Unveiling the 2014 Report Card...

Unveiling the 2014 Report Card... Reader feedback: Holding cash in a crisis...

In today's Digest, we reveal our long-awaited annual Report Card...

Longtime readers know this is when we grade the performance of our products. We show you the good... the bad... and sometimes, the downright awful.

Why on earth would we do this? Why would we be willing – even eager – to show our customers our mistakes? We surely don't have to do so. We know our competitors won't do anything like this. So why do we?

The reason is simple: We are genuinely interested in helping you improve your results as an investor. The only way you can get better at investing is by studying your results and learning what you're doing right and what you're doing wrong.

Most of the senior analysts and many of our longtime employees have long since acquired enough wealth that going to work every day isn't an economic necessity. We work at Stansberry Research because we want to. We get out of bed because we believe in our mission and in our abilities to truly help individual investors. Oh, and because we are also competitive as all hell.

To keep the competition among our analysts fair – and to make sure that our performance reviews are meaningful – I decide at the end of each year exactly what period to review.

This year, I decided to measure our work against the raging bull market in stocks that has been in place since the end of 2011. In the January 2012 issue of my Investment Advisory, I predicted that the European Central Bank's decision to begin printing money would spark a huge global bull market in stocks. Boy, was that the right call.

Since January 1, 2012, the S&P 500 has gone up 68.7% without a single 10% correction, making almost 19.1% annualized returns for three years. Given the duration of this roaring bull market, only the most aggressively bullish investors should be able to report market-beating results. So... how did our team do over the last three years?

Well, believe it or not, answering that question isn't easy. You see, you can't directly compare a newsletter's track record with an index or a mutual fund. Our services' track records are formed by a series of investments made over a period of time. The S&P 500 index, on the contrary, is fully invested at all times. Trying to compare them directly is like trying to figure out where a waterfall starts. It doesn't. It just flows.

To compensate for this difference, we show you the average and annualized results of our newsletters. And we compare that figure with the "weighted" return of the S&P 500 stock index. This probably ends up confusing far more people than it enlightens, but we can't think of any more accurate way to compare results.

You see, the "weighted" S&P 500 return is determined by calculating, on each recommendation we make, what you could have earned if you'd bought the S&P 500 stock index instead. It's the best apples-to-apples comparison we can make. (But please – PLEASE – note that the weighted S&P 500 return is going to be different for each product because our newsletters make recommendations at different times... and close them at different times. The comparison figures are therefore unique for each of our products.)

We evaluate each service on three metrics: average return, winning percentage, and annualized average return. Average return is the number everyone checks first. And that's understandable. Everyone loves when an editor makes big gains for his subscribers.

But big annual gains aren't the whole story... Our No. 1 responsibility as investment analysts is to avoid recommendations that lose money. So we believe an editor's ability to pick winners and avoid losers is the single most valuable factor. That's what we weigh most heavily when assigning our grade.

After all, we know subscribers don't typically buy every recommendation an editor makes. So a higher winning percentage assures you that the recommendations you choose to follow are more likely to end up in the black. And when you find an editor who consistently picks winners – and those winning positions post outsized average gains – that's an analyst you should follow.

Finally, in the investment world, annualized return is what really matters. In simple terms, annualized return calculates what would happen if you repeated a trade's success over the course of a year. So if you make 5% in two months, your annualized return is 30% (two months multiplied by six gives you a full year). It's a way of comparing the returns of investments with different time frames.

Using annualized figures gives us the result that's most similar to the returns actual investors would make following our advice. So for example, the average annualized gain in my newsletter (Stansberry's Investment Advisory) over the last three years was 15.4%. And if you had actually invested $1,000 in every recommendation we made, you would have invested $34,000 before you could begin using profits to make new investments. Doing so would have earned you a 15.4% return annually on that invested capital over the last three years, turning $34,000 into $44,139.

With all of the math out of the way, let's get to the grades. Today, we're going to cover our monthly newsletters. Tomorrow, we'll cover our services that focus on short-term trading.

The 2014 Stansberry Research Report Card
Publication	Grade	Win %	Avg. Return	Annualized Avg. Return	S&P Weighted
Retirement Millionaire	A+	82.6%	19.2%	15.0%	19.4%
Income Intelligence	A+	76.3%	15.0%	13.3%	18.7%
Extreme Value	A	69.2%	18.9%	16.3%	21.2%
True Wealth	B	44.4%	20.6%	22.4%	19.3%
Stansberry's Investment Advisory	B	55.2%	15.1%	15.4%	17.8%
Stansberry Resource Report	C	24.7%	-9.0%	-16.8%	-19.8%*
Stansberry Global Contrarian	C	22.2%	-6.6%	-16.8%	N/A
Stansberry International	F	7.7%	-18.2%	-31.3%	N/A
* Based on the S&P GSCI Commodity Index

Retirement Millionaire: A+

It's no surprise here... Dr. David "Doc" Eifrig once again gets an A+.

Doc is the only analyst to earn an "A" grade or better every year since the inception of his newsletter, which we began publishing in March 2009. His win percentage has been 80% or better every year while producing double-digit-percentage gains on average. The last three years are no exception: Doc's recommendations made a profit nearly 83% of the time and earned 19.2% on average for investors. The annualized return was 15%.

Doc and I often disagree about the market – the direction of interest rates, inflation, the state of the economy... the list goes on. But there's no arguing with Doc's outstanding track record. He has been bullish since he began writing for us, and he has been right.

A great example of Doc's work has been his unwavering recommendation on municipal bonds. Subscribers have earned nearly 30% in muni bonds since April 2013 – a huge gain for such a safe asset. And they've been collecting tax-free income the entire time. Even when Doc misses on a recommendation... his losses are tiny. He has only had four losers since January 2012. The biggest loss, in oil major BP, was only 8.5%.

There are two things about Doc's work I don't think many people appreciate.

First, Doc is an unbelievable stock-picker. A critic might look at Doc's track record and note that he has underperformed the S&P 500. And yes, that's true. But Doc's portfolio is designed to be totally safe. He has built an "all weather" portfolio that includes the safest blue-chip stocks and plenty of income-producing bonds and preferred shares. In this way, his portfolio isn't directly comparable to the S&P 500. And it's much less volatile. If you strip out these portfolio "ballasts" and only look at the stocks Doc has picked over the last three years that have been in his portfolio for at least a year, the average return is 28%.

More remarkably, in my view, is this super-consistent portfolio consists of only 14 recommendations. Doc isn't using a big scatter-shot shotgun. He's a great shot with a bolt-action rifle. One shot, one kill.

The second thing about Doc's work that I don't think many people appreciate is that he hasn't yet been tested by a real bear market. Doc had the good fortune to begin his newsletter career with us in the spring of 2009. That's the precise moment when U.S. stocks formed their bottom and began their relentless march higher. Since the end of 2008, the S&P 500 has gone up six years in a row, producing huge 17% annual gains. The only other time in history gains of this magnitude have materialized in consecutive years in U.S. stocks was the eight-year run from 1981 to 1989.

My prediction is that when another bear market materializes – trust me, it will happen eventually – the value of Doc's portfolio will become even more apparent to investors.

As we say every year, if you're an investor and not reading Retirement Millionaire, you're making a HUGE mistake. There's no better investment advisory service anywhere in the world, at any price.

By the way, we know that thousands of investors owe a great deal of their recent success to Doc's excellent work. Please... take a minute to let Doc know how you've done with his letter by sending him a note here.

Income Intelligence: A+

In his income-focused Income Intelligence advisory, Doc Eifrig followed many of the same principles and investment themes as he did in Retirement Millionaire. Namely, he told subscribers to position themselves for an improving U.S. economy and low interest rates. Again, it was the right call.

In Income Intelligence, he also gave readers diversified recommendations in everything from high-yielding stocks to stocks, bonds, preferred shares, and real estate.

His balanced income portfolio returned an annualized 13.3% over the period with 76% winners. Another strong performance from Doc. Just as he built the world's best product for folks thinking about retirement (Retirement Millionaire), he has built the world's best income-investment product. If you're interested in earning safe income from your savings, you can't do better than reading Income Intelligence.

True Wealth: B

By sticking to his "Bernanke Asset Bubble" thesis, Steve has nailed the big picture over the past three years better than anyone in the industry.

The Bernanke Asset Bubble is a simple idea: Global central banks are desperate to reflate their struggling economies. In their all-out bid to reflate, the central banks are issuing extraordinary amounts of credit. This causes massive asset inflation.

By following this script, Steve generated a 22.4% annualized return for subscribers. That's impressive.

And Steve's big-picture call led him to urge subscribers to buy real estate and stocks. It led to huge winners like private-equity firm (and housing recommendation) Blackstone Group (up 170%), the ProShares Ultra Health Care Fund (up 360%), Warren Buffett's holding company Berkshire Hathaway (up 149%), the ProShares Ultra Technology Fund (140%), and the iShares Home Construction Fund (up 95%).

However, Steve's win percentage was only 44.4%, hence the "B." In short, Steve got the macro call right. He generated big overall returns. But he had more losers than winners.

Still, nobody nailed the macro of the past three years better than Steve. And his subscribers reaped the reward.

Stansberry's Investment Advisory: B

Over the last three years, Stansberry's Investment Advisory has nailed several huge trends.

We predicted the boom in U.S. oil production and recommended infrastructure and export firms that would benefit. This led to several large winners, like transportation company Energy Transfer Equity and infrastructure builder Chicago Bridge & Iron. We also bought stocks that benefited from a profitable trend we call the "Disappearing Middle Class." We recommended companies – like discount retailer Dollar General and rent-to-own chain Rent-a-Center – that cater to the middle class, because we believe rising asset prices and stagnant wage growth will squeeze most Americans.

We've made large gains from the post-2008 crisis recovery in the insurance industry. And we've predicted several major biotech takeovers. Getting these big calls right led to an annualized return of 15.4%.

We've also introduced several innovative, proprietary analysis models. We've called insurance the greatest business in the world. Our Insurance Value Monitor identifies the best insurance companies with the most attractive equity prices. Our insurance and capital-efficiency recommendations (the core of our portfolio) returned 21% annualized over the three-year period.

And our Trophy Asset Monitor allows us to pinpoint opportunities to buy the world's most valuable assets. Likewise, our Global Oil Value Monitor tracks the world's best oil properties... And we aim to buy these assets at fire-sale prices, ideally 50 cents on the dollar.

One other thing... Unlike most newsletters, Stansberry's Investment Advisory often recommends short-sale positions to hedge the long side of our portfolio... especially when we turn cautious on the overall market. Doing this allows our portfolio to handle stock market downturns much better than the average investor's portfolio.

Profitable short sales allow you to make money in a market downturn. Given the broad market's huge rally since 2012, we lost money on most of our short positions. However, they provided a good hedge and allowed us to safely make money on our longs. Making 15.4% with a hedged portfolio is a world-class return. But we'd like to see a higher winning percentage to award ourselves an A.

Stansberry Resource Report: C

We wouldn't wish the brutal 2014 on any resource investor. It was truly an awful year for the owners of gold, coal, and oil stocks. Even worse, it followed similarly bad years of 2012 and 2013.

Stansberry Resource Report editor Matt Badiali and his fellow resource investors were swimming against a strong tide in 2014. The gold stock index fell a massive 40% from August to November. Major coal stocks Peabody Energy and Arch Coal lost more than 50% of their value. Crude oil suffered a historic collapse, which hammered oil and gas stocks.

These losses led broad mining funds such as the S&P Metals and Mining Fund (XME) to lose 27% in 2014. More speculative resource stocks, represented by the S&P/TSX Canadian Venture Index, lost 35% in a three-month period. It was a difficult year for the entire sector.

In 2014, Matt suffered large losses in silver stocks and oil stocks. This led to a disappointing 24.7% win rate over the past three years and an annualized return of negative 16.8%.

We realize that virtually Matt's entire coverage universe plummeted in value from 2012 to 2014. Still, part of our assigned grades must come down to whether a product made our readers money or not. And in the case of the Resource Report, it didn't make subscribers money. It registered a lot of losers. We're letting Matt off with a gentleman's C.

Global Contrarian: C

Editor Kim Iskyan's mandate in the Global Contrarian is to seek out the world's cheapest, most out-of-favor markets... and to buy valuable assets for pennies on the dollar. This approach invariably leads him to distressed emerging markets – like Russia, Mongolia, and Argentina – which go through crises more often than developed markets, like the U.S.

Unfortunately, emerging markets went the way of natural resources in 2014. The U.S. dollar soared in 2014, which helped depress natural resource prices. Because many emerging markets are heavily dependent on revenue from selling natural resources, the strong dollar and weak resource prices led to a downtrend in these stocks. A stronger dollar also makes it more difficult for emerging markets to pay back dollar-denominated debt.

The holding period for Global Contrarian is longer than most... Distressed markets, by nature, are volatile. And while you may be certain a market is heading higher, it's not uncommon for these beaten-down markets to fall in half yet again before bouncing back. In short, it's difficult to time these investments.

I will mention two highlights...

First, Kim did a fantastic job of traveling the world and giving his subscribers firsthand, boots-on-the ground perspective. Though the investment performance was lacking, readers still enjoyed great editorial from Macau, Iran, Argentina, Kazakhstan, and more.

Kim also made subscribers 137% recommending Kazakhstani bank Kazkommertsbank. You won't read about that in other newsletters.

Still, we're grading on overall performance, not storytelling. And Kim's performance was poor this year. Even though he was swimming against a strong tide, we're giving Kim a "C."

Stansberry International: F

We never enjoy handing out an "F" grade. But Stansberry International had the worst winning percentage of all our advisories: 7.7%. And the annualized return was negative 31.3%.

Every headwind we mentioned above played into the letter's poor performance. It was a rough year for many international markets. Editor Brett Aitken recommended stocks in Russia, Argentina, Greece, and Spain.

Russia was crushed due to falling oil prices and U.S. sanctions. Argentina is on the verge of default. And the Greek stock market turned lower on renewed fears the country would exit the European currency union. Again, these recommendations may play out over a longer time horizon, but his performance in 2014 was poor.

One other note... We made a mistake in yesterday's Digest. We wanted you to have a chance to learn more about what Extreme Value editor Dan Ferris has called "the best resource opportunity of my career." But the link took you to the wrong place. We don't want you to miss out on this opportunity because of our error.

Right now, we're offering a chance to receive 25% off the Extreme Value retail price for life. Plus, Dan thinks that if you don't act soon, you might miss the best chance in more than a decade to buy this world-class resource stock. You can find the correct link right here. We apologize for the error.

In today's mailbag, Porter answers a subscriber's question about Jim Rickards' advice to hold cash even if the dollar is crashing. Have you read The Death of Money? What did you think? Let us know at feedback@stansberryresearch.com.

Porter comment: Cash can be absolutely critical to have in a time of crisis – or just to take advantage of opportunities that arise quickly.

We found a local private jet to take him, but the only way to pay the bill was $80,000 in cash up front. No cash, no plane. It was 9 p.m. when this emergency arose. Luckily for us, the group we were traveling with shared my belief about the utility of cash in a crisis. We were able to raise the cash in a matter of minutes simply by asking to borrow it. The jet was dispatched. (The little girl survived.)

Finally, since almost no one keeps large amounts of cash handy, simply having significant amounts of cash in the bank is a contrarian approach to life. People in my social network know that I always have large amounts of cash available. As a result, I get pitched lots of distressed assets, where cash is needed immediately to avoid default. The returns on these situations can be extraordinary. So when people ask me what I'm earning on my cash, I always say "nothing... yet." Few people are wise enough to understand what that means.

As an aside, if you haven't read The Death of Money yet, you absolutely should. We believe it's so important, we're willing to send you the book free of charge. (We just ask that you pay for the shipping and handling.) We even convinced Jim Rickards to write an exclusive chapter for Stansberry Research subscribers. Click here to learn more.

Regards,

Porter Stansberry
Baltimore, Maryland
January 22, 2015