The S&A Digest: Great investors buy S&A picks

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

As of 06/20/2013

Great investors buy S&A picks... Is Nelson Peltz a paid-up subscriber?... Buffett watch... Loeb, Paulson, and Cuban join the Yahoo melee... Dollar rebound?... Subscribers let us have it: "You're no better than Obama"... What do bonefish think about the market?

Institutional investors released their quarterly holdings yesterday, and our portfolio stocks have enjoyed some head honcho buying: Warren Buffett increased his stake in Dividend Grabber pick Kraft (KFT) by 4.4% to 138.3 million shares. He also increased his stake in PSIA pick WellPoint (WLP) by 6.7% to 4.8 million shares. Eddie Lampert raised his stake in Extreme Value pick Home Depot (HD) to 22.8 million shares.

Also... On Thursday, famed activist investor Nelson Peltz bought nearly 1 million shares of PSIA's most recent "drug dealer" recommendation. Is he a subscriber?

More Buffett watch. The world's best investor was buying banks (Wells Fargo, US Bancorp) and railroads (Burlington Northern Santa Fe).

Hedge-fund Third Point, run by outspoken activist Dan Loeb, has joined forces with Carl Icahn, via a 1 million-share position in Yahoo and a 6.85 million-share stake in Microsoft. This will make the looming proxy fight with Yahoo much, much more entertaining. You see, Loeb is the most bombastic SEC filer in the country. He uses SEC disclosure regulations to humiliate and intimidate management teams that won't do what he tells them to do. He's called billionaire hedge-fund manager Ken Griffin a "gerbil." And said this about the British: "We find most Brits are bit set in their ways and prefer to knock back a pint at the pub and go shooting on the weekend rather than work hard." We can't wait to see what he says about Yahoo's employee-friendly workplace and new-age thinking managers.

Hedge-fund king John Paulson is also supporting Icahn. Paulson's fund, Paulson & Co., bought 50 million shares of Yahoo in the first quarter.

But the biggest slap in Yahoo's face is Icahn's choice of board members... Icahn nominated Mark Cuban, the billionaire owner of the Dallas Mavericks. Cuban made his billions selling his website, broadcast.com, to Yahoo at the peak of the tech bubble for $5.7 billion in Yahoo stock. Cuban immediately sold his stock and is rumored to have actually gone short Yahoo.

Our friend Chris Weber joins Chuck Butler in believing the U.S. dollar is oversold, "I suppose the biggest news here is that for the first time since the second half of 2000, I have more US dollars than I do euros. I've watched, during that time, the euro go from 82 cents US to $1.60: that is, nearly doubling (more than that when you throw in interest). I've thought that this was about as much as we can expect. I still have euros, but dollars predominate on about a 2 to 1 basis." Chris has averaged double-digit returns for 33 years betting on currencies and rarely takes a losing position. Click the link to read more about Chris Weber.

A personal note: I'll be out of the country next week and most likely out of touch. I'm going fishing at Turneffe Flats just off the coast of Belize with S&A Editorial Advisory Board member Ted Bywater. I need to find out what the bonefish, the permit, and the tarpon think about the market's rebound... Sure, I'll poll the bartenders, too...

New highs: Aracruz Celulose (ARA), Covidien (COV), Eni (E), Leucadia (LUK), ArcelorMittal (MT), Occidental Petroleum (OXY), Petrobras (PBR), Plains Exploration (PXP), StatoilHydro (STO).

In the mailbag, finally some real venom. We take on all comers, below. Send us your best shot: feedback@stansberryresearch.com.

"I would have been better served if your products advised me to buy USO [an oil ETF] and GLD [a gold ETF] at the appropriate times and to keep the rest in cash equivalents. I've had to do that on my own. Maybe your products are good in a bull market, but in a bear market, you're dangerous." – Paid-up subscriber Charles

Porter comment: Yes, any investor who put 50% of his assets into oil and 50% into gold at the beginning of 2007 would have done extremely well – certainly better than any one of our newsletters' total portfolios. On the other hand... we've been practically begging subscribers to buy gold since at least 2003, when you could buy it for around $400 an ounce. And many of our individual recommendations have far outperformed the ETFs you mention. But these kinds of comparisons aren't particularly useful because no sane investor would only own oil and gold ETFs – despite their performance in the last several years – and no investor can know beforehand which three or four of our recommendations will become the highfliers.

If you were trying to gauge the overall usefulness of our work, we'd ask you to measure the performances of our S&A 16 Model Portfolios, which we publish quarterly for our Alliance subscribers. These are sensible, balanced model portfolios containing our best ideas, given current prices. We're very confident the performances of these portfolios will, far more often than not, trounce the stock market averages. We'd also refer you to our annual year-end Report Card, where I rate the annual performance of each editor's recommended portfolio.

"Regarding yesterday's S&A Digest issue: Did the Fortress CEO really say '...it's a mark-to-market issue.' or is the term MARK your slip, or interpretation of the high regard in which their investors are held?" – Paid-up subscriber Joan

Porter comment: Like the old saying says: "A fool and his money are soon parted... via hedge funds..."

"What a tease. Betting on rising rates is a smart bet. Come on now give us the best way to do this. I'd guess shorting treasuries with an inverse fund would do it..." – Paid-up subscriber Glenn

Porter comment: Exactly. And I recommended just such a fund in my April 2008 PSIA newsletter.

"Goodness me, Porter! A whole Digest without a hint of ironic banter, I anticipated with glee the coming volley after you had tossed up GM with an inviting lob in the first paragraph... damn, this port in my glass must be off vintage!!" – Paid-up subscriber Shaun

Porter comment: Hopefully, today's performance was more entertaining...

"Dear Mr. Stansberry... Your comment that 'China government has put a tight lid on media' is ignorance to the extreme and bias. There were more than 1,000 reports from all China, Hong Kong, Taiwan in the earthquake regions in the last three days and most of our TV stations have online reports of the news nearing 24 hours. This time is probably the most open media reporting of the disaster. US TV stations have no interest in reporting the matter does not support your assertions. I start to query your other opinions if this is the attitude your take in commenting on something, totally without support and ignorance." – Paid-up subscriber Samuel Ip

Porter comment: I agree with you, Samuel. We shouldn't have published that comment. We don't have anyone in China currently... so how could we know for sure? We couldn't. And as such, we shouldn't have said anything at all. I regret the mistake.

"Stansberry is no different than Barack Obama, your both great pretenders. You thought a seedling company was a great income investment that was safe because of a beetle and not at risk from reduced demand for lumber coming from a declining housing market – dividend cuts by the seedling company soon followed. You thought an oil company was a great value investment that had little political risk despite operating in Venezuela – then the country changed the rules and down went the stock. These are just two examples of repeated bad research at Stansberry and Associates... It has sadly become clear that your ability to find good investments is not much better than the rest of us, except you charge for it." Paid-up subscriber Douglas Witman

Porter comment: Oh, comparing me to OBAMA!... that hurts my pride... But, to the substance of your complaint, that sometimes our recommendations don't work out. Yes, that's the case. I won't bother to cherry-pick a few great recommendations in reply to your two recent bad ones. I don't deny that, in the course of recommending hundreds of securities we do, from time to time, recommend some absolute dogs.

On the seedling pine tree thing though... I think you're pointing the finger in the wrong direction. Our Alliance subscribers selected that idea as the stock of the year by voting during our conference last November. It wasn't our top choice. In fact, I laughed out loud at the recommendation, which seemed crazy to me – low margin, no barrier to competition, small numbers of big customers, large capital costs, etc. I was urging people to buy Moody's for less than $32 during the same meeting. My recommendation received precisely two votes, out of several hundred cast. But Moody's has traded for less than $32 on exactly two days since then and now trades at around $45. It's up 40%.

We know we're only as good as our track record. That's why we maintain the S&A 16 Model Portfolios. That's why we publish our portfolio pages on the back of each issue. That's why we keep total track records and detail the results at the end of each year. But most importantly, that's why we urge you to limit your positions sizes, use stop losses, and be mindful of the risks. If you think it's possible to do well in stocks without ever making a mistake or taking a loss, you're in the wrong game.

"Why the attitude and refusal to acknowledge global warming as a problem? It is a natural phenomenon, but we should be in a cooling cycle right now; the current warming trend is not natural. For the last 8 years we've been in a declining sunspot cycle, and the earth's orbit is in a cyclical change from circular to elliptical. Both of these natural cycles are causing less solar energy to reach the earth which should place us in a cooling – not a warming – cycle. The Space Weather Prediction Center (not kidding) predicts the sunspot cycle to reach a trough this year and begin increasing. This may accelerate global warming. This stuff isn't fantasy." – Paid-up subscriber Charlie

Porter comment: "This stuff isn't fantasy" sounds suspiciously to us like "We won't devalue..." The world's long-term weather and temperature patterns are incredibly complex – never mind trying to understand all of the forces that regulate them.

The dire forecasts of what might happen in the future are being generated with computer models – models built by humans with fundraising agendas and precious little data, most of which is of dubious accuracy.

Whether global warming is real, I can't say. Whether it is man's fault, I don't think can be known with any certainty. And whether we can do anything about it, I highly doubt. But... I know one thing for sure: Global warming is a wet dream come true for politicians. It's a global problem we can't accurately measure or "solve" without enormous new government powers and taxes. Best of all, used to scare people, global warming becomes an immediate justification for almost any boneheaded government intrusion into our lives.

Look at this week's polar-bear decision. The facts say polar-bear populations have grown rapidly over the last 30 years – to more than 25,000 animals. Maybe shrinking polar ice is good for bears. Who knows? The bears don't seem to mind – at least according to their actual population numbers. There are so many bears now, the Inuit tribes have reinstituted legal hunting.

But... because some scientist has a computer model predicting the bear's population will fall in the future (because of global warming), the polar bear was placed on the endangered species list. There's nothing endangered about the polar bear – only some scientist's model says it might become endangered. What is in danger are the Inuit! They will require legal sanction to kill bears in their backyards! But the political crusaders don't care about the facts or the natives. They don't live in the Arctic. They care about their models. And like the socialists of 50 years ago, they believe far more in their models than they do in real life.

That's the scary part. You wouldn't attempt to drive your car with a computer model, based on the history of your commute. But the world's governments are about to grab awesome new powers to regulate the creation of electricity and the use of energy around the world to avert a problem that is, at best, very poorly understood. These changes will lead to more government control, higher taxes, and less freedom – that's what the model demands of us – to save the world.

Regards,

Porter Stansberry

Baltimore, Maryland

May 16, 2008

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