The S&A Digest: Porter's on vacation

Porter's on vacation... Gartman on gold... Why we're buying prospect generators... A secret to successful investing...

Goldsmith comment: Porter's still down in Florida. He's officially on vacation this week, though he was able to make time for one comment.

 Commodity speculator Dennis Gartman, author of the Gartman Letter, thinks gold's run is getting tired. Gartman advises gold bugs to take a break at these price levels, although he does forecast the precious metal to hit the "obscene number" of $1,000 an ounce. His reason: the "disconcerting" public interest in gold. In a Bloomberg interview, Gartman said people stop him on the streets for advice on gold.

 Our contact with the investing public leads us to believe gold has a long way to run. We get thousands of e-mails from our readers every week, and maybe 1% of the questions are about gold. We've recommended gold since 2003, and we're not stopping now. We're just now seeing institutional investors buy gold, and the mainstream media hasn't picked up the story yet.

 In the September 11, 2007 DailyWealth, Tom Dyson noted what the top of the gold market looked like in January 1980, when gold hit its all-time, inflation-adjusted high of $800 an ounce.

This issue of The [New York Times] actually ran a dozen stories on gold that day. Another story claimed that scientists had figured out a way to manufacture gold from lead. If that doesn't sound outrageous enough, the newspaper article goes on to report that the scientists were Russian, working in a secret Siberian research lab... and they produced this gold by accident... using a technique that could manufacture gold for less than $600 an ounce.

Another story featured a picture of people lined up on the street outside of an antiques and metals shop with gold trinkets. Oil is getting comfortable at $100 per barrel, and we don't see an improvement in the U.S. dollar anytime soon. So, until we see this kind of hysteria, we're long gold.

 Although, we disagree with Gartman on buying gold at this level, we agree on one point – gold stocks will likely shoot up in the near term. Gartman noted that while spot gold is up 17% since January 1, many of the junior miners (including our prospect generators) are actually down. "At some point, this enormous under-performance of the equities to the metals themselves shall correct," he said.

Prospect generators are gold companies that locate deposits, then partner with a larger firm to mine the gold. These companies avoid the high costs of the mining business, and often jump thousands of percent if they strike gold.

 Once a major company's stock has been pummeled, and then it goes sideways for years, and its sales and earnings continue to build up, eventually, the stock price has to shoot up – like a cork out of a bottle. – Arnold Van Den Berg

You've probably never heard of him, but Arnold Van Den Berg is one of the greatest value investors of our time. His Century Management has returned 15.6% annual returns after fees for the past 31 years. And the above quote is one of the great secrets to successful investing. Applying his reasoning to our prospect generators, we see that many of the stocks have floundered, and some have even fallen. Meanwhile, the price of gold (the "sales and earnings" equivalent) has soared. We're setting up for a perfect "cork out of a bottle" situation.

 Matt Badiali maintains a portfolio of prospect generators in his S&A Prospector. We think these stocks are the best way to buy gold through the stock market right now. To learn more about prospect generators and the S&A Prospector, click here...

 New highs: none.

 If you decide to sign up for one of our services and buy the recommendation, please read the issue carefully. As you'll see below, not doing so can cost you money. Other than that, we're still on trailing stops. Give us a new topic at feedback@stansberryresearch.com.

 "In the February issue of True Wealth, Steve Sjuggerud recommended Nuveen Insured Municipal Opportunity Fund (NYSE: NIO). 'Safe, double-digit annual returns on your cash... it's hard to beat.' I purchased NIO on 1-28-08 and sold my shares today at a 10% loss. How could Steve be so stupid to recommend NIO. It cost me $6,500 for investing in his safe recommendation." – Paid-up subscriber Arnie

Goldsmith comment: Steve still has that fund in his portfolio. And the key word in the quote you pulled from the issue is "annual returns." Most purchases take more than a month to play out. In fact, Steve explained in his issue that he expects to hold that stock for two to four years.

 "In today's Digest was a query [regarding] trailing stop loss orders and the inability of using them with some brokerages. I don't understand why the broker would say it's not technologically possible. I can tell you for a fact that my Fidelity account offers the option. The only caveat is they expire after a set period of time, and one has to remember to re-enter the order. Other than that, it's all very easy and very automatic." – Paid-up subscriber Jerry Lane

 "In response to a question from a lady named Mary regarding trailing stops, everyone needs to be reminded not to place their stops in the market where the order can be seen. It is a path to unnecessary losses. Fidelity offers an account feature that allows me to enter certain criteria on various stocks in which I am invested or interested in watching and sends me an alert when that criteria is met by a particular security. A specified decline in price on a percentage basis is one of those options. Hope this information is helpful and you enjoyed the fishing trip." – Paid-up subscriber Ken McGaha

 "I am in search of high yielding dividend paying stocks with little downside risk. Could you provide some recommendations?" – Paid-up subscriber Roger

Clark comment: The single best income-producing strategy ever created is selling covered calls against low-risk value stocks. Most people think this is a risky strategy... because most people do it wrong. They buy high-risk stocks because the option premiums are expensive and generate the largest current return. But then, the stocks collapse, and investors are stuck with losses. The secret here is to focus on not losing money by buying low-risk value stocks and then selling the calls. If you do that, then the returns will come quite easily.

The objective of my Advanced Income service is to generate 15%-20% income per year by selling covered calls. We're currently on pace to do twice that amount. In a world of 3%-5% yields, this is a fantastic way to earn double-digit income yields.

Porter comment: Jeff has not closed a single position at a loss since launching Advanced Income last September. He's producing consistent, 5%, 10%, and 20% gains on every trade. In all, Jeff's covered calls have produced 19.2% on an annualized basis. Today is your last chance to buy Advanced Income at its introductory price of $199. At midnight tonight, we will increase the annual subscription fee to $500. To learn more about Advanced Income, click here...

Good investing,

Sean Goldsmith

Baltimore, Maryland

March 3, 2008

Stansberry & Associates Top 10 Open Recommendations

Stansberry & Associates Hall of Fame