I think I have found the way to make money in stocks. The keys to successful investing are patience and compounding. This is not the same as the “Buy & Hold” Mantra hoisted on the investing public. I am talking about true compounding where the investor gets paid first. Wise investors look first at risk, and then good value and then choose dividend-paying securities. Most investors choose a different course, relying instead on capital appreciation to carry the load 100%. 

The surest way to success is through the power of compounding and the steady stream of income. When you reinvest the income, the results are incredible. If you fail to reinvest your dividends, you loose out on vast sums of money. 

Furthermore, if you make a poorly timed investment (paying too much) then time and compounding will correct your error. To illustrate this point I would like to give a real life personal example. When I made the decision in May 2001 to switch my investment strategy into income investing, I rushed into two ill-timed investments. I purchased Pengrowth Energy Trust (PGF.UN-TSX and PGH-NYSE) at $20 per unit. I was naive and did not research what I was investing in. I did not realize I bought the units at the peak. One month after I bought the units the price of oil & gas collapsed and my unit price and distributions collapsed almost 40%. However, I put my Pengrowth on a DRIP (Dividend Reinvestment Plan) and I am happy to report that as of today I am now breakeven (even though the unit price is trading just over $15). Meanwhile, Pengrowth is now paying me $0.25 per month per unit and I have 30% more units then I started with. This is still a 15% return based on my original $20 purchase price. 

My other poor investment was NCE Petrofund (NCF.UN-TSX, NCN-AMEX) which I also bought at CDN$20 per unit. I am still not break even but at the present pace of distribution of $0.18 per month I figure to be break even in 6-9 months. 

Looking back I am very happy with my ill-timed investment in Pengrowth and NCE Petrofund. At the time I sold Canada’s premiere industrial Company-Bombardier at $22 (recent close of $3.83 and most likely will not reach $22 in my lifetime) and TD Bank at $41 (recent close of $35) to buy Pengrowth and NCE. I guess it was not such an ill-timed investment after all.