By Dan Ferris in the S&A Digest:

We have a standing agreement not to scoop James Grant's detailed reporting of his own conference, but it's kosher to mention a couple highlights...

I thought that, for my trip to Grant's to benefit you the most, I should try to figure out the smartest thing said all day. I couldn't narrow it to a single utterance, but there were a few excellent candidates.

Thomas Gallagher, the head of ISI's Policy Research team in Washington, spends his days trying to figure out the investment implications of political developments. He said, "It's a huge mistake to expect markets to validate your political views."

Sounds pretty smart to me. Stay focused on what really matters: returns, price of assets in relation to value, sources of cash flow, and other important variables. Avoid becoming overly political with your investments.

Gallagher also said, "'Former' is the word we use to describe politicians who expect voters to sacrifice anything."

The Blackstone Group's Byron Wien (pronounced "ween") kicked off the conference with his now-famous list of 10 Surprises for the year, which he's been doing since the early 1990s. Wien's 2009 list included the S&P 500 hitting 1,200, gold hitting $1,200 an ounce, oil returning to $80 a barrel, a sliding dollar, 4% Treasury yields, and a few other things either correct or close enough.

Wien's contribution to the smartest things said all day was: "Very few institutional portfolios are holding gold."

I sat between two reasonably bright individuals on the plane ride to New York. Neither wanted to buy gold. I told them I thought that was a huge mistake. Wien thinks gold will hit $1,500 this year. He also said, "Treasuries are the best short I know." Wien says going long Japan is the perfect surprise, because no one likes it. He also recommended putting 25% of your money in emerging markets but didn't name any prominently.

Another smart thing Wien said was, "The scourge of the investment business is short-term thinking." Short-term thinking is why the market produces 6%-7% a year, long term, and mutual fund investors lose 4%-5% on average. Everyone gets ecstatic at the top and buys, then gets scared at the bottom and sells.

Steven Galbraith of hedge fund Maverick Capital said, "I hate being long [stocks] right now." The trade that works is usually the one you hate.

Paolo Pellegrini of PSQR Capital made a ton of money the same way John Paulson did, by shorting the daylights out of the financials prior to 2008. During his talk at Grant's on Tuesday, Pellegrini said, "Obama is letting businesses make money, because he knows he can take it back later." Pellegrini thinks a big market drop is imminent.

Tom Gayner is the "uber" value investor who manages investments for Markel, the insurance company. He spoke at Grant's, too. Gayner said Markel's excellent underwriting and conservative reserving means its book value is real wealth that will be preserved over time, effectively "a security of infinite maturity." I've never heard it put that way. I think Berkshire Hathaway shares, too, qualify in that regard, for similar reasons.

Aside from the smartest thing said all day, I also wanted to find the best investment idea of the day. There were several good ones: long gold, short Treasuries, long Japan...

But the winner was definitely Sy Jacobs, founder of Jacobs Asset Management. Jacobs sold short many bank stocks from 2005 through 2008. Now, his firm is buying bank stocks that have excellent managements and plenty of capital. Jacobs says these banks are prime candidates to purchase FDIC-backed assets from failed banks. He mentioned a couple stocks.

But forget about Jacobs' picks for now, because our own Tom Dyson beat Jacobs to the punch, with a fantastic new bank stock pick that matches Jacobs' criteria. Dyson's bank recommendation has over $3 billion of cash sitting on its balance sheet. And its management team refused to participate in the subprime lending bubble in particular, and in the real estate bubble overall.

I rarely read about investment opportunities I wish I'd found, but Tom's bank stock idea is one of them. When an overcapitalized bank buys FDIC assets, the FDIC backstops the losses, limiting the losses the bank will take. If management buys a bank with a good deposit base, it's easy to grow assets and earnings rapidly. Betting on banks that can take advantage of other banks' failures is one of the best ideas out there today.

It's perfect for anyone who's afraid to buy stocks because of the government's heavy hand in our economy. The government wants these stocks to go up more than any others, and it's doing everything in its power to make that happen.

Crux Note: To sign up for Tom's 12% Letter and learn more about his bank stock recommendation, click here.

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