds. There's always something to do when I read his letters..."

Nope. Not today. Today, I'm going to show you the most important secret of all is learning to do nothing. As you know, on Fridays, I do my best to tell you the things I'd want to know if our roles were reversed. Many of the things I've written to you about over the years are bad for my business. And nothing is worse for my business than advising you to do nothing...

That's why no one else in finance is going to tell you, the client, to do nothing. It's not in their interest for you to do nothing. We – the professional financial community – need you to do something. Anything. We need you to take action so we can sell you information and services. You don't need a broker unless you're going to make a trade. You don't need a newsletter to tell you to do nothing.

Now, let me explain why doing nothing is so important. Just look at the stock market over the last two or three years...

This year's stock market swoon appears to be upon us. At some point each year, the stock market suddenly remembers that the world's financial system suffers from serious problems – namely, that those who back the system are mostly broke.

In 2010, the break came from April through early August. It featured a massive run into U.S. Treasury bonds and collapsing stock prices. The downtrends continued until Ben Bernanke, the Federal Reserve chairman, promised to print another trillion dollars in the second week of August. At that moment, the prevailing downward trends completely reversed. Stocks went up. Commodities went up. And interest rates went up.

In 2011, the break came in August. Everything plummeted as the world suddenly realized that Europe's banks didn't have any money left. Once again, U.S. Treasury bonds rallied (interest rates fell), stocks plummeted across the board, commodities did a swan dive... and European bank stocks were beaten like rented mules. This time, the European money printers came to the rescue. They promised to print in October (and actually began printing in December). The result was a huge rally – across the board. It didn't matter what you bought in December 2011. Everything soared.

Hopefully by now, you see the pattern. The world's monetary authorities are simply exchanging the value we hold in our currency for value in financial assets (stocks and bonds) and commodities. It's a game that destroys the purchasing power of the working class' wages, while enriching the speculators and investors who know how to game the system.

How do you game the system? Learn to do nothing. What I mean is, the game has become so rigged that various measures of the market's variability have completely collapsed. All stocks, all bonds, all prices... everything... are moving in lockstep. That's because all these prices are set in the paper that's being printed in massive quantities. Compared to the monetary forces at play, the things that normally drive stock prices – like interest rates and earnings – make almost no difference.

Your efforts to overcome this volatility by doing something – by hedging, by trading, by buying the "right" stock – are all likely to fail. No, that's not a guarantee. And yes, you can do a lot of powerful things to generate income that will help you weather these storms. But the most powerful thing you can do is nothing.

You see, while prices are moving together, value continues to be widely variable. During these crisis moments (and another one may be on the way right now), there's no difference between the very best companies and the very worst. They all sell off together. Therein lies a tremendous opportunity – if you've learned to do nothing.

Here's all you have to do: Pick three or four stocks you want to own. Look back and think of the companies you should have bought in 2010 or 2011. Make sure they're the highest-quality names you can find. Set aside 5% of your net worth in cash for each of these names this week. Just sit on it. Don't worry about the yield you're losing. Don't trade the funds. Do nothing.

It's an extremely powerful feeling. You're going to take advantage of the market, instead of being its victim. That's the secret of doing nothing.

At some point over the next six months, a full-fledged crisis will take hold. There's been a crisis every year since 2008. There will be another one this year. And it will follow a predictable script… The monetary authorities will come out and promise to print more money, buy more assets, and prop up more banks and governments. Financial assets and commodities – all of them – will soar as a result. But this time, instead of selling during the panic, you'll be buying.

How will you know when it's time to buy? Here are a few simple guidelines...

Imagine if you only bought stocks when: 1) The Volatility Index (VIX) – the so-called "fear gauge," which measures put premiums – was over 30... 2) Stocks had fallen by at least 15% on the S&P 500 and/or 20% on the Nasdaq... 3) A friend or a relative calls in a panic and asks what to do about his investments... 4) You don't want to pick up the newspaper or turn on CNBC because you know the news is going to be terrible.

If you're prepared... you won't be worried. If you've picked the stocks you're going to buy ahead of time, you won't doubt yourself. You won't be acting out of fear or greed or panic. You have a plan. You've learned to do nothing... until it's time to buy. You'll know when it's time. It'll be obvious.

If you can learn to do nothing... the market's volatility and the giant rigged game we call the world's monetary system ceases to be a problem. It becomes a giant opportunity. Learning to do nothing takes all the power back from the market and gives it to you.

As with all the new strategies I've introduced you to over the last several years, I'd encourage you to start small…

I know that if you try things on a small scale – like shorting one share of stock, buying a single bond, or selling one put contract – you can mitigate almost all the downside and nearly all the fear. It's scary doing things for the first time with your own money.

The way to overcome this paralyzing fear... and the only way to learn to become a better investor... is to start small and get some experience. Learning to do nothing is harder than it looks. And far more powerful than you're likely to realize until you start doing it. You'll be constantly tempted to do something with the cash you're sitting on. So start small. Then... as the strategy works... you'll want to do it more and with more of your assets.

As I explain to a subscriber in today's mailbag (see below)... the best way to start building a "wish list" of stocks you want to buy is to focus on high-quality companies whose shares trade at a discount and who pay a healthy dividend... exactly the kind of companies Dan Ferris has dubbed World Dominating Dividend Growers.

In his 12% Letter, Dan has compiled a list of blue-chip stocks that generate huge cash flow and return an ever-growing stream of income to shareholders. It's an excellent place to begin shopping for the stocks you'll buy in the next downturn. To learn more about Dan'sThe 12% Letter and how to subscribe, click here.

New 52-week highs (as of 5/10/2012): W.R. Berkley (WRB), Hershey (HSY), and Hatteras (HTS).

In today's mailbag… One subscriber has discovered the power of high-quality stocks that relentlessly raise their dividends… and kudos from a self-described critic. Send your e-mail to feedback@stansberryresearch.com.

"Until about a year ago, I hated investing with a passion. Why? I always thought it was gambling and there was no way for me to hold gains and limit losses. Sadly I had this view for the first 48 years of my life.

"My father encouraged me to subscribe to Stansberry's Investment Advisory and I gave it a try. Every position I took in the market lost money. Of course, I got involved right before the big market drop in the summer of 2011. Then, for some reason, rather than giving up, I bought another subscription to The 12% Letter. I started reading about the businesses you call WDDGs. I wish I had learned about these when I first got out of college. I have loaded up my portfolio with WDDGs and I keep buying more anytime the market pulls back a bit.

"I still have a 15-plus-year investment horizon before I retire, so I am not concerned about short-term market drops with these WDDGs. All I can say is thank you for helping me finally see the light. For the first time in my life I actually feel like I will be able to retire someday. You have brought me peace." – Paid-up subscriber Mark

Porter comment: The first thing I'd tell someone who is new to investing is, make sure you start with buying the safest, deepest-value companies that pay a good dividend. Pair that with high-yielding bonds and other forms of income – like selling calls and puts. If you'll do these things, it is difficult to lose money. If you don't, it's easy to lose money, even if you're following a good analyst.

"I've been following your advice to sell put options. This month it appears shares of Cisco and Chesapeake are going to be put to me. When I sold the puts, one contract each (yeah, I know - big gambler), the strike prices were a good price to buy the stocks at, especially reducing them by the premiums I received.

"But now the stocks have fallen so much in price that the put to prices are far above the current prices, almost to the point when I get the stocks I will have hit a 25% stop loss point on them. I didn't anticipate that happening, and you guys don't mention it in your articles or videos on selling puts. I'm not complaining or griping just mentioning this so you can think about adding that information in your advisories about selling puts." – Paid-up subscriber Jeff

Porter comment: The first rule of selling puts is only sell puts on companies you want to own at a price you're happy to pay. Selling puts is a horrible strategy if you are simply "chasing premium." That is, if you start selling puts on volatile stocks, you are likely to take huge losses eventually.

"As a subscriber, I have done my share of criticism of your programs and publications. So it is time for a kudo. I have been looking for several months to re-finance my home mortgage to take advantage of low rates. Among others, I contacted Everbank because they have been endorsed by some of your writers on some other matters.

"Long story short, I just closed on a re-finance with them at an excellent rate and reasonable cost. All the people I dealt with there were very helpful and accommodating, especially John Robinson. Excellent customer service! They even came to my home for the closing. How convenient is that? I recommend them highly." – Paid-up subscriber Jerome

Porter comment: Agreed. EverBank does a great job.

Regards,

Porter Stansberry

New York, New York

May 11, 2012

The power of doing nothing... Panic and more printing... Why starting small is crucial...

The power of doing nothing... Panic and more printing... Why starting small is crucial...

In today's Friday Digest, we'll discuss the importance of doing nothing. Yes, you read that right, dear subscribers. I want you to learn how not to buy stocks. How not to trade commodities... how not to sell options or buy corporate bonds.

You probably think you've opened the wrong e-mail… "Porter is always telling me to do something... to buy this stock, or that one… to learn how to sell puts or buy corporate bonds. There's always something to do when I read his letters..."

Nope. Not today. Today, I'm going to show you the most important secret of all is learning to do nothing. As you know, on Fridays, I do my best to tell you the things I'd want to know if our roles were reversed. Many of the things I've written to you about over the years are bad for my business. And nothing is worse for my business than advising you to do nothing...

That's why no one else in finance is going to tell you, the client, to do nothing. It's not in their interest for you to do nothing. We – the professional financial community – need you to do something. Anything. We need you to take action so we can sell you information and services. You don't need a broker unless you're going to make a trade. You don't need a newsletter to tell you to do nothing.

Now, let me explain why doing nothing is so important. Just look at the stock market over the last two or three years...

This year's stock market swoon appears to be upon us. At some point each year, the stock market suddenly remembers that the world's financial system suffers from serious problems – namely, that those who back the system are mostly broke.

In 2010, the break came from April through early August. It featured a massive run into U.S. Treasury bonds and collapsing stock prices. The downtrends continued until Ben Bernanke, the Federal Reserve chairman, promised to print another trillion dollars in the second week of August. At that moment, the prevailing downward trends completely reversed. Stocks went up. Commodities went up. And interest rates went up.

In 2011, the break came in August. Everything plummeted as the world suddenly realized that Europe's banks didn't have any money left. Once again, U.S. Treasury bonds rallied (interest rates fell), stocks plummeted across the board, commodities did a swan dive... and European bank stocks were beaten like rented mules. This time, the European money printers came to the rescue. They promised to print in October (and actually began printing in December). The result was a huge rally – across the board. It didn't matter what you bought in December 2011. Everything soared.

Hopefully by now, you see the pattern. The world's monetary authorities are simply exchanging the value we hold in our currency for value in financial assets (stocks and bonds) and commodities. It's a game that destroys the purchasing power of the working class' wages, while enriching the speculators and investors who know how to game the system.

How do you game the system? Learn to do nothing. What I mean is, the game has become so rigged that various measures of the market's variability have completely collapsed. All stocks, all bonds, all prices... everything... are moving in lockstep. That's because all these prices are set in the paper that's being printed in massive quantities. Compared to the monetary forces at play, the things that normally drive stock prices – like interest rates and earnings – make almost no difference.

Your efforts to overcome this volatility by doing something – by hedging, by trading, by buying the "right" stock – are all likely to fail. No, that's not a guarantee. And yes, you can do a lot of powerful things to generate income that will help you weather these storms. But the most powerful thing you can do is nothing.

You see, while prices are moving together, value continues to be widely variable. During these crisis moments (and another one may be on the way right now), there's no difference between the very best companies and the very worst. They all sell off together. Therein lies a tremendous opportunity – if you've learned to do nothing.

Here's all you have to do: Pick three or four stocks you want to own. Look back and think of the companies you should have bought in 2010 or 2011. Make sure they're the highest-quality names you can find. Set aside 5% of your net worth in cash for each of these names this week. Just sit on it. Don't worry about the yield you're losing. Don't trade the funds. Do nothing.

It's an extremely powerful feeling. You're going to take advantage of the market, instead of being its victim. That's the secret of doing nothing.

At some point over the next six months, a full-fledged crisis will take hold. There's been a crisis every year since 2008. There will be another one this year. And it will follow a predictable script… The monetary authorities will come out and promise to print more money, buy more assets, and prop up more banks and governments. Financial assets and commodities – all of them – will soar as a result. But this time, instead of selling during the panic, you'll be buying.

How will you know when it's time to buy? Here are a few simple guidelines...

Imagine if you only bought stocks when: 1) The Volatility Index (VIX) – the so-called "fear gauge," which measures put premiums – was over 30... 2) Stocks had fallen by at least 15% on the S&P 500 and/or 20% on the Nasdaq... 3) A friend or a relative calls in a panic and asks what to do about his investments... 4) You don't want to pick up the newspaper or turn on CNBC because you know the news is going to be terrible.

If you're prepared... you won't be worried. If you've picked the stocks you're going to buy ahead of time, you won't doubt yourself. You won't be acting out of fear or greed or panic. You have a plan. You've learned to do nothing... until it's time to buy. You'll know when it's time. It'll be obvious.

If you can learn to do nothing... the market's volatility and the giant rigged game we call the world's monetary system ceases to be a problem. It becomes a giant opportunity. Learning to do nothing takes all the power back from the market and gives it to you.

As with all the new strategies I've introduced you to over the last several years, I'd encourage you to start small…

I know that if you try things on a small scale – like shorting one share of stock, buying a single bond, or selling one put contract – you can mitigate almost all the downside and nearly all the fear. It's scary doing things for the first time with your own money.

The way to overcome this paralyzing fear... and the only way to learn to become a better investor... is to start small and get some experience. Learning to do nothing is harder than it looks. And far more powerful than you're likely to realize until you start doing it. You'll be constantly tempted to do something with the cash you're sitting on. So start small. Then... as the strategy works... you'll want to do it more and with more of your assets.

As I explain to a subscriber in today's mailbag (see below)... the best way to start building a "wish list" of stocks you want to buy is to focus on high-quality companies whose shares trade at a discount and who pay a healthy dividend... exactly the kind of companies Dan Ferris has dubbed World Dominating Dividend Growers.

In his 12% Letter, Dan has compiled a list of blue-chip stocks that generate huge cash flow and return an ever-growing stream of income to shareholders. It's an excellent place to begin shopping for the stocks you'll buy in the next downturn. To learn more about Dan'sThe 12% Letter and how to subscribe, click here.

New 52-week highs (as of 5/10/2012): W.R. Berkley (WRB), Hershey (HSY), and Hatteras (HTS).

In today's mailbag… One subscriber has discovered the power of high-quality stocks that relentlessly raise their dividends… and kudos from a self-described critic. Send your e-mail to feedback@stansberryresearch.com.

"Until about a year ago, I hated investing with a passion. Why? I always thought it was gambling and there was no way for me to hold gains and limit losses. Sadly I had this view for the first 48 years of my life.

"My father encouraged me to subscribe to Stansberry's Investment Advisory and I gave it a try. Every position I took in the market lost money. Of course, I got involved right before the big market drop in the summer of 2011. Then, for some reason, rather than giving up, I bought another subscription to The 12% Letter. I started reading about the businesses you call WDDGs. I wish I had learned about these when I first got out of college. I have loaded up my portfolio with WDDGs and I keep buying more anytime the market pulls back a bit.

"I still have a 15-plus-year investment horizon before I retire, so I am not concerned about short-term market drops with these WDDGs. All I can say is thank you for helping me finally see the light. For the first time in my life I actually feel like I will be able to retire someday. You have brought me peace." – Paid-up subscriber Mark

Porter comment: The first thing I'd tell someone who is new to investing is, make sure you start with buying the safest, deepest-value companies that pay a good dividend. Pair that with high-yielding bonds and other forms of income – like selling calls and puts. If you'll do these things, it is difficult to lose money. If you don't, it's easy to lose money, even if you're following a good analyst.

"I've been following your advice to sell put options. This month it appears shares of Cisco and Chesapeake are going to be put to me. When I sold the puts, one contract each (yeah, I know - big gambler), the strike prices were a good price to buy the stocks at, especially reducing them by the premiums I received.

"But now the stocks have fallen so much in price that the put to prices are far above the current prices, almost to the point when I get the stocks I will have hit a 25% stop loss point on them. I didn't anticipate that happening, and you guys don't mention it in your articles or videos on selling puts. I'm not complaining or griping just mentioning this so you can think about adding that information in your advisories about selling puts." – Paid-up subscriber Jeff

Porter comment: The first rule of selling puts is only sell puts on companies you want to own at a price you're happy to pay. Selling puts is a horrible strategy if you are simply "chasing premium." That is, if you start selling puts on volatile stocks, you are likely to take huge losses eventually.

"As a subscriber, I have done my share of criticism of your programs and publications. So it is time for a kudo. I have been looking for several months to re-finance my home mortgage to take advantage of low rates. Among others, I contacted Everbank because they have been endorsed by some of your writers on some other matters.

"Long story short, I just closed on a re-finance with them at an excellent rate and reasonable cost. All the people I dealt with there were very helpful and accommodating, especially John Robinson. Excellent customer service! They even came to my home for the closing. How convenient is that? I recommend them highly." – Paid-up subscriber Jerome

Porter comment: Agreed. EverBank does a great job.

Regards,

Porter Stansberry

New York, New York

May 11, 2012