I didn't see that one coming…
Yesterday Australian shares posted their biggest one-day gain since December last year, the S&P/ASX 200 smashing back through 5,400, its sights no doubt firmly on 5,500 and beyond.
Perhaps David McDonald of Credit Suisse's year end prediction of 5,800 might come sooner than he and the rest of us thinks.
Or perhaps it's the start of the End of Financial Year (EOFY) stock market rally I've been talking about…
BHP Billiton (ASX: BHP) is no hot technology stock, but when it comes to beating the returns on term deposits, it's one bet I'm willing to take.
On Wednesday I highlighted the surprising dividend attraction of the company… and BHP's stock promptly soared more than 3% higher yesterday.
I wish I could take all the credit for the sharp jump higher in BHP's share price.
But sadly not. In fact, I can't take any of the credit. I just got lucky.
I'll just have to stick to being a humble stock market investor, and rely on champion golfer Gary Player's quote to help me generate substantial investing wealth in the years to come.
"The harder you work, the luckier you get."
I fancy my chances of success…
Overnight in the US, the S&P 500 closed at yet another record high, advancing for a fifth straight day, the longest winning steak since April.
Judging by the comments on Bloomberg from fund manager Lex Van Dam, the record may be extended…
"There remain very few alternatives for your cash other than putting it in stocks. The trend remains up in markets."
The trend is your friend, Foolish readers. Strap yourself in and enjoy the ride.
In the face of a bull market, many investors make two common mistakes…
1) They do nothing, thinking they've missed the boat.
2) They wait for a pull back… and when it happens, they do nothing, waiting for the next pull back.
The end result is investor paralysis, and an abnormally large amount of money sitting in the "safety" of term deposits.
Yes, term deposits are safe. You won't lose your capital.
But, with interest rates as low as they are, and unlikely to rise any time soon, you are resigning yourself to returns of 3% per annum… or a mere $3,000 on a $100,000 investment, before tax.
I can think of a few ways to have a little more fun with my money.
I've made no secret of my love for dividend paying stocks.
They may not be the hottest stocks on the planet, but what's to complain when they pay you a consistent, fully franked, and therefore tax effective income?
A stock I recently bought was Contango MicroCap Limited (ASX: CTN).
The listed investment company invests in small-cap ASX stocks, its top holdings including Slater and Gordon Limited (ASX: SGH), Tiger Resources Limited (ASX: TGS) and Mayne Pharma Group (ASX: MYX).
While bank stocks and other high yielding blue chips like Telstra Corportation Ltd (ASX: TLS) and Insurance Australia Group Limited (ASX: IAG) have been all the rage, small-cap stocks have been well and truly left behind.
To emphasise the point…
Since the beginning of 2013, large caps, as represented by the S&P/ASX 200 Index, are up 20%, while small caps, as represented by the S&P/ASX Small Ordinaries Index, are down 5%.
Such divergence rarely lasts. And if David McDonald's year end prediction of 5,800 for the blue chip index is close to being right… look out above for small cap stocks.
I own a decent smattering of small-cap growth stocks, including a couple of recent additions sourced directly from our Motley Fool Hidden Gems stock-picking service.
One is a rapidly growing technology company that's taking on Google, and kicking goals.
The other is an overlooked former market darling that's truly flying under the radar… especially given its very juicy 5.6% fully franked dividend yield. You essentially get paid to wait for the market to cotton on to the attractiveness of the underlying stock.
Back to Contango Microcap.
As well as being a play on the small-cap sector, the stock trades below net asset value, and it trades on a dividend yield of over 7%.
Although I'm not expecting instant fireworks from Contango Microcap, I am confident, on a total return basis, including dividends, it will knock the socks off the paltry returns on offer from term deposit accounts.
