Get-Rich Stocks vs. Stay-Rich Stocks
One Great Year-End Deal on Get-Rich Stocks
One Great Stay-Rich Stock
If you were George Lucas, who recently sold his business to Disney for $4 billion, how would you invest that money? If you listened to the average financial adviser, you’d diversify. You’d put some in real estate, both urban and rural. You’d put some in tax-free bonds. And you’d put some in high-quality dividend-paying stocks, both domestic and international. You might even buy a bunch of gold, silver, cars, wine, guns, fine art—even the rights to old movies.
Having done that—and hired managers to keep an eye on things—you could relax, and pursue whatever struck your fancy, knowing that the value of your portfolio in the long run would at least keep up with inflation.
That’s what I call “Stay-Rich Investing.”
But what if you’re not George Lucas? And what if, like most Americans, you haven’t yet amassed a portfolio large enough to practice Stay-Rich Investing?
Then you need to practice “Get-Rich Investing,” and that’s a very different activity.
Because you want substantial growth, you’ve got to take greater risks; tax-free bonds won’t do it for you. But because you can’t afford to lose much, you’ve got to control that risk carefully.
Now to some people, that’s going to sound like a contradiction. How can you take more risk if you’re going to control for risk more tightly?
Well, the answer to that lies in the timing; you take more risk when the market environment is rewarding risk-takers and you take less risk when the market environment is penalizing risk-takers. In that way, you come out ahead in the long run.
In fact, that’s precisely the investing system that’s been used by Cabot Market Letter for the past 42 years. It’s stood the test of time! And in that time, it’s doubled the investments of subscribers many times over.
In fact, over the past five years, while the broad market has made no net progress, Cabot Market Letter has continued to guide readers down the path to profits, outperforming S&P 500 funds by 8% per year, resulting in about 50% more money than the index. And that’s saying nothing about the investors who followed their gut and bought high and sold low and did even worse!
A key aspect of this investing system is timing; I can’t emphasize enough how important it is to hold cash when the market is going down. Holding cash preserves your capital so you can invest more when markets are going up.
But equally important is stock selection, for those times when the market is rewarding risk-takers.
The mistake most people make when they select a stock is this: they buy proven winners, like Apple, Microsoft and Netflix. Trouble is, those stocks’ best days are behind them; in fact, some may have peaked for good. There’s a ton of potential selling power in those well-known stocks because they’re already heavily owned by institutional investors.
What you should do instead is buy the next Apple, the next Microsoft and the next Netflix. Now, obviously, this takes more work. It takes research. It takes imagination. And it takes courage. But when you make the right choice, the payoff can be immense.
Happily, we can help. In fact, I’ve just created a special report titled “5 Rising Stock Stars for 2013” and I’d like you to have it. It details five up-and-coming companies with the potential to make you big money in 2013.
One is in the huge athletic apparel industry. I think it has the potential to be the next Nike.
One is in the fashion apparel industry. I call it the next Coach.
One is in semiconductors. I call it the next Intel. The difference is that in Intel’s heyday, the growth was in CPU technology. Today the action is in chips that enable networks, like the Cloud.
One is in the fast-growing field of medical data collection and analysis; as Obamacare is implemented nationally, this company’s business is almost guaranteed to thrive.
And one is a social media company for professionals. I call it the opposite of Facebook, because while Facebook came public to great fanfare and flopped, this company came public quietly and has been rewarding shareholders since.
The future for these five companies is bright, and their charts confirm this. All five have stocks that are being accumulated by savvy institutional investors. And because they’re not very popular (yet), all five stocks promise big rewards to investors who get on board at the right time.
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Find out which stocks you should buy this month to make money in this volatile market.
Moving on, I do have one Stay-Rich Stock idea as well, courtesy of my daughter Chloe, who’s the editor of Dick Davis Dividend Digest. It has low business risk, a good dividend and an attractive valuation.
But first, let me explain why I think high-quality dividend-paying stocks like this are a particularly good bargain today.
It’s not because I’m fearful of the national or global economy. As an optimist, I know today’s problems will be resolved, and that—as always—there will be great investment successes in the meantime.
And it’s not because I’m leery of growth stocks; I can always find a growth stock I like.
No, today, I’m spotlighting a dividend-paying stock because nearly every day, Mike Cintolo stands up to talk across the partition between our desks to mention another high-quality blue chip that is selling at a bargain price, has a good dividend and has a chart that has gone nowhere for years (meaning it’s ripe for movement).
In other words, scores of high-quality dividend-paying stocks look very attractive today, both fundamentally and technically.
One of them is the well-known International Business Machines (IBM), which was recommended by Patrick McKeough, Editor of Canadian Wealth Advisor. Here’s what Pat wrote, which was reprinted in Dick Davis Dividend Digest.
“International Business Machines Corp. (IBM, $190) is down from $210 a share in mid-October after it reported revenue of $24.7 billion in the quarter ended September 30, 2012. That’s down 5.4% from $26.2 billion a year earlier and short of the consensus estimate of $25.4 billion. The slow global economy is hurting demand for IBM’s mainframe computers, services and software. That’s why its revenue fell. However, the company’s ongoing cost cuts and productivity improvements pushed up its earnings before one-time items by 10.4%, to $3.62 a share from $3.28. That beat the consensus estimate of $3.61.
“Like most big tech stocks, IBM needs an improved global economy to post significantly higher revenues. But it is keeping its research spending high, at $1.6 billion, or 6% of its revenue in the latest quarter. These investments are letting IBM continue its expansion in high-growth areas, such as Cloud computing and analytics software, which helps businesses track consumer purchasing and other data. That positions it for gains even if the economy recovers slowly. The company still expects to earn at least $15.10 a share in 2012. The stock trades at just 12.9 times that estimate. The company also aims to increase its earnings to $20.00 a share by 2015. IBM is still a buy.”
Now, if this appeals to you, you could just run out and buy IBM today. It would probably work out okay. Trouble is, you wouldn’t know when to sell. And you should probably have other dividend-payers in your portfolio, for balance and diversification.
Yours in pursuit of wisdom and wealth,
Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More