Issue #113, Volume #2
But These Opportunities Do Exist… Right Now, Mostly In Asia
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| Stop betting on ifs and whens… Opportunities in Korea… A chairman’s embezzling problem… A market leader in data storage… New jobs decline… The market shrugs off the shutdown – for now… Poll results about gold… |
On Monday I retold the incredible story of Warren Buffett’s investment in the Philadelphia & Reading Corporation.
I’d urge you to read Buffett’s Early Investments by Brett Gardner. It details the full story of how CEO Mickey Graham extracted more than $400 million in value out of a 100-year-old, failing coal-mining business. Buffett’s investment, at one time fully half of his entire portfolio, was made below $10 per share and was sold at over $200 per share 13 years later.
The incredible thing to realize: value was there the entire time. Buffett wasn’t guessing. The capital simply had to be unlocked.
Think about how different that is from how you invest. You’re depending on future earnings. You’re betting on ifs and whens.
And, I admit, opportunities to buy $1s for $0.20 are rare. But they do exist. And right now they mostly exist in Asia.
Yesterday I attended the Grant’s Interest Rate Observer fall conference at the Plaza Hotel in New York. I’ve known Jim Grant for about 20 years. He’s a legend in our business and I’ve attended his conference regularly since the early 2000s.
About a year ago, he published this in his newsletter:
SK Square (402340 on the Korea exchange), as Jim’s brilliant analyst Evan Lorenz helpfully explained, is part of the SK chaebol, South Korea’s second-largest conglomerate after Samsung Group. And… well… let’s just say that SK isn’t exactly lily-white when it comes to Western corporate governance norms.
In 2013, Chey Tae-won, its chairman, went to jail for embezzling more than $40 million to cover up his trading losses. That, in part, explains the enormous discount (-67%) from book value that shares are trading for today.
But let he without sin throw the first stone. Because these assets are worth a lot more than just book value. As Lorenz carefully detailed (emphasis added):
Square emerged three years ago as the spinout of SK Telecom. Assets range from 11Street Co., Ltd., an online marketplace, to SK shieldus Co., Ltd., a cybersecurity firm, to TMAP Mobility Co., Ltd., Korea’s leading platform for navigation and real-time traffic updates. The pearl in the SK oyster, and Square’s biggest position, is a 20.1% stake in SK hynix, Inc., the world’s sixth-largest semiconductor company.”
Hynix is the market leader in the kind of data-storage chips that data centers need to fuel their massive parallel processors.
Since Grant’s published this report, the stock is up substantially – around 200%. But this is far from the only opportunity in Asia to buy incredible assets at pennies on the dollar.
On Friday I’ll show you another one that could easily 10x your investment in the next five years.
It’s time to stop guessing.
It’s time to build a fortune.
White House Insider Buck Sexton:
“Trump’s Next Move Will Shock The World”
It could single-handedly reshape the global order… dramatically increase U.S. power… and trigger a massive American market boom the likes of which we haven’t seen in 75 years.
Three Things To Know Before We Go…
1. The government shutdown begins. History shows that the market shrugs off shutdowns. Since 1950, there have been 22 shutdowns, averaging 8.2 days. During the shutdown itself, the S&P 500’s return has historically been flat. However, 12 months after the government reopens, the index has delivered an average gain of 12.7%, with positive returns 86% of the time. The most recent shutdown, during President Donald Trump’s first term, lasted 34 days – the longest on record. The S&P gained 10.3% during those 34 days and went on to return 23.7% over the following 12 months.
2. Private payrolls decline by the most in two and a half years. This morning, payroll-processing firm ADP reported private companies cut 32,000 jobs in September, the biggest monthly decline since March 2023. Wall Street economists had expected an increase of around 50,000 jobs. August’s payroll number was also revised lower to a loss of 3,000 versus an initial gain of 54,000. The Federal Reserve typically relies on the government’s official jobs report – scheduled to be released this Friday, October 3 – when making its monetary policy decisions. However, with the government currently shut down, the official report may be delayed… meaning this ADP report may take on more significance when the Fed meets again on October 29.
3. Nike’s turnaround takes hold. In Nike’s (NKE) latest earnings report released yesterday, revenue growth of 1% exceeded management’s forecast of a mid-single-digit decline. The beat was fueled by 4% growth in North American sales and a 20% increase in Nike’s running business. The company also cut inventory by 2% and posted the second consecutive quarterly increase in its future order book – setting the stage for higher profit margins from increasing sales of newer, higher-margin products. While it’s still early days in the turnaround, it appears the worst may be over for the beleaguered apparel brand.
We recently added Nike to our Best Buys list of best risk/reward opportunities in the market. Since launching our Best Buys feature, the total returns across all recommendations is 43.1% versus 34.6% for the S&P 500. Click here to get access to our current Best Buys, along with ongoing updates.
And One More Thing… October Is Volatility Month
October has historically been the most volatile month for stocks. With the market in the midst of an historic rally – the S&P 500 is up nearly 40% from its April “Liberation Day” low – will this year be different?
Poll Results
Gold climbed above $3,900 an ounce today, 50% higher than when it started the year. Porter wrote last week about predicting the price of gold. So we asked readers – when it was trading for $3,700: “What will the price per ounce of gold be at the end of 2025?” Exactly 50% of readers selected “above $3,900,” while 42% checked off “between $3,700 and $3,900.” It seems just 8% of readers are gold bears… choosing “between $3,500 and $3,700.”
Tell me what you think: [email protected]
Good investing,
Porter Stansberry
Stevenson, Maryland
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