Why you probably hate us...

Why you probably hate us... More on the big, secret shale play in Texas... How to invest in gold and always win... Only the SEC... Interested in blue marlin fishing?...

You might find this amusing... or a confirmation of your opinion... Lots of people hate us. They hate me, Porter Stansberry, in particular. I think there's a lot of evidence to prove that the hate-to-love ratio on Stansberry Research is probably something like 4-to-1... and hate's lead is widening.

As you know, on Fridays, I do my best to tell you what I'd want to know about investing – and investment newsletters – if our roles were reversed. Today, I'd like to talk about why so many people end up hating us – especially those who never bother to read our letters – and why that's a very good thing.

Why do people hate us? And why do I think that's a good thing? Let me explain...

The first thing to remember about markets and popular opinion: You can either be right (and rich) or you can be popular… but you can't be both. Most of our subscribers signed up with us because we advertised a message they already agreed with…

For example, with our End of America advertising campaign, we explained why we expect a serious inflation to develop in the United States, causing widespread social problems and much greater disparity between the rich (who know how to hedge against a falling dollar) and the poor (whose wages and savings will be destroyed by inflation). We explained how the situation could lead to a national crisis because so many people around the country are dependent on the government, which, while not yet insolvent, is certainly bankrupt.

This was a very popular message. Most people who have their brains turned on realize we can't all live at the expense of our neighbor. We can't simply continue to print money to pay for 40% of our government's spending and expect nothing bad will happen. So yes, people are right to worry about the future of our country and our monetary system in particular. Our report helps explain reasonable ways to protect yourself from these risks.

But there's a deep irony to the success of our advertising. Its popularity suggests most of these risks we described are already priced into the markets. For example, gold has gone up 11 years in a row. It wouldn't surprise me if gold closes down this year for the first time in more than a decade. Does that mean my End of America scenario is wrong?

No, it just means the price of insurance (gold) had already gone way up because these risks are so widely appreciated. That's not to say it won't go up a lot more eventually as inflation gets worse… as America continues to print money… and as our national deficit soars. Most investors forget gold fell by 50% during the 1970s bull market. It wouldn't surprise me to see that kind of move happen again, simply because gold became so popular with investors in 2010 and 2011.

Just pointing these facts out to our subscribers will result in a lot of refunds – despite the fact that nothing has changed about our fundamental view. Lots of folks will never understand what happened – that by tempering our enthusiasm for gold (at this price) we weren't betraying them. We were trying to help them make (or keep) money.

In short, you need to remember a simple paradox when it comes to investing: It's awfully hard to make money if you're buying what's popular.

On the other hand, when we recommend buying things that aren't popular (like bank stocks) or shorting something that's wildly popular (like solar energy), we generate a lot of real animosity. Huge amounts of vitriol. For example, one paid-up subscriber dropped us this note recently, in reference to our economic opposition to solar power…

Never mind that we've been warning about the nonsense economics of solar energy for a decade... Never mind that we've been recommending shorting First Solar since it traded for more than $200 per share in January 2008. (It closed at $18.07 yesterday.) When our views or market analysis don't correspond with the wildly popular views of the public at large, look out. Hate is sure to come.

The other main reason people hate us is… most people lose money investing in stocks. That's a sad reality I've written about many times (see the March 2, 2012 Digestfor a recent example). No, I can't prove that's absolutely true. But looking at various studies of actual investor returns in mutual funds (which do a much better job than typical individual investors of limiting risk through diversification)… I'm fairly certain the average subscriber to our newsletter will lose money on his investments.

And when they do, they will blame us… and me personally. Most people will lose money while following our newsletters for the same simple reasons. If you can learn to avoid these mistakes, you can make a lot of money. But if you can't, you're almost guaranteed to lose.

I hope you'll take out a pen and a piece of paper. Put a line down the middle of the page. On one side write "Why I Hate Porter Stansberry." On the other side, write "How to Make Money." You can put as many things as you want in the "Why I Hate Porter" side of the page. Lord knows, there's plenty of faults and abuses to choose from. But... on the other side of the page, write down the three ideas I'm sharing below.

First, under the "making money" column write: "No. 1: Most people's expectations aren't rational or reasonable."

Most new subscribers approach investing the way statistically illiterate people approach the craps table. They fall in love with an investing theme or a few companies. They put far too much money into risky or speculative ventures. They refuse to obey common-sense guidelines to risk management. (No more than 4%-6% of your portfolio in any single position. Cut your losses. No exceptions.)

Many of our subscribers believe the way to get rich is by making a "big score." We will never be able to convince them the real way to get rich in stocks is by simply making a reasonable return (10%-12% a year) over the long term. Warren Buffett is the greatest investor who ever lived. He makes 19% a year on average. Is it reasonable to expect you're going to do better than that just by reading a $99-per-year letter? No. Is that a reason to hate me? For some…

Now... while I don't recommend putting 25% of your assets into a single junior-mining stock… from time to time, we do uncover special opportunities. I found one last year with Gold Standard Ventures, an idea I passed along to Phase 1 Investor editor Frank Curzio.

Sure… the stock has done great (up roughly 300% since Frank recommended it in January). But these ideas are rare. Out of all the gold-mine stories I've seen over more than 15 years, I'd guess about one in 10 pans out – and that's only from the deals that have been thoroughly vetted by experts I trust. Those aren't good odds.

So while I do believe it's important to invest in speculative positions from time to time, it's the kind of thing you should only do with a small fraction of your portfolio. Meanwhile, I can't tell you how many times I get subscriber feedback about being "all in" on one stock or another.

And of course, when that happens, it's always my fault. It seems that, no matter how many times we explain it, most people will never learn: The real secret to success isn't racking up big winners... it's avoiding catastrophic losses. If you can learn to do that, you'll be amazed how big winners seem to find you along the way.

You can jot these ideas down on the side of your paper about making money: proper position sizes, trailing stop losses, let your winners run, reasonable goals, seek safe investments first, and avoid risk at all costs.

Next, write: "No. 2: Most people can't learn to manage their emotions, which leads them into buying and selling at exactly the wrong time." Buffett said it best when he explained, "I try to be greedy when others are fearful and fearful when others are greedy."

A good rule of thumb? Learn to allocate your new capital into positions that are clearly depressed. Steve Sjuggerud calls this "bad to less bad" investing… Editor in Chief Brian Hunt labels it "carving out a bottom"… I call it "no risk" investing... Dan Ferris calls it "margin of safety."

Whatever you call it, it's mostly just common sense. The more expensive something gets, the less likely it is to get more expensive. And conversely, if something has gotten very, very cheap... all things being equal, it probably has less risk and more upside. For some reason, this isn't intuitive to most people. In the grocery store, they might recognize a sale... but in the stock market they tend to crowd around the most expensive cans of tuna. Good luck trying to understand why.

If you're tempted to buy something that's gone up and up and up (like gold)... make sure you keep a small position size and make sure you're committed to a tight trailing stop. Momentum investing and trend following can work – if you're a good trader.

But here's a better rule of thumb: Never commit a substantial amount of capital to any sector of the market unless that sector has previously fallen by more than 50%. Now... let me be clear... just because an individual stock has fallen by 50% doesn't mean it's a buy – not at all. But getting involved in market sectors (real estate, for example) after they've fallen apart is a simple way to learn to do the opposite of what your emotions want you to do. You've still got to make smart choices, but you have a much better chance of eliminating mistakes if you simply focus on what other investors have walked away from… instead of what other investors are buying in a mania.

Here's another hint... if you see lots of newsletters touting the same idea, avoid it. There's not another newsletter publisher in America who would tell his readers this… but it's true. Newsletters are contrarian indicators. The investment ideas newsletters love do poorly overall.

So here are some more ideas to write down in your making-money column: Re-read my column on allocating to value, don't chase hot sectors, don't buy into heavily promoted investment ideas, study the market sectors that have been wiped out – look for value, learn to temper your emotions (fear and greed) by always being rigorous with your position sizes (no matter what), learn how to properly value the equities you buy, and never pay too much.

Finally, write this: "No. 3: Most people (more than 90%) refuse to consider alternative investment strategies that would greatly reduce the risk in their portfolios."

It is hard for most people to grasp the concept that the financial industry doesn't exist to help you get rich. These businesses exist to make themselves rich. Thus, you can pretty much guarantee that the strategies the industry is eager to help you to learn (buying mutual funds, day-trading stocks, etc.) are going to cost you money, not make you money.

And the strategies the financial industry tries to hide from you are likely to be better alternatives. Here are two examples: High-yield corporate bonds and selling put options. Call your broker today. See what happens when you tell him you want to learn how to sell options. See what happens when you tell him you want to buy a few non-investment-grade bonds. I bet he'll tell you to take your business elsewhere… or give you a mind-numbing amount of forms to fill out in an attempt to keep you from these markets.

Why should you bother to jump through the hoops or find another broker who will work with you? Because both of these strategies have proven to be the very best way for our subscribers to actually make money safely.

The average return on the bond recommendations in three years of publishing True Income has been 31% (28% annualized), with 80% of the recommendations winners. There is almost no way a reasonably diversified portfolio of stocks could have generated these kinds of safe returns over the same period – no way. Besides, why would you buy stocks (which are riskier) when you can make almost 30% buying bonds?

Likewise with Dr. David Eifrig's put selling recommendations in Retirement Trader. Doc has recommended more than 60 different trades and has yet to close a position at a loss – not a single one. He's making more than 20% a year using a strategy I believe is genuinely risk-free. I have no doubt that if I could convince all of my readers to do these three simple things – use sensible position sizes, avoid investing in expensive stocks, and use alternative strategies like corporate bonds and selling puts – I could turn all of my subscribers into winning investors.

So please write this down in your making-money column: Buy discounted corporate bonds (learn how in True Income)… Learn how to sell puts safely (from Retirement Trader)… Focus on making safe, small profits instead of big, risky ones… Never allocate more than 50% of your assets into stocks… Always keep 20%-30% of your portfolio in cash or cash-like assets so that you can take advantage of declines in the market to buy high-quality assets at stupid prices.

Remember: You will never make much money investing until you learn to save money and be patient.

Now... study your piece of paper. Do you have more reasons to hate me or more and better ways to improve your investment results? My bet is... you've got a lot of work to do. Stop making excuses and putting it off. If you're not investing in a way that makes sense, in a way that works... just stop. It's never going to get any better unless you take action…

Or just go on hating me. It's your money. And some people, I've come to realize, would rather have a good reason to fail than any success to worry about.

Lots of folks out there have made these changes to their approach and have been hugely successful. I'd like to build an advertising campaign around this idea – that our approach works and that it can transform regular people into very good investors. Ironically... I don't think this approach will help us sell newsletters, because it's too logical... But I'd like to try anyway.

To do it, I need folks who are willing to volunteer to appear in a video about these strategies and give testimonials about how they learned to be better investors. If you turned around a lifetime of investment failure by learning position sizing/trailing-stop losses, by learning to recognize contrarian opportunities, and/or by learning how to buy corporate bonds or sell puts – and you're willing to talk on-camera about your experiences – please let me know. I'd like to fly you out to our Alliance meeting this year to film your testimonial. With the right message, I think we could help a lot more people improve their investing... and maybe give them one less reason to hate me.

If you're interested in volunteering, please contact me via our mailbag inbox: feedback@stansberryresearch.com. Please put "testimonial" in the subject line so I can organize the responses. Thanks very much.

(By the way... although we'll do everything possible to safeguard your privacy, our lawyers will need to verify any claim you make about your investing success.)

Here's a bit of information you'll find hard to believe... My best source in the oil business gave a presentation at our Spring Editors Conference on Tuesday that I'll never forget. He first contacted me back in February about a huge new shale field – he called it the "Three Finger" shale. Since then, it has grown. There's a mad rush to lease acreage and begin drilling for oil and gas all across a huge area of Texas that's just west of Abilene.

The shale is now known as the "Cline." Devon Energy has taken a big position in the field... Its core samples and the estimated size of the shale show this could be the biggest oil shale ever discovered in America. My source says Cline has 35 billion barrels of recoverable oil. I realize that seems hard to believe – the East Texas field that made H.L. Hunt the richest man in the world for a time only held 3 billion barrels. The entire proven reserve of the United States is currently only about 15 billion barrels.

How do you explain why the Cline may hold so much oil? It has multiple "pay zones." In other words, it has rich oil-gas areas stacked on top of each other. According to Devon's core samples, the Cline pay zone is between 200 and 500 feet thick – much, much bigger than other producing areas. The pay zone in the Bakken shale region in North Dakota, South Dakota, and Montana, which currently produces the most oil of any shale region, is only 30 to 50 feet thick. I continue to believe we're going to see a huge increase in U.S. oil production... something that could fundamentally alter our economy in a major way. I'll be writing more about this in the next issue of my Investment Advisory, due out next Friday.

Let me give you one other timely piece of investment advice in this Friday's Digest. One of the best ways I know to diversify your portfolio and mitigate the risk you face as a U.S. investor is to own gold-focused investments.

Yes, I did just write above that I wouldn't be surprised to see gold fall this year. It has gone up a lot and is very, very popular. Nevertheless, I haven't sold a single ounce of my gold bullion – nor would I consider selling given what's happening with our government in Washington D.C. I expect that, sooner or later, I will need that gold a lot more than I will need any amount of paper money.

I don't think it's a contradiction to say gold prices seem likely to fall in the short term, while also believing the paper money system is on its last legs and will inevitably fail at some point in the future. But for many people, having the patience and discipline to hold gold is too much to ask. If something doesn't go up every quarter, they just can't handle it. For these folks – and for those who simply prefer the great returns that are possible in gold stocks – I strongly endorse John Doody's approach to gold.

What he does is remarkably simple... yet stunningly brilliant. Doody, who used to be an economics professor, has figured out when you should buy gold stocks as opposed to gold. He takes the largest 60 gold-producing stocks and calculates the value of the gold they produce on a per-share basis. Then, he models that gold-per-share value against the price of gold itself. Doing this for 30 years or so, he's figured out how that relationship works. The result? He knows which gold stocks are cheap and which are too expensive. He buys the cheap ones. That's all there is to it.

Over the last 10 years, during the gold bull market, Doody's list of the top 10 gold stocks made 43% a year – more than 1,000% cumulatively. Doody says he's made $10 million investing in gold stocks using this same methodology. I don't know any investor, anywhere, who's made more money on a percentage basis over the last decade than John Doody.

And that's why, even though I don't own an interest in his newsletter, I strongly endorse it. We don't publish a better letter about gold stocks. No one does. I don't see anything wrong with admitting that fact and urging you to buy Doody's letter.

If you want to be long gold, I believe you'll do better this year in gold stocks than in gold bullion. That's because gold stocks have fallen a lot more than the bullion price. And if you're going to buy a few gold stocks, you should only buy the ones in Doody's top 10.

But before you do, you've got to read his letter and learn about his amazing approach. The education alone is worth 10 times what he charges for a subscription. And I promise you, once you see what Doody can do for you in gold, you'll never buy a gold stock again unless it's on his list. He is really that good. You can learn more about it here.

I know it's been a long letter today... But like Mark Twain says... I didn't have time for a short one. Two more quick things before I go.

The Securities and Exchange Commission (SEC) is once again doing something that should make you furious. It's suing one of the few ratings firms in the country that actually publishes real, useful ratings on insurance companies, banks, and bonds. The firm is called Egan Jones and its founder, Sean Egan, is one of the most trustworthy, earnest, and honest folks I've met in finance.

Interestingly, his business model is like mine: The folks using his ratings pay for them, unlike Moody's and Standard & Poor's, where the bond-issuing banks (aka, the big banks) pay for the credit rating. SEC rules require every bond sold in the U.S. come with at least two ratings by its approved ratings agencies. These "approved" agencies are the same ones that rated every horrible subprime mortgage as triple-A during the credit bubble. Guess who didn't? Sean Egan.

Like me and a few others, Egan warned loud and clear that the subprime mortgage market suffered from massive problems. He wouldn't go along with the charade that was orchestrated by the big banks and their SEC lapdogs. You'll never guess why the SEC is suing Sean Egan. It's not because of his ratings – which have always been vastly more accurate than the SEC-sponsored firms. No, it's because he applied to become SEC-approved. The agency is suing him for civil securities fraud because it alleges he filled out the form incorrectly. I'm not making that up.

There are things, like the above, that make me wonder how our country survives its own government. And how much longer it can. It makes me feel sad and helpless. I know many of you feel the same way... so let me hear from you about this issue: feedback@stansberryresearch.com.

One last thing... and it's a personal note about my boat and my passion for marlin fishing. Please don't bother reading it if this kind of stuff upsets you. I'm sure you've got enough reasons to hate me on your list already...

I recently bought a beautiful fishing boat. Yes, it makes no sense to own a boat like this. I get it. Don't bother writing in to me about how I'm bragging or showing off. Owning a boat is simply stupid. It's nothing to brag about. But for me, this was a lifelong dream, something I've worked hard (and honestly) to buy.

I bought the boat to give my family, friends, and employees experiences they'd never have otherwise and never forget. On our maiden voyage, my father-in-law caught a 300-pound blue marlin. The hour-long fight to land it was priceless to me. It was a dream come true for someone I love dearly. That's him with a beard and a floppy hat in the center of the picture below.

My boat, Two Suns, can sleep six people comfortably (two queen berths and one bunk room) in addition to the crew's quarters. It has a 2,000-mile nautical range at 10 knots. Top speed is around 42 knots. The boat is designed to go anywhere and fish for anything. It has a 48-foot tuna tower, an enclosed, climate-controlled bridge, water makers, generators, and a full electronics package. I have it rigged primarily to catch big marlin in the Bahamas.

I staff it with a full-time professional crew. My captain, Steve Hubbard, is the best big-game fisherman in Miami Beach and served a full tour in the Coast Guard in Key West. (He's on the far right in the marlin picture.) He knows the waters of the Bahamas better than any other captain in the world. But that's not why I hired him. He's truly one of the most capable people I've ever met and... well... he's just a total badass.

He made international headlines last year when he single-handedly fought off murderers in St. Maarten who'd kidnapped him in a taxi and attacked him with baseball bats. These guys were not kidding around. They went on to kill three other people before they were finally arrested. (You can read the local paper's account here.) With Captain Steve at the helm (or "Boom," as he's called), I know my family and I will be totally safe.

I'm planning to offer weeklong cruises to my employees as an incentive to keep the crew active. Several of my friends from the Atlas 400 group have expressed an interest in chartering the boat. I'm open to the possibilities. If you love fishing and you'd like to give your family or your friends the trip of a lifetime, please get in touch.

Weeklong trips out of Miami Beach marina or the western Bahamas (Bimini, Chub, Andros) start at $25,000 and include everything – gourmet food (from my Miami chef), top-quality booze, bait, tackle, all services, and fuel. We can put together almost any kind of cruise you desire. But our specialty is fishing. On our maiden voyage, we spent three days fishing. (We had bad weather for two days.) We caught a billfish every day – blue marlin, white marlin, and a sailfish. Please get in touch if you're interested in chartering the boat this summer. She's available and ready to fish. Just drop me a note with "Charter" in the subject line: feedback@stansberryresearch.com

Regards,

Porter Stansberry

Baltimore, Maryland

May 4, 2012