Two Oil Stocks Who Have Missed The Party

Since mid March, the All Ordinaries Index has jumped an impressive 17%. We hope you’ve been along for the ride.

Resource stocks continue to lead the way…oil hits new record highs, gold hits US$900 an ounce again, and other key commodities also hit record highs.

Amidst the resource euphoria, we highlight two oil companies who’ve missed the party to date, plus two gold companies set to benefit from the rising oil price.

Dear Hot Stock Market Investor,

The stock market is hot again.

Or perhaps we should say the resources stock market is hot again. As Charlie Aitken of Southern Cross Equities was quoted in Monday’s Australian Financial Review (AFR) as saying “There’s a resources market and then there’s a market for industrials.”

We say buy selected energy stocks, particularly oil stocks, and buy selected resource stocks, particularly gold stocks.

But we’ve been saying that for a long time now. If you haven’t bought any resource stocks, you might be getting bored with our message by now.

But if you have bought resource stocks, you’d have been enjoying the stellar run many of these companies have had particularly over the last few weeks.

As you’ll see a little further down, we maintain our view that we are still in the early stages of this resources boom. The demand from China now and India in the not too distant future simply cannot be ignored. A simple look at the population of the world’s three most populous nations tells a story in itself.

1. People's Republic of China 1,323,902,000

2. India 1,133,037,000

3. United States of America 304,117,000

By comparison to China and India, the USA looks tiny.

In fact, if you add together the populations of USA, Russia, Japan, Germany, France, UK and Italy, you get to just over half the Chinese population.

If you added Australia’s entire population to that of China, the Chinese population would move from 1.3 billion to err… 1.3 billion.

China alone represents 20% of the world’s population. We think you get the point.

Putting all that into an investing equation, we get…

China + India + Urbanisation x 2.5 billion people = 1 Big Resources Boom

BHP Up, Oil Up, Gold Up, Resources Up

Last week, BHP Billiton hit an all time high of above $50.

On Friday in New York oil rose to US$127 a barrel for the first time ever.

Gold, the somewhat forgotten resource in the light of the ever-soaring oil price, broke through US$900 an ounce again.

As reported in the AFR this week, in addition to oil, last week global steel prices, iron ore, coking coal and thermal coal all moved to record highs, with copper being just off its record high.

Since its March 18^th 2008 low point, the All Ordinaries Index has jumped a remarkable 17%. Even more impressively, BHP Billiton has soared around 40% over the same period. The strong Aussie stock market has been mostly about BHP Billiton.

But then regular readers of this email shouldn’t be too surprised about that. Not only have we regularly been telling you that the resources boom is here to stay, we’ve also been regularly telling you about our enthusiasm for BHP Billiton.

The One Stock You Should Have Bought

It all started a year ago almost to the day when our email titled “The One Stock To Buy Today” recommended investors buy BHP Billiton. Back then, the share price was around $31. Today it flirts with the $50 mark.

If BHP Billiton was in fact the only share in your portfolio, in a 12 month period during which we’ve witnessed almost unprecedented global stock market uncertainty, volatility, corrections, panic and fear, you’d be up around 60%! In the same time period, the All Ordinaries Index is down around 6%.

BHP Billiton is one of those rare stocks that remains cheap even as its share price soars. Such companies are absolute gems, worth their weight in gold, or iron ore, or copper, or uranium, coal, lead, gas, oil…

We are constantly looking for such companies to recommend as BUYS to our thousands of Members. If you pick the right ones, like our best ever recommendation, as you’ll see a little further down, they can seriously be wealth-changing events.

BHP’s performance is also rare in that 12 months ago it was already a huge company, and huge companies usually don’t see their share prices soar 60% in a year. That sort of performance is usually reserved for the smaller end of the market.

Which reminds us…although we’re ecstatic at the performance of BHP Billiton over the past 12 months, we usually concentrate on smaller companies.

Small Resource Companies Set To Join The Share Price Party

And right now, many smaller resource companies have missed some of the BHP Billiton-type share price party over the past 12 months. But that is changing.

Over the last couple of weeks we’ve highlighted the recent share price jumps of several stocks. As a reminder, take a look at the share prices of the 3 oil stocks we highlighted last week, updated to reflect another week of gains…

April 2008 Low Price Today Change

Small US producer/explorer $0.29 $0.49 UP 69%

Mid sized Thai producer/explorer $0.46 $0.76 UP 64%

Mid sized WA explorer/producer $1.54 $2.17 UP 41%

Yet looked at over the past 12 months, a period in which the oil price has pretty much doubled, and versus their all time share price highs, the story is a little different…

May 23^rd 2007 Price Today All Time High

Small US producer/explorer $0.41 $0.49 $0.89

Mid sized Thai producer/explorer $0.13 $0.76 $0.80

Mid sized WA explorer/producer $1.64 $2.17 $3.26

At the risk of boring you with share price tables, compare and contrast today’s share price with the initial BUY recommendation price and to that of BHP Billiton’s 60% share price rise in the last 12 months…

FP Initial Rec Price Today Change

Small US producer/explorer $0.57 $0.49 DOWN 16%

Mid sized Thai producer/explorer $0.054 $0.76 UP 1298%

Mid sized WA explorer/producer $2.72 $2.17 DOWN 20%

(All prices taken from Yahoo Finance as at Monday 19^th May 2008 close)

One company obviously stands out – the mid-sized Thai oil producer and explorer is our best ever recommendation.

We mentioned above about how we are constantly searching for those gems of stock market companies that continue to look cheap even when the share price is soaring higher.

Our mid-sized Thai oil play is a perfect example of the nice things that can happen to your portfolio when all the stars line up perfectly.

We first recommended the stock as a BUY back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

Fast forward to today, and the shares now trade at 75.5 cents. Members who bought at 5.4 cents would now be sitting on a massive gain of 1298%.

To put that into perspective, an investment of $20,000 made in February 2006 at a share price of 5.4 cents would now be worth a quite unbelievable $279,629.63.

For those people who might be thinking they’ve missed the boat on this particular oil company, we urge them to think again. Just to underline our confidence in the company, we think the best days for this company could still be ahead of it.

In fact, so confident were we in their future prospects, just last week we reiterated our BUY recommendation for the stock. The good news for new investors is that the shares still trade around the same level as last week…but given the surging oil price and that news of their latest drilling programmes is soon due, the shares may not last long at this price.

There Is Still Great Hope For These Two Oil Party Poopers

By contrast, you could say the share price performance of the other two oil companies highlighted above has been disappointing. Certainly, Members who bought at the price we initially recommended the shares will likely be disappointed to date as they are currently sitting on losses.

On the positive side…

· If we considered those two particular underperforming oil companies a BUY when their share prices were above today’s prices, AND…

· in the meantime the oil price has soared to over US$125 a barrel, AND…

· the companies have largely been progressing as we expected…

you would have to assume investors who bought the shares at today’s prices would still have excellent upside potential.

Now we’re not saying these two companies are going to make the almost 1300% gains of our Thai oil recommendation, but they certainly have the potential for significant appreciation from here, especially with the oil price high and possibly headed even higher.

The Oil Price Hits Yet Another Record High

On that note, the oil price continues to almost defy gravity, trading steadfastly above US$120 a barrel, and closing Monday this week at yet another record high above US$127 a barrel.

At the start of 2007, we re-iterated the view that we have held since 2001; that is, that the price of crude oil would reach US$100 a barrel. At that time oil was around US$60 and mainstream opinion was for a return to prices below US$50.

These views were scoffed at by other 'market experts' on numerous occasions. Investment banks for instance were still using US$30 oil prices in their valuation models a year or so ago.

And it seems they have still not caught up with the game completely. We noted a month ago that many energy companies continue to trade at compelling multiples. We said in our view, the share prices of quality energy stocks will undergo a re-rating over the next 12 months, and play catch up once it becomes completely apparent that oil's Membership of the US$100 club is for keeps.

Well, as we’ve seen from the share prices of the companies highlighted above, it seems like that re-rating has already begun. Yet since then, not only has the oil price jumped another 14%, but we’ve had…

· Goldman Sachs Group raising its oil price forecast for the second half of 2008 to US$141 a barrel. (as an aside, we wonder why they predict US$141 rather than US$140? If anyone from Goldman can enlighten us, that would be appreciated.)

· Goldman Sachs analyst Arjun Murti recently warned people to expect US$150 to US$200 a barrel oil prices over the next 10 years. And that’s all despite oil having already increased twelvefold in price over the past decade.

· Saudi Arabia announced it would lift daily oil production by 300,000 barrels a day. Given world demand for oil is around 87 million barrels a day, this is a proverbial drop in the ocean. Not surprisingly, the oil price barely budged – in fact it ticked a little higher.

Call us simple folks, but adding it all up, we can’t help but think oil stocks and energy stocks in general have still got much further to run.

Gold Jumps Above US$900 An Ounce Again

But what about gold? It was all the rage back in March when it burst through the US$1000 an ounce mark, peaking at US$1032.70.

Since then, the price of gold has been at the whim of profit-takers, US dollar true-believers and sceptics, who believe that the precious metal’s dream-run is coming to an end, because of the metal’s recent correction from the US$1,000 per ounce level.

We have been at pains to point out to our Members that no strongly performing commodity, even gold, will continue to go up in a straight line. We view the current pull-back in the gold price as nothing more than a correction that is part-and-parcel of a strong underlying uptrend.

From a charting perspective, while several months of consolidation and base building are now likely, we believe that longer-term upward momentum will resume in due course, with new highs beyond US$1032.70 achievable in time.

Gold Is Still Way Below Its Inflation Adjusted High

Bear in mind that gold’s previous high of US$850 per ounce in 1980 represents at least US$2,200 per ounce in today’s inflation-adjusted terms, so whilst gold’s rise from US$250 lows just a few years ago may seem significant (and it is), we believe there is a lot more upside to come.

As we have discussed in the past, a key element of gold’s value is the metal’s function as a hedge against inflation. Increasing the supply of paper money is a simple matter for those central bankers who control the printing presses – crank ‘em up baby, just as Messrs Bernanke and Bush have been doing in the US.

Sourcing additional supplies of gold on the other hand is a challenging and expensive process.

To emphasise the point, total world gold production dropped by 1% last year. Between 1999 and 2006, there have been a grand total of only 24 one-million plus ounce gold discoveries. This compares with 23 in 1996 to 1998, and a further 128 from 1985 to 1995. No wonder the price of gold is near record highs, and we think is headed significantly higher.

In summary, we believe that the recent sell-off experienced by gold stocks across the sector presents a real buying opportunity.

One Gold Stock To Buy Today

Just last week we told our Members that the current weakness in the gold price, presented another exceptional buying opportunity for this large gold stock.

As an unhedged producer with a growing production profile and formidable resource base, we think this gold company offers excellent exposure to our view of continued gold price strength. Accordingly, last week we recommended the stock as a BUY to our Members at around $2.96.

Another Gold Stock To Buy Today

The share price performance of this small gold stock has been disappointing this year. However, the stock’s weak performance in our view doesn’t reconcile with the company’s development and future prospects.

Their key gold project is on schedule with its first gold poured just last week, instantly turning them into a gold producer with a highly prospective asset base.

Despite this, we did not consider it prudent to act on our favourable view while downward momentum remained firmly entrenched in the stock price. As such, we have been monitoring the company’s price action with a view to increasing our exposure once a suitable opportunity arises.

Just last week we upgraded the company as a BUY at around $1.10. This is a speculative and high risk stock, suitable for investors comfortable with a large degree of volatility. Nevertheless, in return for this high risk and volatility, we think the stock just might also offer exceptional returns.

We wish you happy and profitable long-term investing.

P.S. Gold bullion site Kitco said on Friday when talking about the gold price versus the oil price…"I don't see oil coming down, at least not sharply…So this suggests to me gold is undervalued relative to oil and that the adjustment is more likely to come through a rise in gold prices and not a decline in the oil price." These comments support our view of a rising gold price and a consistently high oil price.

P.P.P.S. As reported in the AFR last week, a paper by research group Bank Credit Analyst said that using the past 200 years as a guide, price rises for growth-sensitive industrial commodities could still have a long way to go. The paper effectively says the commodity price strength over the past 5 years has merely returned them to their long-term trend. It sounds to us like they agree with us – the resources boom is set to run for years and even decades ahead.

How You Can Beat Rising Petrol Prices

Budget shock: Labor takes from the rich to give to the poor. Liberal voters unhappy. Working families rejoice. Stock market doesn’t care. Read our poem.

The oil price continues to surge higher, with more than one respected source suggesting it might be headed towards US$200 a barrel. If that happens, the stock prices of some of the companies mentioned below could soon be heading into the stratosphere.

There is a downside however – predictions are that it will soon cost almost $100 to fill your car with petrol. We have a hot tip to help you deal with the problem.

Dear Fellow Stock Market Investor,

Everyone else is doing a Budget Special this week, and we’re no exception. As you’ll see below, the only difference is that ours is a little more brief and to the point.

Whilst the budget is big news, as far as stock market investing is concerned, we think it will have little or no impact. In fact, in a rare moment of creativity, we’ve come up with a little rhyme to mark the first Labor budget for 12 years. We hope you like it…

Governments come and go,

Budgets are full of woe,

Policies ebb and flow,

But the stock market should not slow.

We have more on the budget below, but first, back to stock market news.

The oil price continues to hit all-time highs, crossing US$126 a barrel in New York last Friday.

Petrol prices are set to rise even further. With the national average already at a lofty $1.46 a litre, Commsec equities economist Savanth Sebastian has said petrol prices could soon hit $1.65 a litre.

At that level it would cost $99 to fill an average car with a 60 litre fuel tank.

If you think that’s bad, Mr Sebastian also warned it was only the beginning of an upward march.

Welcome to the brave new world of scarce oil and therefore permanently higher petrol prices.

Scary as it is – almost $100 to fill up the car – our theory is that if you can’t beat them, join them. Buy shares in oil companies.

A little further down we highlight 5 of our very favourite small oil producers/explorers. But first, a word on oil.

Why The World Must Discover More Oil

The facts are relatively simple…

· World demand for oil is high and only going to get higher still in the years and decades ahead. For example, the IEA (International Energy Agency) forecast that China and India will add more than 13 million barrels to daily oil demand by 2030.

· Most of the world’s cheap oil has already been discovered.

· Oil exploration companies increasingly have to drill for oil in more and more difficult places. This adds to the cost of exploration and in the event of a discovery, the cost of extraction. Either the price of oil stays high and goes even higher, so that it makes these new discoveries economical for the oil companies, or the oil stays in the ground. Given the increasing demand and the world’s complete reliance on the naturally depleting natural resource called oil, it has to come out of the ground.

To ram home the point, the huge “Tupi” oil field offshore Brazil is estimated to contain some 8 billion barrels of oil. Nevertheless, global oil consumption currently runs at around 88 million barrels per day. As such, although Tupi is one of the largest modern oil discoveries, the field is only sufficient to meet less than 100 days of global demand!

Oil Could Jump To US$200 A Barrel

It’s a little hard to remember now amidst all the oil price excitement, but back in early 2007, when we forecast oil would reach US$100 a barrel, oil was around US$60 a barrel. At the same time, mainstream opinion was for a return to prices below US$50 a barrel.

How things can change. Fast forward a little more than a year and we’ve now got major investment bank Goldman Sachs warning people to expect US$150 to US$200 a barrel oil prices over the next 10 years. And that’s all despite oil having already increased twelvefold in price over the past decade.

As reported this week in The Australian Financial Review (AFR), the president of OPEC Chakib Khelil recently said in Washington that oil at US$200 was possible “if we have a continuing devaluation of the US dollar with respect to other currencies.”

Putting this all together, we retain our view on the long term appreciation of oil due to shortening supply and growing demand. In the near term however, there is a risk that prices have moved too far too fast. As such, we consider a period of consolidation and perhaps even a correction in the oil price is likely.

The Stock Market Is Finally Waking Up To These Cheap Oil Companies

In our view, triple-digit oil prices are here to stay. And based on the recent price movements of some of our favourite small to medium sized oil companies, it appears like the market is finally waking up to this new dawn…

April 2008 Low Price Today Change

Small US producer/explorer $0.29 $0.485 UP 67%

Mid sized Thai producer/explorer $0.46 $0.755 UP 64%

Mid sized WA explorer/producer $1.54 $2.00 UP 30%

(All prices taken from Yahoo Finance as at Monday 12^th May 2008 close)

Just this week, the small US producer/explorer mentioned above made an announcement saying “…we fully expect production levels at the field to reach record highs within the next few weeks, coinciding with record world oil prices…by more than doubling our production rates in the coming weeks we expect a material increase in our monthly sales revenues.”

The mid-sized WA explorer/producer mentioned above is in the middle of a $60 million drilling programme in 2008 pursuing a portfolio of moderate risk, high impact opportunities.

As part of that programme, this month the results of a potentially “game changer” exploration well are due to be released to the market. The company says the drilling result has the potential to see the company’s oil and gas reserves increase by a massive 250%.

If they do strike gas in a big way, we’d imagine the shares could take off. The high impact exploration well is drilling as we speak, with results due at the end of May.

The Harsh Reality Of Investing In Small Resource Stocks

Yet not all small and medium oil production and exploration companies have joined in the fun…yet.

When it comes to recommending shares for our many Members to BUY with their own hard-earned cash, as you can imagine, we are very discerning.

In short, we know what we’re doing. We are often seen on Bloomberg, CNBC, Sky News and ABC television giving expert advice on the stock market. We are regularly quoted in the Australian Financial Review and other national newspapers. When the financial media want an independent opinion, they talk to us.

The harsh reality is that there are literally hundreds of small mining and resources stocks quoted on the Australian Stock Exchange which will never ever make a profit. We’re not interested in these “penny dreadful” stocks complete with dubious management and highly speculative exploration acreage.

With that in mind, when we recommend our Members BUY a stock, you can be sure we’ve done our homework. As well as feeling comfortable about management’s credentials, integrity and past successes, we often meet and speak to them. On occasions we’ve even been out to places like Namibia to actually see for ourselves the company’s acreage and operations.

Of course, nothing is guaranteed in the world of stock market investing. Although we’d love it if every stock we recommended to our Members went up, in reality that is simply impossible. Instead, we concentrate on recommending stocks where the odds of success are stacked in our favour, be that the company has a compelling valuation and/or is sitting on highly prospective acreage.

You Might Be Able To Pick Up This Oil Explorer On The Cheap

As we mentioned above, not all of our specially selected small and medium oil production and exploration companies have joined in the recent share price fun.

Take the mid-sized oil exploration company we’ve previously highlighted here about whom we recently said “…is sure to generate exploration excitement.”

The potential oil resource in place in the area they are drilling is estimated to lie somewhere between 6 million and 40 million barrels, with mean oil resources estimated at 20 million barrels.

We first recommended this exciting oil explorer as a BUY in January last year when the shares were $1.64. We re-recommended them as a BUY in January this year at around the same price, despite the company making excellent progress over the intervening 12 months.

Fast forward to today, and largely courtesy of the sub-prime fall out, the shares currently trade around the $1.05 mark. That is 36% down on the price we were happy to recommend them as a BUY just a few months ago. It just might turn out to be an excellent opportunity for new investors to buy shares in this company on the cheap.

With $48 million in cash and receivables, all in all, we think this company adds up to an excellent medium-high risk/high reward oil explorer.

The Great Budget Winners & Losers

By the time you read this, Wayne Swan’s first budget will have been dissected to death. We’re happy to leave the midnight candle burning to the political experts.

Instead, as promised, here’s our very brief summary of the winners and losers…

The Budget Winners

Ordinary working families.

The Budget Losers

Wealthier people.

It’s classic Labor – take from the rich to give to the poor. The only shock is that after more than a decade of Liberal government, we could be all forgiven for forgetting what a Labor party budget looks like. Now we know again.

We’re politically agnostic. Sure some sectors and some companies benefit more under a Labor government compared to a Liberal government, but we’re not in the game of second guessing politicians in order to generate stock market returns for our thousands of Members. There are far better ways of doing that, commonly known as the “keep it simple” strategy to stock market investing.

Politics is not called politics for nothing. The first post-election budget of any government is not about winning votes. Liberal voters aren’t going to suddenly turn into Labor voters after this budget, and that’s absolutely fine with Kevin Rudd. You can’t take away something you never had in the first place.

Anyway, post-budget, life will go on largely as usual for the vast majority of the Australian population. Working families will still struggle to pay their mortgage. Wealthier people will carry on buying luxury cars and plasma TVs, even if they are slightly worse off from this budget.

Forget The New Mercedes – Watch The Stock Market Instead

In fact, we’d argue that wealthier people are far more likely to be affected by the machinations of the stock market than by paying a little bit more for their next Lexus or Mercedes.

The Australian stock market has recently gone through a period of almost unprecedented growth. As a reminder, take a look at the returns of the All Ordinaries Index over the past 5 years…

· 2007 – UP 14%

· 2006 – UP 20%

· 2005 – UP 16%

· 2004 – UP 23%

· 2003 – UP 11%

Courtesy of the stock market, many people have seen their wealth increase substantially. Their superannuation funds will also have benefited greatly. Up until late last year, the feel good factor for stock market investors would rarely have felt better.

As feel good factors tend to do, all this prosperity created a culture of complacency and comfort. Many people thought the stock market would continue to generate double digit percentage gains year in year out. As a result, the future value of their super funds looked very rosy. Some even contemplated early retirement.

How Margin Loans Ruined The Feel Good Factor

The booming stock market also created a culture of greed. Rich people, ordinary people and highly paid company directors borrowed money in order to further juice their stock market returns. Against the backdrop of this constantly rising stock market, these margin loans were seen by many as being a no-brainer.

You could borrow money at 8%, buy a basket of high-yielding blue chip stocks, use the dividends to pay the loan interest, and sit back and enjoy the strong capital gains. Feeling good…

But as we’ve seen in the first few months of 2008, the stock market can fall as well as rise. High yielding blue chip shares can fall further than you could ever have thought. Take a look at just how far the shares of these popular companies have fallen from their 2007 peak to today…

2007 Peak Today Change

A.B.C. Learning $8.45 $1.28 DOWN 85%

Allco Finance $13.24 $0.56 DOWN 96%

Centro Properties Group $10.06 $0.385 DOWN 96%

(All prices taken from Yahoo Finance as at Monday 12^th May 2008 close)

It all goes to serve some very valuable investing lessons. The three companies above were all heavily indebted. Excessive debt, especially when used to pay top dollar for acquisitions, can be evil.

We successfully avoided the three companies mentioned above. In fact, we’ve been recommending our Members avoid the banking and finance sector for some time now. Notwithstanding the excitement to banking shares caused by this week’s Westpac bid for St George, we’ve been vindicated in our decision.

Instead, we’ve steadfastly stuck to our proprietary stock picking formula which has served us rather well in the 7+ years of our existence, and have stuck to our outstandingly positive view on resources and resource stocks.

Although we like to think our past track record of BUY recommendations is very impressive, here’s a story about one booming resource stock we missed…

The Story Of The Fortescue Billionaire

There was a fascinating story in the AFR last week about how the decidedly low profile Kie Chie Wong of southern Sydney has turned an initial outlay of less than $1 million into $1.2 billion in the space of just 5 years.

They say money makes money, but $1.2 billion is an absolutely enormous amount of money. It is so much money that it is virtually impossible to comprehend.

$1 million is a lot of money.

$5 million would mean you not having any money worries for the rest of your life.

$10 million is about the level you might start thinking about fast cars and fast boats.

$25 million might make you think about properties in exclusive addresses in Australia and abroad.

By $50 million you’d probably look towards philanthropy and the odd Rembrandt and Picasso for the sitting room.

At $100 million you’d seriously be struggling to know what to do with all your money – or so we imagine. (If anyone reading this out there is worth over $100 million, please reply to this email telling us what you do with all your money.)

And He Still Drives A Honda Car…

Stating the obvious, Mr Wong’s $1.2 billion is 12 times more than $100 million. If he lost $200 million, he’d still be worth $1 billion. It truly is impossible to comprehend for mortals such as ourselves, and to be fair, is probably difficult for Mr Wong to comprehend himself – according to the AFR article, he drives a Honda car and lives in a “pleasant but unspectacular brick home.”

How did Mr Wong do it? In 2003, a private family company amassed a stake in Fortescue at split adjust prices of between 1 cent and 3 cents a share. Today the shares trade at around $9.30 and the whole company is worth over a stagging $23 billion.

Andrew Forrest, the founder and major shareholder of Fortescue, is today Australia’s richest person, worth over $9 billion. We don’t think he’ll be too put out if he has to pay a little bit more for his next luxury car.

To us, the most impressive thing about Mr Wong’s new found uber-wealth is that he has held his Fortescue shares all the way through to now. We don’t know about you, but we’d be feeling a little nervous having such a large proportion of our wealth tied up in the fortunes of just one company, and one that has yet to turn a dollar of revenue.

It puts to shame most people’s version of and portfolio diversification. Mr Wong’s hugely successful investment in Fortescue is well deserved. Sure, there was a bit of luck involved – in 2003 the mining boom was something associated with the Poseidon bubble way back in 1970. Today Fortescue’s iron ore resource is in high demand from China.

Three Important Investing Lessons

To ordinary stock market investors such as ourselves, the story of Mr Wong’s rise to the billionaire’s ranks teaches us 3 important investing lessons…

1. When you have a high conviction share idea, you should buy a meaningful amount of shares in that company.

2. Run your winners. Many people make the mistake of cutting their winners and running their losers. If you’ve found a great and growing company whose future prospects are not reflected in its share price, regardless of the price you initially paid for the shares, why would you want to sell it?

3. If you have a high tolerance for risk and can sleep well at night, having a concentrated portfolio can be good for your wealth.

Our Best Ever BUY Recommendation Continues To Fly Higher

Our goal here is to create wealth for our thousands of Members. We try to do that by recommending our Members BUY high quality companies when they are trading at compelling valuations.

Like Warren Buffett, our favourite holding period is forever. We like to run our winners and cut our losers. When we like a company, we are not afraid of re-recommending it as a BUY at prices much higher than our original recommendation.

For example, take the small oil company we featured last week that is already our best ever recommendation.

We first recommended the stock as a BUY to our Members back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

For those of you not lucky enough to have bought at 5.4 cents, or at other share prices significantly below the 55 cents the shares traded at 3 weeks ago, you might be thinking you’ve missed the boat.

But rather than thinking investors have missed the boat, we think the best days for this company could still be ahead of it. In fact, so confident were we in this company’s future prospects, we recently upgraded the stock to a BUY.

Fast forward to today, and on Monday this week, the shares closed up another 6% on the day, and now trade at 75.5 cents. That’s an impressive 37% jump in just the last 3 weeks alone.

But far more impressive is the massive almost 1300% gain any Members who bought at 5.4 cents would now be sitting on.

If they’d followed our investing philosophy of running their winners, and like Mr Wong, weren’t afraid of having a large amount of money invested in one company…

How You Could Have Turned $20,000 Into Almost $280,000

An investment of $20,000 made in February 2006 at a share price of 5.4 cents would now be worth a quite unbelievable $279,629.63.

Now not every share we recommend to our Members will perform as well as this small oil company. Some will fall in value – after all, we’re only human, and mistakes can and will happen.

But, we hope it gives you an idea of what’s possible by investing in the stockmarket, and by following our investing philosophy.

With the share prices of some of our specially selected small resource companies running hot, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. Perpetual portfolio manager James Bruce was quoted just last week in the AFR as saying…“Right now, I think this is the best stock picker’s market in resources that we’ve seen for quite some time.” We couldn’t agree more, and we’re quietly confident our specially selected portfolio of small resources stocks could be soon set to rocket.

P.P.S. Are you worried the resources boom is about to end? We aren’t. Although there is a tremendous amount of investment being thrown at the commodity supply side, it will take a long time for output to rise. The demand we have seen coming from China and India is a long term trend which we anticipate will keep upward pressure on demand for commodities and prices for decades to come.

Resource Stocks Are Hot Again

Resource stocks are suddenly hot again, seemingly catching many people by surprise. But as regular readers will know, we’ve long been resource bulls, so no surprises here.

As you’ll see below, some of our very favourite small resource stocks have jumped sharply higher in a matter of days. Yet, they are still off their all time highs, leaving room for potentially even more quick gains.

Oh, and by the way, oil hit a new record over US$120 a barrel …

Dear Resourceful Stock Market Investor,

We’d like to start this week’s email with news of 4 significant events…

Significant Event #1 - OIL

Oil closed Monday at a new record high of over US$120 a barrel.

Significant Event #2 - GOLD

Gold jumped US$16 on Monday to US$874 an ounce, coming on top of the US$7 an ounce it added on Friday last week.

Significant Event #3 – OUT OF THE WOODS

Last week, the Australian Financial Review quoted EL&C Baillieu Stockbroking director Richard Morrow as saying “I think we’re out of the woods. Investors have lost the panic factor. Knee-jerk sales are stopping and people are looking for good return on investment ideas, especially in the safe sectors of the market such as mining, energy and infrastructure.”

Significant Event #4 – HUGE TAKEOVER

British energy giant BG Group (otherwise known as British Gas) last week bid a massive $13 billion for Origin Energy in what would be Australia’s third biggest takeover ever. Not surprisingly, Origin shares jumped 33%. Also not surprisingly, the share prices of many other energy companies also jumped, and have continued their journey higher in the ensuing days.

Hot Resource Stocks

Resource stocks are hot again. Just take a look at the share price movements of some of these selected shares on just one day last week, Thursday May 1^st 2008, and the movement from their 2008 share price lows…

Thursday From 2008 Low

Queensland Coal Seam Gas Player +19% +104%

Small Oil Producer/Explorer +14% +38%

Tiny South Australian Mineral Explorer+13% +46%

Bargain Priced Junior Copper Explorer +9% +55%

Specialist Mt Isa Copper Producer +9% +59%

(All prices taken from Yahoo Finance as at Monday 6^th May 2008 close)

As you’ve probably guessed by now, all the companies highlighted above are companies we’ve previously highlighted as BUYS to our thousands of Members.

Obviously we don’t get every recommendation right, and the above companies are just a small selection of the over 100 stocks currently in our Reports.

But we think the table above succinctly highlights 2 pertinent investing points…

1. Share prices can move very quickly. Selling out to buy back in at a better price or sitting on the sidelines waiting for a better price can be expensive strategies.

2. If you had the skill, guts and luck to buy small resource stocks at or close to their low point in 2008, you could already be sitting on very substantial profits…but only if you bought the right stocks!

Best Stock Picker’s Market In Resources

Perpetual portfolio manager James Bruce was quoted in last week’s AFR as saying…

“Right now, I think this is the best stock picker’s market in resources that we’ve seen for quite some time.”

He also was quoted as saying…

“There are some outstanding opportunities in resources at the moment, but there are clearly some things that are overpriced as well.”

Although the share prices of all 5 companies mentioned above have jumped significantly, especially from their low points of 2008, they still remain below their all time highs.

Even after the recent share price excitement, given our long-term positive outlook for resource stocks, we still confidently think the best days for these 5 stocks may still be ahead of us.

The Resources Bandwagon Keeps On Rolling

As regular readers of this email will already know, we’ve been very keen on resources stocks for a long time now. We are not jumping on the resources bandwagon just because the share prices of selected resources stocks are rising.

Our exposure to natural resources remains steadfastly positive. The demand we have seen coming from China and India is a long term trend which we anticipate will keep upward pressure on demand for commodities and prices.

On top of that, as long as the world continues to be awash in US dollars, courtesy of the Federal Reserve’s interest rate slashing programme, we believe that demand for commodities (which are priced in dollars) can only continue.

In addition, although there is a tremendous amount of investment being thrown at the commodity supply side, it will take a long time for output to rise. There has been significant underinvestment in new mines, agriculture, energy and exploration for much of the past two decades which were characterised by low commodity prices and low investment.

But all that is changing.

Buffett May Be Wrong, But He’s Betting On A Rising Market

But what about the credit crunch?

But what about the US economy?

But what about the US sub-prime crisis?

But what about Australian interest rates?

But what about rising Australian inflation?

Is there a resources bubble?

Where to from here for the stock market?

If we knew the answer to all those questions, we’d be millionaires by now.

Even the great Warren Buffett, worth a cool US$60 odd billion, doesn’t know the answer to all those questions. Whilst on the one hand he thinks the US recession will last longer than many people think, he fully admits to being no expert when it comes to predicting the economy.

In other words, Buffett may be wrong.

But then again, Buffett firmly remains confident about the long-term prospects of the stock market. So confident in fact, that his company Berkshire Hathaway has a whopping US$6.2 billion potential liability should the US and three other stock markets under-perform over the long-term.

Buffett has been selling long-term equity put options on four major stock indices. These contracts come due between 2019 and 2028. Without getting into too much detail, basically Buffett books a profit of US$4.9 billion if these indices are higher than they were when he entered into the contract.

Here’s the really interesting part of the deal from Buffett and Berkshire Hathaway’s perspective – the company has already received the US$4.9 billion, money the company is free to invest today.

Shock: Buffett No Investing Mug

If the markets finish higher, Buffett and Berkshire keeps the whole US$4.9 billion. If they are lower, they will have to pay out billions, possibly even more than their current US$6.2 billion potential liability.

We fancy Berkshire Hathaway’s odds of a big gain. Buffett is no mug. He knows over the long-term markets rise. As Berkshire itself said this weekend…

“We believe that these contracts will prove profitable over the 15-20 year periods they cover, even if we exclude the investment income we can expect to earn on the $4.9 billion that we hold.”

Our Top Ten Stock Market Investing Tips

So, what does this all mean to mere mortals such as ourselves, ordinary people who can’t quite rustle together the odd US$5 billion to bet that the market rises in the next 15-20 years?

We defer, as usual, to our top ten stock market investing tips…

1. Buy the right shares.

2. Buy the right shares at the right time.

3. Buy the right shares at the right price.

4. Invest with a long-term perspective.

5. Accept that losses are part of stock market investing.

6. Don’t panic when all about are acting like propeller heads.

7. Buy shares when others are fearful.

8. Sell shares when others are greedy.

9. Sell the right shares at the right time.

10. Sell the right shares at the right price.

Picking the right shares is the obvious first step to making your stockmarket riches.

We have devised a proprietary stock picking formula which has served us rather well in the 7+ years of our existence.

· We search for value.

o We don’t just search for cheap companies. As we said previously, we search for cheap companies with excellent management, outstanding assets and sustainable competitive advantages.

· We identify companies that are able to out-perform.

o These are often found in smaller companies. Smaller companies are generally over-looked and under-researched, allowing us to find companies with outstanding prospects, yet valued at a fraction of the price of larger companies.

· We search out unloved companies and sectors.

o We don’t follow the crowd. When others see doom and gloom, we search for opportunities, especially in the previously bombed-out but now hot again small company resources sector.

· We are investors, not traders.

o We look at the company and not the share price. Over the medium to long-term, if we identify the right companies at the right price, the share price will eventually track the underlying progress of the company, and our Members will hopefully be well rewarded.

Alcopops Up, Resources Up, Share Prices Down. Huh?

We’ve mentioned before about the fundamental disconnect between the performance of resources share prices compared to the record commodity prices.

The recent share price gains have gone some way to correcting that disconnect, but with the oil price at US$120 a barrel, and not every company’s share price running hot, we believe the disconnect still exists, and it still offers patient, rational, long-term investors tremendous buying opportunities.

Unlike alcopops…

Federal taxes on pre-mixed alcoholic drinks – alcopops – were recently increased without warning by 70% under a Rudd Government plan to tackle binge-drinking particularly among teenagers.

A visit to the local liquor store confirms the massive price rise. The price of alcopops have jumped significantly higher. As to whether this measure will curb teenage binge drinking, we somehow doubt it. If alcopops are now too expensive, we’re confident the crafty teenagers will find other, cheaper drinks, to quench their thirst.

As an aside, why doesn’t Nanny Rudd raise the taxes on cigarettes by 70% to tackle binge smoking? Could it have anything to do with more smokers being of voting age than the majority of alcopop drinking teenagers? Just a thought.

The point is that when the taxes on alcopops were increased by 70%, in response the price of the drinks also rose, instantly.

But it’s not happening like that with commodity prices versus resources stock prices.

Since October last year, the oil price has risen by around 45%.

Since October last year, the price of Woodside Petroleum, Australia’s largest “pure-play” oil and gas company has risen by around 10%.

Most broker valuations are done using oil and other commodity prices which are significantly less than the current prices.

The resources companies themselves are somewhat guilty of modelling their return on investment based on significantly lower commodity prices than those that currently prevail.

It’s a case of…

· I see the oil price is at US$120 a barrel, but I can’t believe it;

or

· I remember when oil was close to US$10 a barrel, and I can’t get that out of my mind;

or

· I am going to under-promise and over-deliver.

The Real Truth About The Future Oil Price

Despite the cautiousness, the truth doesn’t lie. NYMEX Crude Oil futures all the way out to December 2015 are priced at well over US$100 a barrel.

As we said a couple of weeks ago, we firmly believe US$100+ oil prices are here to stay.

Many resource sceptics believed that the sharp pullbacks in commodity prices a few weeks ago signalled the end of the resources bull market. In oil's case, bears were expecting a hasty retreat below the psychologically important US$100 a barrel mark.

Instead, just a few weeks on and oil has again hit fresh all-time highs, with prices reaching a record US$120 a barrel. In our view, triple-digit oil prices are here to stay.

As a reminder, we’re not the only ones who think this. As was recently reported in the AFR…

“Barclays Capital has put a rocket under its long-term oil price forecast, predicting the price of the black gold will average US$137 a barrel until 2015, up 44 per cent on its previous estimate made 18 months ago.”

Getting High On These Two Small Oil Stocks

A couple of weeks ago you may remember we highlighted two small oil stocks we thought were significantly under-valued.

You don’t?

In our most recent update to Members, we said this about one of the companies …

“When we last covered it we thought the company was a bargain-priced entry then, but over the past few months the story has advance significantly and become more attractive. In the meantime the company’s share price has halved, making the company extraordinary value in our opinion. When will the market wake up and smell the coffee, we ask?”

The share price is up almost 30% in the past month alone. It was one of the stocks we mentioned above, one that jumped 14% in one day alone just last week.

The other small oil company we highlighted is already the our best ever recommendation.

We first recommended the stock as a BUY back in February 2006. At the time, the share price was a lowly 5.4 cents and the total company was worth just $17 million.

For those of you not lucky enough to have bought at 5.4 cents, or at other share prices significantly below the 55 cents the shares traded at 2 weeks ago, you might be thinking you’ve missed the boat.

But rather than thinking investors have missed the boat, we think the best days for this company could still be ahead of it. In fact, so confident were we in this company’s future prospects, we recently upgraded the stock to a BUY.

Fast forward to today, and on Monday this week, the shares closed up another 6% on the day, and now trade at 69 cents. That’s an impressive 25% jump in just the last 2 weeks alone.

The Time To Buy Is Now

It just goes to show how quickly and decisively share prices can move. Sitting on the sidelines and waiting for…

· A better price;

or

· The next stock market crash

can be an expensive investing strategy.

If a share offers value at today’s prices, the time to buy it is now. That doesn’t mean the share price can’t or won’t go down, because share prices can move independently of the company’s underlying value.

But over the medium to long-term, if your investment thesis is right – great company available at a good price – then you should ultimately be rewarded with a rising share price.

With the share prices of some of our specially selected small resource companies running hot, some jumping as much as 19% in just one day, we urge you to act now in order to access our current recommended stocks.

We wish you happy and profitable long-term investing.

P.S. It’s not just us who think the US economic woes are becoming increasingly irrelevant to the ongoing resources boom. Last week the AFR said “The strength in iron ore and coal really is a story about the rising strength of Asia, most notably the economic renaissance of China and India.”

P.P.S. Legendary investor Warren Buffett said in a recent interview on CNBC said “…if we're going to use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the next five or 10 years, we're going to have a tough time maintaining production that satisfies those at this price, even.” Sounds to us as if Buffett might be an oil price bull too.