This Bank Stock Could Bring You 100% Gains (Conservatively)

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If there's one thing I've learned throughout my more than 20 years in the markets, it's that with some companies, there's more to them than meets the eye.

This was especially the case with Home BancShares Inc. (Nasdaq: HOMB), a regional bank based out of Conway, Arkansas.

On a Friday afternoon back in summer 2016, I was wrapping up my work and heading out for my "ready for the weekend pizza and vino" run when I got an email from Home BancShares chairman John Allison.

Now, I had just published an article about banks that I thought were overvalued at the time based on the price-to-book-value ratio. Mr. Allison's company made the list, and he thought I was a little unfair in that regard.

Don't be mistaken: he didn't chew me out or anything. He's a stand-up guy who wanted to have a thoughtful conversation and provide me with his side of the story.

And let me tell you that if I had a bank, I would definitely want Allison as my CEO…

Jump on This REIT Before the Fed Hikes Rates Again

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Hey, did you hear? Interest rates are going up.

You know what that means: We should sell our real estate investment trusts (REITs).

Well, that's what Wall Street would like you to believe during periods of rising interest rates.

After all, REITs borrow a lot of money, so their borrowing costs will go up, their cash flows will shrink, and they might have to cut their dividends. Higher rates mean more competition from fixed-income investments. That urges investors to sell their REITs, then take that cash to go buy bonds, thus dragging REIT prices lower.

I mean, the Federal Reserve began raising rates in June 2004, going from 1.25% to 5.25% by summer 2006. That's a massive increase in just two years and had to have been horrible for REITs.

Buy This Stock to Take Advantage of Arbitrage Trades

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A couple weeks ago, I took a trip up to Maryland to visit my publisher, Money Map Press, and attended their annual holiday party.

The party was international themed this year, and quite extravagant if I don't say so myself. I didn't hesitate to take full advantage of more than a few free cocktails at the open bar throughout the night, but I still remember seeing a Chinese dragon and few fan- and umbrella-bearing women dressed in traditional Chinese attire.

Prior to the party, I brought along some copies of Mario Gabelli's book, "Merger Masters: Tales of Arbitrage," and handed them out to my team of editors as little Christmas gifts. If you want to learn a little more about what you can gain from reading the book, including how to make lots of money doing arbitrage, take a look at my most recent article.

Spend $100K on an MBA – or Make Millions by Learning This Arcane Art

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If you want to learn the art of deal-making on a very high level, you may consider reading "Merger Masters: Tales of Arbitrage" by Kate Welling and Mario Gabelli.

I just finished this new book, and it's outstanding. I highly recommend it to all of you.

Reading the book gave me some pause, as it occurred to me just how much the arcane art of risk arbitrage dictates the way I look at markets and companies.

I have traded arbitrage almost from the start of my investing career. Some of my biggest success stories were from liquidation arbitrage situations where the value of the assets appreciated during the liquidation phase, and we collected far more than initially anticipated.

But the value of doing merger deals is not just the money that we can make, but the information and lessons we can learn from studying the deal markets on a daily basis.

Analyzing merger deals and evaluating the likelihood that all the regulatory hurdles, shareholder approvals, and financing issues can be overcome to allow quick closing on profitable terms is more of an education than any MBA program in the country if making money in the stock market is your ultimate goal.

My "Choose Your Own Adventure" 2019 Market Forecast

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If you're something a geek, you may spend just as much time as me reading academic papers and research about markets and valuations.

And you may find one paper about the market and valuations quite valuable.

Wim Antoons, the head of asset management at Bank Nagelmackers in Brussels and a member of the Brandes Institute Advisory Board, wrote the paper. The Brandes Institute is a research firm associated with legendary value investor Charles Brandes, and they publish some cutting-edge research on a pretty regular basis.

The paper was titled "The CAPE Ratio, and Future Returns: A Note on Market Timing," and it covered the use of the 10-year average P/E ratio as defined by Nobel Prize-winning Yale Professor Robert Shiller. Professor Shiller uses a definition of earnings that are adjusted for inflation, and this gives us a much clearer view of the market's current valuation.

Not surprisingly, the study found that when the Cape Ratio is low, future stock market returns tend to be higher than average. When the ratio is very high, future stock returns tend to be awful. This has been studied by numerous academics and investment managers who determined it a fairly accurate measure of what we can expect from stock prices over the long term.

The ratio is currently at 29, which is well above the historical average of 16.7. So we can expect that future stock market returns will be lower than the historical average, and Antoons' study tells us that future returns will be somewhere between bad and abysmal.

But you can't just assume that a high Cape Ratio means that stock prices will immediately fall. The problem we face as investors is that the path to lower returns is not necessarily straight down; there are actually many paths to lower returns.

3 Tough Questions to Ask Warren Buffett

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If you're lonely, in dire need of a lunch date, or just happen to have a few million dollars lying around, you could try your luck at scoring the most successful investor in history.

The "Have Lunch with Warren Buffett" auction happens once per year, and the most recent winning bid reached as high as $3.3 million when all was said and done. Instead of being a meaningless opportunity for rich people to throw money around, the auction raises money for GLIDE, the favorite charity of Buffet's late wife, which is geared toward serving San Francisco's homeless population.

Some pretty cool things have happened to those who bid up for the meal. Ted Weschler, for example, paid about $5.3 million total to win the auction two years in a row. He now picks stocks and manages over $10 billion at Berkshire Hathaway Inc.

I have to admit it would be cool to have lunch with Warren Buffett. I would even pick up the tab for his signature steak and hash browns at Smith & Wollensky, or any other steakhouse of his choosing.

But while GLIDE may be a great cause, it could never inspire me enough to pony up the kind of money these rich Buffettologists are paying just to say they had lunch with their idol.

Yes, Warren Buffett is still the most successful investor and businessman in American history. He and right-hand man Charlie Munger have transformed Berkshire from an investment firm into an enormous collection of businesses. Very few people on the planet could make that transition with the same level of success.

Although I won't shell out $3 million to share a steak lunch, I've long been brewing over many questions I'd ask him if I had the chance.

They concern issues that the Oracle of Omaha needs to get straight, for the sake of individual investors like us.

Get "Whacked" and Let the Market Party Begin

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Ah, the classic "Whac-A-Mole" game.

We can all undoubtedly recall a time when we went to the arcade and played it. And it serves as the perfect analogy for the current market.

Recently, every time we felt like it might be safe to stick our heads up and look around – WHAM! – down came the hammer, and the selling began again.

It has been a while since we have seen this type of selling persistence, and some folks I talked with during the past week were getting a bit edgy about owning or buying stocks.

"Straight up" has been the path for the better part of the decade and "buy the dip" has been an infallible trading strategy. So, naturally, the latest turn of events has left a mark on some people.

If you bought big on the first dip back in September, you have been hammered a couple of times now as prices just continued to fall. Every rally attempt was met with still more selling, and it stings a bit.

I'm sure a lot of people experienced a first in their lifetime, even in the past month, as those who were long with leverage received their very first margin call.

These Tiny Devices Are Your Pick-and-Shovel Ticket to the Hottest Market Trends

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You may ask whether I'm missing out on the big trends because I'm such a fanatic about the prices I pay for the businesses I own.

After all, using rigid pricing requirements such as those used in Heatseekers means that we will avoid investing directly in significant trends like artificial intelligence, big data, driverless cars, e-commerce, hypersonic weapons, cybersecurity, and even cannabis.

These are all super exciting investment themes that fetch high multiples of revenues and often elusive profits.

But just because we avoid investing in these themes directly doesn't mean we can't take advantage of them indirectly.

So what's one example of how we can do that?

This Fed Document Is the Closest Thing Investors Have to a Crystal Ball

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Today we are going to talk about the Federal Reserve.

While I am aware that a certain percentage of you have now clenched your fists in rage and are mumbling about the vast global conspiracy, the Illuminati, and the trilateral commission, and another segment of you are yelling about gold standards and the evils of fiat currency, let's table all those conversations for another day.

The Federal Reserve may not be the best way to manage our nation's money supply, but it's what we have and what we will have for a very long time to come.

Whatever you think of the Fed and their policies, you cannot debate this one thing: When it comes to collecting and distributing economic information, they are unsurpassed by anything on the planet. They have tremendous resources, and they do not hesitate to share all that data with taxpayers.

I pay very close attention to reports from the Fed for the simple reason that they have more data than anyone else. Reading the Beige Book and other informative releases from the central bank gives a much better picture of the U.S. economy than all the talking heads and pen-wielding experts combined.

We can listen to the chorus of doom and gloom or the cheerleaders who predict easy money and vast fortunes ahead, or we can pay attention to what the actual data is telling us. 

The data is giving us a crystal clear overview of how banks, as well as individual and business loans, are faring.