How to Take the "Sting" Out of Investing

by Mark Skousen

How to Take the "Sting" Out of Investing

by Dr. Mark Skousen, Investment U Contributing Editor

Friday, November 11, 2011: Issue #1641

"Stocks are the cheapest I've seen in my lifetime." - Ron Baron

Last Friday, my wife and I attended the 20th Annual Baron Investment Conference. Normally Jo Ann has little interest in investing, but this one is unique - it's held at the Opera House at Lincoln Center in New York City and offers live entertainment from the world's top singers, comedians and performers - all free for shareholders. My wife, Entertainment Editor of Liberty Magazine, loves Broadway.

A record crowd of over 6,000 investors showed up, and latecomers were unable to get into the Opera House.

Founder and CEO Ron Baron didn't disappoint with his choices this year. Hugh Jackman, the actor/singer, appears as the surprise luncheon performer. He danced, sang and cracked jokes for more than an hour, and announced he will play Jean Val Jean in the film version of Les Misérables next year.

And the big entertainment at the end of the day was award-winning singer/songwriter/actor Gordon Sumner, otherwise known as Sting, and the Police. They played all their classic numbers, such as "Fields of Gold" and "Shaping my Heart." It was a rousing end to a great conference.

Sting is an appropriate symbol for what has happened to investors over the past 10 years, suffering from two major bear markets ('00 to '03 and '08 to '09). And 2011 hasn't been easy, either.

Baron Theme This Year: Go Long!

Founder and CEO Ron Baron chose a contrarian theme this year, "Go Long."

He noted that interest rates on Treasuries are at the lowest level since World War II as panicky investors are pouring money into fixed income investments and gold.

Investor fear is creating a remarkable bargain opportunity for stocks, which are selling at only 12 times earnings now. "Stocks are the cheapest I've seen in my lifetime," he told his audience.

Ron Baron is worth listening to. His Baron mutual funds were solid performers over the years. (For example, they started investing in Apple in 2005, and have several stocks that increased 10,000%, such as Charles Schwab & Co.) He is now a billionaire and a member of the Forbes 400 Richest Americans.

Baron fund managers generally ignore the global macro economy and focus strictly on buying solid growth companies. They are fundamentalists to the core. They hold stocks for five years or more, doing bottom-up research on individual growth companies that are undervalued and well managed. Their managers visit companies, interview executives, speak with employees and talk to competitors. They are traditional investors; they do not invest in gold and commodities.

Several of the Baron investment managers couldn't help but expressed concern about Europe and other crises around the world.

"European banks need to restructure and recapitalize. Once they do that, Europe will be on its way to recovery," said one manager.

Another fund manager predicted that the housing market would bottom in the next year. And Ron Baron said that the Federal Reserve is deliberating trying to reignite inflation, which would force people to invest in the stock market. He repeated his advice: "Go long!"

One attendee asked Ron Baron what advice he would give President Obama and Congress to get the economy going again. He's not usually political, but his answer drew a lot of applause: "Resign."

Baron has several top-rated funds, most of which are rated either five or four stars by Morningstar. I recommend the Baron Growth Fund (BGRFX), managed by Ron Baron himself. It has a four-star rating, and is beating the market again this year. You can buy the Baron Growth Fund directly or through a discount broker like Schwab.

I suggest you add it to your portfolio and attend next year's Baron Investment Conference in New York City. But come early.

Good investing,

Mark Skousen

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Soaring to Profits

As Mark Skousen wrote today, "Investor fear is creating a remarkable bargain opportunity for stocks, which are selling at only 12 times earnings now."

While it's true that stocks are cheap, we aren't out of the volatile waters quite yet. Therefore investors still shouldn't be throwing caution to the wind.

On October 17, Alexander Green recommended American Eagle Outfitters (NYSE: AEO) to subscribers of his premium service, The Insider Alert. Since then, the stock has weathered volatility surrounding the Eurozone to post a six-percent increase.

Keeping tabs of what how insiders are treating a stock is one way investors can tread more carefully. Renowned fund manager Peter Lynch once said, there are plenty of reasons to sell, "But there's only one reason that insiders buy: They think the stock price is undervalued and will eventually go up."

Here's what Alex told his subscribers in October:

How is American Eagle doing so well when most clothing retailers are crying the blues? The company has reduced inventories and refined store presentation. It has reduced its workforce and increased operating efficiencies. And it has cut costs further by ruthlessly eliminating low-value projects and underperforming stores.

"Top executives are confident about the future. And they aren't just flapping their gums. In the last few weeks, Director Michael Jesselson has invested over $1.3 million in the stock. And long-time Chairman Jay Schottenstein is truly ravenous for the stock. He has invested more than $11.1 million lately. Directors Janice Page and Joseph Spiegel have been nibbling at the stock, as well.

"Clearly, these individuals - who have access to all sorts of material, non-public information about the company - believe American Eagle is undervalued and set to rise. They're also aware that the company is financially strong with $514 million in cash and zero debt.

"When the retailer reports earnings on November 22, I think we'll learn the back-to-school season was good to AEO - and that the company is executing its business plan.

"The insiders are certainly betting that way."

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