Warren Buffett is selling again... Bob Farrell's 10 rules for investing... There are no new eras... An unnatural act... Investors are trapped in a 'Groundhog Day'...
 Sell, sell, sell...
Berkshire Hathaway just keeps selling its Bank of America (BAC) stock. Warren Buffett's firm has sold BAC shares in 10 of the past 11 weeks, reducing its position from slightly more than a billion shares to about 814 million today. That's a nearly 20% reduction of Berkshire's third-largest equity position in less than three months. But Berkshire still owns 10.5% of the bank's stock and remains its largest shareholder. Bank of America CEO Brian Moynihan sounded a little perplexed when he commented on the sale recently: I don't know what exactly [Buffett] is doing because, frankly, we can't ask and we wouldn't. But Bank of America isn't the only stock that Buffett is selling. As we reported last month, Berkshire has also reduced its stake in Apple (AAPL) by 60%. You would think Buffett is gearing up for a market meltdown or something. All of this reminds me (Dan Ferris) of Wall Street legend Bob Farrell's 10 market rules. Farrell started at Merrill Lynch in 1957 and became chief market analyst in 1967. In 1992, he stepped down from that position but continued writing reports for clients. He retired in 2002 after 45 years with Merrill. Farrell was the first person to use "sentiment" to analyze and track the psychological condition of the market. And based on his experience, in September 1998, he created a list of 10 "Market Rules to Remember." I won't recount the whole list, but there are a few you should keep in mind today. Starting with... 'There are no new eras – excesses are never permanent'... Investors chasing Nvidia (NVDA) think its excessive hypergrowth will be permanent. But it's a little insane to expect it to permanently grow trailing-12-month revenues roughly 2.9 times every year as it has done over the past four quarters. At that rate, its revenues would cross $2.3 trillion by 2027 and, believe it or not, $110 trillion – more than today's global annual GDP – in early 2031. I guess I can see why everybody is buying the stock like their life depends on it. Spelling out Nvidia's recent growth rate like that looks absurd... but so does buying it like it's the only stock on Earth. Regular readers know I don't make predictions. But I'll predict right here that Nvidia will not see its revenues get to $1 trillion any time soon, if ever. That could disappoint a few folks. Everyone also seems to be forgetting that the semiconductor industry is notoriously capital intensive and cyclical. Innovation comes along and looks indestructible right up until the competition comes in and tears it apart. Finally, investors aren't assessing the odds of Nvidia's past five- or 10-year run continuing for another five or 10 years. It's up more than 2,700% over the past five years and more than 27,000% over past 10. If you were on board, congrats. You crushed it. But the run is probably closer to being over than anyone currently believes. And I doubt many people held on to Nvidia that whole time. That brings us to another one of Farrell's rules... 'Fear and greed are stronger than long-term resolve'... There's an old saying among experienced investors... Folks are traders when they're winning but suddenly become long-term investors when they start losing, so they don't have to sell and recognize the loss. Farrell might say they're responding to fear and greed and never had the long-term resolve to stick with a real strategy through market ups and downs. He'd be right. Folks who consistently get whipsawed by fear and greed aren't pursuing any real strategy. They're just letting their feelings tell them what to do. Pursuing a strategy with discipline and sticking to it for the long term is hard, whether you're a day trader or a long-term value investor. It's an unnatural act, like jumping out of a fully functioning aircraft (even with a parachute). Mastering the art of investing requires building skill and knowledge over a long period of time, like learning a musical instrument or a foreign language. You can be okay at those things in a fairly short period of time. But you can't master anything complex without working at it for years. I have a feeling, with the S&P 500 Index hitting new all-time highs in the wake of the Federal Reserve's recent 0.5% rate cut (a classic signal of economic weakness), that lots of folks are about learn that their long-term resolve has the resilience of a soap bubble. 'Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names'... This rule is totally lost on investors today, though I've seen plenty of folks refer to it in the financial press. The total market cap of all U.S. stocks is nearing $60 trillion, according to data compiled by Bloomberg. The S&P 500's market cap is roughly 80% of that, close to $48 trillion. The 10 largest stocks in the S&P 500 make up about 34% of the index – an all-time high. And the returns from holding these stocks have been phenomenal. They've appreciated around 47% over the past 12 months. And they've made investors about 17.7% per year over the past 10 years. The return of the past 12 months is around two and a half times the average annual return of the last 10 years, which is awesome. I imagine millions of people right now think that these 10 stocks are an absolute "no-brainer, can't miss" proposition. But whether they think that or not, anybody buying an S&P 500 Index fund in their 401(k) is shoveling more than a third of their savings into them every two weeks. Concentration in the top blue-chip names has never been higher, indicating a very weak market by Farrell's rule. That brings us to my personal favorite of Farrell's rules... 'The public buys the most at the top and the least at the bottom'... Any time everyone considers an investment a "no-brainer, can't miss" proposition, you know it's only a matter of time before they're proved wrong in the most painful possible way. Investors today are as manic as they were at the height of the dot-com mania, an insight Stifel Chief Equity Strategist Barry Bannister pointed out in a September 19 note to clients: It takes one generation to forget the dangers of a bubble, and it is Groundhog Day versus the 1990s tech bubble. "Groundhog Day" refers to the 1993 comedy film starring Bill Murray as Phil Connors, a weatherman covering the annual Groundhog Day ceremony in Punxsutawney, Pennsylvania. Connors is an egotistical jerk who does a half-hearted job covering the ceremony and can't wait to get out of town. But a storm that he predicted wouldn't affect the area sweeps in and makes it impossible for him to leave. So he must spend the night. When he wakes up the next morning, he finds himself caught in a time loop that no one else is aware of. Every day he wakes up, it's Groundhog Day again. Connors soon resolves to take advantage of everyone around him with the knowledge he gains about the endlessly repeating events of the day, easily seducing young women and committing robbery. But having no consequences for his actions becomes depressing. Eventually, he uses the seemingly endless loop to learn to play the piano, carve ice sculptures, and speak French. He also starts helping the people of Punxsutawney, changing their lives for the better. In the end, he even falls in love with his producer Rita and the loop is broken. The pair decide to stay in Punxsutawney and live happily ever after. Investors tend to get caught up in the same Groundhog Day pattern... They want to make big, fast gains every day. So during boom times, they greedily take advantage, buying up what they believe are no-brainer investments. They think investing is easy. But when the bust comes, they get wiped out... become depressed... and start to think they'll never win again. In the end, some folks start working to develop real investing skills. They learn to engage in healthier long-term wealth building, just as Phil Connors learned to leave his cynicism and ego behind and fall in love. Right now, we're still in the stage where people think investing is easy. They're enamored with the boom. They have confidence that lower interest rates will make markets go up, which was recently reinforced by the Fed's rate cut. The S&P 500 is up more than 2% since the Fed's announcement last week. The Nasdaq Composite Index is up more than 3%. It doesn't sound like much, but it's a few trillion dollars. Nvidia alone has added nearly $200 billion to its market cap. As I write, it trades at 33 times sales and 58 times earnings. But none of that matters, right? After all, artificial intelligence ("AI") is taking over the world and everybody knows that means Nvidia won't stop growing for at least another bazillion years. As for the idea that it takes a generation to forget a bubble, we're certainly well past forgetting the dot-com bubble. Investors seem to have zero memory of the fact that the S&P 500 fell 49% and the Nasdaq fell 78% from their dot-com peaks. And in just the past few years, we've seen bubbles in everything from clean energy and special purpose acquisition companies ("SPACs") to cannabis and AI. Sure, the S&P 500 fell more than 25% in 2022, and the Nasdaq fell nearly 35%... but the S&P 500 is already making new all-time highs today, and the Nasdaq is close to doing the same. The mild unpleasantness of 2022 was just another dip to buy as far as anyone investing today is concerned. And the dot-com mania? It's more like an investor myth than a memory at this point. As famous former baseball player Yogi Berra might say, "it's déjà vu all over again." Millions of investors are about to learn some of the lessons Farrell first published in September 1998. Farrell published his rules right at the beginning of the dot-com bubble. The highly leveraged Long-Term Capital Management hedge fund had blown up the month before, contributing to a 29% decline in the Nasdaq from July 20 to October 8. The turmoil prompted massive Fed intervention, including three 0.25% interest-rate cuts starting on September 29. The cuts inspired hyper bullish investors to pour into the stock market. From its October 8 bottom, the Nasdaq soared 255% to its March 10, 2000 top. Once again, I feel obligated to tell you that I'm not calling the top. I don't do that, although every now and then I do seem to get worried at a lucky moment – like when I warned about the "mother of all melt ups" in a February 11, 2021 Digest, the day before Cathie Wood's ARK Innovation Fund (ARKK) peaked before losing 81% of its value. Or there was my November 19, 2021 Digest where I warned that cracks were starting to show in the "great bull's façade." That was the trading day the Nasdaq peaked before losing 35% of its value. Still, there's no reason to call tops or bottoms because there's no repeatable strategy for identifying them. All you have to understand is that even the very best stocks can crash when the whole world has decided they're no-brainer, can't miss investments – like today. So stick to your trailing stops. Don't let greed take control. Maintain your discipline and your long-term resolve. You don't want to wind up like "the public" in Farrell's rules.
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Erie, Pennsylvania
September 27, 2024
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios. Returns represent the total return from the initial recommendation. | Investment | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,395.5% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 1,376.1% | Stansberry's Investment Advisory | Porter | ADP
Automatic Data Processing | 10/09/08 | 995.1% | Extreme Value | Ferris | BRK.B
Berkshire Hathaway | 04/01/09 | 705.3% | Retirement Millionaire | Doc | TT
Trane Technologies | 04/12/18 | 516.0% | Retirement Millionaire | Doc | WRB
W.R. Berkley | 03/15/12 | 491.6% | Stansberry's Investment Advisory | Porter | HSY
Hershey | 12/07/07 | 474.4% | Stansberry's Investment Advisory | Porter | AFG
American Financial | 10/11/12 | 471.4% | Stansberry's Investment Advisory | Gula | TTD
The Trade Desk | 10/17/19 | 403.5% | Stansberry Innovations Report | Engel | PANW
Palo Alto Networks | 04/16/20 | 358.8% | Stansberry Innovations Report | Engel | Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals | | 4 | Stansberry's Investment Advisory | Porter/Gula | | 3 | Retirement Millionaire | Doc | | 2 | Stansberry Innovations Report | Engel | | 1 | Extreme Value | Ferris |
Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Investment | Buy Date | Return | Publication | Analyst | wstETH
Wrapped Staked Ethereum | 12/07/18 | 2,291.8% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 1,633.0% | Crypto Capital | Wade | ONE/USD
Harmony | 12/16/19 | 1,157.6% | Crypto Capital | Wade | POL/USD
Polygon | 02/25/21 | 733.1% | Crypto Capital | Wade | AGI/USD
Delysium AI | 01/16/24 | 326.3% | Crypto Capital | Wade | Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio.
Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios | Investment | Symbol | Duration | Gain | Publication | Analyst | | Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | | Microsoft^ | MSFT | 12.74 years | 1,185% | Retirement Millionaire | Doc | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | | Rite Aid 8.5% bond | | 4.97 years | 773% | True Income | Williams | | PNC Warrants | PNC-WS | 6.16 years | 706% | True Wealth Systems | Sjuggerud | | Maxar Technologies^ | MAXR | 1.90 years | 691% | Venture Tech. | Lashmet | | Silvergate Capital | SI | 1.95 years | 681% | Amer. Moonshots | Root | ^ These gains occurred with a partial position in the respective stocks.
* The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%.
Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio | Investment | Symbol | Duration | Gain | Publication | Analyst | | Band Protocol | BAND/USD | 0.31 years | 1,169% | Crypto Capital | Wade | | Terra | LUNA/USD | 0.41 years | 1,166% | Crypto Capital | Wade | | Polymesh | POLYX/USD | 3.84 years | 1,157% | Crypto Capital | Wade | | Frontier | FRONT/USD | 0.09 years | 979% | Crypto Capital | Wade | | Binance Coin | BNB/USD | 1.78 years | 963% | Crypto Capital | Wade | | 
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