Transcript
Jim Cramer (0:00)
Our state has changed a lot in the last 140 years. We know because Multicare has been here guided by a single making our communities healthier that comes from making courageous decisions, partnering with local communities to grow programs and services, and expanding healthcare access to those who need it most. Together, we're building a healthier future. Learn more@ multicare.org trading@schwab is now powered.
Unknown (0:32)
By Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos and more, all curated just for traders. Plus guided learning paths with content designed to fit your unique interests. And no sifting to find exactly what you need so you can spend your time learning to trade brilliantly. Learn more@schwab.com trading.
Jim Cramer (1:22)
Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Other people make friends. I'm just trying to make you some money. My job is not just to entertain, but to educate and to teach you to be a better Investor. So call me 1-800-743, CBC or tweet me at Jim Cramer. Tonight. I want to share some of my accumulated wisdom. And there's a lot to accumulate in this business. There are so many different things you need to balance in order to be a great investor that it can be hard to keep track of everything now. And a lot of this stuff is much more important than the day to day action. Any particular session because this stock went up, this stock went down. Without the right discipline, the right framework, the right, dare I say, philosophy, you're going to get yourself into trouble. And that's why we're all about discipline when we manage the Chapel Trust for the CNBC Investing Club. It's why we constantly fall back on the rules in our investing guide to guide our decision making for every kind of market. And tonight I'm going to share some of them with you. But I know that the big picture financial advice can be hard to process. A lot of it is downright contradictory. That's a key word. We tell you to have conviction, to stick with the companies you believe in. And then we say you need to be ready to change your mind a dime if the facts change. You need to be cautious, but you also need to be ready to pounce on opportunities when they present themselves. You need to be skeptical, but you also need to know when to suspend your disbelief. You need to avoid chasing stocks that have run too much, but you also shouldn't care too much where a stock is coming from if you believe it's headed higher. Oh, believe me, I get it. If you take all my rules literally, you're going to be running around in circles while tearing your hair out. How do you think I went ball. So tonight we're going can't resist. Today we're going to take a step back, try to put all this discipline stuff in perspective. Now if you pick your own stocks, which you know I love, in addition to having a healthy balance of index funds, which you know you need, the thing, well, let's just say what you got to have is good judgment. But obviously good investing judgment is not the kind of thing anyone can teach you in an hour of television, even your television. That's why I tried to help you build good habits. I try to teach you the better ways to think about individual stocks and the whole market. I try to give you the tools you need to develop your own judgment and why I focus on guiding you through the whole process more intensively. And in my investing club now, all my best professors in college focused on teaching us how to think, not teaching us what to think. I've always tried to take my cue from them. I want to teach you how to be a better investor, not just tell you the stocks that I think are good investments. Also, I would have done stop doing this show years ago. The problem is it's a heck of a lot to process. So what do we got to do? We got to try to put it in context. Now first and foremost, when you're managing some of your own money, before any other consideration, you need to know yourself. Now I've said this before and I'll keep saying it because it's so important. You simply can't know which stocks you should buy if you haven't taken the time to really consider what your objectives are. Do you need to build up your wealth to only make a major life changing purchase like a home? Are you just trying to get a decent return as you save for retirement? Do you have enough money to burn that while you're taking a risk or more speculative positions? It won't hurt you. So many people don't do that. They put all their money in speculative stocks hoping that they'll hit a home run. And then the truth is there's no one size fits all approach to investing. And anybody who tells you it's different is either dangerously misinformed or they're flat out lying to you, probably in order to sell you something. But far too often people will invest in the stock market with the simple, poorly defined Goal of making money. That's right. Poorly defined goal. Yet we all want to make money. But I want it. You want it, but how quickly do you want that return? What are you willing to risk in order to get there? How much can you even afford to risk in the first place? These are all the crucial questions that you need to ask before you start picking any individual stocks. Why? Because without a clearly defined goal, you have no way to determine which stocks you should be buying. In other words, your 401k or your IRA or brokerage account do not exist in a vacuum. If you're trying to save up for retirement, a stock like Tesla might not be the most appropriate place to put your capital. On the other hand, if you've already got a decent sized nest egg set aside for retirement and you just want some capital appreciation, then higher risk growth stocks all start to look a lot more attractive. In short, before you can start making judgments about individual stocks, you need to figure out what your own internal yards is going to look like. That's the foundation of good investing judgment. Knowing what you need so you can find stocks that suit those needs. It's called suitability. And it's important, maybe one of the most important parts of investing. Let's put another way, just in case that doesn't get through to you. Let's say you want to fly across the Pacific Ocean. You do in an airplane like a Boeing 747. You don't try to fly across the Pacific in a Ford Fiesta. Now, if you want to pick up your kids from school, taxiing down Main street in 747 would be a little impactful, wouldn't it? In that situation, you are indeed better off with that Fiesta. How about if you're renovating your home? Do you need to go to Home Depot for a metric ton of lumber and tiles and paint and maybe some power tools to get the job done? The Ford Fiesta is probably too small and there's no way you're going to be take a 747 or packed home Depot. But a pickup truck, maybe a Ford Lightning, maybe that can do it. Now this may sound simple, even downright obvious, but it's the same way with stocks. When you're saving for retirement, you want low risk holdings that will give you a slow and steady return. For those of you who don't have time to research individual stocks, you really can't go wrong with a basic low cost S&P 500 index fund to that mimics the performance of the broader market. Look, I've recommended index funds endlessly. And I'll keep doing it because they are phenomenal at their best. They help democratize the incredible engine of wealth creation that is the US Stock market. America remains a growth country that's very business friendly compared to the rest of the developed world. And when you buy AN S&P5,500 index fund, you're basically betting on the long term performance of the US Economy. Historically, it's been a very good bet. That's why I always say that you need to invest your first ten grand in an index fund. Don't bother trying to pick individual stocks until you have at least that much money in an index fund, and preferably more. It's the most important bedrock of your portfolio. Now, if you're looking to make slow and steady money over a period of decades, that's retirement investing in nutshell A. You might also consider certain kinds of individual stocks, especially consistent steady companies with big dividends. A 4% dividend yield may not sound all that spectacular, but even if the underlying stock goes nowhere, that 4% annual return will double your money in 18 years, thanks to the magic of compounding. Of course, you've got to reinvest that money. That is vital. You can get the same thing from treasury bonds, but stocks tend to tend to offer the possibility of more capital appreciation than you'll ever get from a bond. Of course, not every investor is simply trying to fund the retirement. And even if you are, that may not be the only thing you want to do with your savings. This is another important point. You can have multiple objectives. You can and should have multiple pools of money. I like to break things up into your retirement portfolio, where you need to be pretty cautious, and your discretionary Mad Money portfolio, the extra money you're not going to need in order to support yourself after what the kids call late stage capitalism has ground you down and you're no longer able to work that. Discretionary portfolio is where you can afford to take more risks in order to generate higher profits. But, and this is a mighty big but for the vast majority of people, your discretionary portfolio is going to be much less important. Your retirement portfolio, because it's not just retirement. If you want to pay for a house to send your kids to college, you should take a more conservative approach to managing that money. Whatever kind of account you put it in. Your strategy for college tuition savings or future house savings should look more like your retirement portfolio than your Mad Money portfolio. So please get to know yourself before you jump down the rabbit hole of getting to know individual Companies, something we always try to emphasize in the CBC investing club as you know, the bottom line. Trust me, I get it. When you get excited about a particular stock, you often want to just dive right in. First though, you need to consider what you're trying to get out of the market. You need to know yourself. The answer to that question is not going to be the same for everyone, but everything else stems from it. You can't make judgments about stocks until you know what characteristics you actually are seeking and you value. Tony in Washington. Tony.