Value Stock Investors Dig for Treasure

Value investors are certainly concerned about the future because that's where their payoff is, but they must start with the present value of the stock.

Growth investors are expecting things to happen soon with a stock's price and with the company's fundamentals.

As I discussed in a previous article on growth stocks, those investors are fixed on tomorrow.

Value investors start with today. They are looking for companies that the stock market has under-priced.

For some reason, the company is worth more today than the stock market is giving it credit for being worth.

Value investors mine data to look for companies that may be good investments. Here are several things they look for:

High dividend yield

Companies that are paying large dividends compared to their stock price will produce high dividend yields.

The dividend yield is calculated by dividing the annual dividend by the stock price.

For example, a company with an annual dividend of $1.50 and a stock price of $35 per share gives you a dividend yield of 4.3 percent (1.5 / 35 = 0.0428).

That's a tremendous return and may be an indication that the share price is lower than it should be.

More on dividend yield.

Low P/E Ratios

Values stocks will be found with low price earnings ratios, usually in the bottom 10 percent of all stocks in the same industry.

The P/E tells you what the market is willing to pay for the company's earnings and if that number is significantly lower than the rest of its industry group, it could be a value stock.

More on price earnings ratios.

Good Debt Ratios

Value companies often have a good debt profile, meaning they have no more debt than equity.

This is often expressed in the debt to equity ratios. The quick ratio and the current ratio both check the relationship of debts and assets.

Neither of these ratios should be over 1, meaning the company has more assets than debt.

More on debt.

Margin of Safety

An important part of value investing is the margin of safety. This is the room for error you give yourself to avoid paying too much for a value stock.

If you believe a stock should be priced at $30 per share based on your examination of the company's fundamentals, a margin of safety might be $26 per share.

If the stock is currently selling for $14 per share, you are in good shape, even with your margin of safety price.

However, if the stock is currently selling for $22 per share, you may not think this it is a great value buy.

Conclusion

This brief introduction to value investing was meant to introduce the topic. As you become more familiar with the concepts, you'll develop your own standards for what defines a value stock.

Is a Stock Cheap or Expensive?

The price/sales ratio is one of the most important tools you can use to determine if the market is under or over valuing a stock's price.

Clearly, you need to know whether a stock has any room to grow before you make an investment decision. If the stock is modestly priced relative to its industry peers and you believe it has solid growth prospects, then you have an investment candidate.

On the other hand, a wildly over-priced stock usually has only one way to go. It may still be an investment candidate, but only when the price is more attractive.

The Right Price

The price/sales ratio is one of the tools that will help you determine which category a stock is in and help you make an informed investment decision.

Stock prices tell you nothing. IBM was selling for $93.22 and Dell was quoted at $41.42. Which is the better buy? If you knew nothing about the companies, the stock prices give you no hint. Is IBM a better company because its stock is more expensive or is Dell a bargain?

The price/sales ratio creates a metric that allows you to compare companies in the same industries. You calculate it by dividing the market capitalization of the company by its revenue.

Market capitalization or market cap is simply the number of shares outstanding multiplied by the per share price. For example, a company with 100 million shares outstanding and a per share price of $55 would have a market cap of $5.5 billion. See Size Matters in Investing.

By dividing the market cap by revenues, you get a number that you can use to compare companies in the same industry. The lower the number, the better. It is important that you only use the price/sales ratio to compare companies in the same industry since there will be differences among industry groups.

Price/sales Ratio Reveals

Let's take another look at Dell and IBM. Based on the quotes above, IBM's price/sales ratio was 1.7, while Dell's number was 2.2. For the industry group, the price/sales ratio was 2.8.

Both stocks were selling under the industry average, however looking at just the price/sales ratio IBM was the better value at 1.7.

One of the ways you can use price/sales ratio numbers is to check the other prime value metric, the price earnings ratio. See Price Earnings Ratio.

Continuing our example, IBM's P/E was 20.1 and Dell's was 34.3. The industry group P/E was 33. According to the P/E, it appears that IBM is still the better value.

If the price/sales ratio and the price/earning ratio contradict each other, that is a sign that something is up with the company's books. Look for a one-time event that may have distorted the financials on a temporary basis.

Where to Find

You can find both the price/sales ratio and the price/earnings ratio along with other metrics on many sites. One that I use extensively is Morningstar.com.

Enter a stock symbol and you are taken to a detailed quote/background screen on the stock. From there you can gather all the information I used in this article and much more.

Conclusion

There are two parts to a successful investment: picking the right company and buying at the right price. The price/sales ratio is one tool that will help you determine the right price.

Bursa Chat - News Highlights (15.05.2009)

AirAsia Bhd (AIRA MK, Buy, TP: RM1.90) will triple its advertising spending this year, as it sees opportunities to expand amid the economic slowdown, said group chief executive officer Datuk Seri Tony Fernandes. He said AirAsia is committed to building their brand despite the economic downturn by focusing on creativity, brand innovation and technology. The airline also hopes to boost the tourism sector by wooing more tourists to spend in Malaysia. (Starbiz) ***** Axis Real Estate Investment Trust (REIT) will soon lose Nestle (M) Bhd as an anchor tenant in one of its properties, but it is in discussion with prospective tenants. Axis REIT Managers Bhd chief executive officer Stewart LaBrooy said the group will spend RM7m on renovations to reposition the building as a 21 century icon. The building is expected to be ready by 2010. Nestle said the current building is too small to cater for its future needs. LaBorry did not disclose if the move will affect the trust. (Starbiz) ***** Malaysia Airports Holdings Bhd (MAHB) saw fewer passengers going through its 39 airports in the first three months of 2009. It saw a drop of 1.9% in passenger traffic, to 11.1m passengers from 11.3m for the same period last year. In a filing to Bursa Malaysia, MAHB said the bulk of the decline was from passengers going through the KL International Airport, with 6.4m passengers as opposed to 6.6m previously. (BT) ***** MISC has entered into a shareholders agreement with Petronas International Corp Ltd and Mustang Engineering Ltd to establish a JV company to provide floating LNG solutions and services worldwide. MISC said the share capital of the JV company was RM32.5m with Petronas holding 60% equity, MISC 30% and Mustang 10%. (Financial Daily) ***** The Malaysia-India Business Council (MIBC) said small-scale builders, developers, consultants, architects and engineers can piggy-back on Malaysian companies in India to get jobs in the region. They could also find the right partner for projects, or set up a company in India and look for jobs themselves, MIBC president Datuk Krishnan Tan said. He added that there are currently big opportunities in India' property sector to build and sell a range of products from mass housing to villas. "The infrastructure market is also under supplied. The opportunities are not just for the big boys but smaller players as well," he said. India' construction sector, comprising property, infrastructure and industrial, is worth US$145bn (RM514bn). (BT) ***** INVESTMENT RESEARCH Global Stocks rallied Thursday, bouncing back after several down sessions as investors weighed some weaker-than-expected reports with growing economic optimism. The Dow Jones industrial average gained 0.6% (+46.4 pts, close 8,331.3). The Standard & Poor' 500 index gained 1.0% (+9.2 pts, close 893.1) and the Nasdaq composite gained 1.5% (+25.0 pts, close 1,689.2). In currency trading, the dollar fell versus the euro and gained against the yen. U.S. light crude oil for June delivery rose 60 cents to settle at US$58.62 a barrel on the New York Mercantile Exchange. (CNNmoney) ***** More Americans than forecast filed unemployment-insurance claims last week because of the Chrysler LLC bankruptcy that is likely to reverberate through the economy for months. Initial jobless claims rose by 32,000 to 637,000 in the week ended May 9, the Labour Department said yesterday. A good part of the jump was from states reporting an increase in auto-related claims, a Labour official said without providing a more precise estimate. The bankruptcy filing by Chrysler, and the potential for a similar step by General Motors Corp., is likely to cause further job losses as suppliers and communities are affected. The total number of people collecting unemployment insurance surged in the prior week to 6.56m, setting a record for the 15th straight week and indicating companies are still not hiring. The lack of jobs may restrain consumer spending, the biggest part of the economy, and put off a return to growth that economists project for later this year. (Bloomberg) ***** Prices paid to U.S. producers rose in April as food costs surged, pushing back risks that extended price declines may take root in the economy. The 0.3% increase was more than forecast and followed a drop of 1.2% in March, the Labour Department said yesterday. Excluding fuel and food, so-called core prices climbed 0.1%, as anticipated. Signs that the worst of the recession is over may boost commodity costs further, alleviating concern over deflation, or an extended drop in prices that hurts the economy. Along with the trillions of dollars pumped into the banking system by the Federal Reserve, increases in raw materials may stoke inflation once an economic recovery takes hold. (Bloomberg) ***** European Central Bank policy makers clashed over the bank's asset-buying program and prospects for a recovery less than a week after President Jean-Claude Trichet engineered a truce. Vice President Lucas Papademos said yesterday that a recovery may come sooner than previously thought. Minutes earlier, Dutch council member Nout Wellink said economists shouldn't get too optimistic about "green shoots." That came a day after Germany's Axel Weber and Slovenia's Marko Kranjec reopened a split over the size of the ECB's bond-purchase plan. A split on the 22-member Governing Council this year has made it difficult for Trichet to send a clear signal on how the ECB will step up its fight against Europe's worst recession since World War II. While he won support on a plan to purchase 60bn euros (US$82bn) in covered bonds, a compromise on the program's focus and scope may already be unravelling. The debate rumbled on yesterday across Europe, with Slovakia's Ivan Sramko saying nothing can be excluded and Executive Board member Jose Manuel Gonzalez-Paramo saying there's no plan to expand purchases "at the moment." (Bloomberg) ***** Indonesia and the Philippines still have room to cut their benchmark interest rates to shore up their economies as inflation eases amid the global recession, the countries' central banks said yesterday. Policy makers across Asia have slashed borrowing costs and are boosting spending to counter the worst global economic slump since World War II. Countries including Malaysia and South Korea, where the benchmark interest rates are 2% compared with 4.5% in the Philippines and 7.25% in Indonesia, have halted rate cuts in anticipation of a recovery in growth. (Bloomberg) ***** The cost of borrowing in dollars between banks fell the most in eight weeks as government and central bank efforts to unlock credit markets showed signs of bearing fruit and deposits at financial institutions grew. The London interbank offered rate, or Libor, for such loans fell almost three basis points to 0.85% yesterday, according to the British Bankers' Association. The so-called TED spread, the difference between what the U.S. Treasury and banks pay to borrow for three months, dropped three basis points to 69 basis points, its lowest since the day before BNP Paribas SA halted withdrawals from three of its funds on Aug. 9, 2007, because of subprime-mortgage related losses. Bank borrowing costs have tumbled as the U.S. government and the Federal Reserve pledged US$12.8trn to drag the economy out of its longest recession since the 1930s and policy makers around the world cut interest rates to near zero. The Libor-OIS spread, a measure of the unwillingness of banks to offer each other cash, narrowed three basis points to 64 basis points yesterday, its lowest level since June 16. (Bloomberg) ***** World oil demand this year will post the sharpest annual decline since 1981 as the economy struggles to bounce back, the International Energy Agency (IEA) said yesterday. Demand will contract by 2.56 million barrels per day (bpd) in 2009, the IEA, which advises 28 industrialised countries, said in a monthly report. It previously forecast demand would fall by 2.4 million bpd this year. (BT) *****

Bursa Chat - News Highlights (14.05.2009)

IOI Corp (IOI MK, Hold, TP: RM3.90) said palm oil yields would fall by 5% due to warm weather, which may push prices to RM3,000 in the near term, if there is an uptick in overseas demand. Oil palms continue to suffer biological stress after last year's strong harvests and low fertiliser use, said IOI executive chairman Tan Sri Lee Shin Cheng. He added that crude palm oil prices should remain comfortably above RM2,500 in 2H09, despite higher production levels. (Financial Daily)
*****
Vietnam's An Binh Bank (ABBank), 15%-owned by Malayan Banking Bhd (MAY MK, Hold, TP: RM4.80), said its January � April net profit nearly tripled to 113.7bn dong (RM22.56m). Partly-private ABBank made a net profit of 26bn dong in April alone, well above its 23bn dong in combined net earnings for the first 2 months of the year, the Ho Chi Minh city- based lender said. Outstanding loans at end-April were 6.89trn dong, and the bank has projected gross profit this year to jump to 400bn dong from a gross profit of just 70.2bn dong in 2008, when it suffered from high operating costs and losses from trading foreign currencies and securities. (Financial Daily)
*****
Genting Singapore Plc, a unit of Genting Bhd (GENT MK, Buy, TP: RM5.30), swung to a net loss of S$31.9m (RM76.8m) for 1Q09 from a profit of S$6.02m in the corresponding period last year. The loss was on the back of lower revenue and a fair value loss on derivative financial instruments and increase in pre-operating expenses incurred for the integrated resort in Singapore. Revenue for the quarter was lower at S$105.4m, down from S$164.1m a year ago. The gaming firm said the reduction was mainly due to a fall in revenue of S$58.4m from its UK casino operations. (Financial Daily)
*****
MAS Aerospace Engineering Sdn Bhd (MAE), a unit of Malaysian Airline (MAS MK, Sell, TP: TM2.44), has teamed up with EADS SECA to jointly set up a maintenance, repair and overhaul (MRO) facility to mainly cater for the servicing of turbo-prop plane engines. The facility, scheduled to be operational by 2010, is positioned as a one-stop centre for engine, airframe and component support for PW100 series engines that are currently fitted into ATR turbo-props, Bombardier Dash 8 planes and Fokker 50s. (Financial Daily)
*****
Astro All Asia Networks Plc (Astro) received mixed results on an arbitration and legal suit against the Lippo Group of companies in Indonesia, which include PT Ayunda Prima Mitra (PT APM), over a failed joint venture (JV) to provide satellite television services there. The arbitration tribunal ruled that it has the jurisdiction to try the matter, that PT APM discontinue the civil suit against Astro, and that PT APM is prohibited from bringing further legal proceedings against Astro. In Astro's civil suit brought by PT APM, the South Jakarta District Court rejected Astro's challenge of the court's jurisdiction, and decided it has jurisdiction over the dispute. Astro is considering an appeal against the court's decision, on the basis of, among others, that the South Jakarta district court has no jurisdiction to hear the matter, in light of the arbitration tribunal's award. (Financial Daily)
*****
Petroliam Nasional Bhd (Petronas) filed a suit claiming RM85.8m from Perwaja Holdings Bhd in disputed supply charges for natural gas to the steelmarker. Perwaja said the difference is due to Perwaja's natural gas price computation based on the negotiations with the government, and Petronas' own price. The steel manufacturer said it had been in negotiations with the government to reduce the natural gas price, in line with international price, with the applicable discount. Perwaja has made full payment to Petronas based on market international price less the government discount. Perwaja said the suit will not impact the company's earnings, and will continue to defend the suit. (Financial Daily)
*****
It is still too early to say if Malaysia' palm oil output this year will be affected by the current dry weather and some industry players even think that last year' record production could be repeated. Planters with estates in Sabah, Sarawak, Johor and Perak all agree that it is too early to forecast a big drop in crop output. According to the Malaysian Palm Oil Board, oil palm trees produced 5.08m tonnes of crude palm oil in the first four months of this year, 4% less than a year ago. (BT)
*****
Lembaga Tabung Haji (LTH) is in favour of Ramunia disposing of its fabrication assets and liabilities as a way to stave off financial distress. The fund is hoping that with the proceeds, the loss making Ramunia can fare better by entering another business. According to LTH's Chief Investment Officer, problems in the company included tight working capital, halted orders and high staff turnover which stemmed from the global financial crisis and the proposed RTO with MISC. Tabung Haji owns close to 30% of Ramunia's paid-up capital. The controlling shareholder is chairman Datuk Azizul Rahman Abd Samad, who (along with his brother, Ahmad Rizal) has a direct and indirect interest of just over 33%. (Starbiz)
*****
EON Capital Bhd (EON Cap) has clarified that its higher net non-performing loan (NPL) ratio for 1Q09 at 3.1% from 2.5% last quarter was mainly due to 2 lumpy loans. However, it was not a concern for the banking group as it had set aside adequate provisions to manage the 2 loans which had become NPLs. The banking group stated that it had anticipated that the 2 accounts may become non-performing and hence had provided for these loans. (Financial Daily)
*****
Mudajaya Group Bhd said its associated company in India, RKM Powergen Private Ltd (RKM), has entered into another power purchase agreement (PPA) with PTC India Ltd (PTC) for the supply of 700MV round-the-clock electricity from phase two of the independent power plant (IPP) project in Chhattisgarh, India. Phase 2 of the IPP project consisted of 1,080MW and was expected to commence commercial operations by September 2011. The PPA is for a period of 12 years. PTC will pay RKM a yearly average tariff rate of 3 rupees (RM0.214) per kilowatt hour (kWh) for the power supply on a 'take or pay' basis. The balance of the nominal capacity, amounting to 380MW, would be sold through tariff bids to capture short term market rates. (Financial Daily)
*****
INVESTMENT RESEARCH
Global
Stocks tumbled Wednesday, with the Nasdaq and S&P 500 falling for a third straight session, after a weaker-than-expected retail sales report gave investors a reason to retreat. The Dow Jones industrial average lost 2.2% (-184.2 pts, close 8,284.9). The Standard & Poor' 500 index lost 2.7% (-24.4 pts, close 883.9) and the Nasdaq composite lost 3.0% (-51.7 pts, close 1,664.2). In currency trading, the dollar gained versus the euro and the yen. U.S. light crude oil for June delivery fell 83 cents to settle at US$58.02 a barrel on the New York Mercantile Exchange. (CNNmoney)
*****
Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash. The 0.4% decrease followed a revised 1.3% drop in March that was larger than previously estimated, the Commerce Department said yesterday. Other reports showed companies continued to cut stockpiles as demand slowed, and climbing oil costs pushed up prices for imported goods. A separate report from Commerce showed inventories at U.S. businesses fell 1% in March, a seventh consecutive drop as slumping sales forced companies to pull back. The streak of decreases is the longest since 2001-2002. (Bloomberg)
*****
The Federal Reserve considers the recent jump in Treasury yields more as a reflection of a better economic outlook than a signal it needs to step up purchases of U.S. government debt, according to central bank officials who declined to be identified. It's too early to judge the effectiveness of the Fed's US$300bn plan to buy Treasuries even after 10-year yields climbed 0.65 percentage point since the initiative began in March, the officials said. They added that the goal is to stimulate private lending, rather than to target government-bond rates. The Fed officials' stance contradicts the view of firms including BlackRock Inc. that have predicted the rise in yields will prompt the central bank to announce an increase in the size of the program as soon as next month. Chairman Ben S. Bernanke said May 11 that the danger of deflation, or prolonged declines in consumer prices, is "receding" and earlier this month cited evidence the economy's contraction is easing. (Bloomberg)
*****
The Bank of England said the U.K. economy faces a "slow" recovery and inflation will probably stay below its target for the next three years as the country struggles to escape the worst recession since the 1980s. Gross domestic product will contract on an annual basis for the rest of this year before growth resumes in 2010, the central bank's quarterly forecasts published yesterday showed. Inflation will slow to as low as 0.4% this year. (Bloomberg)
*****
Japan's current-account surplus narrowed at the slowest pace in six months in March as a decline in exports eased. The surplus shrank 48.8% to 1.486trn yen (US$15.5bn) from a year earlier, the Ministry of Finance said yesterday. Exports fell 46.5% after declining a record 50.4% in February. Imports slid 37.8%, compared with an unprecedented 44.9% drop the previous month. Economists don't expect shipments abroad to resume rising soon given that they have plunged at an unprecedented pace since last year. The International Monetary Fund says the global recession will be deeper and the recovery slower than earlier predicted as financial markets take longer to stabilize. (Bloomberg)
*****
Growth in China' industrial production slowed in April even as the government continued to ramp up stimulus efforts, showing that a rapid recovery in the world' third-largest economy isn' yet ensured. China' industrial output in April rose7.3% y-o-y, the National Bureau of Statistics said yesterday. Although slower than March' 8.3% growth and beneath market expectations for an 8% rise, the April growth rate was still much faster than the 3.8% rise for the January-February period. While the government' stimulus spending and massive expansion of bank lending have helped to boost new investment, China' exports continue to decline sharply. Economists say that with many projects just getting on stream, the stimulus spending is likely to have a bigger impact on industrial demand in months to come. Meanwhile, China' retail sales in April rose 14.8% y-o-y, the National Bureau of Statistics said separately, holding steady with March' 14.7% rise. (WSJ)

3 Best Stocks For 2010 Market

In "70 Times Better Than the Next Microsoft," my colleague Bill Barker revealed which category of best stocks for 2010 outperformed from 1927 to 2005. Given the insane market volatility we've experienced recently, I've updated Bill's numbers through the end of 2008 to see what critical lessons we can draw:

Category	Value	Growth
Large Cap	10.9%	8.9%
Small Cap	13.6%	9.0%

Source: Kenneth French. Categories are based on market capitalizations and price-to-book multiples.

This data comes from highly respected scholars Fama and French, and it has powerful implications for investors.

It shows that over an 81-year period -- hardly an outlier -- best stocks for 2010 outperform growth stocks, and small stocks outperform large stocks. The best-performing category was small-cap value stocks, by a wide margin.

How wide?
Those may look like small percentage differences, but with compounding, those small percentages add up to mind-boggling amounts of money. Here's how much $100 invested in 1927 in each of these categories and rebalanced annually would be worth today:

Category	Value	Growth
Large Cap	$437,860	$97,682
Small Cap	$3,086,003	$103,798

In other words, after 81 years, investing in small-cap best stocks for 2010 would have yielded anywhere from 7 to 31 times as much money as any of the other categories!

A big reason for small-cap value's dramatic outperformance is Wall Street's constant obsession with large, prominent firms -- like today's McDonald's (NYSE: MCD) and Yum! Brands (NYSE: YUM). Both are fantastic operators, but when hunting for bargains, investors should keep in mind that more prominent stocks such as these are far less likely to be mispriced than somewhat obscure small caps like Buffalo Wild Wings (Nasdaq: BWLD).

It's no accident, after all, that every one of the market's 10 best stocks for 2010 of the past decade was a small cap.

And when you combine a group of stocks that tends to be mispriced (small caps) with a group of stocks trading at low valuations (value), you're likely to find some great bargains.

Here's why
When a closely watched company appears cheap, there's often a good reason for it. That's why in a September column, "Don't Touch These 3 Huge Value Traps," I warned investors to stay away from Citigroup (NYSE: C), Lehman Brothers, and Wachovia.

Despite the fact that they were trading at or well below book value, these were closely followed institutions dealing with continuing write-downs, managerial missteps, and deteriorating businesses. With so much interest in their condition from Wall Street hot shots -- each had more than 15 analysts following them -- it seemed likely their share price declines were justified.

That may not be the case for small caps. In fact, research cited in The Wall Street Journal, along with my own findings, show that small caps tend to outperform when the market rebounds.

Why? Because small best stocks for 2010 are less closely followed by professionals, they are more likely to be mispriced. So, when times are tough -- and times have been tough since late 2007 -- that mispricing means that small caps are punished beyond justification.

What to look for today
This isn't to say that small stocks are low-risk. Indeed, if this market has taught us anything, it's that every stock has risk. But the data does indicate that size itself isn't a great measure of safety.

Since this recession began, the small-cap tracking Russell 2000 index has performed basically in line with the S&P 500. And when we examine fallen giants such as Citigroup, Bank of America (NYSE: BAC), JPMorgan's (NYSE: JPM) prey WaMu, and the assets formerly known as Lehman Brothers, we see that risk has less to do with whether a company is large or small, and a whole lot more to do with heavy debt levels, shoddy executive compensation structures, unwieldy and arcane business units, or unprofitability.

In light of these facts, investors should consider buying companies with:

Little or no debt

Heavy insider ownership

High profitability

In fact, these are all qualities that Warren Buffett says he looks for. So, taking the lessons from the Fama and French data, and with a debt of gratitude to Buffett, I've selected three small-cap value stocks (each has below-market-average price-to-book value multiples -- Fama and French's value metric) that share those qualities:

Company	Market Capitalization	Price-to-Book Ratio	Debt/Equity	Insider Ownership	Return on Equity
American Oriental Bioengineering (NYSE: AOB)	$344 million	1.0	37%	21%	15%
Gulfmark Offshore	$724 million	0.8	56%	11%	24%
AgFeed Industries	$155 million	1.1	3%	42%	25%

Data from Capital IQ, a division of Standard & Poor's. Data through April 30, 2009.

Of course, these three bargain stocks aren't official recommendations, but they share many qualities that make for great investments and are excellent starting points for further research. Moreover, they hail from the small-cap value quadrant, the category that has outperformed all.

Some more ideas
Eighty-one years of historical data confirms that small-cap best stocks of 2010 tend to outperform over the long haul. Research also shows that if you're going to be looking for great small-cap stocks, now is a particularly great time to begin bargain-hunting.

Our Motley Fool Hidden Gems team looks exclusively at small caps with limited analyst coverage, little or no debt, and dedicated leadership. With stocks so cheap, they're seeing some incredible bargains today. If you're looking for more ideas, click here to read all about our favorite small cap best stocks for 2010, free for the next 30 days.

Already a Hidden Gems subscriber? Log in here.

Ilan Moscovitz owns shares of Buffalo Wild Wings and AOB, but no small kittens. Buffalo Wild Wings and AOB are Hidden Gems selections and Motley Fool holdings. AOB is also a Global Gains selection. The Fool's disclosure policy is crazy for Pounce!

Deflation Threatens Stock Investors, Economy

If we all agree that inflation is a bad thing, does that make deflation a good thing?

For stock investors and the economy, both inflation and deflation are dangerous conditions.

Inflation is often defined as too much money chasing too few goods and services. The result is rapidly rising prices.

Inflation reduces your purchasing power because each dollar buys less. Wages seldom keep pace with inflation.

Rising prices mean our goods are less competitive in the global market. It also means that global competitors that may not be experiencing inflationary pressures can steal market share.

Jobs Lost

The result is American jobs are lost and some companies may fail.

Deflation is usually defined as ongoing and across the board price reductions.

While this may seem like a good thing for consumers, deflation happens because there are fewer purchasers of goods and services, often because of a recession.

To parallel the definition of inflation, deflation is too many goods and services chasing too few dollars. To capture those few dollars, companies must slash prices.

Many industries operate on fairly thin profit margins, thanks in many cases, to pressure from competitors in the global market.

Reduce Prices

Companies don't have to reduce prices too far before they eliminate any profit and if the trend continues, prices may drop below the cost of producing the product.

Without any way to make up the difference, it doesn't take long for companies to collapse.

This is what happened in the Great Depression. Companies folded because they could not sell products for a profit. As a side note, companies could not borrow money to stay in business because the financial markets collapsed - sound familiar?

Because consumer demand is weakening around the globe, the fear is that overseas markets for goods will disappear.

Stock investors can do little to protect themselves from runaway deflation.

However, short of a complete disaster, companies that produce or sell essentials, such as food, fuel and other non-discretionary products (think toilet paper) offer some harbor during unstable markets.

If you note that interest rates are beginning to rise, that is a good sign that a serious deflation is not considered a problem.

If we all agree that inflation is a bad thing, does that make deflation a good thing?

For stock investors and the economy, both inflation and deflation are dangerous conditions.

Inflation is often defined as too much money chasing too few goods and services. The result is rapidly rising prices.

Inflation reduces your purchasing power because each dollar buys less. Wages seldom keep pace with inflation.

Rising prices mean our goods are less competitive in the global market. It also means that global competitors that may not be experiencing inflationary pressures can steal market share.

Jobs Lost

The result is American jobs are lost and some companies may fail.

Deflation is usually defined as ongoing and across the board price reductions.

While this may seem like a good thing for consumers, deflation happens because there are fewer purchasers of goods and services, often because of a recession.

To parallel the definition of inflation, deflation is too many goods and services chasing too few dollars. To capture those few dollars, companies must slash prices.

Many industries operate on fairly thin profit margins, thanks in many cases, to pressure from competitors in the global market.

Reduce Prices

Companies don't have to reduce prices too far before they eliminate any profit and if the trend continues, prices may drop below the cost of producing the product.

Without any way to make up the difference, it doesn't take long for companies to collapse.

This is what happened in the Great Depression. Companies folded because they could not sell products for a profit. As a side note, companies could not borrow money to stay in business because the financial markets collapsed - sound familiar?

Because consumer demand is weakening around the globe, the fear is that overseas markets for goods will disappear.

Stock investors can do little to protect themselves from runaway deflation.

However, short of a complete disaster, companies that produce or sell essentials, such as food, fuel and other non-discretionary products (think toilet paper) offer some harbor during unstable markets.

If you note that interest rates are beginning to rise, that is a good sign that a serious deflation is not considered a problem.

Local Stocks are defying the Gravity, once again

There're reasons why the stock markets are such an interesting place and always compared to casinos. If you've been into casinos the view of gamblers shouting on top of their voice as if they were possessed by ghosts is common. Middle-age women could sit for hours playing slot machines and sometimes you wonder how on earth they managed the extraordinary stamina. All these people were so excited and enthusiastic for a single reason � to win. No wonder you can see the same behavior on the trading floor or rather the stock exchange gallery. The only difference is while you can curse the stocks from opening till the closing bell and return the next day fresh to do the cursing all over again, the same cannot be said about gambling at casino tables. You either win or lose your shirt there and then in the casino. That's why you have terms such as long-term, middle-term and short-tem investment when you're talking about stock investing.

Just like casinos, the current "rally" seems to be the main focus in the stock markets. Unlike casinos where the "house" or the owner can decide if you win or lose, the stock market is a different animal. No doubt there're market-makers but it's more efficient in the sense that these market-makers actually compete amongst themselves as well. In the process, the market sentiment determines whether the buys or sells win the day � the investors or speculators determine the direction of the stock market. As of now people are too tired with all the negative news so much so that when there's a single news that somehow is "not too bad", it would send the stock market up the roof. Make no mistake about it because the global recession is still intact. People are just finding excuse to buy especially in the country where short-selling is prohibited.

Investors and speculators are also "betting" that economic recovery could happen on the second half of the year. Although there's no concreate proof that this will happen, people just couldn't resists the temptation to buy not wanting to miss the boat. Call them "kiasu" or whatever but the urge to buy believing that they're surfing on top of the recovery wave was simply too strong. It actually doesn't matter if they're long-term investors (they would like to think of themselves as another Warren Buffett who invest long-term) because even if the Dow Jones were to plunge another 2,000-points later, they still can claim victory because they're long-term investor and someday their stocks will appreciate when the real bull comes charging (not sure when though). But this is only true for stock market that continues to register new high during the bullish time (such as U.S. stocks). What about stock market that does not have such historical movement?

The move by Malaysian government to remove the 30% bumiputra equity policy from 27 sub-sectors is laudable. Give credit where it's due. The ridiculous 30% bumiputra equity has been the stumbling block in the foreign investors' decision to invest in a big-way. It's not that difficult to guess why the new Najib's administration decided to do away with this spooky policy � it's the hot money from foreign investors they're hunting. However foreign investors were not born yesterday so it would be naive to assume the foreign hot money will start flowing in immediately after the bias policy was removed. If this is true then from where the so-called "hot money" did comes from? Looking at how the KLSE defied gravity and jumped regardless of Dow Jones' performance brings back the old memory.

It's nice to see how KLSE did it again. The only logic explanation on current bullish stock market performance is due to heavy buying by local government-linked funds. It seems the billions of dollars of stimulus package is doing its' magic. During the 1997-1998 Asia Economic Crisis, Mahathir did used billions of dollars trying to support local stocks especially the blue chips but the harder he tried to support the greater the selling pressure kicked in. The former premier sensed he couldn't fight the force of selling hence he gave up and started calling George Soros moron and all sorts of thing. Fortunately for Najib the foreign investors's portfolio now is negligible and could do very little damage. Najib should have little problem pushing up the index to lure the second and third liners fans into the local stock market hence multiply the daily volume and declare the bull is charging. You decide for youself if it's the bear rally now or otherwise.

Moving forward if Najib's administration can convince the investors, both foreign and local, that the "true liberalization" is here to stay even if the extremist groups threaten to call him PM Najib-Altantuya if he doesn't back off, the bull might be able to start charging once again � provided the Dow Jones doesn't plunge back to below 7,000-points.

BEST STOCKS:Technical Review 11th May 2009

 

We all have to take risk everyday we live, like it or not. Even going to work is a risk, but it is a risk that we have to take. We drive our car, motorcycle, take public transport, walk, etc. All of them have risk.

Let say you are driving on the PLUS highway. The speed limit is 110km/h. If you drive at or below the speed limit, say at 90 km/h, it is possible for you to get into an accident? Of course you can! Even though you are driving at safe speed, it is still possible. If you drive at 200 km/h, can you get to where you want to be? Of course you can! Provided you don't get into an accident.

The difference here is that at 90 km/h, it is more likely that unfortunately accident happen to you but at 200 km/h, you're the one who went looking for the accident. In stock market words, if you want to buy now, I would say you are driving at 200km/h. The risk is high but you still might get away with it. Obviously the question here is whether you want to take such risk?

Recently I was asked why I gave the warning last week, when it was rather obvious that market strength was still good. After giving my views for few years, I remember being commented for getting the direction correct but sometimes, it was too late. Most of you could hardly do anything. Like in March last year before the election (which was 2 weeks before the election), I was very concern that market was prone to a major correction. By the time it happened there was nothing much you could do.

Still, do not get too concerned with what I said above. The risk of entering market right now is a major correction, not market collapse. This is not the same thing to what happened March last year. I see more upside to market but only after market corrects. The way market is behaving right now is eerily similar to previous behavior, where market can continue to go up until Thursday but Friday and the next day might cancel all the gains that it had in the last 1 week.

Right now I do not know how long this stretch of gains will continue, but I will know when it happens and so will you. Experience will also tell you that when that happens, you could hardly do anything by then. However, I do have the feeling that if KLCI goes straight to 1050-1100 by end of this month, it would not be a good sign. I'm still not sure why so let us see how market goes first.

Stocks still face deflationary collapse: Prechter

NEW YORK: Longtime technical analyst Robert Prechter, who forecast the 1987 stock market crash, predicted this week that U.S. equities may plunge to half their lows hit in March as a deflationary depression bites, according to Reuters.

Oil and U.S. Treasury bonds are also locked in long term bear markets, while corporate bond prices will plunge precipitously by next year as broad economy, banking system and company earnings sustain more damage from a financial crisis that's akin to the Great Depression, he said.
The U.S. S&P 500 stock index's rebound by nearly 40 percent since it sagged to a 12-year closing low of 676 points on March 9 is not sustainable, Prechter said in an interview with Reuters on May 14.

"It's not the start of a new bull market," said Prechter, chief executive at research company Elliott Wave International in Gainesville, Georgia. "Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932," he told Reuters in a wide ranging interview. "It's a very rare event," he added.

"I think the next leg down will be at least as severe if not more severe than what we just experienced. So you want to stay on the side of safety," he said.

As in his 2002 book "Conquer the Crash," which warned of the dangers of a U.S. debt bubble and deflationary depression, Prechter continues to advocate safer cash proxies such as Treasury bills.

Riskier assets such as commodities, corporate bonds, and stocks which are currently anticipating that the severe global economic downturn may be bottoming, are likely to have short lived intense rallies, but within an inexorable long-term decline that may last another seven years, he said.

As banks continue to accumulate losses and corporate earnings fall, "the difficulties will probably last through about 2016," he said. "There will be plenty of rallies along the way."

Oil may rally further from current levels just below US$60 per barrel but the upside will be capped at about US$80 per barrel as the commodity is locked in a long-term bear market, he said.

In July, U.S. crude oil hit a record peak above US$147 per barrel and was just above US$57 per barrel around noon on May14.

"Deflation is coming, it's going to lead to a depression. We're not at the bottom yet," Prechter said. "I think we are going to have bouts of deflation separated by recoveries."

Prechter also painted a bleak picture for commodities like silver and is largely unenthusiastic about gold, believing the precious metal made a major peak when it rose above US$1,000 last year.

While gold may have already topped at above US$1,000 an ounce in March 2008, Treasury bond prices are likely to fall in a long term bear market, with huge government debt issuance being the main catalyst.

The benchmark U.S. 10-year Treasury note yield, which moves inversely to its price, hit a five-decade low of 2.04 percent in mid-December.

"People got very enamored with bonds and very enamored with gold and I don't like to be invested in markets that are over subscribed," Prechter said.

"The Treasury (Department) has taken on so much bad debt" at a time tax receipts are falling, that "there will be a slow, but very steady change in the way people will view the U.S. government," said Prechter. As a result, investors in Treasury notes and bonds will ultimately demand higher yields, he said.

The U.S. central bank will not be able to control the government bond market and prevent yields from rising, regardless of how much money the Fed uses to buy Treasuries, he added.

Next year, U.S. corporate bond prices will probably fall below their extreme price lows of December during the market panic of 2008 when investors fled riskier assets, he said.

"Corporates in terms of price have the big wave down coming. This has been a prequel," Prechter said.

"Many corporations who (now) say we can borrow more money and take more risks: those are the ones who will get in trouble," he said. "Many municipalities will default," he added. - Reuters

Gains In This Stocks Market

2009 isn't shaping up to be a great year for hot stocks thus far. Though it's only March, the S&P has already shed 13%, and small-cap indexes, like the Russell 2000 are faring even worse on the year.

But that doesn't mean that there aren't gains to be found even in this shaky market. It's not always clear how to pick a winner, so let's take a look at what's been working. Over at the Penny Sleuth's big brother, Penny Stock Fortunes, subscribers already booked 2009 gains for two stocks that averaged 27% � Soapstone Networks (SOAP: NASDAQ) and CarMax (KMX: NYSE).

Generating new stock names can be a tough process. After all, it's not every day that you hear about a new small-cap that's doing great things. You have to be proactive in your search for tickers.

In the case of Soapstone, which returned 16% in just a few months, the best stock screen was what put the company on our radar. The screen told us that qualitative factors looked good � the balance sheet was strong, there was plenty of cash to ride out the recession, and the income statement showed signs of growth.

But knowing the financial numbers is only half the battle…the qualitative side of Soapstone was just as essential. The company was just coming out with a proprietary networking product, the Provider Network Controller (PNC), that could turn out to be huge for their business. While the success of the PNC was a risk, the company had already demonstrated industry demand and the PNC technology had already won innovation awards from some of the biggest publications in the field.

We bought Soapstone at $2.15, and sold the stock at $2.50 � a 16% gain. For CarMax, the investment process was a bit different. The company probably isn't your idea of a small-cap, and until recently it wasn't ours either. But that all changed in the last year as scores of powerhouse companies fell into small-cap territory at the heels of a rough and tumble stock market.

CarMax was a company we were already familiar with; it's a household name after all. The industry leading used-car superstores are known for their no-haggle prices and 125-point inspections. But what investors should have known was that credit crunched car-buyers would be flocking to CarMax over new car dealers as the economy worsened.

Sure enough, investors oversold the best stock investment when they announced a narrow loss � that's when we took our position in the otherwise financially fit auto retailer. We bought into CarMax at $7.36 and sold at $10.16 just 44 days later for a 38.04% profit.

The big takeaway from all this is that timing is everything in this market. While our investment strategy is normally a long-term buy and hold approach, the volatility and investor fear that's saturating the market is making that method difficult to swallow.

Be prepared to invest in solid, financially fit companies, and push the sell button if the stock jumps more than it should. Both of the top stocks we sold this year fit that mold, and both made us double-digit gains in a losing market.

BEST STOCKS - Investment Management Strategy From Legend In Current Downturn

Interview of legendary investor Warren Buffett. Article published on Valueresearchonline from Dhirendra Kumar, editor of site. This intrview outlines Buffett's thought process and his stron beliefs on long term investment strategy.

A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett's company Berkshire Hathaway. Buffet said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from.

It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer.

At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer's thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time, the idea of an investor talking in years seemed to have thrown a spanner in her works.

Checkout: Warren Buffet - Top Secrets of His Success In Value Investing

Next, she pulled out the day's newspaper and drew the old man's attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.

However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn't really worried about the future.
There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing 'process'. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for. Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic—real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times.

Far from being impractical, Buffett's success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.

 

Investors more confident with better sentiment

PETALING JAYA: The recent upswing in the stock market shows that confidence has improved for both local and foreign investors, according to Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff.

He said the confidence was due to some encouraging stimulants such as the liberalisation of the local financial sector as well as signs of stability in the US markets.

"The current market condition offers a good opportunity for investors to invest in fundamentally good stocks with attractive valuations," he said in an email reply to StarBiz.

Some fund managers contacted confirmed that they had been bargain hunting while there were others who had taken the opportunity to trim down their holdings.

Teoh Kok Lin, managing director of Singular Asset Management Sdn Bhd, said the fund management company was bargain hunting, particularly in the Chinese and Indonesian markets, given the attractive valuations.

"In Asia, the banking and financial system is healthy, plus Asian policy-makers are making good moves in lowering interest rates and increasing fiscal spending to revive their respective economy," he said.

Kumpulan Sentiase Cemerlang Sdn Bhd had also increased its weightings in the market due to the improved market sentiment, said fund manager Choong Khuat Hock.

"There are signs that the economy is bottoming although there is no clear sign yet of a recovery," he said.

Fortress Capital Asset Management (M) Sdn Bhd, meanwhile, indicated that it had reduced holdings in certain stocks given that valuations had become expensive due to the rally.

"We've started to trim down positions this week as some of the stocks in the portfolio, including offshore investments, have risen sharply. We think first-quarter results would not show recovery yet and there might be some profit-taking," said chief executive officer Thomas Yong.

While sentiment has improved significantly, financial performance in the first-half year is unlikely to be outperform. "People can tell that we've seen the worst and, even if we haven't recovered in the second half, we can still stomach it," Yong said.

Sellers were lacking at the current market levels, making it unattractive with blue chips seen as expensive compared with regional heavyweights, he said, adding: "The Malaysian market is likely to be flattish for a while and if it's stuck at present levels, the smaller-cap stocks might see some activities," Yong said.

Aberdeen Asset Management managing director Gerald Ambrose said the current market conditions were not one "to chase stocks."

"It's difficult to say where the market direction is as a lot of events can change sentiment quite quickly. We were doing more topping up and until recently top slice some stocks. We tend to be conservative," he said.

Nonetheless, there were still high-quality companies worth looking at and Aberdeen was watching the stocks' performance, Ambrose added.
Our Top Stock-Market Signal Says "Buy"

Get ready. Our top stock market signal is just about to flash a "buy."


And this is big news because going back to the 1920s, this signal's track record is fantastic...

In fact, the last time this signal flashed was December 2007. Back then it said "GET OUT OF STOCKS." It hasn't wavered since... The signal has stood its ground, saying "stay out of stocks," since 2007. Don't you wish you had paid attention to it?

Here's the secret to the market-beating success of this signal: It has a history of keeping you out of the big downturns in stock prices. The signal captures most of the uptrend as well.

Let me share this signal's incredible track record. Our "baseline" is the overall stock market � the S&P 500 Index. This index has compounded at 5% a year since 1926, not including dividends. (Yes, it's true... Most people think the stock market has done better than that. But the recent bear market reduced the historical return.)

When the signal said "be in stocks" � two-thirds of the time � stocks rose at a compound rate of 11% per year (again, not including dividends).

The other third of the time, when the signal said "be OUT of stocks," stocks actually compounded at a negative 6% per year.

This incredibly simple idea comes down to one question: Are stocks above or below their recent average prices?

If stocks are above their recent average, then you want to own them. If they're below it, then you don't want to own them.

When the S&P 500 Index is above its 45-week moving average, stocks compound at an astounding 11% annual rate. And when stocks are below it, they lose money at 6% per year.

Here's a simple graph showing how much money you'd have made since the beginning of 2000 following this system, versus the index. We own stocks above the moving average and move to cash earning 3% (just to keep the math easy) when stocks are below the moving average.

The blue line is the money in our little "system." You're in cash when the blue line goes "straight." The black line is your money if you just held the market (not including dividends).

You can see a few things right away...

The first is, you did significantly better than buy and hold. Most importantly, you cut your losses in the two big falls � the one from 2000 to 2003 and the one from 2007 to today.

With results like these, why doesn't everyone simply own stocks when they're above the line?

Before I go on... there is one small issue here that can eat into your returns... something called "whipsaws." That's when the market crosses over the line one week and then crosses back the next week. The argument goes that the transaction costs associated with jumping in and out on these false signals would eat up your excess gains.

This worry has merit, but you can nearly get rid of whipsaws quite easily by increasing the threshold it takes to get into a trade. When you raise the threshold to enter the trade to 2% above the moving average, you cut the whipsaws down by over 80%.

And even though you've made it tougher to get into a trade, the amazing part is, you don't affect your results much. In this example, not only would you have ended up with more money, but you'd have had far fewer transactions, meaning lower costs.

You might disagree with this system. You might say it's too simple or dumb. But it's worked darn well over the last 80 years... and over the last decade.

And right now, this signal is about to say "buy" � because the old high data points are about to drop out of the 45-week average, and low ones will replace them.

Remember, when it says "buy" stocks rise at 11%+ a year... Ignore it at your own risk.

Profitable Growth,Sustainable Growth

Good growth has to be not only profitable but capital-efficient - that is, it needs to earn a return on its investment greater than the company could have received by putting its money in something ultra-safe, such as a Treasury bill. Colgate-Palmolive's growth is definitely profitable.



For more than a decade, Colgate has been on a sustained march to becoming number one in the oral-care consumer-products market, and, as mentioned, has edged out both Procter & Gamble and Unilever. As important as its growth in revenues has been Colgate's steady improvement in profitability. Its gross margin has increased from 39% in 1984 to close to 60% in 2003, an improvement of almost one point per year.



Gross margin - your revenue less what it costs to make the product to obtain those revenues - is an important indicator of a company's profitability and often not given the due it deserves. Increasing gross margin and at the same time growing revenues at a rate better than the overall market is what makes for a great growth company. It is here that you can directly see the relationship between improved productivity and profitable growth. Colgate for more than a decade has been able to find ways to consistently enhance its competitive position by making its operations more productive and streamlining its processes.

The improvement of Colgate's gross margin also reflects its ability to innovate ahead of its two chief competitors. Colgate has created a corporate "growth group" with two major responsibilities.

1. The first is to be continuously focused on developing new products, extending existing products, and improving packaging.
   
2. The second, equally important, job is to concentrate on logistic, production, delivery, and speed and responsiveness to retailers through the effective use of data warehousing, information technology, and cost productivity.

Again, it is an example of a top company recognizing that it must simultaneously improve productivity costs and grow.



Both processes resulted in Colgate's winning shelf space. It also meant lowering costs not only for Colgate but for retailers as well. Colgate reduced what it cost retailers to stock and sell its products while increasing retailers' inventory turns of Colgate products, thereby reducing the retailers' cost.



Colgate grew and grew more profitably than the competition, despite the huge lead that Procter & Gamble and Unilever had at the beginning of the race. It did so by continually focusing on the core business and findinng ways to make it better. It emphasized "singles and doubles." Colgate obsessed about what was happening to its brands in each retail outlet, focused on :

• the needs of retailers,
  
• created consumer awareness,
  
• continued to improve its products, and
  
• persuaded the consumer to prefer its products.

The growth path that Colgate chose has been good for shareholders and employees. The company's rapid growth has allowed it to attract the best managers in the industry - managers who are committed to growth.

 

 

Sustainable Growth

Sustainable Growth
Good growth continues over time. It has a sustainable trajectory. You are NOT looking for a quick spike upward in revenues, caused by cutting prices or by throwing substantial resources against a one-shot opportunity. The goal is to have the growth continue year after year.



For example, the growth of Southwest Airlines has been based on a consitent set of actions. New routes are carefully vetted - the goal is to have them be profitable in less than a year - and turnaround times (the period from when a plane pulls into a gate until it pushes back on another flight) are substantially faster than the industry average, allowing Southwest planes to fly more trips a day than its competitors.



If you look at one of the suppliers to the airline industry, you can see another example of sustainable growth. In this case, the move toward sustainability was prompted out of necessity.



When the airline industry declined in the early 1990s, it led to a decerease in the revenues of firms that sold aircraft engines. GE Aircraft Engines redefined the needs of its airline customers to include not just the engines themselves but also servicing them on a regular basis. Up to that point, a major airline would use the service shop of one company in, say, Chicago and that of completely different companies in its other locations around the world. Some also did the service themselves in their own shops.



GE's new value proposition was to provide total service around the globe. Through innovation, use of information technology, and managerial ability to provide better maintenance, the result would be less downtime for the airlines and lower costs.



For example, doing a major overhaul on its own might have required an airline to fly its plane back empty to its service facility. With service operations around the world, GE can do the work wherever a plane is, which gets the plane back in the air, generating revenues sooner. And because it specialises, GE can do the necessary service work faster, increasing productivity for the airlines once again. Scores of airlines took advantage of the chance to outsource the maintenance part of their business to a single supplier.



Before its chief competitor, Pratt & Whitney, woke up, GE Aircraft Engines captured 70% of the airplane-service market. And, of course, the service contracts tied customers more closely to GE, giving it a leg up in selling the core product -engines - and developing a sustained trajectory of growth by having a built-in-revenue stream, the money that comes in month in and month out from the service contracts.



In this case, the "single" and "double" of adding a service coponent to a product created a platform that is a home run in terms of a sustained, decades-long trajectory of growth. The recurring revenues from the service work are extremely reliable. Not only has GE Aircraft Engines otgrown the competition - its model of adding service to products became a best practice for other GE businesses, which are now adding high-margin service work into their product mix.



It is also an example of building both scale and scope and then learning how to leverage for growth. GE Aircraft's number-one position in the marketplace, combined with organic growth and simultaneous productivity, gave it the leverage to make acquisitions in the service area.



But the only way this growth is going to occur is if everyone in the organization believes it to be possible. It is up to the organization's leadership to create the right mind-set.

Miserable Rich Pick Top Stocks 2010 For You

Not one person in 100 has the guts to do what I'm about to show you.

And I don't want you to do it either.

Not if…

You're going to feel guilty driving a better car… living in a bigger house… or thinking the champagne your friends serve tastes like swill…

Don't do this if you have any hang-ups about money or being wealthy.

Because if that's the case, this ain't the letter for you.

Don't do this, either, if you don't have guts. Or you don't like hitting home runs. Or you don't have an intense, overwhelming desire to pile up riches.

In short… this letter isn't for wimps.

In fact, it isn't for the mainstream in any way at all.

I want only a few people. A handful. And only the right ones.

Everyone else, for all I care, can take a flying leap.

Still with me? Good.

Because that's exactly what I guessed about you… which is why I'm writing you in the first place. 

See, on the surface the markets might look crazy. But look deeper. 

We stand at a turning point in market history. We're looking at what could be the golden opportunity of a generation. Maybe several generations. 

Quite possibly, the best and biggest opportunity to get rich this century.

And all you have to do is take one simple action. If you think you can handle it.

Last Time, This Move Paid Out 15,090% in Less Than Two Years

The last time anyone did what I'm about to show you, players working the move saw a 15,090% gain in less than two years. 

Just before that, the same move paid out over 13,025%… in 22 months.

It could easily do as well… or better… today.

But I want to make this very clear: To accept this invitation… you want to make absolutely sure your mind is ready to accept the recommendation I'll make on Friday, May 29.

You have the steel to handle a little criticism. Or maybe a lot. Become a player in this market and the people closest to you might think you're out of your mind.

Your wife will try to talk you out of it. 

But if this pays off… she'll thank you for the new diamond necklace you can buy with a tiny fraction of your profits.

Your friends won't understand even if you explain it ten times. 

But if this pays off… they'll be hitting you up for loans. 

Can't handle that? Might have to get new friends.

And your new friends might not be up to your new standards. 

Their champagne? Not good enough, compared to yours. 

Their private jets? Not fast enough, compared to yours. 

The mountain air at their retreats? Not sweet enough, compared to yours. 

That's how you'd be "Miserable Rich."

Think you're up for that? Great. But the players who do this right? They have more than this steel I just described.

You also have the stomach to sit on a paper loss. Here's how this works. It's very simple. All you have to do is follow through on some basic recommendations I'm going to email to you at 5 PM EDT on Friday, May 29. 

You place a phone call the following Monday if you want to execute the recommendations.

Fair warning. Some of these positions, you might see them fall 50, 60, even 70%. 

That's when you should want them more.

Sounds crazy, I know. But that's what successful players in this market do. In fact, you'll actually start to look forward to the times when these positions pull back.

It just means you have a chance to pick up more bargains. It's like a gift from the market gods. It could put you in an even better spot if it all pays off.

By now, I think you get the idea:

No Wimps Need Apply 

See, this invitation isn't for conservative investors. But it's not for traders or speculators, either. 

This is for a tiny minority willing to learn about one simple action that � if you have the guts and the patience � could leave you set for life.

Before I reveal the secret, let me make sure you don't get the wrong idea. Let me tell you what I'm not inviting you to do.

See, I'm not just inviting you to subscribe to an investment newsletter.

This isn't only about monthly stock picks.

This is all about an adventure.

And if I'm right… and you get "Miserable Rich"… you won't need another stock pick ever again.

I'm going to issue eight recommendations at 5 PM EDT on Friday, May 29. You can decide whether to follow each one, and then call a broker on Monday the 1st.

Then sit on them until you get a moon shot. I'll make a few adjustments now and then, and I will never leave you in the dark. 

But because you have the guts and patience to be a player in this market, you'll accept that at least half of the positions we take will go nowhere, or maybe go to zero. Most of the rest? They could deliver triple-digit gains. 

And one of them could make you "Miserable Rich."

I'm not inviting you to join a trading service. 

This isn't about weekly options picks. I won't flood your inbox with more recommendations than you have time to play. You won't have to keep a window open on your computer all day to track your positions.

When I issue these eight recommendations at 5 PM EDT on Friday, May 29, all you need to do if you want in is call a broker the following Monday and carry out my recommendations.

It's that simple. A half-hour of easy reading once I send you the report, and a 15-minute phone call to a broker. No special accounts to set up, no special skills needed.

And then you wait. We might be waiting six months, we might be waiting a year, two years, three years. I don't know.

See, players in this market don't trade in and out. "Buy and hold" might be a killer in the conventional stock market these days. But in the sector I'm talking about, it's the only way to get "Miserable Rich."

I'm not inviting you to buy a "program." 

This isn't some sort of "system" or "course."

You won't get a three-ring binder filled with hundreds of pages of gibberish that are supposed to show you the way to riches… if you can follow instructions so obscure they'd confuse a nuclear physicist.

Players in this market keep it simple.

There's going to be one simple set of recommendations that arrives in your email inbox at 5 PM EDT on Friday, May 29. Just follow those recommendations and you're good to go. 

So there you go. I'm not pitching you a trading service or a "system." 

And again, this isn't about investing, or trading, or speculating. 

This is about having a chance to transform your life, your existence, your wealth � beyond your wildest dreams.

OK, enough about you. By now you're probably wondering who the hell I am. Or actually, who am I to be talking like this?

How Real People Get "Miserable Rich" � And You Can Too

My name is Byron King.

You probably already know me from my monthly research advisory Outstanding Investments. It's been named the #1 performing newsletter over a five-year period by Hulbert Financial Digest in 2005, 2006, and 2007.

So chances are you already know about my background as an oilfield geologist, Navy pilot, lawyer, and armchair historian.

But you might not know this. From an early age, I've been fascinated by people who got "Miserable Rich."

Growing up in Pittsburgh, you can't help it. School kids learn all about the legendary fortunes that got their start there. Carnegie with steel. Frick with coal.  The Mellons with banking, and later, aluminum, oil, and other hard assets.

That was America's golden era of industrial growth.

And beneath it all lay a foundation of hard money. 

Gold and silver.

Of course, school kids don't learn about that part.

But still… I knew instinctively there's only a handful of ways to build real wealth.  You grow it. You mine it. Or you manufacture it.

That's a big reason I chose geology for my major when I went off to Harvard. I wanted to study the science of pulling scarce resources out of the ground. And I filled out my course load with economics classes.

It was the 1970s. President Nixon had cut the dollar's last remaining tie to gold.  It set off a decade of inflation that crippled the U.S. economy. It was also a decade of rapidly-rising gold prices.

The econ professors at Harvard all thought Nixon did the right thing. Gold was a "barbarous relic," they said.

That didn't quite make sense to me. Gold was part of the human economy for 5,000 years or more. What's so different now?

And it made even less sense when I went on to law school. I studied old cases like the ones that came up after President Franklin Roosevelt seized the gold of U.S. citizens in 1933.

Mind you, by 1980 I saw gold making a run past $800 an ounce.

That was amazing enough. The performance of tiny gold miners was even more stunning.

Players in that wild and wooly market got "Miserable Rich."

13,025% in Just 22 Months!

A little company called Copper Lake Exploration made a moon shot. A breathtaking 13,025% in just 22 months.

$10,000 could have become $1,302,500. That's the sort of play that makes you "Miserable Rich."

You know what happened next. After 1980, gold sank into a 20-year bear market. 

But gold never left my mind. I kept on watching and reading and talking with people in the know.

I served in the Navy in the 1980s and stayed in the Naval Reserve during the 1990s. And I made frequent trips to the Persian Gulf region. Bahrain, Qatar, Kuwait. Huge new fortunes were being built on a foundation of oil wealth. I mean, entire cities built from scratch. Sort of like Pittsburgh back in the good old days.

And here's what else struck me about Middle Eastern cultures. People there are hyper-focused on gold. Have been for thousands of years.

Women throughout the region wear gold jewelry. Gold markets called souks are a common sight.

And every time I went over there, I brought home a little gold. I knew that gold wouldn't stay stuck in a bear market forever.

Besides, even in those years, a handful of players still made huge gains from tiny top gold stocks for 2010. Like one called Arequipa Resources. It blasted up 2,600% in a year before it was bought out.

$10,000 could have become $260,000. That's the sort of play that makes you "Miserable Rich."

Soon, the 1990s passed into the 2000s.  And I started reading The Daily Reckoning � Bill Bonner's daily e-letter.

What drew me in? I thought he was right on with his "Trade of the Decade." Sell top stocks of 2009, buy gold.

You have to remember how gutsy that was at the time. No wonder when I got the chance to join the industry-leading analysts of Agora Financial, I leapt at it.

Bill's call was dead right. Gold zoomed up from $252 in 2001 to more than $900 today.

And that whole time, readers of my monthly research advisory Outstanding Investments racked up even more impressive gains in precious metals top stocks to buy.

A phenomenal track record, right? There's just one little problem.

Of course, gains like these are terrific. But they won't make you "Miserable Rich."

You want to be "Miserable Rich?" Then you have to get into the "junior" gold companies. 

These are the up-and-coming outfits. They explore for gold deposits. Build mines from scratch. Bring new mines into production.

Like Copper Lake Exploration in 1978. Or Arequipa Resources in 1996.

15,900% Gains in Less Than Two Years!

Here's the hitch. Companies with that potential that are tiny. Microcaps, really.  So small, I won't dare recommend them.

Not to the readers of Outstanding Investments. Imagine tens of thousands of them piling into such tiny stocks. That would artificially jack up the prices. Then they'd come crashing back to earth. Not good. Terrible, actually!

In fact, a typical gold stock I recommend in Outstanding Investments has a market cap 447 times the kind of juniors I'm talking about.

Now, that bigger stock is already up nearly 100% since I recommended it. If the "big boys" can do that well, imagine what these tiny juniors could do.

So there I was in 2006. Aurelian Resources made the biggest gold discovery in decades. Players in the junior market rode it from 25 cents a share… to over 40 dollars.

And my hands were tied.

But still, you see the potential…

$10,000 could have become $1,590,000. That's the sort of play that makes you "Miserable Rich."

And there are so many other examples I could cite…

But I wanted to do something to give people like you the opportunity to become a player in this market. To give you a chance of getting "Miserable Rich" off the next Aurelian.

Now… after nearly two years of research, I've hit on the solution.

It's a one-time opportunity. Something I've never done before. And that's why I'm writing you today about the recommendations I'm going to send you on Friday, May 29… if you have the courage.

Because as I said before, this could be the golden opportunity of a generation.  Or several generations. Or a lifetime. Yours to seize now and become "Miserable Rich."

So listen up and listen good. Because this isn't just your chance for me to make you boatloads of money. I'm talking whole cargo ships full of money. Now's the time. I mean, right now, this instant.

We get started at 5 PM EDT on Friday, May 29.

Mark Your Calendar � 5 PM EDT, Friday, May 29

At that moment, I will release a special report. It's called Set for Life: Eight Keys to Getting "Miserable Rich" with Gold.

It will contain eight "junior" mining picks. These are the small-cap, even microcap, companies that explore for gold and develop mines before they're ready for production.

That was the story of Copper Lake Exploration, which leaped 13,025% in 22 months. And Aurelian Resources � up 15,900% in 2006-07.

Look back across the decades: A development or exploration company that hits the big-time can return you 15 to 20 times more than holding bullion.

Today, many of these companies are cheap as dirt after the beating certain gold stocks took in 2008. Many have already had those 50, 60, and 70 percent drops I told you about. That means they're more than ready for a moon shot.

Now you can grab 300 shares of all of them for less than $10,000.

You can be a master in this market � you can give yourself a shot at becoming "Miserable Rich" � for an insanely low admission price.

And you can get started at 5 PM EDT on Friday, May 29.

That timing gets you into the junior gold market at a historic turning point. 

But why Friday at 5PM? You see, I have to wait till the market closes to issue these recommendations. But I also want to give you as much time as possible before the next opening bell to act on these opportunities so you can have a chance to get "Miserable Rich."

Once you do, you can pull the trigger with a broker before the market opens on Monday the 1st.

But fair warning. I've said it before: At least half of these will probably go nowhere. But the rest could deliver triple-digit gains that could more than cover whatever losses you have from the turkeys.

And one of them could make you "Miserable Rich."

I don't know which one that's going to be. If I did, I'd recommend only that one. 

But let me tell you about one of the most likely candidates. After you see what this company's up to, I bet you'll agree.

This Guy Built the World's Most Profitable Gold Miner From Scratch… and He's About to Do It Again!

Let me tell you about a guy who got "Miserable Rich" in the gold business.

He started rebuilding a struggling junior gold miner in 1993. It was worth about $50 million.

Today it's worth $8 billion. It's one of the world's top three producers.

A $1.62 share price became $51.06. An eye-popping gain of 3,052%.

And a compounded annual growth rate of 32%. An average 32% a year � year after year.

So he turned a lot of heads a few years ago. He up and left this powerhouse he built.… and took over a struggling junior miner few people ever heard of.

"What, is he crazy?" people asked. "Does he think he can do it all over again?"

Yes, he does. And I think he's going to pull it off.

His company's now sitting on a patch of desert that could yield one of the Western Hemisphere's biggest gold finds. It could rival a famous gold field nearby that's home to 180 million ounces.

And don't get the idea this company is some sort of post-retirement playground for this guy. He owns 23% of the firm. He means business. He wants to get "Miserable, MISERABLE Rich!"

And, he's already made many insightful investors "Miserable Rich."

If you missed out the first time, here's your second chance.

You can learn the name of this company in the special report, Set for Life: Eight Keys to Getting "Miserable Rich" with Gold. I release it at 5 PM EDT on Friday, May 29. You can secure access to your copy right now. I'll tell you how at the end of this letter.

Right now, let me tell you about another junior with ridiculous "Miserable Rich" potential that you'll find in that report.

Buy This Stock and Make Up to 20 Times Your Money

In May of 2008, this company hit the jackpot. I mean, serious "Miserable Rich" potential.

Only no one outside the company realized it at the time.

Word's just now starting to get out. So let me explain before it becomes common knowledge. 

This company found a deposit of 4.5 million ounces of gold.

At $900 an ounce, that's $4 billion of gold!

Say it costs $450 to get the gold out of the ground. That's $2 billion in profit.

Compare that to the market cap of this tiny dynamo. Less than $100 million.

We're talking a company that could go from $100 million to $2 billion in the next three years � a 20-bagger!

What's the catch, you ask?

None. In fact, the upside could be even bigger. This deposit lies a half-hour drive away from the marquee project of a major gold producer. 

So there's probably a lot more gold still to be found. Drilling results indicate this company is sitting on five other deposits nearby that could have even more gold than the one already discovered.

So a 20-bagger could be just the beginning.

The details are yours in the special report.

It's also where you'll find the skinny on this potential 50-bagger.

This Guy Made Millions on Gold in the 70s. Now He's Following a Gold Strategy Proven to Turn Every $1 into $50

Here's the story of another guy who got "Miserable Rich" in the gold business.  Only he did it during gold's big run-up in the 1970s. When gold was $150, he was predicting $900. 

The day after gold hit its $850 high in January 1980, he sold his position. His profit? More than $15 million.

Then he got out. He said the gold bull market was over.

Of course, he was right.

Most guys of his generation are retired or dead now. Not this one. 

In fact, he's on the verge of his biggest triumph yet.

He got back into gold at just the right time. In 2001, when gold was near its bear-market lows of $252, he told Forbes it was going to $440. And he's ridden it higher ever since.

So what's he doing now?

He's running a tiny company sitting on huge chunks of land in the Southern Hemisphere proven to be swimming with gold deposits. Geologists have turned up 40 million ounces in the region over the last 15 years.

And he doesn't plan to develop any of it.

What?! Is he crazy?

Yeah, like a fox. See, his strategy is to farm out the hard work to other companies. They're the ones who'll develop the sites and bring them into production.

And his little firm? No equipment expenses, no vast payroll to meet. Just sit back and collect a healthy cut of the profits. Royalties.

That's exactly the strategy a gold company called Franco-Nevada used earlier this decade. It popped from a few bucks a share to $180. Early investors made 50 times their money.

Don't miss out on this veteran gold guru's last and greatest act. Get the details in the special report, Set for Life: Eight Keys to Getting "Miserable Rich" with Gold. You can secure your copy right now… that way I can send it to your email inbox at exactly 5 PM EDT on Friday, May 29.

Inside your special report, you'll also learn about these fantastic opportunities…

• These guys did the 14 years of hard work. You could collect the payoff.

• This company fought one obstacle after another for 14 long years to open a gold mine in one of the most promising locations in the Americas. The first gold and silver came out of the ground in November 2008.

  Over the next 15 years, this single mine should generate 1.7 million ounces of gold, and 64 million ounces of silver.

  An easy ten-bagger.

• Big profits five years ago. MASSIVE profits now.

  Geologists who studied this company's biggest project in 2004 figured it would make big profits with gold at $400 and silver at $6.50. Now gold is $900 and silver $12.60. And this is just the beginning. This firm's gold production is set to grow 42% in the next three years, and silver production 69%.

• All the right numbers, all going in the right direction.

  You can get into this stock on the heels of some great news. Its geologists have just concluded the company's sitting on 21% more gold than previous estimates. That's a total of 2.05 million ounces this firm is bringing into production. Quarterly production numbers? Up 38% in a year. And estimates of its future gold resources just grew 129%. This one's got a whole lot of room to run…

• One mine up and running… four more to go!

  I've found a terrific play on that other "money metal" � silver. One mine is already in production, with four more in the pipeline. This company's sitting on as much as $4.9 billion of silver. (And gold, lead, and zinc.)

  Its geologists keep finding more and more. Its potential metal holdings have grown 18-fold in the last four years! It could easily double your money in the next six months, and maybe 18-fold over the next four years!

And I have one more silver play with the potential to make you "Miserable Rich."

How This Company Could Collect $250 Million in Silver From the Canadian Government

Think of the words "gold rush." Chances are you think of California in 1849… or Canada's Klondike in 1898.

But that's all history, right? Your chance to cash in was over long before you were born.

Think again. You can still get "Miserable Rich" off the Klondike more than a century later.

There's a minimum 20 million ounces of silver in the Klondike still to be had � free, courtesy of the Canadian government.

Here's a quick history lesson. The Klondike gold rush lasted just seven years.  The amateurs panning for gold? They were gone by 1905. 

The professionals remained. They built mines and hauled out gold and silver for decades. But even they ended up bailing in the 1980s. Not because they ran out of metal, but because they ran out of money. They thought those record prices of the 70s would last forever. They got burned.

So what about that 20 million ounces of silver, you ask? That's what one of the companies left behind in 1989 in just one mining district in northern Canada. Once abandoned, the site became the Canadian government's property.

A good deal for Canada? No, it was an expensive mess. See, the old company left behind a toxic stew of chemicals from decades of sloppy mining techniques.

But in April 2006, the Canadian government hit on a solution. It signed a deal to pay a small environmental company $50 million to clean up the mines… and the company gets to keep all the silver it can dig up, absolutely free.

This company's CEO is confident his people will find 20 million ounces of silver in just one part of this vast complex.

Now, let's assume the worst. Assume that mine cleanup eats every dollar the Canadian government gives this company.

That still leaves minimum 20 million ounces of free silver.

At current prices, that's $250 million. This company's current market cap? Just $50 million. You could make five times your money.

And again, that's assuming the worst. That's assuming only this one part of the region still has silver to be found. This company's geologists are hard at work at 35 other sites nearby.

Your price of entry? Less than $2 a share.

Again, all of this is spelled out for you in great detail in the special report I'm releasing right at 5 PM on Friday, May 29 � Set for Life: Eight Keys to Getting "Miserable Rich" with Gold.

You'll get the names and ticker symbols of all these stocks. Most of them are under $3 a share, and not a one costs more than $9, so you can load up on 'em.  In fact, you can pick up 300 shares of each for under $10,000.

I'll say it one more time. At least half of these will probably go nowhere. The rest could deliver as much as triple-digit gains. 

And one could make you "Miserable Rich."

But don't take my word about why this approach can be such a wealth-maker.  Take the word of one of the most successful gold mining executives out there.  I'm talking about a big-time player in this market � a guy who built his company from "junior" to "major" in less than five years.

Why Is the CEO of One of the Major Gold Producers Selling Shares of His Company to Buy Juniors?

If you know anything about gold stocks, you know about the phenomenal story behind Yamana Gold.

Peter Marrone founded the company in 2003.

It sold for less than $2 a share at the time.

Early on, willing buyers approached him several times and asked if he wanted to sell the company to them. Each time, he said no.

They thought he was nuts to walk away.

But he knew something they didn't. He knew gold was heading into a long-term bull market. And he could make far more money over time building his company than selling out for a fast buck.

Today Yamana ranks among the world's biggest gold miners. Its shares zoomed up to nearly $20 in just five years � a classic ten-bagger. 

Point is, Marrone knows his stuff.

So why in the world is he selling off shares of his own stock and buying shares of junior gold miners?

He says don't get the wrong idea. He still believes in his company and he's heavily invested in it.

But it's not what's going to deliver big gains in the short term. It's not what'll make him even more "Miserable Rich" than his own firm made him. As he puts it, "Sometimes it's not a bad idea to take a little bit of money and come into [juniors] at the right time."

In other words: Marrone's already done the hard work of building a world-changing company in just five years. And growing it ten-fold.

Now he wants to put some of his hard-earned wealth into other companies with the same ten-bagger potential. Like the ones I've been telling you about.

Imagine piling a ten-bagger on top of a ten-bagger!

This gets to the core of what I'm talking about.

If the CEO of one of the world's best-run gold producers is putting his money into juniors… shouldn't you be doing the same?

I'll show you exactly how you can do it. Become a player in this market. Become "Miserable Rich."

But since it's my aim to make you boatloads of money, I need to do something else first. I need to lay out one more simple, brutal fact to make sure you're up for what we're starting on Friday, May 29.

URGENT WARNING: Whatever You Do, Don't Try This at Home

OK, you've stayed with me this far. Now I have to tell you the most important thing you need to know. And this applies whether or not you accept my invitation.

I'm deadly serious. I've already told you I'm looking for only the right courageous people to follow through on this opportunity that arrives Friday, May 29. 

See, it's not enough to be jacked up on the idea of juniors. You need to know what you're doing. Because let me tell you what's about to happen. 

Some reckless folk are going to stop reading this letter and start searching for information about junior gold miners. They'll figure they can identify what juniors to invest in on their own.

And they will get eaten alive. They will destroy whatever wealth they invest in the sector.

See, there are about 5,000 juniors out there. And only about 250 of them will ever pull a speck of gold out of the ground. The rest will go to zero. Zip, zilch, nothing. 

What's more, most of the 250 that do produce gold won't produce enough to ever make a profit. Or only a modest gain.

Only a handful of these juniors � 15 at the most � have the potential to make you "Miserable Rich."

Even if these go-it-alone people do all their homework, they'll still destroy their wealth. Even if they study a company's press releases and annual reports. Even if they call the company's CEO. Even if they know what questions to ask the CEO � and they don't.

Heck, even many of the so-called "experts" in this field don't know what questions to ask. They just take a bunch of companies' balance sheets. Then they see which companies have the highest number of ounces.

Then they buy. And they get slaughtered. Worse, their clients get slaughtered.

You know why? Because the balance sheet doesn't tell you whether it's feasible to pull those ounces out of the ground. Or whether it's profitable.

I know I'm getting a little worked up here. But that's because I know � from personal experience � the junior gold sector is a minefield.

Let me tell you, the ups and downs on the way to the big money can be gut-wrenching. And not every junior pick of mine has been a winner. No one can pick juniors and come out a winner every time.

I've said it before. Buy a bunch of juniors, knowing that at least half will go nowhere or even go down. The rest could deliver triple-digit gains. And one could make you "Miserable Rich."

So please, don't try this at home. Get some expert guidance. Whether it's me or someone else.  Don't go it alone.

So let's talk about how you can get a helping hand. There are three ways. And two of them are lousy.

Three Ways to Invest in Juniors (And Two of Them Are Lousy)

Bad Bet #1: You could invest in a mutual fund that specializes in gold juniors.  The fund manager does the heavy lifting, and the management fees are actually pretty reasonable.

But there's only a handful of these funds to choose from. And all of them are larded down with big positions in the majors � or even bullion. Sort of defeats the purpose, huh?

Bad Bet #2: You could invest with a brokerage firm that makes the picks for you.  But that could cost thousands upon thousands of dollars. Besides, brokers are all about making money for their firm, not their clients.

Yes, there are a few honest and intelligent brokers who specialize in juniors. I have a lot of respect for them. But often they own large equity stakes in the juniors they happen to like. They might even sit on the board of directors of these companies. I'm not comfortable with that sort of conflict of interest.

The right choice: I'm not a fund manager. I'm not a broker. I just want to help people like you make boatloads of money.  

I'm not pitching you a trading service, or a course. I'm offering an adventure for people who are ready to take that once-in-a-lifetime shot at getting "Miserable Rich." To achieve the wealth you thought you could never have but know you deserve.

And I can't think of a better way to get started than with the eight juniors I lay out for you in Set for Life: Eight Keys to Getting "Miserable Rich" with Gold.  You can have a copy emailed to you at exactly 5 PM EDT on Friday, May 29.

Oh, I'd better mention one more thing while I'm thinking about it: Your broker needs access to the Canadian exchanges to buy many of these stocks. If you have one, just talk to him about it. Many of the online discount brokerages can handle it too. I'll even tell you who in another special report. 

This one's called Junior Gold Shares: An Owner's Manual. 

Think of it as an introduction to the world of junior mining shares. It builds on everything you're reading right here. You get it at the same time you get Set for Life: Eight Keys to Getting "Miserable Rich" with Gold.

Along with those two reports, I'm going to throw in something else. And there's no extra cost to you.

A Year's Worth of Regular Updates on These Stocks… And 12 More Micro-Cap Resource Picks…

Look, I've told you how this is a moment you need to seize right now, before Friday, May 29. If you want in, all you have to do is buy positions in these eight stocks, then hang on for dear life. 

At some point, probably when gold reaches $3,000 an ounce, maybe sooner, we'll have our moon shot. You could be "Miserable Rich."

That's it.

Of course, once you get a taste of the junior gold sector, you might decide being "Miserable Rich" isn't enough for you. You want more.

I can deliver more.

I can throw in � absolutely free � a one-year subscription to my premium research service called Energy & Scarcity Investor.

You'll get at least 12 top-of-the-line micro-cap picks in the resource sector � whether it's precious metals, energy, or agriculture.

Energy & Scarcity Investor is a high-end, premium service. After all, top stocks for 2010 like gold juniors are thinly traded. We can't have tens of thousands of readers juicing the share prices artificially. 

Besides, you know by now it takes someone really ballsy to be "Miserable Rich."  Not everyone can handle it. Maybe only 1 in 1,000 people. So my publisher charges a lot for membership. That way we know the people who join up are really serious.

But you can have a year's worth of membership absolutely RISK-FREE… with no obligation… along with your copy of Set for Life: Eight Keys to Getting "Miserable Rich" with Gold.

Seize the Moment… Start Your Road to "Miserable Rich"…

OK, I see you've stuck with me up to this point of the letter. Congratulations!  You're the kind of person who's cut out for the chance to turn $10,000 into $260,000… like with Arequipa Resources. Or $1,302,500 like Copper Lake Exploration. Or $1,509,000 like Aurelian.

You're already very clear about what we're doing at 5 PM EDT on Friday, May 29. 

You want to learn about the one simple move that could leave you set for life.

So here's how it works.

• On Friday, May 29 at 5 PM EDT, I will release my special report, Set for Life: Eight Keys to Getting "Miserable Rich" with Gold. It will arrive at that moment in your e-mail inbox. It will contain eight recommendations that could leave you set for life. 
  
  
• Also on Friday, May 29 at 5 PM EDT, you will receive Junior Gold Shares: An Owner's Manual. This will be your plain-English introduction to the only sector of the gold market that can leave you set for life.
  
  
• Each month, I will e-mail you a micro-cap resource recommendation in your issue of Energy & Scarcity Investor. You can act on this new recommendation if you choose. This one-year subscription is yours FREE.
  
  
• Every Friday, I will e-mail you a weekly Energy & Scarcity Investor update on the status of your recommended gold positions and the resource markets. Again, this is part of your FREE one-year membership in this premium research service.
  
  
• Whenever the opportunity strikes, I will e-mail you a Flash Buy Alert on a resource stock that's just too good to wait for the monthly issue. This could happen once every few months, or a couple of times in a week. It all depends on how the market goes. But don't feel you have to obsessively check your inbox for these recommendations. As long as you check your e-mail once a day, you'll be fine. Again, I want to keep it simple. And again, this comes with the membership in Energy & Scarcity Investor, yours FREE for one year.

Now… how much would all this be worth to you?

I've said it before. I'll say it again. I'm not a fund manager looking for fees. I'm not a broker looking for commissions.

All I want to do is give people like you a chance to make boatloads of money. It's all I've ever wanted to do. 

And with juniors priced at incredible bargains, now's the perfect time to jump in.  All the stars are aligned.

The price of admission for the adventure we're starting on Friday, May 29 is $1,495.

That's a one-time price of $1,495 for your year's subscription to Energy and Scarcity Investor, plus access to eight junior picks, at least one of which could deliver a moon shot by the time gold reaches $3,000. Or sooner. Maybe even an Aurelian that can turn every $1 into $150. 

If that happens, you could be "Miserable Rich." The champagne your friends serve won't be good enough. The jets they fly won't be fast enough. The sand at their beachfront resorts won't be white enough.

But you'd be set for life.

And on top of the special reports you get on Friday May 29, you get your membership in Energy & Scarcity Investor. That will give you 12 more micro-cap resource recommendations you could stuff in your portfolio. Plus weekly updates on your current recommended junior holdings.

There's nothing else like this out there, in the fund business, the brokerage business, or financial publishing. Nothing. 

Ready to get started? Great!

My Iron-Clad "Cold-Feet" Guarantee

Now… Just in case you're still not 100% with me on this, let me make you a guarantee. And it's not the kind of guarantee I'd ordinarily make.

See, if you really buy into everything I've been describing here, I don't even need to make you a guarantee. You have guts and you have desire. So that should be enough to carry you through the stomach-churning ups and downs on your way to getting "Miserable Rich."

But I'm going to make you a guarantee anyway. In fact, I'm going to put my reputation on the line. I call this my Iron-Clad "Cold-Feet" Guarantee.

It works like this: Collect your special report Set for Life: Eight Keys to Getting "Miserable Rich" with Gold along with Junior Gold Shares: An Owner's Manual on Friday, May 29 at 5 PM EDT. Then review your first two monthly issues of Energy & Scarcity Investor. Follow the weekly Energy & Scarcity Investor updates. Log on to the members-only Energy & Scarcity Investor website to review archived issues.

Study all of this for up to 60 days. If any time during those 60 days you get cold feet, you decide you're not up to being a player in this market, you're not prepared for what it takes to get "Miserable Rich" … just call a toll-free number to cancel. I'll include the number in our first correspondence at 5 PM EDT on Friday, May 29.  No hard feelings. I'll refund every penny of your subscription price. And you can keep everything I've sent to you.

Get "Miserable Rich"… or Get Your Money Back

But I must give you an added level of protection. Long-term, performance-guaranteed protection. Protection that shows you exactly how confident I am that one of these recommendations will make you "Miserable Rich."

So here's the deal. If at anytime after those 60 days you find another research advisory service you feel gives you better recommendations in the microcap resource sector, just let me know. I'll give you an address where you can send everything back, along with proof that the other service gives you a better deal, and I'll STILL give you a full refund.

Doesn't matter when. Could be five years from now. If you send me evidence of what you find, along with everything I sent you so my publishers can compare, you'll STILL get a full refund of every penny you originally paid to subscribe.

So you're getting a "keep everything" guarantee for 60 days after you subscribe.  Plus you're getting a lifetime "top this" guarantee beyond that.

So you bear no risk. Except the risk of getting so wealthy you'll lose your friends. But I'm absolutely sure you'll never have to take me up on this solid promise. Because I'm absolutely sure that at least one of these picks has the potential to make you "Miserable Rich."

I've said it before, and I'll say it again: Not everybody is cut out for this. 

So I have no idea how many people will still be with me once your moon shot materializes. I don't know how many people will get "Miserable Rich." I don't know how many people feel they deserve to be set for life.

But if you hang with me, I can tell you this. Once the adventure is over, you'll be saying what I'll be saying: "What a ride! It was worth every moment!"