Hawkins is buying... Will Summers win?... The debate over buybacks... Who reads Stansberry?... Missing the joke...

"We have found several new qualifying purchases..." the extraordinary letter begins.

Further down, the reader finds a request for $2 billion in new equity funding: "We are asking all shareholders to join us in increasing their investment in the Fund. Today's opportunity set could digest approximately $2 billion..."

Why would you consider sending in your money? Because the letter comes from Mason Hawkins, the legendary investor at the helm of the Longleaf Partners Fund.

"Since the end of the third quarter we have sold one position and scaled back another in order to begin buying two new companies. At today's prices, $2 billion would enable us to complete the orders on those two names..."

Over the years, Hawkins has proven to be amazingly adept at knowing when the holdings of his fund were most attractive. If Hawkins doesn't raise the entire $2 billion from existing shareholders, he will re-open the fund to new investors. If that opportunity arrives, don't miss it. This is one of the world's truly great mutual funds.

According to Morningstar, Hawkins' top five holdings in the Partners Fund are: Dell, Level 3 Communications, Aon, Chesapeake Energy, and Yum Brands. It will be interesting to discover what two new opportunities Hawkins wants to buy. My bet? At least one of the names is a big bank – like Citigroup or Bank of America.

The intensity of the competition between our various analysts is rising in anticipation of our upcoming S&A Alliance conference. As you'll recall, we're going to ask the audience to select which editor's idea will become our 2008 "stock of the year."

Says International Strategist editor Graham Summers: "I've got Dyson beat... My company has a monopoly in Singapore and is a market leader in seven other countries. It's the largest Asian supplier of its services outside of China. It's twice as profitable as its most profitable competitor in the U.S. And it's in a much faster-growing market: Gartner Group estimates that by 2009, one third of the world's market for these services will be based in Asia. The Singaporean government owns more than half of this company, so big payouts are guaranteed. It's paid out $34 billion to shareholders since 2000..."

After eight years of laboring in obscurity, we suddenly find our work appearing in interesting places. Last week, a well-known money manager thought enough of our work on GM to pass it along to Warren Buffett and Charlie Munger. He copied us on the e-mail exchange. We were awed to know these guys were reading our research. Then, this morning, word reached our office that Sjuggerud's research (and bullish disposition) on U.S. regional banks was being passed around the big trading desks and hedge funds of London. We hope it's not a top in the market for Stansberry Research...

More pain for the banks... London-based HSBC Holdings is writing off $3.4 billion in profit to reflect losses from its U.S. mortgage operations. And embattled Bear Stearns now expects a $1.2 billion write-off. Bank stocks have rebounded because the losses were smaller than expected – but they're probably not over yet. Fitch downgraded another $37 billion of CDOs yesterday, including $20 billion worth of paper that had been rated investment grade and is now considered "junk." As long as the downgrades continue, so will the write-offs.

It's not often you get to see such nice compliments said about one of your oldest friends. Chuck Butler, senior vice president of Everbank World Markets, writes in his blog:

"Our friend, Steve Sjuggerud, who happens to be such a great person, and surfer, and investment analyst, and from what I found out tonight... A great guitar player! I had one of the best nights of my life tonight... Steve Sjuggerud came to dinner with us EverBankers, and in each hand he carried a guitar case... In those guitar cases were vintage, and very expensive, Martin acoustic guitars... Steve and I then sat down on the stage in the restaurant and began playing guitars together... He was incredibly good, and quite frankly I was just along for the ride... But I carried out the songs, and belted them out too... I sat there playing this awesome guitar with Steve Sjuggerud... I was in heaven!"

New highs: Realty Income (O), Berkshire Hathaway (BRK-A).

In the mailbag... Surely no one would seriously mistake the letter we wrote from the "chairman" of GM (an obvious parody) as being a real letter from Richard Wagoner, would they? Oh, yes, dear subscribers. There's one in every bunch. How have we misled you? Let us know: feedback@stansberryresearch.com.

"As a subscriber to your newsletter, I hopefully am being told the truth. Your letter from GM's Chairman is not signed. I have been told by a retired GM engineer that this was not written by the Chairman but is a spoof but I have found no disclaimers. Is this letter written by the Chairman or not? I have been spending quite a bit of time figuring out a trade on GM and am preparing to commit quite a bit of money utilizing your information so it's important to know the answer." – Paid-up subscriber Schnitz

Porter comment: Our letter from the "chairman" is clearly a parody, written by me and signed by me. I've been writing such a letter each quarter for some time. The letters, by the way, have garnered a surprising amount of attention. Fund manager Whitney Tilson relayed it to his mailing list (and e-mailed a copy to Buffett and Munger, too). When Tilson asked permission to republish the letter, I warned him to make sure it was clear to his audience that the letter was a spoof. Lord knows, the last thing I need is another SEC lawsuit claiming I've lied again...

"In yesterdays S&A Digest, you featured BHP and data indicating that 75% of companies which buy back their own shares underperform the market. This is in direct contradiction to an entire True Wealth issue released a few months ago, in which Steve made the strong case for 'Buyback Achievers,' and recommended a position. Which one of you is right, and why are you on the same team?" – Paid-up subscriber Doug Martin

Porter comment: The answer to this apparent contradiction lies in a more advanced understanding of what it means to buy back stock. Many companies buy back shares. That fact alone does not make them great investments. On the other hand, relatively few companies actually reduce the number of shares outstanding each year by any significant amount. (Share count goes up when companies issue stock options, when they convert certain types of debt, or when they simply sell additional shares to raise funds.) A sustained decline in share count, year after year, has obvious implications for the value of the remaining shares. Both Steve Sjuggerud and Dan Ferris have recently written about this subset of companies that buy back a substantial number of shares and actually reduce their share count.

As for why Sjuggerud is on my team, hopefully that doesn't require any explanation: He is simply one of the finest equity analysts in the world and one of the finest people I've ever known.

Regards,

Porter Stansberry
Baltimore, Maryland
November 14, 2007

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