Why U.S. Interest Rates Can Go Even LOWER

 
Interest rates in Germany are -0.94% as I write…
 
Read that closely – that's a NEGATIVE number – roughly negative 1%.
 
Said another way, you will "earn" -0.94% interest per year over two years in Germany today.
 
I put "earn" in quotes because you will actually lose that money each year. It's negative interest. By buying two-year government bonds in Germany, you are guaranteeing that you will lose roughly 1% a year in "interest."
 
What's going on?
 
Lots of things… But it primarily comes down to the basics: supply and demand.
 
There is no supply, and there is lots of demand…
 
On the demand side, the French are buying German bonds to get money away from the uncertainty around France's presidential election. And the European Central Bank must buy 80 billion euros' worth of German bonds by year-end. There's plenty of demand.
 
Meanwhile, the Germans aren't increasing supply to meet this demand… So we have this extreme negative yield.
 
It's not just Germany, though…
 
In Japan, the two-year government bond "pays" -0.28% interest. Again, "pays" is in quotes because it's a negative interest rate – you are guaranteed to lose money by putting your money away for two years in Japan.
 
In the U.S., the story is different… You still earn a positive return on your money (1.16%) if you put it away for two years.
 
Here's what you need to know: Outside of the U.S., Japan and Germany are the world's largest developed economies.
 
As a money manager – managing a safe portfolio of income investments – you have to make a choice… Here are your basic choices:
 
Country
Interest Rate
U.S.
1.16%
Japan
-0.28%
Germany
-0.94%
Your goal is to deliver income… and to keep your job. All things being equal, which of these three investments would you choose?
 
Given these (basic) choices, you would choose to invest in the U.S.
 
Here's the thing, though: A lot of money managers will make this choice this year.
 
Money managers choosing to put money into interest-earning U.S. investments creates demand. Demand for interest-earning products in the U.S. will push U.S. interest rates down.
 
I'm not talking about ultra-short-term interest rates, like the interest rates that the Federal Reserve sets. I'm talking about interest rates that are set by market forces… which usually means interest rates for two years or longer (like your mortgage).
 
Yes, my friend, interest rates in the U.S. are very low… You will earn just 1.16% per year if you put your money away for two years.
 
But when you look at the world's other two developed markets, it's clear that U.S. interest rates have plenty of room to fall, as investors flee those countries and seek the higher rates that the U.S. offers.
 
Long-term interest rates here in the U.S. are low… But in my opinion, they could surprise everyone and go even lower.
 
Good investing,
 

Steve

 

Source: DailyWealth

Don't Buy Apple – Double-Digit Losses Are on the Way

 
The world's biggest company is getting bigger…
 
Apple (AAPL) is up 18.4% since the beginning of 2017. To put that another way… Apple has added $98 billion in market cap in less than two months.
 
That's the equivalent of adding the entire combined value of Ford Motor and FedEx in just eight weeks.
 
This has sent Apple into a serious uptrend… But the rally may have gone too far, too fast.
 
You see, Apple recently hit its highest overbought level in history. And that means we could see double-digit losses over the next year.
 
Let me explain…
 
We always like to buy ignored investments… things no one else is interested in owning.
 
Instead of following the hot trends, we make contrarian bets. That's how we pocket our largest gains.
 
Buying Apple is not a contrarian bet right now… It's the exact opposite.
 
Apple is currently at an extremely overbought level based on its relative strength index (RSI).
 
The RSI is a measure of a stock's recent gains and losses. It tells us when a stock is overbought or oversold. Oversold stocks tend to rally… And overbought stocks tend to correct.
 
An RSI reading of 70 or higher means a correction is likely. And the recent rally in Apple has moved its RSI to crazy levels. Take a look…
 
Apple reported fantastic earnings at the end of January… The company beat estimates for revenue and earnings. And the stock soared 6.1% the next day as a result.
 
This pushed Apple to overbought levels. And the stock and its RSI have moved higher since.
 
Last week, Apple hit an RSI extreme of 90. That's the highest RSI in Apple's history… And it's a warning sign for investors.
 
You see, Apple's RSI has only broken above and fallen back below 85 five other times in the last decade. And these were not good times to buy. Take a look…
 
 
3-Month
1-Year
After extreme
1.2%
-10.2%
All periods
6.1%
26.9%
You don't become the world's largest company without massive stock market gains. Over the past 10 years, Apple's shares have typically gained 6.1% over three months and 26.9% annually.
 
With numbers like these, it would have been hard to lose money investing in Apple over the last 10 years… But buying its shares at a high RSI level would have been a good way to do it…
 
Over the past decade, similar overbought RSI levels led to small, 1.2% gains in three months… and 10.2% losses over the next year.
 
That's nearly a 37-percentage-point underperformance compared with Apple's typical annual return!
 
I'm not telling you to short Apple. And I'm not saying its business is in trouble.
 
But Apple's RSI tells us the market has moved too far, too fast. And history says losses of 10% over the next year are a likely result.
 
That makes Apple a company to avoid until that changes.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

These Stocks Could Soar Triple Digits in the Coming Years

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 The stealth rally in Europe continues…
 
You may not have noticed, but European stocks – as represented by the STOXX Europe 600 Index – broke out to a new 52-week high earlier this month.
 
On February 13, the broad index closed at more than 370 for the first time since December 2015… And it has remained around that level over the past two weeks. On Thursday, it closed at 372.
 
 
 Our colleague Steve Sjuggerud believes further gains are likely…
 
Steve recently turned bullish on European stocks for the first time in years. They meet all three of his favorite investment criteria: They're cheap, they're hated, and they've started a new uptrend.
 
And Steve believes nearly 10 years of underperformance versus U.S. stocks means European stocks could soar triple digits as they play "catch-up" over the next few years.
 
 Of course, nothing in the market is guaranteed. But the latest data support his bullish thesis…
 
This week, market-data firm IHS Markit reported that eurozone business activity soared in February.
 
The firm's flash composite index of services and manufacturing jumped to a better-than-expected 56 this month. That's up from 54.4 in January, and its highest level in nearly six years. (Like many similar measures, readings above 50 indicate growth, while those below 50 indicate contraction.)
 
The individual measures for both Germany and France – Europe's two biggest economies – came in well above expectations, too. As IHS Markit Chief Business Economist Chris Williamson noted in the accompanying release…
 
Job creation was the best seen for nine and a half years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months…
 
The big surprise was France, where the PMI inched above that of Germany for the first time since August 2012. Both countries look to be growing at rates equivalent to 0.6%-0.7% in the first quarter.
 

France's revival represents a much-needed broadening out of the region's recovery and bodes well for the eurozone's upturn to become more self-sustaining.

 However, a great deal of uncertainty still lies ahead…
 
France's upcoming elections, in particular, promise to create volatility on par with last year's "Brexit" vote or the U.S. presidential election.
 
But after years of short-lived rallies based on little more than hope and central-bank stimulus, we're finally seeing signs that the European economy is improving. And that could be a massive tailwind for European stocks.
 
 Meanwhile, here in the U.S., we could soon see another bullish signal… one that has never been wrong over more than 70 years…
 
The benchmark S&P 500 rose 1.8% in January, and is up roughly 3.5% so far this month. According to equity-research firm CFRA, this could bode incredibly well for the rest of the year…
 
The company notes that stocks have risen in both January and February just 27 times since 1945. And in every one of those years – 27 out of 27 times – the market has ended the year in green, for an average total return of 24%. That's an impressive streak.
 
Of course, nothing can guarantee that streak will continue… And as always, we would never recommend making investment decisions based on any one indicator alone.
 
But history strongly suggests that the bull market in U.S. stocks has further to run.
 
 However, history is far less bullish about bonds…
 
The recent rally in stocks has been accompanied by a tightening in credit spreads – the difference in yield between U.S. corporate debt and U.S. Treasurys – but also a decline in real interest rates.
 
According to strategists at Bank of America Merrill Lynch, stocks and credit spreads are reflecting optimism about the economic growth and corporate fundamentals, yet falling real rates are reflecting the opposite. As Bloomberg reported this week, this is unusual…
 
The last time we saw this confluence of events was right before bond-market routs in 2013 and 2015, the so-called taper tantrum and bund tantrum.
 
The S&P 500 Index surged Tuesday to reach the average year-end target of Wall Street analysts with a 5.5% gain since December. The extra yield investors demand to hold corporate bonds instead of Treasurys is near the lowest in two years, and the yield on five-year inflation protected Treasurys has dipped back into negative territory…
 

Eventually this disconnect "becomes wide enough to trigger a real rate catch-up," strategists Shyam Rajan and Carol Zhang wrote in a note Feb. 17. "History offers a compelling reason to be cautious on duration after recent market moves."

In other words, history suggests real interest rates could quickly move higher from here… Meaning longer-duration debt (like long-dated U.S. Treasury bonds) could plunge.
 
 One last note before we sign off…
 
We officially launched our brand-new small-cap research service – Stansberry Venture Value – during a live event earlier this month.
 
If you were there, you know why Porter is so excited about this project: It could become the most profitable research we've ever published.
 
We believe subscribers could easily see total long-term returns of 1,000% or more… in regular, "plain vanilla" stocks… and without taking big risks, using leverage, or trading options. There is no simpler, safer, or easier way to make a fortune in the stock market.
 
Folks who took advantage of our charter offer to join Venture Value have already received our first three recommendations. But if you've been "on the fence" about joining us, it's not too late. All three of these recommendations remain within "buy" range for now.
 
In other words, you haven't missed anything… yet. But we can't say how long these opportunities will last. Click here to learn more about Stansberry Venture Value. (You won't have to sit through a long promotional video.)
 
Regards,
 
Justin Brill
 

Editor's note: If you missed our live webinar on Porter's "10x Project" earlier this month, you're in luck. He has agreed to post all the details of his research online for a limited time. This is your chance to get all the same information without "reserving a seat"… showing up at a special time… or anything like that. Find out how you can get started right here.

 

Source: DailyWealth

The Positive Power of Short-Term Goals and Small Rewards

 
When I was first getting into the business of selling educational programs, a famous zero-down real estate guru asked me, "Do you know the thing people who take my courses want most?"
 
I had a sneaking suspicion I was about to get it wrong, but I gamely answered: "To be successful real estate investors?"
 
"They want to avoid taking action."
 
I told him I wasn't sure I understood. He was kind enough to clarify. "Most of the people who take my courses and who will be buying your programs want to feel like they are on the road to success. But they don't want that road to end. They like the journey. They fear the destination."
 
"And why would that be?" I asked.
 
"To tell you the truth," he said. "I don't know. But I can tell you this. After our real estate students have gotten the knowledge they need to succeed, few of them get out there and get to work. If you give one of my customers – someone who has completed his real estate education and is fully prepared to start investing profitably – a choice between actually getting to work and buying another course to learn more, he will buy the course."
 
"Are they afraid of failing?"
 
"Could be that," he said. "Could be they're afraid of success. As I said, I don't know."
 
Since then I've thought a lot about this failure-to-get-started problem. I've read dozens of books, talked to many of my colleagues, and posed the question to hundreds of my customers.
 
Everyone agrees that we stop ourselves from doing something new because it feels like a huge slog. The huge amount of work combined with insecurity and the possibility of failure holds us back.
 
The three roadblocks I see repeated time and again are:
 
•   Lack of Confidence: People who haven't yet been successful in life don't believe they can be, even if they are fully prepared to succeed.
 

•   Fear of Pain: Some people see taking action as work, and work as a form of pain. These are usually people who have never experienced the pleasure of working on something they value.
 

•   Laziness: Besides the fear of work, human beings are programmed to be lazy. Being lazy means trying to get what you want with the least amount of effort. Some people don't take action because they want to find an easier way.
But the fact that we feel these three things even when we are ready proves that we're behaving irrationally.
 
So what stops us? If these three roadblocks are why so many people don't take action when they are ready, what is the solution?
 
There's no mystery to that. Behavioral scientists know that the way to change a person's behavior is by motivating them through positive reinforcement. B.F. Skinner studied this concept and learned that some rewards strengthen certain behaviors by "reinforcing" the mind's desire for them.
 
But the key to this is the "reinforcement schedule." That is, people actually need to experience success and rewards on a regular basis in order for them to be motivating forces.
 
When an entrepreneur has the knowledge, he knows well enough how long and hard the journey will be. He'll see his goal as a stupendous task. A long slog. Which means that any sort of positive reinforcement could be years off.
 
If this is something you've had trouble with in the past, there's an easy way to overcome it.
 
Just make your first step smaller. Much smaller…
 
Instead of seeing your first step as "buy a house," make it "list three local real estate brokers tomorrow."
 
Making your tasks small makes them less scary. And it gives you more opportunities for positive reinforcement.
 
I reward myself constantly and for almost any sort of accomplishment, big and small. By attaching rewards to my desired behavior, I increase the likelihood that I will repeat that behavior in the future.
 
Over the years, I developed a reward system that works very well for me. Here it is:
 
I keep a daily list of every task I want to accomplish. When I complete each task, I cross it out (or change its color on my screen) to "signal" that I have accomplished it. This little gesture is like a tiny shot of endorphins. It picks me up and gives me energy to attack my next objective.
 
This reward, as you can see, is pretty mundane. But that's the thing about rewards. They don't have to be big or even special. They need only be enjoyable.
 
If you finish your list of real estate brokers, and then change that item on a task list from red to black, you'll feel more confident taking the next step: calling and interviewing one of those brokers.
 
Doing this, making your tasks smaller and setting goals so that they're easily attainable, is the opposite of what some productivity gurus say – the ones who call for big and ambitious goals. And there's a reason those gurus say it. Many want their customers to fail so they can "sell them extra programs," which is what the guru I mentioned in the beginning did.
 
It would be easy for me to consider my color-coded list of small tasks as simply an ordinary part of my day. But by looking at it differently, by seeing it as a source of pleasurable rewards for specific, desired behavior, it motivates me.
 
I think that is the key – breaking your objectives into smaller and smaller tasks. That way, finishing tasks will make for behavior-changing rewards. And the little pleasures you get from that are blessed gifts. Truly speaking, you are lucky to be able to enjoy them. Be happy about that, and use it to your advantage.
 
Regards,
 
Mark Ford
 
Editor's note: If you keep putting off your financial goals, it's time for a new approach. Mark has assembled his productivity and wealth advice into one comprehensive program designed to help you take action and avoid the roadblocks to financial success. Click here to learn more.

Source: DailyWealth

The Free Money Is Over in Real Estate

 
The biggest "fat pitch" of this decade is no longer a fat pitch…
 
I've been MAXIMUM BULLISH on housing since the bottom of the housing bust. I don't know another analyst who has been more bullish on this one since the beginning.
 
That changes today – somewhat, at least.
 
Don't get me wrong… I'm still extremely bullish on U.S. residential real estate.
 
On a risk-versus-reward basis, I think it's one of the best things Americans can do with their money. (Particularly here in Florida, where I live.) And before it's all over, I think we could see yet another housing bubble, like we saw from 2006 to 2008. I expect those big gains are still ahead… And I'm still FULLY invested.
 
But as of today, the "free money" is behind us. We've hit the middle innings of this boom. Let me explain…
 
Before the housing bust in 2010-2011, I'd never invested in U.S. real estate – outside of my home – in my entire career. Real estate was never a "free money" opportunity… until it hit bottom.
 
I started buying property here in Florida. Investment property went from 0% of my investments in 2010 to the largest percentage of my investments today.
 
So what's changing now? A lot…
 
In 2010-2011, homebuilders in Florida practically stopped building new homes. The supply dried up. Meanwhile, families were still having babies. And people were still moving to Florida. I knew the end result had to be higher housing prices. It's Economics 101 – when there's no supply and plenty of demand, prices go up.
 
Now that situation is starting to reverse. You can see it in this chart of building permits for single-family homes in Florida…
 
Building permits hit a record high in 2006… then fell to a record low in 2009. But the story is changing… Take a look at the far right of the chart:
 
The number of building permits in Florida is still below average. But the massive imbalance between supply and demand that we had a couple of years ago is going away.
 
Not only this, but optimism is back… both anecdotally and in the hard numbers…
 
Anecdotally, local realtors that I talk with are having their best February ever. And new homes and neighborhoods are popping up everywhere around here. Who's going to live in all these new homes?
 
Meanwhile, the numbers show optimism among builders is already not far off from its 2006 peak. Take a look:
 
Since the bottom, I've basically told you, "Don't think, just buy."
 
At that time, we were in the early innings of this new real estate boom.
 
But now, we're finally in the middle innings…
 
I'm not saying "get out" just yet. Not at all…
 
There's still plenty of upside. And the biggest gains tend to happen toward the end of major booms.
 
But the easy money is behind us now. The middle innings are here. It's finally time to think before you buy…
 
Good investing,
 
Steve
 

Source: DailyWealth

The Low-Risk Way to Make 30% a Year in Stocks

 
My team and I recently made a critical breakthrough… And it reinforces what I've been saying for years.
 
You don't need to take big risks to make big money in the stock market.
 
You don't have to find the needle in a haystack. You don't have to get extremely lucky by picking the right tech stock.
 
In my Investment Advisory, we're business junkies. We love great businesses. And usually, the kinds of businesses with staying power aren't exciting or glamorous.
 
Last week, I told DailyWealth readers about my latest project to investigate the stocks that returned an incredible 1,000% or more over the past 20 years.
 
My team and I found a way to identify these stocks – the small, under-the-radar companies that have huge growth potential.
 
Today, I'll explain one of the secret ingredients to boosting boring investments and making double-digit annual returns, without taking on more risk…
 
Regular readers know "capital efficiency" is one of our key metrics to finding successful businesses.
 
When we say "capital efficiency," we're measuring how easy it is for companies to grow revenues without heavy reinvestment. That's how you find great, healthy investments. These are the companies that will keep growing and will never go out of business. It's the one sure way to get rich in the market.
 
My colleague Bryan Beach puts it this way: When you think about capital efficiency, think about what you would want to see if you were the company's owner.
 
In other words, when you have a business that's growing like crazy but you aren't making more money, you wouldn't be excited to own that business. You've probably had to hire more people and deal with more problems. If cash isn't left at the end of the day for the owners, what's the point?
 
Personally, I look at it in a bigger-picture way… like a seesaw. On one end of the seesaw, you have growth. On the other end, you have profitability.
 
Think about my own company, Stansberry Research. If we wanted to spend $100 million on advertising, we could grow our business and sales tremendously, but it won't lead to more profits. Or we could cut back our marketing budget to almost zero and live off the renewal income and the incremental sales, and we could report a great, profitable year. It's really difficult to do both at the same time. And the businesses that can do that are exceedingly rare.
 
One of our big tests is whether a company can grow its revenues by 25% or 30% and still be capital efficient. When a company can make $0.25 or $0.30 in cash on every dollar of revenue AND continue to grow, you've found an extraordinary business.
 
Now here's the really surprising thing about all this. Like I said, these are unique, unusual businesses. But more often than not… they're boring.
 
When we investigated the stellar performers of the past two decades, the results we turned up weren't necessarily the high-flying tech stocks. Most of them fit the same boring industry categories we've been writing about for years…
 
You find these stocks with the same process that we put all of our best recommendations through in my Investment Advisory. For instance, chocolatier Hershey (HSY) and insurance firm W.R. Berkley (WRB) were great investments because they had tremendous growth and were incredibly capital efficient.
 
But with our new system – the kind we're using in Stansberry Venture Value – you see even better growth (and therefore, even bigger returns) buying the exact same kinds of stocks. Instead of making 6%-8% a year, these stocks can return 20%-30% a year.
 
Consistent, double-digit returns every year… without taking more risk… without crossing your fingers and hoping you picked the next big winner. The same reliable types of companies we recommend in my Investment Advisory… but with the ability to deliver 20% or 30% a year on your portfolio.
 
Regards,
 
Porter Stansberry
 
Editor's note: Capital efficiency is just one piece of the puzzle. Now you can learn how to find the next McDonald's, or the next Hershey, with a metric called the "D-Factor." It's the key to Porter's new "10x Project," designed to help you make 10 times your money or more in the markets. Get all the details by watching Porter's brand-new presentation right here. (Or click here for a transcript.)

Source: DailyWealth

The Next Emerging Markets Boom Is Here

 
In 1993, I learned two of the most powerful investing lessons of my life…
 
I was primarily trading emerging market stocks at the time. The big story was China.
 
I was a broker specializing in foreign stocks, and my phone was ringing nonstop. Everyone wanted to buy Hong Kong stocks.
 
That was a thrilling time for me… I had never made so much money before in such a short period in my life!
 
I learned two lifelong lessons then… And today, we have a new opportunity to put those lessons to work.
 
Let me explain…
 
The first lesson I learned was this: When emerging markets are hot, you simply HAVE to be on board.
 
In 1993, I made more money – in less time – than I ever had before.
 
The main Hong Kong stock index went up 30% that December alone. That was the entire index – not just one stock! And many individual stocks did much better.
 
But then times changed. Quickly.
 
The Hang Seng Index – the one that had boomed in December – crashed in the first quarter of 1994. It was awful… I was demoralized and depressed. My monthly income fell by 90%.
 
And that's when I learned the second lesson…
 
Legendary investor Jim Rogers was right. As he once said, "Markets often rise higher than you think is possible, and fall lower than you can possibly imagine."
 
In the good times, the Hang Seng Index rose 30% in one month… And in the bad times, my income crashed by 90%.
 
Let's fast-forward to today. Emerging market stocks have been in "the bad times" for the last seven years. While U.S. stocks soared, emerging market stocks delivered essentially no returns to investors – at all.
 
But based on the computers behind my high-priced True Wealth Systems service, that looks like it's changing – right now…
 
The iShares MSCI Emerging Markets Fund (EEM) – which tracks emerging markets as a whole – has gone straight up to start the year. It's up nearly 10% since 2017 began.
 
And my systems say this could be the start of a bull market… one that could turn a small $10,000 investment into $50,000 or more.
 
I know that sounds outrageous. But a major, multi-year boom in emerging markets is one of the few legitimate ways to make hundreds of percent on your money. Take a look…
 
This chart shows three major booms in emerging markets. Each time, the bull market resulted in triple-digit gains… 471%, 432%, and 141%.
 
And remember, this is emerging markets as a whole. Specific investments can rally much further during these booms.
 
You can see on the chart above that emerging markets have done nothing for years… But that has changed to start 2017. We have the start of an uptrend. And that means the next major emerging markets boom could be underway now.
 
So now is the time to combine the two lessons I learned in 1993 and 1994 – and put them to work for huge profits…
 
Markets often rise higher than you think is possible, and fall lower than you can possibly imagine.
 
And when emerging markets are hot, you simply HAVE to be on board.
 
We have seen the downside over the last seven years. Now it's time to own emerging markets again.
 
Good investing,
 
Steve
 
P.S. I recently told readers my favorite way to own emerging markets in the latest issue of my True Wealth Systems newsletter. The last time we saw emerging markets boom, this investment soared 745% in just a few years… And I believe we could be at the start of a similar boom today. To learn more about True Wealth Systems and accessing my latest recommendation, click here.

Source: DailyWealth

Warren Buffett Is Doubling Down

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 Thanks to everyone who joined us for our special event earlier this week…
 
It was among the most valuable we've held to date, and the early feedback from attendees has been incredibly positive.
 
If you missed it, Porter and Stansberry Research senior analyst Bryan Beach walked attendees through their "10x Project" research… and officially unveiled our brand-new Stansberry Venture Value service for the first time.
 
Unfortunately, we're not able to offer a full replay of the event at this time… But you can learn more about this exclusive research – including how you can put it to use in your own portfolio – right here. (Please note: This does not lead to a long video presentation.)
 
 Legendary investor Warren Buffett made headlines this week, following his firm's latest regulatory filings with the U.S. Securities and Exchange Commission…
 
Buffett's Berkshire Hathaway (BRK-B) reported it owned 8 million shares – worth nearly $1 billion – of Stansberry's Investment Advisory portfolio holding Monsanto (MON) as of December 31.
 
Monsanto agreed to be purchased by German conglomerate Bayer AP last year for $66 billion, or $128 a share. Yet the deal is still awaiting regulatory approval.
 
And Monsanto shares are still trading around $109 per share – more than 15% less than the agreed-upon price – indicating the market is skeptical the deal will be approved.
 
What's notable in this case is that Berkshire bought this entire stake in the fourth quarter of 2016… after the deal was made.
 
As Bloomberg merger-and-acquisitions columnist Brooke Sutherland noted on Tuesday, this suggests Buffett and/or Berkshire execs are making a big bet the deal will go through…
 
The quickest and cleanest way for Berkshire to realize a return on its investment would be for that takeover premium to be fully realized with a deal that's approved by both shareholders and regulators – especially because Berkshire's dumping of its stake in tractor maker Deere & Co. signals it's not too keen on the agriculture industry as a stand-alone investment.
 
It's a merger arbitrage play, essentially, on a deal that's far from a slam dunk… We don't know for sure if it was Buffett himself or one of his stock-picking deputies who made the investment. Either way, he no doubt gave his blessing. When the Oracle of Omaha turns arb, perhaps it's time to follow suit.

Depending on when Berkshire made its purchases, it could earn up to 30% – or more than $250 million – if the deal is approved. As of Thursday's close, Stansberry's Investment Advisory subscribers are up more than 15% on the trade.
 
 Buffett's firm also "doubled down" on some existing positions…
 
Berkshire reported it had increased its positions in the four biggest U.S. airlines by nearly seven times. It disclosed total stakes of more than $2.1 billion each in American Airlines (AAL), Delta Air Lines (DAL), Southwest Airlines (LUV), and United Continental (UAL).
 
This is a significant departure for Buffett, who long considered airlines to be among the worst businesses in the world. As he wrote in Berkshire's 2007 annual letter to investors…
 
The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
 
The airline industry's demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.
 

And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.

Berkshire also nearly quadrupled its position in consumer-electronics giant Apple (AAPL) to 57.4 million shares, up from 15.2 million shares in the third quarter of last year.
 
Assuming Berkshire hasn't sold shares this quarter, the position – worth nearly $8 billion at today's share price – would make Buffett a top 10 shareholder in the world's most valuable company.
 
Regards,
 
Justin Brill
 
Editor's note: Porter and senior research analyst Bryan Beach have uncovered a strategy that sounds almost too good to be true: They've found a way to turn safe, simple investments in high-quality stocks into absolute home runs. And it doesn't require using leverage, options, or anything risky. Find out how you can get started today right here.
 

Source: DailyWealth

How 'Going Small' Can Add Huge Returns to Your Retirement

Editor's note: Our offices will be closed on Monday in observance of Presidents' Day. Look for the next edition of DailyWealth on Tuesday. Enjoy the holiday.
 
The education of new investors often follows a similar path…
 
New investors get interested in the stock market. They think it's just a matter of time before they find some small, unheard-of company that will grow 100 times over, making them rich.
 
Before long, the investor realizes that investing in small companies is harder than it looks.
 
Yes, occasionally a tiny stock blossoms into a big winner.
 
But if you don't have a strategy for choosing the right small companies, it won't be enough to offset all the duds.
 
Eventually, investors usually learn that the "easy way" to succeed in investing is to buy established, quality companies and hold them for extended periods.
 
This method of investing is near and dear to me. In my Retirement Millionaire flagship letter, we focus mostly on blue-chip dividend-payers… well-known brand names… and funds with plenty of liquidity. We love their safety and ability to compound wealth over time.
 
Recommending these large companies and funds is the best way that I can serve my 100,000 subscribers. It's how we ensure that everyone can buy in at a good price.
 
And yet… small-cap stocks consistently outperform large caps over time.
 
It makes sense that small and growing companies can be spectacular investments. It's much easier for a company with $10 million in sales to grow sales and profits than it is for a large company that already dominates its market.
 
When you compare the returns of the S&P 500 (which is all large caps) with the returns of the S&P 600 (a collection of 600 small-cap stocks), you can see that small caps usually outperform…
 
Over the long term, the performance is even more amazing.
 
If your father (or grandfather, for our younger readers) invested $10 in 1926… it would be worth about $50,000 today if he put it in large caps. But that's just a fraction of what you'd have if he had put the $10 into small caps – more than $2 million!
 
That's according to data from two University of Chicago economists (one of whom won a Nobel Prize).
 
This long-term outperformance of smaller companies is well known to big investors…
 
In fact, legendary investor and Berkshire Hathaway CEO Warren Buffett has bemoaned that he simply has too much money to make the kind of 50%-plus returns he enjoyed when he got his start investing with less than $1 million.
 
This type of "going small" strategy is a huge advantage that you have as an individual investor… if you're willing to do the work.
 
It's not easy to find small companies with strong growth prospects. You have to uncover their niche… research the management… study the debt structure… weigh competition risks… and identify whether their growth is sustainable.
 
The simple solution is to invest in a lot of small companies. This diversifies your risk.
 
For example, in my Retirement Millionaire newsletter, I recommended buying shares of the iShares Core S&P Small-Cap Fund (IJR) in 2014. Since then, we're up 33%… handily beating the 20% gain in the S&P 500 stock index.
 
If you focus on established companies like we do at Retirement Millionaire, I'll bet you could use more exposure to small caps in your portfolio. So buying IJR today is a low-cost, one-click way to own hundreds of small- and mid-cap companies. It's a great way to boost returns over the long term compared with large, blue-chip firms.
 
Of course, there's a more powerful way of discovering and investing in the "go small" opportunity…
 
Earlier this week, Porter unveiled a way to improve your potential returns even more by investing in hand-picked, small companies with massive growth potential. It's a strategy he's calling the "10x Project."
 
The sort of returns that you can see by investing in small companies has the potential to dwarf the returns from index funds and large-cap stocks.
 
That doesn't mean you should buy into something wildly uneconomic and risky… like action-camera maker GoPro (GPRO) or social-blather site Twitter (TWTR). That's not what the 10x Project is about.
 
Instead, Porter's research shows how you can make safe double-digit gains, year after year, by focusing on the same industries and types of businesses that he recommends in his Stansberry's Investment Advisory newsletter and that I focus on in Retirement Millionaire… with one very important adjustment.
 
 
Here's to our health, wealth, and a great retirement,
 
Dr. David Eifrig
 
Editor's note: You don't have to touch risky speculations to make money in small-cap stocks. Porter's new "10x Project" covers a much lower-risk approach to potential 1,000% returns… one that you can use with a larger portion of your portfolio. We're talking extraordinary, capital-efficient businesses… that have huge growth potential over the coming years. Click here to learn more.

Source: DailyWealth

Meb Faber's Secret to Triple-Digit Gains

 
"When was the last time a sector or an industry went down six years in a row?" I asked my good friend Meb Faber at lunch in New York last November.
 
Meb is the guy to ask… He is one of the smartest, most respected minds on Wall Street. And he has crunched the numbers going back decades.
 
"Six down years? It NEVER happens," he said. "But coal stocks ended 2015 down five years in a row."
 
Based on this fact alone – that coal stocks went down five years in a row – Meb told his subscribers in late 2015 to buy coal stocks. He got it exactly right… Coal stocks finished 2016 up 98%.
 
Today, another opportunity is on Meb's radar. It finished 2016 down – for the sixth straight year. And as a result, we agree that it's a great speculation with triple-digit upside.
 
Let me explain…
 
Meb has made a career out of tracking down large investment returns.
 
He scours the globe, looking at investments differently than most analysts do. So when he started telling me about his research on buying after multiple down years, I was interested.
 
Here's another example: Meb said that gold stocks were down five years in a row ending in 2015. And like coal, gold stocks absolutely soared in the first half of 2016.
 
Keep in mind, Meb said to buy coal stocks and gold stocks at the end of 2015 NOT because of some fundamental change, or because of some great story unfolding. Meb didn't create the script for coal – or gold. He chose them simply because he knew what happens after five down years…
 
Meb has run the numbers going back to the 1920s on how sectors perform the year after multi-year declines. Here's what he found:
 
Number of Down Years
Average Gain
3
35%
4
57%
5
65%
As the table shows, the average gain in the year after a consecutive number of down years is shocking.
 
The rarity of multiple down years is shocking, too…
 
For example, four consecutive down years in a sector has only occurred 1% of the time since the 1920s. And five down years has almost never occurred.
 
In other words, opportunities like this don't come along often.
 
That's why Meb was nearly giddy at lunch about his new idea for 2017…
 
Steve, uranium stocks have fallen every year since 2011. They've crashed around 90%.
 
If they close down for 2016, that will be six straight down years. You have to go back to the Depression to find an industry down for six straight years.

In DailyWealth last week, I explained a bit of the fundamental story for uranium… It's cheap and hated. And now, it's finally starting an uptrend.
 
But the fact that it fell for six straight years is one more reason I'm excited about it.
 
You see, over the long run, reversion to the mean is an incredibly powerful force in financial history. When coal stocks reverted away from the mean for five years, they snapped back violently in 2016. And the same thing happened with gold stocks.
 
Today, the opportunity in uranium is nearly identical to the ones in coal and gold last year.
 
Uranium stocks have fallen for six straight years. And now, they've silently entered an uptrend.
 
I expect uranium stocks will be a big winner in 2017. And now is the time to get on board…
 
Good investing,
 
Steve
 
P.S. There's a simple way to profit from uranium stocks. I shared it with my True Wealth readers last month. We're already up 20% on the position. But we could still see triple-digit gains from here. To learn how to access this research with a risk-free trial, click here.

Source: DailyWealth