The S&A Digest

Buffett and Munger's best lines… Nokia's huge Chinese order… Icahn and WCI… Signs of a bottom (again) in housing… No Digest next week… Why I'm bullish on the dollar… Penny Letter vs. Extreme Value…

I'm taking a break next week. I'll be away from the office, and even my computer, for several days. As a result… I'm sorry to say… we won't publish any Digests. If something terribly important comes up, Goldsmith will send a brief update, but you'll be spared from any further "Stansberry rants." I can hear the applause in the distance…

No, I'm not going to jail. Sorry to disappoint you. I'm going to my family's "compound" in the hills of Scott County, Tennessee. This is rural Appalachia, where cell phones rarely work properly… but where there are far more interesting things to do… like hunt turkeys.

PSIA pick Nokia (NOK) will supply Chinese distributor China Postel with $2.5 billion worth of phones. A Nokia spokesperson would not say the exact number of phones the company is sending to China, but described it as "a significant ramp-up." This deal further solidifies the world's largest cell-phone producer's position in emerging markets.

Inside Strategist pick WCI Communities (WCI) urged shareholders to reject Carl Icahn's slate of directors and reiterated that Icahn's $22-a-share bid for the company is inadequate. The Florida real-estate company believes higher bids are on the way.

Seems like an interesting opportunity… The stock is trading around $20. If shareholders accept Icahn's bid, you make around 10%. And there's a chance that the company isn't bluffing and a higher bid will materialize. Meanwhile… is the market for Florida condos going to get materially worse than it is already?

Signs of a bottom in the housing market… KB Home (KBH) received a $782 million bid for its stake in Kaufman & Broad SA, the largest homebuilder in Paris and surrounding areas. The $69-a-share bid is 15% less than Kaufman & Broad's closing price yesterday. KB Home said it will evaluate the offer for its 49% stake.

From our rock analyst, Matt Badiali: "Holders of Vista got one new share of Vista and 0.79 shares of Allied Nevada yesterday. Vista closed at $9.34. Today, the combined shares of Vista and Allied Nevada are worth $12.45. That's a 33% move in one day… I still think the combined value is north of $14."

Our managing editor, Brian Hunt, is a relentless bull. He gets visibly upset anytime someone is bearish. His latest reason the market will probably continue to rally: "ETF country funds aren't anywhere near the overvaluations usually seen at intermediate tops... China Fund, India Fund, etc., most country funds are at discounts to NAV. Plenty of room for more froth."

One more reason to be bullish: Everyone is afraid of the U.S. dollar. As Tom Dyson noted in today's DailyWealth: "The latest Daily Sentiment Index (DSI), from MBH Commodity Advisors hit 90% dollar bearish. Sentiment tracker Market Vane is at 83% dollar bearish. And the latest Commitments of Traders (CoT) data show a record amount of bullish bets for euro versus the dollar."

Meanwhile, our subscribers have been begging for an international version of Extreme Value – which would own foreign-currency denominated equities and benefit from a weakening dollar. Nearly 100 have even promised, in advance, to pay for it if we publish it. Mmmnn…

While it's not good business to argue with your customers, we've found – time after time – that when newsletter buyers all agree on something in the markets, it's best to go the other way.

New highs: KHD Humboldt Wedag (KHDH), Southern Copper (PCU), Saks (SKS).

In the mailbag… no more bigotry… I promise. We're back to our "normal" fare of angry subscribers, thank goodness. Even though we won't be publishing the Digest next week, feel free to keep sending in your best shots: feedback@stansberryresearch.com.

"I'm the one who accused you of being related to Ann Coulter about a month or two ago! Sure enjoy reading your newsletter... I agree with your Viet Nam assessment. I have done rural development work there on and off from 1983 through 2003. I bought, through a local friend whom I trusted with the money (because title was in his name), an orchard (we actually had it planted), and a lovely piece of land outside of Dalat (the old "highland" retreat area of former kings). The former we sold for 200% [profits] and the latter is up 11 times (as per an offer we had two weeks ago) in about three years. My friend is a bit nervous that the government might "find a need to use this land" and wants to sell, but it is still only several bucks a square meter! Compare to Thailand with less population! We've made money in Thailand on land that was over $100 a square meter - without the view, water, trees and location that the Dalat land offers! I've seen Saigon turn from a one-tourist-shop dustbin to the megapolis it is now, with five-star restaurants and hotels. Amazing people. They'd make the Japanese look lazy if they hadn't been sidetracked during the '60s and '70s – in fact, nowadays, they do!" – Paid-up subscriber "Robert"

"I signed up for Div. Grabber two months ago and have done nothing but lose money!!! Is there a secret formula? Should I have signed up for something else???? HELP!!!!" – Paid-up subscriber Barry

Porter comment: I don't know how that's possible, Barry. We've recommended 11 grabs since last November. We show significant gains on half of the positions: 20%, 31%, 17%, 12%, etc., with the older grabs performing better than the newer ones (as we'd expect). Remember: These stocks usually take six months to rally back to their pre-dividend prices. The only grab that is down significantly is the most recent one… but now it's up 5% in intraday trading… putting us very close to breakeven. If you can't make money with our Dividend Grabber… maybe you should stick to bonds.

"Please leave religion out of your commentaries. How pathetic! And get rid of that pathetic Steve Sarnoff once and for all!" – Paid-up subscriber Dan Rydalch

Porter comment: I wasn't talking about religion… but nevermind… I get your point.

More importantly, Steve Sarnoff doesn't work for me. He never has. He never will. I don't endorse his options-trading letter… in fact… I rip on it all the time. He uses utterly misleading advertising to con people into subscribing. For his "track record," he assumes that you were able to sell at the exact high price of the options contract, but he never issues any sell advice.

Whether his options advice is actually any good or not, I don't know. I've never read it. But I do know this: If you expect people to trust you enough to follow your lead with their hard-earned savings, you can't use a bogus track record to attract them? How many people are going to trust you once they figure out how badly you've misled them.

"So why did you miss Akamai's stop loss... can you not afford one of those nifty little trailing-stop programs that you guys continue to suggest we take a look at? Or you don't think stop losses are important in a 'model' portfolio?" – Paid-up subscriber SC

Porter comment: We caught our mistake quickly. We let everyone know we'd made a mistake. And we fixed it – with no harm done. However, we don't use the systems you mention because we don't promise – anywhere – to notify subscribers about stop loss points. We don't provide this service for several reasons. The most important, we're publishers not money managers. Having said that… you're right… we should at least track them accurately in our publications, which in this case, we did not.

"Why would the company buy back shares that become worthless, according to what you wrote? I thought they buy back shares to reduce the float available to the public (supply-demand rationale) AND because they feel the shares will be worth more in the future (at which point they can cash in through an offering or sale of the entire company)." – Paid-up subscriber Gregory O

Porter comment: You can't have it both ways. If the company doesn't retire the stock, it doesn't reduce the outstanding shares. Reducing the float only makes the stock more illiquid, it doesn't impact the intrinsic value of a given share. Furthermore, operating companies aren't and shouldn't be in the business of trading their own shares to earn a profit. They should earn their profits in their businesses.

"I get a lot of e-mail from investment advisories, and I delete a lot of them. But I rarely delete your e-mail. I have found it to be very valuable. Rob Fannon's prediction of Dendreon having trouble in May was a compelling article. I bought some puts and made a 78% gain in about 3 weeks. Thank you for helping me pay for a bathroom remodel!" – Paid-up subscriber David Eyre

"My dilemma is to choose which of Dan's letters are right for me. Please ask Dan to explain the [distinctions] between his Extreme Value and Penny Letter portfolios, pertaining to safety, value, and growth, along with his insight." – Paid-up subscriber Trace Smith

Porter comment: Penny Letter deals with stocks that have considerably more risk. Thus, we expect the Penny Letter portfolio results to be more variable, but still produce a very satisfactory average return. On the other hand, we've instructed Dan not to recommend any stock in Extreme Value that he wouldn't be willing to put all of his money in for 10 years. We expect Extreme Value's track record to be flawless. And it nearly is.

Buy both of them. See the difference for yourself. I promise, what you make with the investments will vastly outpace what you spend for the research. And, if you're ever unsatisfied for any reason, you can get a refund. What could be fairer?

"I have received an e-mail asking for a call to verify my c.c. number for my Porter Stansberry subscription… They list phone numbers to call 1-877-791-6263 or 915-849-4633. Is this real or a spoof attempt? Do you think you should warn your subscribers?" – Paid-up subscriber DS

Porter comment: No… that was one of our reps. Your credit card was rejected.

The Wisdom of Buffett and Munger

Chris Mayer is one of the few financial analysts who doesn't work for us that we wish did. Chris took a few choice notes at last week's Berkshire Hathaway meeting, and I want to share them with you.

Chris published a more fleshed-out version earlier in a free e-zine – www.rudeawakening.com. So, I apologize if you've seen these lines already… but they're classics. I didn't want any of our subscribers to miss them, especially since they echo many of the things we've been talking about recently.

Charlie Munger on global warming:

Carbon dioxide is what plants eat, and so generally it's a little more comfortable to have it a little warmer instead of a little colder. It is not as though vast groups of people are trying to move to North Dakota from southern California. It is not at all clear that it would be worse for mankind in general to have the planet a little hotter... You'd have to be a pot-smoking journalism student to think it will be a calamity.

Warren Buffett on the risk of a crash:

Something bad will happen, but you could go back at anytime in the last 100 years and say the same thing... You can freeze yourself out indefinitely… Every investor must play the hand he is dealt.

Charlie Munger on ethanol:

The idea of running cars on corn has got to be the dumbest idea I've ever heard.

Warren Buffett on inflation:

We don't look at metals as protection against inflation. The best protection against inflation is your own earnings power. The second best is to own a wonderful business.

Regards,

Porter Stansberry

Baltimore, Maryland

May 11, 2007

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/28/2013