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Pauper_and_Pimp_2-300x132This is an election year, and that means we are going to be hearing a whole lot of rhetoric about the growing divide between the “haves” and the “have-nots.” Thanks to the Occupy Wall Street movement, we’ve already heard a lot about the top 1% vs. the bottom 99%, and the alleged evils of so-called “income inequality” in society. Now to be certain, I have some very pro-capitalist political views on this subject, but that’s a discussion for another day. As investors, our task is to identify trends in the market that drive consumer decisions, and that generate revenue and earnings for specific types of companies.

Given the attention the haves and the have-nots thesis has generated of late, I’ve set up what I call the pauper and the pimp stocks portfolio.

The “pauper” portion of this portfolio contains stocks that appeal to extreme bargain shoppers, and to those who out of necessity must patronize establishments that sell low-priced goods. The “pimp” portion of the portfolio is for the extreme high-end shopper and the businesses this group tends to patronize.

Now, before we move on, I want to clarify my use of the term “pimp” so as not to offend. You see, in urban slang, the word pimp can be used to refer to the ability to spend lavishly. My use of the term here is strictly in this lavish spending context, and not in the traditional prostitution context of the word.

It is my thesis that companies on both ends of the pauper and pimp spectrum will continue profiting from the increasing numbers of consumers falling on hard times, as well as the growing number of consumers whose wealth is such that they are practically immune to the flux in the economy. That means it’s important to own stocks that cater to paupers, as well as those that cater to pimps.

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Let’s begin with the pauper stocks.

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