Editor's note: The Digest crew is starting their holiday break. Beginning Monday, for the next two weeks we'll run a collection of our best work this year. We're covering everything from our best short calls of 2009 to the best ways to flee the country… And of course, we've got the best of The Digest mailbag. We hope you enjoy the break from our drivel. Happy Holidays.
Investing involves a strange and horrible paradox... Most people don't actually want to make money with their investments.
It's true. If people really cared about their investment results, they'd be far more logical, skeptical, and cautious about their investment strategies. What happens instead is people like to gamble – on penny stocks or options. Or they like to do what's popular – even if it's crazy and sure to lose money, like buying Internet stocks at 100 times earnings in 1999 or rental houses in 2005 and 2006, after real estate prices had doubled. If it's a horrible investment idea, you can count on it being wildly popular.
The truth is, the overwhelming majority of people who invest for themselves lose money – lots of it. If you doubt that's true, ask a leading local accountant, the guy who does all of the rich people's taxes in your hometown. He'll tell you the same thing: 70% or more of his clients lose money with stocks, year after year.
Why do people insist on doing foolish things with their money? I have a few theories. They feel guilty about being rich. Or they like the thrill of gambling more than the pressures of wealth. But probably the biggest reason is most people simply don't really care about their money. If they did, they'd make a lot better decisions.
You're probably thinking... "Porter is out of his mind. I care about my money. I work hard to make good investments. That's why I'm reading newsletters and educating myself." And maybe that's true – for you. But I know for a fact most people simply don't care about their money. They're ready to lose it at any time if you can give them the right big, crazy idea.
Just think about how many people have invested in solar power, how many people believe we're running out of oil, or how many people believe in global warming. People will believe anything if it is a big enough lie – especially if you can lose a ton of money believing in it. I know this is absolutely, 100% true because a big part of what I do for a living is marketing investment strategies to investors. And I know, nothing sells better than the biggest, most outlandish story our copywriters can concoct.
My problem is, I truly care about the results our subscribers achieve. I've canceled several profitable newsletters because I came to believe our subscribers were likely to lose money following the strategy. That's why we killed Real Estate Shareholder in 2006, for example. We knew real estate was going to collapse. If we had kept publishing it, I know folks would have kept buying it – all the way to the bottom (which we reached in 2008).
And here's the really crazy part of the whole paradox: We publish truly excellent newsletters that follow proven strategies, written by intelligent and experienced analysts with world-class track records. But we can't sell those letters.
Our two most proven newsletters with the best and most consistent track records are Extreme Value and Inside Strategist. Both follow proven strategies that produce market-beating results (value investing and insider buying). Both are written by talented, experienced analysts (Dan Ferris and Braden Copeland) with more than a decade of investment experience. Both of these newsletters produced positive average results in 2008 – when most investors were down by 50% or more. And both letters have enjoyed outstanding results this year.
I've pointed out these facts to many clients over the years... to no avail. Extreme Value and Inside Strategist have been our worst-selling newsletters for years. Both are more or less charities. Labors of love. I continue to publish them, not because we make much money doing so (we don't) but because these strategies are the best ways I know to make money in stocks. Lots of professionals read these publications. They bring us professional recognition and the respect of our peers... but if all of our letters were this difficult to sell, we'd have gone broke a long time ago.
And so, as we approach the New Year, I would like to encourage you to turn over a new leaf. Make 2010 the year you finally "get serious" with your investing. Whether you do it with our best products or not, I don't really care. But I can promise you this: Had you been reading (and following) Extreme Value and Inside Strategist over the last year, you would be far richer today.
In Extreme Value, Dan's 2009 picks are up 26% on average… better than the S&P's 21% increase. Among his best performing picks, Intel is up 30% and Sprott Resources is up 58%. His IMS Health recommendation is showing a 59% gain at the moment… and is holding a takeout offer that would result in a 70% return. And Extreme Value's highest flyer of 2009: International Royalty, up 263% since Dan recommended it in March.
Meanwhile, Inside Strategist is up more than 34% this year (on an annualized basis), with 70% of its recommendations showing a profit. The strategy doesn't require buying options or selling stocks short. Braden has simply made huge gains on a wide range of stocks – from gold stocks to mortgage companies, from health care to technology. Specifically, Braden is up 48% on Chimera (mortgages), 63% on Conseco (insurance), and 37% on Providence Services (health care). He has also booked gains of 85% on European Goldfields and 104% on VeriFone (technology).
Now, I know... paying $1,000 a year for Extreme Value might put it out of reach for some. I would argue it's cheap compared to the money you'll make with it. And I encourage you to look into it. Meanwhile, Inside Strategist costs about $4 per recommendation. You've got no excuses if you're not reading it yet. To find out more about Inside Strategist, click here.
The largest bond investor in the world is throwing his hat in the inflation ring. Bill Gross, manager of the PIMCO total return fund, increased his cash holdings to the most since Lehman collapsed in September 2008 and cut government debt. Gross now holds 7% of the $199.4 billion fund in cash, up from a negative 7% position in October. And he cut government-related securities to 51% from a five-year high of 63%. Gross also reduced mortgage holdings from 16% to 12%, the lowest since PIMCO's figures started in 2000.
We're not buying Take-Two based on this takeover speculation. Shares are undervalued and earnings will be strong 12 months from now. Also, the company has a good balance sheet – which limits the downside from these levels. An unexpected takeover would just be a bonus. – Frank Curzio, December 9, 2009 Penny Stock Specialist
Frank recommended Take-Two shares at less than $8 after the creator of the Grand Theft Auto video-game franchise lowered its earnings targets and shares tanked 30%. The stock was a bargain.
Today, Take-Two soared more than 15% after iconic billionaire investor Carl Icahn announced an 11.3% stake in the troubled video-game company. The filing said Icahn may seek discussions with management, but didn't elaborate. Penny Stock Specialist readers are sitting on a 20% gain in a little more than a week. And with Icahn as a major owner, Take-Two is definitely in play for a takeover. Frank expects this stock to double in the next 18 months.
We currently only offer Penny Stock Specialist to Alliance members. But Digest readers will be the first to know when we open this service to the public.
We also traded Take-Two profitably in my options selling service – Put Strategy Report. The stock fell apart because of an earnings miss in early December. We took the volatility as an opportunity to sell Take-Two January 2011 $7.50 puts for $1.75. (These puts obligated us to buy the stock for $7.50 at any time between now and January 2011.)
With the stock now in play and trading for more than $9, nobody wants the right to buy the stock at $7.50 anymore. Our puts are now trading for around $1. If we closed the position today, we'd be up 75 cents on our position. And because you only have to put down 20% of the strike price to put on the trade, that's a 75 cents profit on $1.50 in capital – or a 50% return in about two weeks. Not too shabby.
New highs: Visa (V), Kinder Morgan (KMP), Enterprise Partners (EPD), Prospect Capital (PSEC), Steak 'n Shake (SNS), Dana Holding (DAN), Rexx Energy (REXX).
In the mailbag... A reader who understands our analysts' egos are at stake in our performance rankings. Tell us what you think about our analysts. Who is the best? Why? feedback@stansberryresearch.com.
"One feature of The S&A Digest I really appreciate is the section at the end, listing the performance summaries – especially the Top 10 Open Recommendations. Having been in sales for over 30 years, I know from experience that, next to earnings, public recognition of performance among peers, is what drives most achievers to do their best. As a salesman initially in food products and currently in insurance, I can tell you that when my name is not included in the 'Top Producers' list, I work extra hard to get it back on top. Porter, you are to be commended for hiring the best, rewarding them well, and then recognizing them for their achievements. Keep up the good work!" – Paid-up subscriber Lee Askew
Porter comment: I stand on the shoulders of giants. And you're exactly right about the purpose of our performance tables.
"I subscribe to True Wealth and consider my daily S&A Digest a treasure. Today I crossed over to Canada and opened up a bank account. True to what I have read in The Digest, the scrutiny is much, much greater re-entering your homeland than visiting a foreign country. The customs officer asked and I did (better to die with my boots on) honestly answer that I crossed over the border to open up a bank account. The answer agitated the customs officer so I answered all the subsequent questions respectfully and truthfully – 'the account will be my vacation and rainy day fund, yes sir, no sir' – and was allowed to proceed.
"Oh sure, I'm not the brightest bulb, but I am smart enough to listen to your recommendations and it's a source of pride that I'm taking active charge of my finances. I've learned a lot from The Digest, thank you for a great subscription." – Paid-up subscriber Tom McLaughlin
Porter comment: Nice work... but I wonder what would happen if you said, "None of your bloody business..." I wouldn't necessarily recommend it... but check out how this guy handles the border patrol.
"Come... on... Porter. You're usually pretty astute in your prognosticating, but to think just because the Arab's might print their own currency and the rest of the world would find it attractive, is (in my humble opinion) way out in OUTER SPACE. the only thing that makes any paper currrency work is faith in the stability of the economies, governments and markets the paper represents.
"To think most countries would be comfortable with Arab currency with their graft, corruption, and religious zealots, makes monoply money look life a safer bet!!!!" – Paid-up subscriber Larry S.
Porter comment: If you have to own it to buy oil... my bet is folks will sell dollars for it.
Regards,
Porter Stansberry and Sean Goldsmith
Baltimore, Maryland
December 18, 2009