The S&A Digest

The annual Stansberry "boondoggle"... Pabrai loads up on HNR... Record profits for the Fortune 500... A Pulitzer for Ferris?... Sorry for the extra taxes...

This morning, we flew from a blustery Baltimore to a picture-perfect Naples, Florida. We're hosting our editorial staff and many of our best contacts for the next two days at a golf resort here. We call it the Spring Editors' Conference.

I know... it sounds like a boondoggle, the kind of expense the IRS won't accept. But I've been hosting these get-togethers annually since 2002. Every year, something comes up at our brainstorming sessions that materially affects our business – and your portfolios. By getting everyone together for a few days, we inevitably come up with one or two big ideas for investors. (Because we'll be tied up with our meeting on Tuesday and Wednesday, look for your next copy of The Digest to arrive on Thursday.)

Speaking of big ideas... Our friend and famed value investor, Mohnish Pabrai, has been loading up on Harvest Natural Resources (HNR), an oil company with major operations in Venezuela. Alliance members will remember at our meeting in Aspen last November, Pabrai responded to a question from me about HNR by claiming that the stock was a perfect example of his low-risk approach to investing. At the time, we were struck by the seeming incongruity of his remark. But he apparently knows something we don't: Since March 5, Pabrai has spent $12.3 million to purchase 1.3 million shares of HNR. Pabrai is now the single-largest shareholder of HNR. It's worth watching.

One more thing about Pabrai... He's written a book – The Dhandho Investor – about his investment approach. He sent me a copy that I've just begun to read (I'll review it for you when I'm finished). Given that, since 1999, Pabrai has earned 29% annually for his investors (after his fees), it probably wouldn't hurt anyone's investment performance to read his book.

Fortune 500 companies made $785 billion in profit last year, a 29% increase over 2005. The collective profit at the peak of the tech boom in 2000... $444 billion.

Information providers Reuters, Bloomberg, and Thomson Financial are seeing a growing demand for "machine readable news." These companies are putting news stories and, in particular, earnings announcements in a computer-friendly language, just strings of words and numbers without sentences. Hedge funds are building programs to make almost instantaneous trades on these announcements.

If you're trying to get an edge by "knowing" the news first, good luck...

In the mailbag today... an interesting mix. We'll try to respond patiently. Send us your questions, your irritations, your accusations... and, if there is any, your praise: feedback@stansberryresearch.com.

"I am a subscriber of the S&A Digest and have missed a few e-mails since my computer crashed in the middle of January this year. Please send your e-mails to my new e-mail address." – Paid-up subscriber Josef Balanag

Porter comment: Josef... resending e-mails to you would be a quite a thrill for me, but why not simply access our back issues on our website, http://www.stansberryresearch.com/. Just go to the homepage, scroll down the list of publications, and click on "The S&A Digest."

"I am soooo pissed off. I just finished my taxes and have to pay thousands of dollars in additional taxes because of all your recommendations." – Paid-up subscriber Joseph Avantario

"Like the service, but I don't like your math. You flatter your editors' newsletters (and your business) by printing gross returns of stocks, regardless of holding period, instead of annualized returns, when you summarize past recommendations in each newsletter. I'm in the RATE of return business, not the TOTAL return business. Why don't you do the right thing and present annualized returns for recommended stocks in your newsletters, please?" – Paid-up subscriber DB

Porter comment: You should be in the total return business... but regardless, we display the total returns and the total holding periods so that folks like yourself can do whatever calculations you'd like. I personally don't believe annualized results are meaningful to newsletter readers because, as they say, you can't "eat" annualized results. I've seen many publications publish results that looked great on an "annualized" basis that, if anyone had real money on the line, would have proved to be disastrous. We print what you would have actually made if you took our advice and got into our recommendations at their recommended price. We think that's the most honest way to do it. And that's what business we're in.

"As one of the 1% of subscribers who took you up on your 50% discount to Extreme Value, I read with interest your comment that you 'haven't yet reached the point where I'm willing to publish letters that I believe are bad for people even though they might sell well.' I say go for it with a warning under the title that states 'S&A believes this letter will be detrimental to your wealth.' It would probably not hurt sales, you could say 'I told you so!', and us 1 percenters could hit the delete button." – Paid-up subscriber Don Antrim

"How can you invest in American companies planning to hold them 'forever' with such terrible fundamentals for the U.S. dollar and the U.S. economy with the coming social security, Medicare problem (the FED estimates $60 trillion in future liabilities)? Talk about putting all your eggs in one basket. If every empire through history went under at some point (and doing things very similar to what the U.S. is doing) why think 'this time is different?'" – Paid-up subscriber Fernando

Porter comment: Great businesses bought at a good price will weather any macroeconomic storm. You could have made the same argument you're making today back in 1974. Your point would have been right on the money. And so would my reply.

"I am a paid-up subscriber to True Wealth and enjoy reading Growth Sock Wire. Can you please tell an old fool like me just what the 30 or so companies listed in each edition are? I have looked time without number but still do not understand the reason for listing them!" – Paid-up subscriber Mike Wilkinson

Porter comment: Well... I don't know. It's awfully complex... Companies under the "Hitting New Highs" banner are hitting new 52-week highs. Companies under "Hitting New Lows" are hitting new 52-week lows.

"Is there a Pulitzer Prize for newsletter writers? If so, I think that Ferris should get one for the April 2007 Extreme Value. If there isn't, S&A should have an annual contest for readers' opinions of the best letter of the year. Could be another 'top 10.' April 2007 EV shows the value of a person with a general education, who knows how to think logically and probe, probe, probe. I once knew a lawyer who, among his other gifts, memorized the 'Rhyme of the Ancient Mariner.' Not that Ferris would do that, but I like his well rounded background – it shows in his writing and his analysis. I must be the S&A town drunk, for I don't criticize a lot." – Paid-up subscriber Jim Pursley

Regards,

Porter Stansberry

Naples, Florida

April 16, 2007

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As of 07/01/2013