The Truth About Regulation:
Why You Must Do MORE than
Just Rely on Obama and the Feds!

Dear Friend,

There was lots of discussion this week about the Obama administration’s plans – currently working their way through Congress – for increased regulation of the financial industry.

Of course, the debate will continue as to whether President Obama’s proposals go too far in trying to prevent the failure of large financial institutions…or whether they actually go far enough.

While the boys down in Washington continue to hammer out a proposal…I think it’s important to point out – there are multiple levels of “regulation” that you need to do in order to protect your own portfolio.

You see – whether it’s tighter regulations on the financial industry or the Sarbanes-Oxley Act of 2002 that was designed to prevent fraudulent behavior – the Government can only do so much.

And rest assured…it’s not your personal wealth that’s first and foremost in the minds of lawmakers.

While solid diversification and proper asset allocation can help minimize risk, the truth is individual investors like you and I feel the sting of any company that “implodes” while we’re holding it. In that sense…they’re all “too big too fail.”

That’s why you and I must remain vigilant when it comes to each stock that makes its way into our portfolios.

With that in mind…there are two things for us to keep in mind when it comes to our own “portfolio regulation” and the potential failure or implosion of a company:

1. After looking at all the numbers, don’t forget to look at management

Many investors get fixated on the numbers. Of course, earnings per share, operating margins and profit margins are important, but don’t lose sight of the people running the company. There are now far too many examples of CEOs who were able to fool regulators…and even some very knowledgeable investors. So remember – looking at the numbers is important…but you should also try to find out as much as you can about the people who control the numbers you see.

2. No amount of oversight can prevent fraud or failure

If someone wants to commit fraud, all the oversight and sign-offs by big-name accounting firms will not stop them. Warren Buffett once said: “The CEO who deceives others in public would likely deceive himself in private.” When management wants to deceive, all bets are off. There are not going to be many signs that one could point to before the fact.

Read the Letters

When I review a company, I read at least five years’ worth of the chairman’s letter to shareholders. The letter appears in every annual report. It is there that the chairman or CEO outlines the company’s goals for the future. The letter tells you what went right in the past year and – not often enough – what went wrong.

I start with the oldest shareholder letter and then see if new initiatives that were discussed in glowing terms appear in next year’s letter. Are mistakes and a setback discussed and addressed, or is the outlook for the business always great? When you read five years’ worth of letters, you start to get a feel for the way the head honcho thinks and what is important to him or her.

A friend of mine who worked at a public relations firm for several years told me that when he broke into the business, he was amazed at how many CEOs write their own letters to the shareholders. I suggest you go to the web sites of some of the world’s most respected companies and read their letters to their shareholders.

In addition, many companies have their latest conference calls with analysts archived on their websites. I highly suggest you go to their sites and listen to recent calls. How do the CEO and senior management answer tough questions? What is important to them? Do they sound like they have shareholders’ interests at heart? The answers would give you a good feel as to the type of people you are investing with.

Put Your Own “Personal Portfolio Regulation Plan” in Place

I plow through annual reports and listen to conference calls in pursuit of great companies with good management. The recent failures – by both financial institutions and other companies – really drove home the point to both sophisticated and novice investors: after all the numbers, projections, financials, etc. – management still counts.

Remember…it’s virtually impossible for you to avoid being harmed when a company – or a CEO – intentionally commits fraud.

But there are a few simple steps you can take – your own “Personal Portfolio Regulation Plan,” if you will, that can go a long way toward helping avoid those companies who might implode.

The Easiest Way to “Regulate” Your Portfolio
… Starting Today

I should tell you…

There’s an even easier way for you to make absolutely certain that the companies you invest in have been put under the microscope and inspected thoroughly…

And that is to sign up for a no-risk trial to Hidden Values Alert – my highly successful advisory service that serves as the Ultimate Insider’s Guide to Value Investing.

Each of the companies found in my portfolio have been closely scrutinized. I’ve studied all the numbers – but as I mentioned earlier, I’ve also studied the management. That’s a big part of the reason why my Hidden Values Alert has been so successful.

And what’s more…I’ll even give you a FREE 30-Day PREVIEW of Hidden Values Alert so you can conduct your own “investigation” before you decide if the service is right for you.

If – as I suspect – you agree that the service will make you money…you’ll pay just a little more than 25 cents a day for access to the “hidden values” I uncover on a regular basis – an average of two per month – in each issue of my Hidden Values Alert.

Just click here now to claim your 100% RISK-FREE trial subscription to Hidden Values Alert-and get immediate access to my complete list of open recommendations.

Sincerely,

Charles Mizrahi, Editor

Hidden Values Alert

P.S. Start thinking like a value investor and increase your account with less stress. Your journey to becoming a value investor begins today…with a subscription to Hidden Values Alert. Click here to begin your journey right now!

Eastman Communications Inc.

PO Box 290708 · Brooklyn, NY 11229

Hidden Values Alert, a general interest newsletter is not liable for the suitability or future investment performance of any securities or strategies discussed. Hidden Values Alert is published by Eastman Communications, Inc. As a publisher of a financial newsletter of general and regular circulation, we cannot tender individual investment advice. Only a registered broker or investment advisor may advise you individually on the suitability and performance of your portfolio or specific investments.

Historical investment return examples given are hypothetical, and not to be taken as representative of any individual’s actual trading experience. Eastman Communications, Inc. is the publisher of Hidden Values Alert.

Copyright © 2009 Hidden Values Alert. All Rights Reserved.

Warren Buffett’s Message to You:

The Oracle of Omaha’s $26 Billion
“Bet on America” is a clear signal:
The time to act is now!

Dear Friend,

Just how significant is Warren Buffett’s $26 billion investment – announced earlier this week – in Texas-based railroad Burlington Northern Santa Fe?

Believe me…it’s much more than just an investment made – as Buffett joked – because his “father didn’t buy me a train set as a kid.”

After all, this deal is the biggest acquisition ever for Berkshire Hathaway.

In the wake of this enormous transaction, Buffett told CNBC that his move was “a bet on the country.” He added: “I believe this country will prosper and will have more people moving more goods 10 to 30 years from now and the rails should benefit.”

On the surface, Buffett’s transaction is precisely that: an investment that will pay off over the long haul should America prosper.

But if you look at the transaction a little more closely, you’ll see that Buffett has, once again, sent a clear signal to investors like you and I.

Are You a Speculator or an Investor?

Ben Graham wrote that the major distinction “between the investor and the speculator is their attitude toward stock market movements.” He said that the speculator’s primary goal is to profit from stock market fluctuations, while the investor looks to acquire pieces of companies (stocks) at attractive prices.

If you watch the day-to-day fluctuations of the stock market – and you become giddy when prices rise and gloomy when they fall – then you need to come to terms with the fact that you are a speculator.

If price fluctuations, either up or down, don’t faze you – or you rarely look at your monthly brokerage statement – odds are you are an investor.

You realize that over the long term, the price of the stock will accurately reflect the worth of the underlying business and not the day-to-day gyrations of the stock market.

Clearly, Warren Buffett is an investor – arguably the most successful investor of all time. And during times of extreme pessimism – like right now – the stock market offers investors like Warren Buffett a big advantage. That’s why it’s so important that we follow his lead…

Advantage: Long-Term Investors

Under normal circumstances, you can expect most stocks to trade at or around their fair value, reflecting the fundamentals of the underlying businesses. In that environment, undervalued stocks are few and far between.

When those periods occur, great value investors do nothing. Warren Buffett wrote that he loves to own stocks – but only if they can be purchased at attractive prices.

If he doesn’t think that there is a very high probability of getting at least 10% pre-tax returns on his investment…he’ll simply sit on the sidelines. Buffett concedes that sitting on the sidelines is no fun, especially when short-term money market rates earn him less than 1% after tax. But he is also careful to point out that “occasionally, successful investing requires inactivity.”

However, during periods of extreme pessimism, long-term investors have a big advantage.

When pessimism is the order of the day, the stock market offers investors the chance to buy pieces of companies (stocks) at prices that are much lower than the underlying worth of the business.

This is the type of environment we are in now. When volatility picks up in the market, it is the time to smile, not frown. Why? As Buffett says, “Because a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses.”

So by announcing a $26 billion investment – in addition to the $8 billion stake he already owned – in Burlington Northern, Warren Buffett was sending an unmistakable message:

He feels that Burlington Northern is a solid business that happens to have an irrationally low price…thanks to the overall pessimism about the economy.

After careful analysis, Buffett decided to take advantage of that opportunity…in a big way. And a transaction like that – the largest ever by one of the world’s most successful investors – demands our attention. So let’s look at it another way…

Eating Hamburgers

The mere fact that you’re reading this e-zine tells me that you expect to be a net buyer of stocks over the next five to 10 years (just as I do). And if that’s the case…a drop in stock prices ought to have you smiling, not depressed.

Those who don’t share this analysis are looking at things from the wrong angle. But don’t take my word for it – this is what Warren Buffett himself wrote on the subject:

“This is the one thing I can never understand. To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the Hallelujah Chorus in the Buffett household. When hamburgers go up, we weep. For most people, it’s the same way with everything in life they will be buying – except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”

Value investors – among whom I count myself – recognize that a stock is an ownership interest in a business, and, all other things equal, we prefer to pay a lower price for it.

In addition, we focus on businesses with attractive economics, a defensible franchise and capable management – characteristics that put such companies at an advantage in the current business environment.

Warren Buffett’s $26 Billion “Bet on America” is a
Perfect Example of How to Execute this Sound Strategy

A stock’s price can and will be disconnected from the underlying worth of the business for extended periods of time and for a whole host of reasons.

The current economic climate, Buffett suspects, has disconnected the price of Burlington Northern from its value. So he jumped at the chance to take advantage.

However, over the long term, the stock price will track the value (both higher and lower) of the underlying business. That is why you should spend your time monitoring the change in the worth of the business instead of the stock price.

During times of fear, when stock prices trade much lower than the underlying worth of the business, is the time you want to be a buyer, not a seller.

When Buffett was asked the secret to making money in the stock market he replied, “We simply attempt to be fearful when others are greedy and greedy only when others are fearful.”

Buffett’s $26 billion investment in Burlington Northern is as clear a signal as you’ll ever get: Now is the time to be greedy.

Don’t Go it Alone! Get “Greedy” with the
Ultimate Insider’s Guide to Value Investing

Warren Buffett’s message is one we should all take very seriously.

Now is the time to invest in strong, solid companies that just happen to be selling at a deep discount.

But there’s no reason for you to seek out undervalued, “Buffett-worthy” investments all by yourself.

That’s why – right now – I’m offering a no-risk, FREE trial to Hidden Values Alert – my highly successful advisory service that serves as the Ultimate Insider’s Guide to Value Investing.

You get two thoroughly analyzed picks in every issue – and the only companies who make it into the portfolio are great businesses trading at deep discounts.

Click on the link below and I’ll give you a FREE 30-Day PREVIEW of Hidden Values Alert so you can decide if the service is right for you before you ever pay so much as a dime.

If – as I suspect – you agree that the service will make you money…you’ll pay just a little more than 25 cents a day for access to the “hidden values” I uncover on a regular basis – an average of two per month – in each issue of my Hidden Values Alert.

Just click here now to claim your 100% RISK-FREE trial subscription to Hidden Values Alert-and get immediate access to my complete list of open recommendations.

Sincerely,

Charles Mizrahi, Editor

Hidden Values Alert

P.S. Warren Buffett’s approach to investing has served my Hidden Values Alert subscribers very well – and with good reason. Buffett’s latest move – his $26 billion “Bet on America” – is a clear signal that NOW is the time to invest in strong companies selling at a deep discount. You’ll find just those kinds of opportunities in my Hidden Values Alert. And best of all – you can try it RISK-FREE with my special 30-day FREE preview. Click here to begin your journey right now!

Eastman Communications Inc.

PO Box 290708 · Brooklyn, NY 11229

Hidden Values Alert, a general interest newsletter is not liable for the suitability or future investment performance of any securities or strategies discussed. Hidden Values Alert is published by Eastman Communications, Inc. As a publisher of a financial newsletter of general and regular circulation, we cannot tender individual investment advice. Only a registered broker or investment advisor may advise you individually on the suitability and performance of your portfolio or specific investments.

Historical investment return examples given are hypothetical, and not to be taken as representative of any individual’s actual trading experience. Eastman Communications, Inc. is the publisher of Hidden Values Alert.

Copyright © 2009 Hidden Values Alert. All Rights Reserved.

Warren Buffett’s 55-Year-Old “Secret” for
Making a Terrible Market Your Friend

Dear Friend,

Last Thursday night – in a town hall event televised by CNBC – Warren Buffett and Bill Gates went to Columbia University to discuss the extraordinary market events of the past year…and how they each felt about America’s future.

And while Bill Gates had some eloquent and important things to say during the program…Warren Buffett absolutely stole the show.

In the span of just 90 minutes, Buffett delivered three very powerful messages that are worthy of our attention.

If he wanted to, Buffett could likely charge five- or six-figures – and pack the house – to reveal these kinds of gems. Fortunately for you and I, Buffett has never gone that route, instead opting to share his wisdom with anyone willing to listen.

I’d like to examine with you these three powerful, wealth-building ideas that Warren Buffett “revealed” Thursday night…and show you how you can put these proven concepts to work for you right away.

So let’s get started…

Buffett “Secret” Number One:
How to Turn the Tables on a Terrible Market

Over the last year, investors have spent many sleepless nights worrying about the state of the economy and the short-term direction of the stock market.

But the truth of the matter is…it doesn’t have to be that way. I’ll let Buffett explain why…with my emphasis added:

“It’s a terrible mistake to look at what’s going on in the economy today and then decide whether to buy or sell stocks based on it. You should decide whether to buy or sell stocks based on how much you’re getting for your money, the long-term value you’re getting for your money at any given time. And next week doesn’t make any difference because next week, next week is going to be a week further away.”

Now I realize it’s easy to get caught up in the short-term moves of the market.

After all – no one likes to invest their hard-earned money and then see his investment begin to drop. But remember, it’s all about having the proper perspective…and I’ll let Warren Buffett provide that for you (again, emphasis added is mine):

“What do you think the best year for the market has been since 1942? The answer is 1954. In 1954, the Dow (gained 43.96%)… dividends were up 50%. Now if you look at 1954, we were in a recession a good bit of that time. The recession started in July of ‘53. Unemployment peaked in September of ‘54. So until November of ‘54 you hadn’t seen an uptick in the employment figure. And the unemployment figure more than doubled during that period. It was the best year there was for the market.”

“The important thing is to have the right long-term outlook, evaluate the businesses you are buying. And then a terrible market or a terrible economy is your friend. I don’t care, in making a purchase of the Burlington Northern, I don’t care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing.”

There you have it – Warren Buffett’s 55-year-old “secret” for turning the tables on a terrible economy: If you have the right long-term outlook, a terrible market is your friend!

And take a look back at some of the things going on back in 1954 – the headlines were dominated by talk of high unemployment and recession. Sound familiar? Yet it proved to be the single best calendar year for the market since 1942.

Buffett “Secret” Number Two:
This Country Doesn’t Avoid Problems…
It Just Solves Them

So what should we make of the current state of the American economic system?

After all, over the last 18 months or so we’ve seen many of the institutions we once thought to be “solid” collapse around us. And going forward, we’re looking at the possibility of heightened regulation and restrictions on the financial markets.

Here’s what Buffett had to say about that:

“If you look back on the 19th Century, we had seven great bank panics. If you look back at the 20th Century, we had the Great Depression and world wars and flu epidemics. This country doesn’t avoid problems. It just solves them. And in the next 100 years, our machine will sputter again, you know. Maybe 15 years will be so-so years, but there will be 85 great years. And during the 20th Century the Dow went from 66 to 11,400, so this is fertile soil that you’re working in and there’s no reasons to cut corners.”

He went on to put it another way – in classic Buffett style:

“If you had a wonderful farm and you knew the next 50 years there would be five droughts but there would be 45 good years, I mean, you would not become paralyzed thinking about the five drought years. You would recognize that you’ve got a system that works very well over time, and that’s our American economic system.”

The next time you hear a television talking head shouting about how the American economic system is hopelessly broken, I want you to think of Buffett’s words.

More importantly, though, I want you to think of Buffett’s actions – including his most recent “Bet on America” to the tune of $26 billion.

No doubt about it – the U.S. economy will have some rough times every now and then. But if you had made a long-term bet against it – at any time in our history – you’d have lost your shirt!

Buffett “Secret” Number Three: Don’t Worry about Timing –
Be Ready to Seize the Next Great Opportunity

Think back to what was happening last fall – the markets were in a free-fall…financial institutions were crumbling…and it seemed like there was no end in sight to the bad news.

What were you doing then? Were you still loading up on undervalued stocks? Or were you sitting nervously on the sidelines?

Here’s what Warren Buffett was doing:

“Last fall was really quite exciting for me. I don’t wish it on anybody, but there were things being offered. There are opportunities for us to do things that didn’t exist a year or two earlier. So I really don’t — I don’t want to be in a position where I am leveraged or something of the sort that does keep me up at night. I did not worry about the ultimate survival of our economic system. We were messed up. Wasn’t any question about that. But the plants haven’t gone away. The cornfields haven’t gone away. The talent of the American people hasn’t gone away. The innovativeness of the next Bill Gates hasn’t gone away. This country was going to do fine. I knew that. We just had to get things straightened out. And we’re well on the way to having that happen.”

“A period like this gives me a chance to do things. It’s silly to wait. I wrote an article. If you wait until you see the robin, spring will be over.”

Here’s the important point:

Instead of trying to time the market or time a trend, Buffett spends his times analyzing the quality of a business and what its value really is. Buffett looks for companies with long-term competitive advantages in stable industries.

Everyone knows Buffett’s basic criteria for buying …

1. It must be a business he understands.

2. Have favorable long-term economics

3. Be run by able and trustworthy managers.

4. Have a sensible price tag.

Most investors will spend their entire lives trying to figure out how to time whatever big trend is in the news right now and never give any thought to the real quality of the businesses they buy.

But when – as Buffett says, you get “a chance to do things”…it really is foolish to wait. There are several opportunities – severely undervalued companies with great business models and sound management – that are out there for you right now.

Are you ready to grab them? If so…I’d like to help.

How You Can Put Warren Buffett’s
Powerful Secrets to Work…for FREE!

Each month – in my Hidden Values Alert advisory letter – I provide two thoroughly researched “extreme value” recommendations that are based on the principles used by Warren Buffett himself.

But rather than just tell you about my Hidden Values Alert – I’d rather show you…with a FREE ISSUE.

So right now – I’d like to offer you a no-risk, FREE trial to Hidden Values Alert – my highly successful advisory service that serves as the Ultimate Insider’s Guide to Value Investing.

Click on the link below and I’ll give you a FREE 30-Day PREVIEW of Hidden Values Alert so you can decide if the service is right for you before you ever pay so much as a dime.

Just click here now to claim your 100% RISK-FREE trial subscription to Hidden Values Alert-and get immediate access to my complete list of open recommendations.

Sincerely,

Charles Mizrahi, Editor

Hidden Values Alert

P.S. The only companies who make it into my Hidden Values Alert portfolio are great businesses trading at deep discounts. This helps us maintain the proper long-term perspective that “turns the tables” on terrible markets and makes them our friend. I’d like you to try my wealth-building service RISK-FREE with this special 30-day FREE preview. Click here to begin your journey right now!

Eastman Communications Inc.

PO Box 290708 · Brooklyn, NY 11229

Hidden Values Alert, a general interest newsletter is not liable for the suitability or future investment performance of any securities or strategies discussed. Hidden Values Alert is published by Eastman Communications, Inc. As a publisher of a financial newsletter of general and regular circulation, we cannot tender individual investment advice. Only a registered broker or investment advisor may advise you individually on the suitability and performance of your portfolio or specific investments.

Historical investment return examples given are hypothetical, and not to be taken as representative of any individual’s actual trading experience. Eastman Communications, Inc. is the publisher of Hidden Values Alert.

Copyright © 2009 Hidden Values Alert. All Rights Reserved.

The Truth about Gold:
Why Conventional Wisdom is All Wrong!

Dear Friend,

It’s been impossible not to notice the huge climb in the price of gold over the last few months.

After all – the yellow metal is up more than 60% since last November – and it closed Friday at a whopping $1,151 an ounce.

Of course, even though that price is an all-time high for gold…it’s still trading well below its inflation-adjusted high of $2,290 an ounce, set in January 1980.

So with gold prices soaring – and the U.S. Government spending at an alarming rate – it’s fair to ask the question: Is gold a good bet for your money as a hedge against inflation?

Like most people, my instinct said the answer to this question would be “yes” – simply because that’s what the conventional wisdom has been for decades.

But then I did some research – and what I found out about gold, inflation and Warren Buffett was an eye-opener…

Welcome to the 1970s

The period of the 1970s is now known as the Great Inflation. Many economists say that the government’s monetary policy was the leading cause of out-of-control inflation. It started in the 1960s, when the Fed allowed the money supply to bulge in order to fund the Vietnam War and domestic spending. Inflation started to inch up, and by 1974 inflation hit double digits.

In 1980, the inflation rate, as measured by the Consumer Price Index (CPI), hit a record 14.8%. Prices rose not by a few cents here and there, but by whole dollars and seemingly all at once. It was the first decade since the Great Depression that Americans ended the decade poorer than when they began it. Prices exploded ever higher as businesses tried to recoup lost profits with immediate price hikes. Increasing government spending and out-of-control deficits caused the prime rate, which is the rate at which banks lend to their most creditworthy customers, to balloon to rates comparable to those offered by back-alley loan sharks. The prime rate hit a jaw-dropping 20.5% in the summer of 1981. Consumer confidence and consumption were down in the dumps. For many retirees and others living on a fixed income, canned cat food is what they called dinner, as the purchasing power of the dollar was cut in half.

From 1974 to 1981 inflation soared over 104%. Any investments made during that time period had to increase by at least the inflation rate or were losing money. Most investors were buying gold because they were told that historically gold keeps pace with inflation. And in fact during this eight-year period, it did its job. The value of gold rose by more than double the rise in inflation and actually increased purchasing power.

I wanted to see how the world’s greatest investor, Warren Buffett, fared when facing such headwinds as high interest rates, double-digit inflation, and a dollar that was losing purchasing power by the day. I looked at Berkshire Hathaway’s growth in book value and was prepared to be pleased, but instead I was pleasantly surprised. I know that Buffett stuck to investing in controlling positions in businesses and large positions in stocks. I assumed that he would at least outperform inflation, but I was blown away when I saw how well he did.

Over the eight-year period from December 31, 1973, to December 31, 1981, the price of gold rose 254.1%, while the book value of Berkshire increased by over 612%. What is even more interesting is that Buffett achieved that phenomenal growth not by investing in gold, silver, precious metals, artwork, rare coins, or the other investments gurus peddle during times of high inflation, but by investing in solid businesses when he could own them outright, and pieces of them, or stocks, when they were selling at a discount.

Not Such a Good Hedge

It appears that while most investors were concerned about hedging or protecting their portfolios, Buffett was focused on growing his. The media followed the price of gold on a daily basis, and things reached a fever pitch right after December 24, 1979, when the Soviet Union invaded Afghanistan. Prior to the invasion, gold was trading in the $470 range, but one week later it had shot up to over $600 an ounce. It continued to climb ever higher for the rest of December and into January.

Most gold bugs can remember when gold peaked on January 21, 1980, at $850 per ounce but fail to recall that it tumbled over 43% over the next two months to $481. The price of gold was not trading off of the economic fundamentals; instead, it was trading on emotion. Inflation continued to rise while gold was falling. It seemed that the price of gold became disconnected from inflation, and that left investors with big losses. Gold did not serve investors looking to hedge their portfolios during this period.

But that wasn’t the only time that gold did not protect investors from rising inflation. After gold reached an all-time high of $850 per ounce in January 1980, it took close to 18 years for gold to trade at $850 again, which happened in January 2008. Investors that bought and held gold, hoping that it would protect them against inflation, were very disappointed. Over a long period of time, gold does a miserable job of protecting investors against inflation and as an investment.

What Gold Isn’t

Owning gold in order to protect you from inflation presents other problems as well. If you went out and bought gold bullion, you would be investing in an asset that has the risk of theft, and if you store it at home, most likely your homeowner’s policy will not cover its theft. If you store it at a bank, you will need to pay storage fees. When you buy or sell gold, be prepared to pay a high markup, usually 5%, and of course gold doesn’t pay any dividends or interest.

If you buy gold mining stocks, even if gold rises, your shares may go down because of unprofitable mines or large investments in equipment that eat into earnings. Exchange traded funds, or ETFs, don’t track the price of gold accurately and are subject to the rise and fall of the stock market. Since gold futures are bought with leverage, you can rack up big losses rather quickly if gold doesn’t go your way.

Gold is an asset whose only value is what people can do with it, and it has very limited industrial applications. Dramatic and brief price spikes, followed by long periods of decline, define the price of gold. Given the huge quantity of stored gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.

Buffett himself emphasized the nonproductive aspects of the yellow metal in a speech at Harvard University in 1998. He said,

“It gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it.”

On the other hand, stocks represent a claim on real assets; in other words, as a stockholder you own a percentage of a business and its assets. You also receive a percentage of the future stream of earnings and dividends that the business generates. As the company grows and generates cash, a stockholder sees the stock price rise with the worth of the underlying business.

Buffett learned early on to make a purchase only when he gets more value than what he is paying. If the cost to produce one ounce of gold was trading below the cost of extracting and refining it, perhaps Buffett might be interested in buying gold. In the summer of 1997, Buffett did invest 2% of Berkshire’s investment portfolio in silver. He had watched the price carefully for more than 30 years before making his purchase. Only when he came to the conclusion that current inventories of silver were way below the current mine production and user demand did he make a purchase. In other words, it was a good value.

Most investors confuse storytelling for history. Prior to doing my research I too fell into the trap of believing firmly entrenched stories, like buying gold during times of inflation. But as history teaches, it’s not really so and stocks are a much better alternative.

By investing in financially strong companies that are simple to understand, have top-notch management and a competitive advantage, and can be purchased at a fair price is an approach that has successfully worked during difficult economic scenarios. This approach should continue to work simply because it is both logical and rational.

Limited Time Offer: Try My

Hidden Values Alert FREE for 30 Days!

So where do you find these financially strong companies – those that are priced at a discount and simple to understand?

I’d like to show you…

Each month – in my Hidden Values Alert advisory letter – I provide two thoroughly researched “extreme value” recommendations.

But rather than just tell you about my Hidden Values Alert – I’d rather let you see for yourself…with a FREE ISSUE.

So right now – for a limited time – I’m offering you a no-risk, FREE trial to Hidden Values Alert …my highly successful advisory service that serves as the Ultimate Insider’s Guide to Value Investing.

Click on the link below to claim your FREE 30-Day PREVIEW of Hidden Values Alert. Then you can decide if the service is right for you before you ever pay so much as a dime.

No gimmicks…no catches…and no tricks.

Just click here now to claim your 100% RISK-FREE trial subscription to Hidden Values Alert-and get immediate access to my complete list of open recommendations.

Sincerely,

Charles Mizrahi, Editor

Hidden Values Alert

P.S. The only companies who make it into my Hidden Values Alert portfolio are great businesses trading at deep discounts – and as you just saw…those businesses provide a much greater return than gold – even during periods of high inflation. I’d like you to try my wealth-building service RISK-FREE with this special 30-day FREE preview. Click here to begin your journey right now!

Eastman Communications Inc.

PO Box 290708 · Brooklyn, NY 11229

Hidden Values Alert, a general interest newsletter is not liable for the suitability or future investment performance of any securities or strategies discussed. Hidden Values Alert is published by Eastman Communications, Inc. As a publisher of a financial newsletter of general and regular circulation, we cannot tender individual investment advice. Only a registered broker or investment advisor may advise you individually on the suitability and performance of your portfolio or specific investments.

Historical investment return examples given are hypothetical, and not to be taken as representative of any individual’s actual trading experience. Eastman Communications, Inc. is the publisher of Hidden Values Alert.

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