What happened with Texas Pacific Land?

Sjug predicts a big rally in stocks... Introducing True Wealth Systems... What happened with Texas Pacific Land?... The worst short squeeze we've seen in a long time... Proper spelling of Doofus Americanus... "Individual investors, it appears, are giving up on stocks," proclaimed our own Steve Sjuggerud on September 1, 2010 – just 30 days ago. Steve told DailyWealth readers he based his conclusion on one of the many indicators he follows – the American Association of Individual Investors (AAII) poll. The survey showed only 21% of individual investors were bullish on stocks at the beginning of last month.

The conclusion Steve reached from this data might surprise you... He urged people to buy stocks:

History shows us that buying stocks when investors are gloomy makes you money... I can't guarantee you'll make money in three months by buying stocks today. But the historical record is pretty darn good... When things get as gloomy as they are today, 98% of the time stocks have been higher three months later. – Steve Sjuggerud, DailyWealth, September 1

You know now what happened next... Stocks are up 10% or so in a month – the biggest September gain since 1939. Nice call, Steve. Great work.

You may have noticed over the years that Steve seems to have an indicator or a system for successfully trading nearly everything... stocks, high-yield bonds, REITs, foreign stock markets (he's recommending Hong Kong now), etc. He's written about these systems many times over the years.

For example, Sjug has a system that makes almost 14% a year trading only two commodities: gold and oil. You buy one or the other, based on a secret ratio he figured out by studying decades worth of data (using monthly closing prices). Wouldn't you much rather earn 14% a year by owning either gold or oil than try to make money with stocks? I think most people would go with oil and gold, assuming they had confidence in Steve's system.

I have tremendous confidence in Steve's system because I've worked with him for the past 15 years. I've seen him wrestling with databases, trying to get the numbers right. He has a conviction that the markets are mostly a giant game of math... and when you find the proper correlations, when you have enough statistical evidence... then you can trade with a high degree of certainty (and safety).

Steve's desire to get the numbers right goes well beyond anyone else I have ever met. It is his main passion in life. So about a year ago, I challenged Steve to build the ultimate systems website...

Steve, you can have as much capital as you need. You can hire as many computer programmers as you need and buy any computer(s) you want. But when you're done, I want a website that shows every winning system you've ever built, for all of the markets you've ever traded. I want to be able to see decades' worth of back-testing. I want to be able to see which of your systems are currently tradable... and which ones are getting ready to signal a buy or a sell.

We called the project True Wealth Systems. We've spent a lot of time and money putting it together, including consulting with one of the world's top statistical analysts – the guy who does the stats behind the drug industry's biggest clinical trials. We also hired our own in-house actuarial scientist, Brett Eversole. The point is, we wanted to build the ultimate website for tracking every tradable market in the world. And we've done it. I used it this week...

The results are extremely impressive... Assume you had simply put our True Wealth Systems on autopilot and allowed it to trade according to its rules (which use monthly prices, so you don't have to worry about missing any of our entries or exits). You would be up 104.9% on gold. On "virtual banks," you'd be up 60.1% and 55.6%, respectively, using two different timing models. You'd be up 34.2% in high-yield bonds. You'd be up 163.5% on REITs. And you'd be up 14.2% on Hong Kong (that trade just started last month).

In all my years in financial research, I've never been more proud of any product. True Wealth Systems takes almost everything we know about finance that's statistically reliable and puts it in the palm of your hand. We'll be beta-launching the product later this month. If you're looking for the ultimate in asset allocation/systems trading, you've found it.

One last funny tidbit about Sjuggerud. If you've met him in person, you already know no one on our staff is more conservative or more humble. Steve is the kind of guy you'd want as a neighbor – quiet, but very capable. He's the last guy I know who would ever try to pick a fight or start trouble with anyone, for any reason. (I've known him since he was 14 years old. I've never – not one time – seen him lose his temper.) So Steve is the last guy I'd expect to end up in a message board war between long and shorts...

A few weeks ago, Steve recommended a sleepy oil and gas trust company – Texas Pacific Land Trust (TPL). It was a "plain vanilla" recommendation, as the trust does one thing: collect royalties on its oil and gas properties. That's all. It then uses the proceeds to buy back its own shares. So the share price is directly linked to the price of oil and the rate of share buybacks. Steve did some basic number crunching and determined that, because of the buyback ratios, over time the stock would be a great investment. Nothing fancy... nothing risky... and nothing that should have upset anyone in the slightest. But boy, did it...

Some rabid, half-crazed short seller got a hold of Steve's research and... well... it looks like he lost his mind. He started shorting the stock heavily (according to various Internet accounts). And he started attacking Steve personally on various message boards and via e-mail. A subscriber alerted us to what was happening... and we could only stand back and watch with amazement.

The more this guy attacked Steve and shorted the stock, the higher it went – time and time again. Apparently, people trust Steve a lot more than some crazy message-board short seller. The result was one of the most vicious short squeezes we've ever seen. Steve was recommending the stock at less than $30... but it broke $44 today. Look what happened...

This kind of rapid, high-volume move in a sleepy Texas land-holding company doesn't make any sense... unless someone is being forced to buy back the stock he sold short. Ouch!

What does Sjuggerud say about the furor? As usual, he keeps his cool:

My original advice still holds. TPL is a buy at less than $30. It's now around $40 – a 33% gain. Look, this is not a stock to chase or trade... Remember, this is a boring, illiquid land trust that simply holds land in the West Texas desert.

Your return on TPL is all about two things: 1) your entry price and 2) holding it for compounding because of buybacks. The math works by buying at $30 or less. So again, the original advice remains buy for less than $30 and hold for triple-digit returns. While I'm not a trader, I sure couldn't blame you if you pocket a 33% gain in six weeks on Texas tumbleweeds.

New highs: Keyera Facilities (KEY-UN.TO), WD-40 (WDFC), Enterprise Products (EPD).

In the mailbag... the proper way to write Doofus americanus. Don't let your subscription expire without sending us some criticism or praise. We can tolerate anything but being ignored: feedback@stansberryresearch.com.

"Porter, you're leading me like a blind one through this chaos even though you are younger than my son. I started with 12% Letter several years ago, but only in November of 2008 I began to realize the real magnitude of your service...

"You persuaded me to return to the market in November [of 2008]. The recovery was swift and profitable. You also helped me to understand that the Alliance was the way to go.... My broker tells me that my results are 50% better that the average of all his clients. Kudos goes to you! Then you open my eyes to selling puts... and your last gift of Anadarko was just magnificent. (It almost covered two-week stay in one of the best spas in Europe for me and my wife.)

"And now you are talking about foreign life insurance? I used to sell insurance, and always believed that nobody in that $1 million range of the liquid worth, that you mentioned, would need it, unless it is in combination with an honest, not mythical income. Am I missing something? I am in that range, so I would like to go and listen, but it is not possible for my schedule in November. Are you planning to let other members like me know in some form what was discussed there?" – Paid-up subscriber Michael Brailovsky

Porter comment: The purpose of a foreign life insurance wrapper is asset protection and tax-free compounding. It's a structure for holding investments... The life insurance component is a benefit, but not the primary reason for the structure. Don't tell the IRS.

In regards to getting the information: Yes, we'll send out a report about the Zurich meeting to all Alliance members. And I believe this year, we'll have a video of the presentations to offer you as well.

"I'm not sure if I am middle class or not. I make approx 65k per year and have 5 kids. my wife makes about 9k per year from her preschool business. but... i feel poorer every day even though my 401k does well on your recommendations. I can't touch that for 26 more years. My wages and bonuses are not keeping up with my cost and i can barely keep up with the bills. Luckily I was scared enough for the last 5 years to buy some eagles, indians and saints.

"Here's the deal... when am I gong to find the time and money to prance down to Argentina and buy a 2nd home... or get a foreign life insurance policy? My point is, I am on the low end of the middle class and have a hard time relating to some of your recommendations to diversify outside of the US. what do I do ?" – Paid-up subscriber Jared Lynn

Porter comment: Buy gold bullion. You can achieve just as much asset protection and diversification without going overseas. The hard part will be finding a safe place for it. I recommend self-storage.

"I am retired and an Alliance member. If you are still working, I would STRONGLY suggest that you borrow the money, if necessary, to join the Alliance program. Why do I say this? When you retire, you may find yourself in a situation where you might consider letting a couple of your newsletters go because of financial constraints. Once you are an Alliance member, you pay nothing but a small mailing fee once a year.

"I belong to a dues paying organization and am a lifetime member of it as well. I watch people each year having difficulty deciding if the membership is worth the cost of the dues. Many give up their membership. So while you are making money, join! You will soon realize what an outstanding program this is and you will probably make back your membership cost in a very short while. If you have to borrow the money, you will probably be able to pay off the loan in a short time because of your gains.

"BTW, the advice to buy offshore homes is good advice. I have a home in Panama, on a golf course, and have no property tax on it for 20 years. The Panama government passed that law to get people to buy homes, or apartments. If you want advice from an old man who has been there... join the Alliance program." – Paid-up subscriber Fred Fleming

"Regarding my Alliance membership, I do not believe there has been a year since I purchased it that I have not recovered my cost at least 12 times over. Over the last 8 years, as far back as I calculated (compared to the 10 year returns for the major indexes), I have beaten the major indexes by between 16 & 22% annualized and this year it has been even better." – Paid-up subscriber Ken McGaha

Porter comment: Thanks for the plug, gentlemen... Unfortunately, our latest Alliance recruiting period just expired. Folks still interested will have to wait a few months... and pay about $2,500 more. As we've built our business, the lifetime price for all of our products will continue to increase. So please join our Alliance as soon as you can. (Charter members paid only $2,700 in 2003!)

"Love the Doofus Americanus reference al la Doug Casey (Boobus americanus) re: the woefully ignorant average Joe. However, if you want to be copacetic with the faux Latin nomenclature, it's capitalized genus, lower case species, and underlined or italicized: Doofus americanus. Your scientific-leaning subscribers will be duly impressed. Oh, and tell Matt I'm up large with his oil and metals recos. Gratias tibi ago." – Paid-up subscriber Bill

Porter comment: Got it. Thanks for the tip. And yes, Casey gets credit for the inspiration. One more thing: Badiali has hit the cover off the ball this year. I think he'll have more triple-digit winners this year than any analyst in our stable since the Internet bubble. Great job, Badiali. (And watch out below when the commodity craze comes to an end.)

Regards,

Porter Stansberry
Baltimore, Maryland
October 1, 2010