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A Billionaire with a Quarter of His Portfolio in Telecom

By Stansberry Research Interview Series
Monday, April 2, 2007

In investing, you have to be willing to go where no one wants to go.
 
Just ask Charles Brandes.
 
Brandes founded his firm, Brandes Investment Partners, in 1974 – right after the seventh worst stock crash in history. U.S. equities had lost 45% of their value in the previous two years. Few times in the 20th century seemed worse to open a stock-based investment firm.
 
But Brandes was a disciple of legendary value investor Benjamin Graham. So while everyone else saw disaster in the U.S. markets, Brandes saw quality companies trading at bargain-basement prices. He saw a beautiful illustration of the three most important words Graham ever spoke to him: "margin of safety."
 
Brandes bought and bought big.
 
Since 1987, Brandes' Global Equity fund has shown investors an average annual return of 14%, outperforming the MSCI global-stock benchmark by an average of 5%. Last, year he returned a whopping 27%.
 
Today, Brandes' firm manages more than $117 billion in assets. Brandes himself is worth about $2 billion, making him the 133rd richest American.
 
And he's shifting his firm's money into telecom stocks.
 
Investing trends usually take five years to play out. Telecom stock ruled from 1996 to 2001. It's no coincidence that from 2001 to today, the stocks on the other end of the spectrum – real estate and commodities – have been the biggest winners.
 
Brandes is betting that it's time for the pendulum to swing back. He currently has more than 24% of his portfolio in telecom stocks.
 
The value there is unbelievable. Telecom giants Verizon (VZ) and Sprint Nextel (S) are both trading at four times cash flow. And the industry is beginning to show signs of life again. Verizon and AT&T are both approaching new 52-week highs.
 
The Telecom ETF (IYZ) has outperformed every other industry except utilities for the last 12 months. While oil and real estate dominate the headlines, telecom stocks have begun a strong rally.
 
Brandes favors international fixed-line operators...

Company
Symbol
Holdings
Telefonos De Mexico
TMX
$1.3 billion
Telefonica
TEF
$1.0 billion
Deutsche Telekom
DT
$1.0 billion
KT Corp
KTC
$993 million
 
The U.S. may be saturated with phone lines, but in many developing countries, these services are still in their infancy. We'll dig deeper in to the sector in the coming week and report on our findings soon.
 
Good trading,
 
Graham




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%