You Can Trade or You Can Invest—the Key’s to Do Both at the Same Time

In an age of austerity and a financial climate that’s starved for returns (virtually no return on cash and low returns on bonds), institutional and individual investors are left to pick and choose among equities to try and beat the rate of inflation. Mitchell has always been an advocate for owning dividend-paying stocks and speculating in smaller companies in order to make money from the market. There’s no reason why an equity portfolio shouldn’t include DuPont (NYSE/DD), for example, alongside a risky gold stock like Richmont Mines Inc. (AMEX/RIC).Stock picking is much more difficult at this time, particularly among smaller, speculative issues, because there’s no wind at your back. Stocks are still in a major consolidation/correction phase, and if the S&P 500 Index breaks below 1,300 in a meaningful way, then I think we’re going to see much more downside over the near term. This is why there’s no rush to go long any new positions.

I’ve been writing for quite a while about large-cap, dividend-paying stocks and about how owning the right ones could yield the same or better investment returns than the fastest growing technology stock. In an age of austerity and a financial climate that’s starved for returns (virtually no return on cash and low returns on bonds), institutional and individual investors are left to pick and choose among equities to try and beat the rate of inflation. I’ve always been an advocate for owning dividend-paying stocks and speculating in smaller companies in order to make money from the market. There’s no reason why an equity portfolio shouldn’t include DuPont (NYSE/DD), for example, alongside a risky gold stock like Richmont Mines Inc. (AMEX/RIC).

Consider a company like PepsiCo, Inc. (NYSE/PEP), which is currently only two points away from its 52-week high. The stock is currently yielding about three percent, which gives you full coverage on the rate of inflation, and it boasts an outstanding track record of wealth creation for shareholders.

Not including dividend payments, PEP is up 40% since the market’s March low of 2009. The stock is up about 75% since 2003; 130% since 2000; and 250% since 1995. Again, these returns don’t include dividend payments, which could have been reinvested in the company’s shares, augmenting the return significantly.

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Everyone wants to earn a 75% return on investment in one month’s time. Everyone wants to make money from the stock market. But, when you have the ability to create a portfolio of stocks, rather than just speculating on one or two positions so you can buy a fishing boat, then you have the benefit of investing in a track record of success, rather than gambling on a one-shot deal that’s really only on paper.

Speculating in stocks is a tough business. If it were easy, then there would be a lot more retired equity speculators living on your street. There’s a role for micro-cap stock or penny stock speculation, but the point I’m trying to make is that there’s a greater role for owning common shares of good businesses that have proven to increase investors’ wealth over time.

In a case like PepsiCo, you have an enterprise that’s benefiting from higher rates of growth in Asia, and translating those profits into a weaker dollar. You also have a stock that’s got Wall Street consistently increasing their earnings estimates and that is trading only two points off its high when the broader market is pulling back. A large-cap, dividend-paying stock like this is just the kind of investment to consider once the market’s done with its correction.