THE S&A DIGEST: Thailand - Buy on the Sound of Cannons

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

As of 07/05/2013

Ian Davis on Thailand... Accusations of fraud... Another sign of the top... Goldman's hedge fund end run... Sjug is "too early"... Porter gets one right (Akamai)... Home Depot rumors... More from the zealots...

Another sign of a "toppy" market… U.S. corporations spent a record $325 billion buying back stock through the first nine months of this year. This is up 33% over the same time frame last year and more than double the $130 billion spent in the first nine months of 2004. As a group, corporate boards, which approve buybacks, tend to buy at the top.

Hedge-fund returns without outrageous fees? Goldman Sachs has developed a hedge-fund replication tool, known as the Absolute Return Tracker index. The algorithm behind the platform, which took two years to write, will track hedge funds, break them down, and allow Goldman to see the aggregate position of the funds. Goldman will start a fund based on the findings and charge a flat 1% fee for this service, which threatens to cut into the $1.3 trillion hedge-fund business.

Ian is back… with some interesting research on Thailand. I’ve been talking about the country for a few months. It’s safe. It’s cheap. Its political problems are temporary… and, unlike China, it has a long history of civil society. I’m going to go to Thailand early next year and poke around, looking for something good to buy and showing you how to do it. If you have contacts in Thailand’s financial world, please let me know. I might ask you for an introduction. If you’re really plugged-in, I might even pay for you to come with me…

Home Depot, a recent S&A Research recommendation, spiked as much as 5% on Friday, on rumors of a management-led leveraged buyout. Everyone denied the rumors… and it seems far-fetched. But, if the stock weren’t so cheap and throwing off so much cash, the rumor would have never been started in the first place.

We wrote it, did you buy it? "The number one stock I think you should buy for big gains in 2006 is Akamai." – Porter Stansberry’s Investment Advisory, November 2005. As of November 30, 2006, Akamai has led the Nasdaq 100 with year-to-date gains of 129%.

And now… the mailbag. We got a flood of e-mail this weekend. I read them all… and selected a few to share. Thanks, as always, for your feedback. One thing, though… if you need customer service, please do me a favor and call our customer service staff (1-888-261-2693). The phones are working. If you get voicemail, leave a message, and we’ll take care of it, pronto. It’s simply impossible for me to handle things like changing your e-mail address… because there are many of you and only one of me. Criticism? Drunken praise? A long-lost relative? Send your notes here: feedback@stansberryresearch.com.

"[True Wealth’s recommended housing stock] is climbing off the first low. If it follows the pattern, it will climb further, form a secondary peak, and fall again to a new low. A 25% trailing stop might just break even… as usual, Steve Sjuggerud is too early again." – PSIA subscriber John Tepley

"…Communication I get from Stansberry Research is pure posturing and treats me like a newcomer… You are getting more distant every day… There are two words for this kind of service: SCAM and FRAUD." – Paid-up subscriber Lewis Ross

Porter Comment: Do you work for the SEC?

"I am a happy Steve Sjuggerud devotee. However, I completely disagreed with Dan Ferris’ moral assessment of Wal-Mart (DailyWealth, November 4). Porter’s tirade against global warming and apparently against science itself left me shocked and angry (The Digest, October 24)… So I did what I always do when confronted with a strongly held opinion opposite my own. (No, I didn’t immediately fire off a nasty e-mail to the author.) I grumbled, then I looked for evidence… You were right! My god, you were both right! I bought a subscription to Extreme Value." – Deane R. Mathewson

Porter Comment: Wish more readers would do the same. Dan Ferris’ Extreme Value is the best investment newsletter covering primarily U.S. equities, and Dan Ferris is the best value investor writing a newsletter, anywhere.

"You certainly do pretend to know the mind of god… in fact I am sure that as a secular libertarian, you are your own god. It’s pretty clear in your writings… ‘For what does it profit a man to gain the whole world, and forfeit his soul?’" – Paid-up subscriber Gary Gorski

"You are bashing the Bigoted Christian Fundalmentalist [sic] but you need to refresh your memory to remember that this country was founded by Bigoted Christian Fundalmentaltists [sic]… I pray that you are a Christian and just had your human side come out and let your anger get away from you when you were bashing what you call the Bigoted Christian Fundalmentalist [sic]… I pray that God will put someone in your path to give you the Good News as proclaimed in the Bible bacause [sic] if you do not accept Jesus Christ as your Savior… you are doomed to go to Hell… I too will not renew my subscription to any of your investment services." –Soon-to-be former subscriber, Ward Wolley.

Porter Comment: I’ve never criticized any particular religion. I wrote, sarcastically, that religious fundamentalists are warm and friendly, in response to a reader who claimed that God Himself had caused the New Orleans tragedy. Other readers, who identified themselves as bigoted Christian fundamentalists, then wrote comments in support of the idea that God did indeed "flush the toilet" of New Orleans.

"Thanks for pissing off the bigoted fundamentalist Christians! It shows good judgment, and excellent analytical skills on your part… I have subscribed to many newsletters over the years, which were published by an array of liars and whores. After subscribing to the Alliance newsletters for several years, I have concluded that you are not liars, and I’m pretty sure you’re not whores, either. Please don’t let me down on that!" – Paid-up Alliance member Roger C.

"I’m just a plain ole born again Christian trying to do what I’m supposed to do on this earth while I’m here and I’m not by any means rich with worldly goods. At the same time, I don’t read anything in the Bible against being rich. It’s the love of money that is a sin, not having it! Keep up the good work and don’t worry about anybody that calls themselves a Christian and bigoted at the same time." – Paid-up subscriber B. Elliott, Gardendal, Texas

Porter Comment: Finally, a voice of reason.

"I live in South Florida. This place is chock-full of retired miserable whiners. It seems to me a large percentage of your subscribers are from Florida!" – Paid-up subscriber Art B.

"Your request for vitriolic e-mails had me laughing so much I had to write, but I don’t think I’m up to the task as you described it. How’s this… I have never been a fan of newsletters, having taken a bath on the California Technology newsletter some years ago and currently having a front row seat for the Safe Money newsletter… I started with True Wealth and a strong interest in the 12% Letter and upgraded to Private Wealth Alliance a week later. Now, of course, I have no track record with you yet, but I have high hopes. You (all of you) will have a real challenge in the upcoming market. Here’s hoping you can convert this newsletter skeptic." – Jarl McDonald

"When I looked at your Hall of Fame, I wanted to puke… Someone who picks eBay is not a contrarian. Your buddy, Rick Rule, is a true contrarian. He is investing in countries where the civilized world would never invest – like Iran… But while you are hobnobbing with him, you are not listening. If you were, you would realize your pick of Verizon is crap. A true contrarian is investing in the largest telephone company in Venezuela, VNT. Most investors, they hear Venezuela, think of Chavez, and then tune out. That is the definition of something being hated… Do not call yourself a contrarian, Porter, because you are not. You pick stocks that are mildly disliked not hated, and you are thus a pseudocontrarian. Quit telling yourself otherwise." Paid-up subscriber Joseph Zadeh

Porter Comment: Making up new words as insults ("pseudocontrarian") gets you extra points in our "most angry" subscriber contest!

"I know your gains are good, but not that good. Your published entry is the close of the recommendation date, a price that most of us cannot get. At best, we can get the open the next day, a more realistic entry number. Your percent profit uses the actual price and not the stop value, which is eventually all you will realize, unless you issue a ‘get out now’ message." – Paid-up PSIA subscriber Richard Webster

Porter Comment: We use the closing price the day of our recommendation as our "entry" and the closing price the day after our sell recommendation. In this way, we’re using an average fill price overall. Further, as we say in our letters, our model portfolios are only hypothetical, but they do represent the value of our insight.

Thailand: Buy on the Sound of Cannons

By Ian Davis

Thailand recently went through a bloodless coup in which the elected president was ousted while addressing the UN in New York. Although no shots were fired, the confusion and uncertainty that exists in Thailand today is comparable to the uncertainty that Baron Rothschild took advantage of in the 19th century to grow his fortune. (His motto: "Buy on the sound of cannons.") I believe that Thailand represents the best opportunity for investment in a foreign country right now. By investing in Thailand, you will have the potential for triple-digit gains in two years.

Buy the Thai Fund (TTF) below $13 and hold for two years. Use a 20% trailing stop.

Bullish Indicators

1. Valuation: Dirt Cheap! I looked at 75 national and regional indexes, comparing their current valuations to their median historic valuation. Thailand was the second-cheapest country relative to its historic valuation and by far the cheapest on a price-to-earnings basis. This means Thai companies are not just undervalued in comparison to their U.S. or European counterparts, but are inexpensive even for Thailand. Over the period from 1987 to the present, the median P/E ratio of Datastream’s Thailand Equity Index is only 13x. Currently, the P/E of the index stands at 6.7x.

2. Sentiment: Sentiment has gone from bad to less bad. The Bank of Thailand’s Business Sentiment Index is coming off of its lowest level since late 2001. Following the 2001 low, Thailand’s stock market rallied about 20% over the following year and about 168% over the following 2.3 years. Investing when sentiment is going from bad to less bad is always the best time to trade.

3. Trend: Thailand’s stock market just recently broke above its 200-day moving average for the first time in about a year. Although the breakout is small at this point, if it continues, I believe Thailand could see triple-digit gains over the next two to three years.

Ways to Invest

Unfortunately, the only easy way to invest in Thailand is through one of two small closed-end funds. I’m going to recommend the larger of the two, Thai Fund (TTF). Both funds are currently trading at a premium to their net asset value, but I still believe they will be a good investment for the long term.

Update on Previous Picks

On November 6, I recommended Toll Brothers (TOL). It closed that day at $28.05 and has since risen to $32.16 for a gain of 14.65%. I recommended buying this stock up to $30. Since the stock is trading above that price now, I’m going to change my position from BUY to HOLD. I believe this stock still has significant upside potential, but the risk/reward ratio is not favorable enough to warrant opening a new position at this time.

On November 13, I recommended Home Depot (HD) at $36.62. It has since risen to $38.97 for a gain of 6.4%. I believe this stock will do very well over the next six months. However, since it is currently trading above my buy-up-to price of $38, my current recommendation is a HOLD until further notice.

Good investing,

Ian

December 4, 2006

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