The Hard Lesson: Buying What No One Else Wants

Issue #45, Volume #2

Today Is The Day You Become A Great Investor

This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.

An update on my big gold prediction… How I knew gold was 100% certain to outperform stocks… The foolproof way to be a great investor… These stocks are guaranteed to beat the market over the next 10 years… Trade tensions continue to escalate…

Gold is soaring, and gold stocks are ripping… should you buy them?

The answer I’ll give you can ensure that your portfolio always outperforms the market. But… I doubt it’s the answer you’re expecting.

Ten years ago, in the summer of 2015 (July 24), I promised investors that if they bought ten gold stocks and held them for ten years, they were guaranteed to beat the S&P 500. That might not sound like a big deal, but the S&P 500 has been on such a huge run that out of all actively managed mutual funds, only 20 have beaten the S&P 500 over the last decade.

Even so, the ten gold stocks I recommended in the summer of 2015 have now appreciated 171.5% (on average) versus 171.4% for the S&P 500.

And, as I’m sure you’ve noticed, that outperformance is growing by the day. It will be interesting to see where it ends up by July.

As will come as no surprise to long-time readers of my work, the biggest winners in my recommended gold portfolio over the decade were the gold “streamers.” These are incredibly capital-efficient businesses that finance gold production at mines all around the world and receive royalties on production in return. These are such good businesses, it’s almost like they cheat. Just like property and casualty insurance stocks, which get paid to use policyholders’ capital, and like McDonald’s uses its franchisees’ capital to sell hamburgers, these gold streamers end up capturing the lion’s share of a mine’s profit, while putting up only a fraction of the required capital.

The three best streamers in my original 10-for-10 gold stock portfolio were: Franco Nevada (FNV), up 306%; Royal Gold (RGLD), up 458%; and Osisko Gold Royalties (OR), up 163%.

Astute subscribers will remember in late 2023 when we “pounded the table” on Franco Nevada. It was part of our Top 3 “Best Buys” we listed in every issue of my newsletter (The Big Secret on Wall Street) from December 14, 2023, through January 22, 2025. It’s up 57% since we first began including it in our top buys.

The other stocks that performed well from my top 10 portfolio of 2015 were small gold producers with high-quality deposits, like Pretium Resources, which was bought out in 2022, but produced 19% annualized gains in our portfolio (196% total return).

And the rarest gold company? One with an outstanding management team, like Agnico Eagle Mines (AEM), which is up 440% since I recommended it in 2015. Agnico Eagle is a serial acquirer and has expanded its production capacity substantially, growing from a single-mine operator (LaRonde) in 2008 to operating multiple mines across Canada, Mexico, Finland, and Australia. Since our recommendation, it acquired Kirkland Lake Gold (2021), adding high-grade, low-cost mines like Detour Lake, Macassa, and Fosterville. Then, in 2023, Agnico acquired the remaining 50% of the Canadian Malartic mine and other assets from Yamana Gold.

So… how did I know?

Not how did I know which gold stocks to buy, but how did I know, in the summer of 2015, that gold stocks were 100% certain to outperform the largest, best-managed corporations in America (the S&P 500)?

Certainly, no one else was making that bet. (And, just so we’re clear… I hadn’t ever recommended a portfolio of gold stocks before.)

I knew because the price of gold had fallen, almost in half, between 2011 and 2015.

Sentiment in gold stocks was at a low I hadn’t seen since gold was under $300 an ounce in the late 1990s. Basically, you couldn’t give these stocks away. No one wanted them.

In the summer of 2015, a bear market was developing, and risk was “off.” Oil prices collapsed in 2014 (thanks to the fracking revolution), and energy-related defaults in the credit markets were roiling the equity markets. Stocks would fall sharply from mid-2015 through early 2016.

I was certain that as equity investors sought a safe haven, they’d eventually buy gold. And, after finding a bottom in December 2015 at roughly $1,050 per ounce, gold roared nearly straight up during the first half of 2016. However, with Trump’s election (his first term), investors began buying stocks aggressively, and gold stalled. And by mid-2019, stocks were trading at record high valuations… while gold was still around $1,200 an ounce.

So, I once again reiterated my call and updated the portfolio, adding another streaming company, Wheaton Precious Metals (WPM), which is up 214% so far. And since then, the price of gold has gone up from around $1,200 to over $3,000 (160%).

What’s the secret? How do I always know when to buy gold and gold stocks?

It’s simple: I know that, sooner or later, investors will always retreat to gold. Yes, I believe they will retreat to Bitcoin, too. But gold, for the world’s central banks and for the world’s wealthiest people, will continue to be the primary safe-haven asset.

Given our political system (where highly progressive income taxes mean most of the voters don’t have to pay for the government’s spending) and our highly indebted Treasury, it’s a lock that, relative to the U.S. dollar, gold will always appreciate over time.

Thus, all you must do to be a great investor in gold is wait until no one wants it.

Nothing could be more foolproof or easier to do. But that won’t stop a lot of investors from screwing up! Here’s a big hint: When you see the talking heads on CNBC suddenly start talking about gold, you should start thinking about selling most of your position. I’m not saying you’d want to sell today: let the trend be your friend. What I’m saying is that I’d put something like a 15% trailing stop loss on my gold positions and let them ride for as long as I can.

So, if you took my advice and bought gold and gold stocks in 2015… or in 2019… or if you bought Franco Nevada when it was on our Top 3 Buys list for all of 2024… what should you be looking to buy when you eventually “ring the register” with your big gains in gold stocks?

Just do exactly what we did in 2015, 2019, and 2024: buy what no one else wants to own. No, that’s not gold right now, it’s biotech stocks.

To give you some idea of how cheap and out of favor these stocks have become, look at the ALPS Medical Breakthroughs ETF (SBIO). This is a “real” biotech ETF – it’s made up of small and midcap discovery-phase companies, not gigantic pharma companies. And it’s trading at the same price today as it was in 2015. It’s trading for about 75% less than its peak in 2021.

And… you’ll notice something else: Biotech tends to trade in virtually the opposite direction as gold.

Since I published my 10-for-10 gold stocks report in July 2015, gold is up 212%. This biotech ETF is down 28%.  

We launched our first biotech research product in early 2024 because we’d never seen worse sentiment in biotech. As you can see, SBIO bottomed in the fourth quarter of 2023. Currently, it’s trading at prices just above this level. And I wouldn’t be surprised to see it bouncing along this level for years. But I’m 100% certain that if you buy biotech stocks here, in ten years’ time, you’ll outperform the S&P 500. And, you’ll make vastly larger profits than you can make owning gold, too.

Investing in biotech is a lot harder than investing in gold. Biotech innovation isn’t a commodity. There are enormous qualitative differences between their management teams and the scientific innovations they are pursuing. This is an area of the market where you must have a genuinely brilliant and talented analyst working for you. I highly recommend reading Erez Kalir’s research. If you don’t know who he is or the details of his extraordinary background, please take the time now to get to know him. I believe he’s the best in the world at analyzing small and development-stage biotech stocks. He’s delivered outstanding results for our readers so far. And, over the next decade, I’m certain his returns will be extraordinary.

If you really want to become a great investor, you’ve got to learn to buy high-quality assets when no one else wants them. Ten years ago, that was gold streaming companies. Today, it’s biotech stocks.

Horse, meet water.

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Three Things To Know Before We Go…

1. Stocks slide on escalating trade tensions. China ratcheted up its war of words with Washington earlier today, accusing the U.S. of abusing tariffs. China’s Commerce Ministry also warned other countries against making trade deals with the U.S. at China’s expense, noting that the country would “take countermeasures in a resolute and reciprocal manner.” Meanwhile, friendlier countries like Japan and Korea have each recently cautioned about the significant obstacles remaining toward completing new trade deals with the U.S. Investors should brace for a prolonged period of uncertainty – it has historically taken an average of 18 months for new trade deals to be negotiated and signed, with another 45 months required for implementation. 

2. Safe havens are shining. Gold hit another milestone today, trading above $3,400 per ounce for the first time in history after crossing $3,300 for the first time last week. The precious metal is now up nearly 10% since President Trump announced his sweeping tariffs on April 2. But gold suddenly has some company… While Bitcoin has historically been highly correlated with the equity market, we’ve seen a notable decoupling this month. Since April 2, the S&P 500 has fallen 10%, while Bitcoin has gained nearly 3%. Three weeks do not make a trend, but this may be the first indication that Bitcoin is beginning to trade like “digital gold.”

3. U.S. bankruptcies surge to 15-year highs. First quarter bankruptcy filings hit 188, up 35% from last year and the highest since the aftermath of the Global Financial Crisis. The industrial sector saw the most strain with 32 bankruptcies, followed by 24 in consumer discretionary. With long-term interest rates climbing as inflation expectations become entrenched in the economy, refinancing debt is becoming increasingly difficult… and the growing uncertainty around the president’s trade policies is only adding fuel to the fire.

And one more thing… Poll results

Last Monday, we asked Daily Journal readers if they support U.S. President Donald Trump’s trade war… and the results were split down the middle, with exactly 50% choosing “Yes” and 50% choosing “No.”

As always, let me know what you think: [email protected].

Good investing,

Porter Stansberry
Stevenson, MD

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