tv Making Money With Charles Payne FOX Business December 27, 2014 6:00pm-7:01pm EST
charles: i am charles payne. tonight i will be your teacher and the class is investing 101. if you want to learn how to make money in the stock market get a pen and paper and take some notes. . ♪ high, am charles payne. we are making money with investing 101. give you the tools to get control around your money and future. combine them with questions on facebook and twitter for an hour-long in-depth lesson on how to invest in the stock market.
what you need to know to make my. my goal is to reach a system. from time to time we've heard from you, it sounds confusing, you hear ambiguous terms like value and growth but i keep working because the biggest goal is to break down these barriers of intimidation that come with investing in the market. i want to start with the basics, opening an account. this is what i would love to see you do. max out your 401(k) program at work and hopefully they are matching you dollar for dollar. do that and make sure you have emergency funds, three to six months of your monthly bills for safety. you have all of that, let's get started. go with an online firm, things i
am looking for, execution, speed in prices. $32, don't get it back you paid $33. that is important. tools and education, you've got to have this. they should be doing this for you, you pay money every time you do a trade. and the mobile app has to work and trade on the run. at least 50 online brokerage firms, these are the biggest and best names in the business. minimum account is zero, you can just open the account, 20, 30 minutes, it do it tonight. e-trade 500, scott trade 500, charles schwab $1000 fidelity is $2500. a lot of your e-mails, you are doing a lot of the ideas on the show. part of my faults i have gone with high flyers some people who have gotten over involved in volatile stocks, that doesn't necessarily match your temperament.
how you should break it down. now, this would be a model portfolio assuming $150,000 in the market, each position worth $10,000. for any amount, these are the percentages you will be losing. one idea, consumer discretiona discretionary, i had goldman sachs, i am in zero financials, one energy stocks, and mentioned four on the show. if you have three or four of them, send me an e-mail or tweet. i'm heavy in technology. volatile, haven't sold any of them, it is most of them buy on weakness. i think that is where you want to be. medical a have one, agricultural i have one. i was heavy in industrials, four for a long time, the dirty fingernail rally easing back a little. here is the important thing.
three in cash, if this market pulls back and we start to crack down, this is how you take advantage of it. remember to buy low, sell high. you need cash. that is what you want to do, we will put this on our page and refer to it from time to time, this is how you get started. charles: time now to address your questions on making money, curious about a stock and industry, you can always ask me. michelle writes my brother and i opened separate e-trade account and looking forward to investing and i am learning so much from your show. my brother is looking more into daytrading aspect and i want to put my money in the market and let it ride. the reason i love this e-mail and i have said this from day one and i may say it every other day, if you want to be an investor and let it ride, you have to take the ups and downs. so many stocks i have mentioned
up 20, 30, 40%. if they are volatile, they can pull back. a lot of people sending me e-mails what do i do, what do i do. some nervous and afraid, some even angry. make sure you know what you want to be. i love your brother want to be the trader and you want to be buy-and-hold person. you want to manage a portfolio. it is about a series of stocks and everyone should be looking at it. it is a sprint even if you are a trader, a long-term journey with little races to it as well. three to six months in my mind is your long-term investor when you reassess your positions but not week to week the matter how volatile it gets. >> i think it is funny the woman is smart about this taking her time long-term and the guy want to go out. instant gratification is what he wants get you have to whether this.
you look back at the bull market run we have had. we have not had a lot of pullbacks, great buying opportunities. when we have a 10% pullback, people have said to you. ais your 10% pullback, now buy into it. >> i think you may see some of the younger investors just getting comfortable getting into the market and last week and today give them a little scare, they don't know what to do. >> you believe the market, you don't try to dictate to the market as much as follow the market. you just got into this thing recently, it went to 15 now it is nine, what do they do? speak of the shorter the time horizon, the better it is to make money. intraday trading, you really should go to vegas, the free fragrance out of it.
buying in the morning and selling in the afternoon or would ever, you're going to lose money. at least look a couple of months out and ideally a couple of years. i think you ideally want to buy the stock to matchpoint. goes up 112%. my stock goes up, think the market is telling me at least for now i am in the wrong track. at least for now it is gone my way. have to look a month or a couple of years. charles: where do you put your money? i will show you a way to balance your asset allocations. stay with us if you want to make
charles: i have to stop right here, open a page from the playbook and talk about allocating your investments. it is critical for people who want their money to work for them rather than fade into worthlessness in a savings account that is not keeping up with inflation. allocation is important because it mitigates your emotions alone investments to mature and take losses with less emotional impact. your broad asset allocations, hard assets should be 15%, real estate commodities, clickable's, jewelry, antique watches, all kinds of things. between 30-6 he five years old should be 55%. younger even more. the master, international, etf, and then there are bonds covering a wide range of things for me unless you are over 65,
10% match, muni's or if you are very rich a bunch to protect your money and then cash, cash is cash. 10% of your portfolio. zero in a little bit deeper to the equity part of this thing. one of the big things i see all the time going for the home run. look at this e-mail i received. this is late last week or earlier this week i asked subscribers to take a loss on right aid be at a reported, the guidance was so-so. this guy was upset. i just took a hit, really annoying, i cannot take a chance and any more of your ideas, that is what he said to me. i would like to take a loss but he was more upset than normal because he was swinging for the fences. i looked at his portfolio. he had a lot of other things in there. how about up 14%. you're the right aid loss was
8%. but that one nullified these winners because he invested more than two times the amount of money tha that his other ideas. my guess, it was a classic mistake. he looked at it cheap based on the price, a $6 stocks, i am going to load up. the last time ended up being a double though he knew it made a big move in the past. taking a loss is part of investing. i hate being wrong but i was proud of the fact i saw the action the premarket and the street was going to overreact and knew the stock was vulnerable so i said let's take a loss at $5.74 but the stock went dollars 11, some one hand i said people are whole lot of money so let's talk about this because the market is obviously volatile. every single day this week the dow has had a triple digit move, people are getting nervous. also i know it is human nature to take a shot, to go for the home run.
it is fine but you have to know why you are doing it, why you are taking extra risk base more than on a hunch or you think the stock is cheap. how do you, do you go free home runs and how would you advise someone i really believe in this one more than anything else, how do you go about it? >> i never go for a home run. charles: even if you really believe in it? >> it is experience. this is going to go, the best technology, the best thing since sliced bread but most the time it doesn't work out so it is much better to go for the consistent single over time, your losses. some investors lost out in the five-year span of time where they weren't in the market, now they're coming upon retirement like oh, my gosh, what am i going to do, they are like cattle in the u.s. equity market trying to chee catch up. >> normally would i do is
strikeout, it will not work for me. claims that call me i say to them if you are okay to have 5% of your portfolio, we will pick a couple, but you have to realize it is all or nothing. charles: why does it have to be all or nothing? this is really like a company taking market share, pricing power, the stock is breaking out, i don't really think it is going to be all or nothing. i am talking about allocation of money. >> you did your homework and the research has proven typically the stock will go higher. i think something that is risky, out of the ordinary. charles: time now to address your questions on making money. the broad market, individual stocks you can always ask me. got a great question and it applies to the younger generation of investors and
obviously it is always imperative we want to help investors the earlier the better. kyle rice what does your ideal asset allocation look like for summary under the age of 30. i'm 25 billion asset column, preshift the help and enjoy the show, thanks. i have gone over this once before, i will put it up again. 55% per year assets should be in the stock market as a millennial 25 years old, 25% roasted, just in case you have an emergency, 5% gold just in case jonathan is right and the world goes to hell. what do you think of that asset allocation? >> it is a rip on the role 100. take your age, subtracted from 100 as you get older it should get more conservative, more liquid and less volatile market. charles: although we have to change that whole thing because people are living longer but for me it is interesting because millennial sit on a lot of cash, they have the chance to take
risk and if you make a mistake you can always make it up. >> it depends on your risk portfolio, you cannot just do this because i don't know the guy. charles: if he is down 7% and can't sleep at night? >> summit accustomed to taking risks and he sees he has a long-term or she sees and long term. >> probably shouldn't be speculating the stock market. >> you at least six months of expenses tied up. >> i want to remind you what it was like 25 years old, still have your college, it is like a million dollars. at this age specially 25-year-olds are keeping up with the jones, they want to have the new watch, the fleshy carpet first of all, kudos, the this is fabulous he wrote this in. what i want to tell him my personal suggestion would be go with what you suggested and find the one fun stock kind of a
startup company like yours as you get older you can grow with and you feel allegiance to it so you will be less tempted, less tempted to pull money out of that. >> $500 or 50,000, that is irrelevant. you need to be much more aggressive bid 55 is way too low. if the stock market is not much higher by then, we have a lot of problems good i would put 75 market. >> i am 95. >> if i can move real estate output 95 in stock as well. >> 60% and more in. more cash. carry a little bit more cash. >> it is the habits. hang yourself first, not carrying any consumer debt. i'm advocate of busily taking if you can 1000, five grand to learn the lessons, may the lessons we've all learned averaging down and trading big,
trading on stock tips because the five grand could save you 50,000 or 500 grand later on. charles: maybe inflation play the role but when i save my first thousand dollars you couldn't tell me i wasn't rich. >> it is a million dollars. >> thanks a lot. charles: investors can get overwhelmed by the stock market terminology. it sounds, kid but really it is not. i will break it down for you when investing 101 continues. stay right here ♪ (holiday music is playing) hey! i guess we're going to need a new santa ♪(the music builds to a climax.)
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confusing. whai'm going to explain slowly t common terms you're going to need to know. watch this. charles: sunday i was checking out twitter and i saw a tweet from a research newsletter telling investors look to buy small railroad stocks on the next leg down. what does that mean. listen, stocks in the market go up and go down and each sustained move higher or lower can be considered a leg. i have use the term but always in association with specific targets and specific ideas. it all goes to the ambiguous terms you guys here all the time. our show's executive producers asked if we can clarify some of this so here we go. these are my definitions, okay? first, the depth. what is a dip? for me and he moved down less than 5%. a pullback would be more than 5%, less than 10%. the correction, get a little
nervous and they say the correction, right? more than 10%, less than 20%. and the always feared bear market. downward slide. let's talk about this, okay? before i get to the panel, i want to declare why i'm doing this. i really despise and alice, tv and want to have it both ways. they will tell you i am bearish on the market but 100% long. or one purpose in short i think we go up. maybe you come back on tv to say you are right but at the end of the day you are not really helping the audience and in this business you will be right sometimes and wrong sometimes so what do you think about my definitions? >> i'm cautiously optimistic right now. one word i always use is healthy pullback. let me explain. it is what you are saying, five, 10% pullback. over the last five and half
years the pullbacks have been five to 10%. charles: markets don't go straight up. on saturday told me i was nervous for a couple of weeks, charlie. i am like you do realize occasionally the market goes down. occasionally. >> and some stocks have bigger disparities. they pullback 10% it may not be too much to worry about but another category 10% pullback could be. charles: i own it and i am not even breaking out into a sweat on that. it is what we call a high beta. much more volatile than the overall market. >> i think it is important when somebody sees that type of a pullback you're talking about if they're looking to get in the market and they missed it and say they will get in at a 30% downswing, a recession is a 20%, by your definition the correction, about 10. it becomes a great entry point
if your thesis is that is something done for erroneous reasons. charles: they're going to pick the next bottom. >> the reason people are investing, they don't have confidence. you have ignorance and sometimes almost like hold on, top, don't be afraid to tivo the show and go back and write down the terms and google them or whatever you want to use. they don't understand it. >> understand the terminology. boil it down even more so. when i talk to people i simplify. you have to. >> stocks haven't been overvalued for about 10 years, they are still not. our earnings going to miss? and then see the stocks with higher valuation sped >> if something sounds weird to you, buy small railroad stocks on the next leg down, you know what to do, ignore that stuff.
charles: more investing 101 coming up and keep sending those questions. tweet me or post on my facebook page facebook.com/charles payne. and like us at facebook.com/fox business. keep it right here if you want keep it right here if you want to make m so i can reach ally bank 24/7, but there are no branches? 24/7 it's just i'm a little reluctant to try new things. what's wrong with trying new things? feel that in your muscles? yeah... i do... try a new way to bank, where no branches equals great rates. oh what fun it is to ride. get the mercedes-benz on your wish list at the winter event going on now - but hurry, the offer ends december 31st. [ho, ho, ho!]
so ally bank really has no hidden fethat's right. accounts? it's just that i'm worried about you know "hidden things..." ok, why's that? no hidden fees, from the bank where no branches equals great rates. charles: you're watching special edition of "making money" that we call investing 101. we talked about how much money you should invest in the market, but how do you know whether a stock is really worth buying where i already bought it, how it is performing. you have to do your homework. here's my asked donation, plus another great question. check it out. >> the market and investing is all about transistor. what company has the wind at its sales? hasbro be the street.
talk about reading income statements, first ball trends. in the last four quarters of hae beaten the street three out of four quarters, mattel missed four out of four. very important. and then we look at the actual earnings revenue in the last quarter pretty simple. up 7%. how about their cost? 41%, mattel almost 50%. you already get a sense of which company is doing this a lot smarter. global growth is critical to success for most large public companies and america up 4% but around the world up 11%, mattel down 7% in both areas. advertising is important. advertising actually went up 8% in the last quarter. mattel went down 12%. in their presentations the investment beauty they brag about the lower advertising cost as being savings, nobody bought
it. and of course i am all about the margins. look at this. hasbro margins went to 19.4 from 14.5, that is absolutely huge even though mattel earnings are larger, and that decline from 24%-20%. as margins expand, stocks generally go straight up and of course earnings per share, up 46%, mattel lost $0.24 down 20%. that is your ultimate checklist good this is just this particular industry, hasbro up, barbie down 21%. what happened to barbie. american girl was superduper hot. down a lot less for hasbro and then the boys, don't know what they're selling up 22%, mattel down 12%. that is a great way for people to learn how to read income statements. it is an industry a lot of people understand, the toy
business. a lot of my friends love to tinker with their cars. changing the oil and all that stuff. i can't get any of them hardly to look under the hood of their investments. income statement is the easiest thing to read. what is the most important aspects for you? >> i thought she made a great point about marketing. good dollars spent with mattel talking with saving money on marketing. the company that has a load that number. charles: we will look at that later. >> it looks like it could be a problem, in fact if it shows you're spending money in the right way to grow and stabilize your business. charles: search and industries research and development. leslie companies skimp on that, that is a red flag for me. you help a lot of small businesses out, you have to
convince them to make certain investments in areas they may be tempted to skip. >> you cannot save yourself into prosperity. you can only cut so much and then you need to be investing in your growth and put the money out there to grow the people know your product is out there. the other thing i would say, look at barbie, nobody ever looks like that, right? what were they thinking. >> trends, you cannot just a one quarter expect to get the entire picture. the last four quarters to see where the trend is going. that is fantastic. mattel going the opposite way. and also compare them to their competitors. don't take bio taking, it will not be very good. charles: time to address the questions on "making money." stephen prince tweeted you guys
referenced peg ratio often, what does it represent and how does it compare to p/e ratio. when is measuring the rate of growth at the top line which is revenue growth in the p/e ratio, earnings is more price-to-earnings, so the p/e ratio is more traditional, the peg ratio is a better thing to sort of measure companies flying high, growing big-time not necessarily earning a lot of money yet. >> i sometimes look at the paper. the valuation of the company, the earnings but figures in the growth. a big growth company has about 16 and change. 25%, slipping ratio comes in below one. southern company utility, both valued the same. it is about five. it is a good way to compare technology versus utilities and find out really value versus
growth. charles: using those two examples is perfect because the stocks people by with the great peg ratio's tend to be extraordinarily volatile whereas the utility stock while it doesn't have a peg ratio, they pay a dividend less risk involved. >> stability factor of the peg ratio when it is higher is meaningful. what you can do as a portfolio manager, looking for peg ratio's below one or around one where the earnings start to accelerate and you get that, it is beautiful. the stock market moves. charles: i have burn a couple of stocks that have low peg ratio's and earnings accelerating but the street is still crushing them. the low getting hammered and they had a greater earnings number. >> if you could expect and analyzes talk to figure out if they're operating margins and gross margins are going higher
and revenue consistently going higher, you don't have to worry about that. a tremendous amount of volatility in the market. we all have to deal with that. 12, 18, 36 months, as long as your property margins going higher, the growth rate should be going higher. cheap stocks can get cheaper sometimes. charles: as we all know the stock market has ups and downs but with the right mindset you can handle the ride. up next we want to talk about how to avoid emotional pitfalls in investing. we are making money in just three in my world, wall isn't a street... return on investment isn't the only return i'm looking forward to. for some, every dollar is earned with sweat, sacrifice, courage. which is why usaa is honored to help our members with everything from investing for retirement to saving for college.
here's a look at with the stock market can teach you about yourself and a viewer question and analyze his investment personality. watch this. charles: this why there was an article in "the guardian" newspaper talking about successful investing. titled what the stock market can teach you about your own personality. they had three things i want to take a look at the first thing, focusing on the negative, this is how people make mistakes. negative emotions require more thinking and we remember them in more detail then the positive things. and fear, failure to test resilience which is the number one quality required for successful investing. you cannot try it one time or the stock is down $1 quit. finally, success is mine, failure is an accident. which of his success to abilities and failure to external factors. it wasn't my fault. and all these things firsthand especially being on tv, people
hardly ever let me know when the ideas are doing well but when it doesn't work out, guess what, i hear from people and sometimes it is very frustrating, but that is part of the game. we want to hear people out. that's take all of these things and handle them individually. focusing on negative, how do you help individual investors? >> you may have a portfolio of 20 positions with one down and they focus on the negative. in a market diversified and a portfolio you have ups and downs, you don't want everything down at one time but take the loss and the hit to the ego, they may not get back in where they are supposed to get in. get off the horse and get back on. charles: march 2009 and then they with a couple of years going from 6000 to 11,000 or maybe 17,000, get back in and do
it all over again they are upset once again. now let's talk about the fear because fear and greed drive the market. >> they often talk about fear and fear of the market so we tried to define fear as a healthy thing and an unhealthy thing. you don't jump out of an airplane without a parachute. i need to make rational decisions, healthy fear is positive so we look at the stock market, define where your comfort zone is. the kind of stocks and bonds they are comfortable with and there will be updated and down days, you get the fear to rational point and use it as a positive. charles: failure is on bush. >> we have to own both of them, they have lessons to teach us and after a certain age you want
that experience of having the good times and the bad times to fall back on but most importantly the way you further success and avoid failure is through hard work. read the balance sheets and the footnotes, that is where the red flag shows up and the undercover gems show up. charles: that was perfect. charles: he gave me his portfolio, he has fuel-cell, basic materials, kander morgan and yahoo. i am in apple for myself, fuel-cell i am in even though it is a dog right now. down with bad news on a terrorist group. a lot of people have asked about it, they were a limited
partnership, now they are not, beautiful looking dividend however. it is anti, take right now, so of those names i don't have a big problem. you have a dividend with km i come some nice things in my mind. i would like to see a few more retail names, but i'm pretty good about this. what about you, james? >> i love the apple pick. text. iphone 6 launch has been huge, and the alliance about spinoffs. charles: what is the best to buy with bullets. it is a bunch of bullets again. did you see the portfolio? >> i did. could probably use some retail place in there. also maybe big box retail. charles: greater earnings.
whole foods were killing everybody. anybody can sell kale bid >> i stock like disney and long growth stock we talk about a lot. charles: the bio techs that perform really well maybe swap that out, a good value for biotech. it has been struggling but don't sell it here. if i hold onto the energy stocks and fuel-cell highflyer. get some solid holdings. charles: i think it is a nice start. this is what he says, the start of my stocks, what are your thoughts? i'm glad you were encouraged to do this and keep adding and hopefully can tell you to take profits on some of these things really soon.
charles: let's say you come into a large sum of money leg and it hurt and 30 win the lottery or the world series of poker like this guy. before the poker tournament finals we debated with the top players do with their prize money. here is a lesson how to invest $10 million. back in july 6683 poker players from all over the world gathered
for the 45th annual world series of poker in las vegas. today a winner will be crowned and that winner will take home $10 million in cash. even though first place is a lot of money, probably going to have invested properly if they want it to last. the winner gets this cash in the first thing he does is call you, what you tell him? >> maybe 6 million left after taxes, take a million and have fun. and then you have 5 million left and we will talk, though they diversified portfolio be at a 4% per year, more than happy can live off of that the rest of your life. >> not appointed i like the million dollars thing, i put it in my notes i said he is probably only going to get about $5 million but i did think real estate investing, looking at the new york rose it market right now, some point in that portfolio they should have a little real estate investment in new york city or some major city
i feel like that would be a safe play. or don't get a big house. charles: you say real estate is the investment. >> alley have to be of information. young, and their risktakers or at least we assume that if they are playing poker. in this situation whe whereas is taken million dollars, do something different than what massa just did use it for the next four years worth of income. $230,000 per year after taxes, so you can have a nice lifestyle, take the other 4 million or 5 million depending on the after-tax numbers, put it in the stock market and don't look at it for four or five years, open a door and repeat the process in five years, both numbers will be higher. charles: mostly all blue-chip names? >> keep it simple. good s&p 500 index a recent international index if you want
to trust somebody like me, take an active investment policy. charles: listen, you and matt don't agree on a lot of things, but a million dollars and go party, that sounded pretty good. >> help others. i would make sure i took some of that money whether it was a million or the rest of it help the kids and puppy dogs. and get an new paragraph shoes. >> 's these are all great ideas, but 80% of all professional athletes, all of them are broke or severely and financial difficulty within five years of retirement. spending habits far outweigh income potential. the problem with this individual young aggressive risk taker is you have to take them off the ledge, come back, calm down, but
some of the money aside and that is the hard part. you have got to walk them off the edge. charles: when they spend the million dollars in may not know how to stop. the holiday season has officially begun. will black friday sales figures put them in a jolly mood? we make our prediction and a few we make our prediction and a few words of wisdom for you. name's, and i quit smoking with chantix. i had tried to do it in the past. i hadn't been successful. quitting smoking this time was different because i got a prescription for chantix. along with support, chantix (varenicline) is proven to help people quit smoking. the fact that it reduced the urge to smoke helped me get that confidence that i could do it. some people had changes in behavior, thinking or mood, hostility, agitation, depressed mood and suicidal thoughts or actions while taking or after stopping chantix. some people had seizures while taking chantix. if you notice any of these, stop chantix and call your doctor right away. tell your doctor about any history of mental health problems, which could get worse while taking chantix or history of seizures. don' take chantix if you've had a serious allergic or skin reaction to it.
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charles: maybe it has been premature but people count in the death of best buy and again stopped for a long time. >> i was probably in that camp. i'm not going to pick consumer behavior but retail sales, consumer sentiment and lower gas prices. the holiday shopping season he better be able to do it. charles: is anybody in the mood yet? >> there in the mood. they will be spending more money this holiday season and they did last year and probably in a bunch of years. charles: we have to bring rob into this because i think republicans are in in control now. >> my showed be called "spending money" if i had that. i went to follow the eddie murphy buying strategy. people will be so excited about
lower gas prices, it will be a salt on the mall. >> i think it will continue, it will come in better than the already high estimates. i think i it's going to be the y the rumors, sell the news. mid december, have to start looking to get out of some of these. charles: some firms downgraded, that was a big move. keep it going. >> i think it will be "frozen" christmas. a lot of merchandise being sold from that. what is going to end up happening is the halo effect will be on disney, walmart. the gamers are really moving the stock. i don't think it is quite gone yet. they'rtheir trading all the tecy now, so a lot of the trade-in. charles: i think it will be a big winner. a contrarian play. we all agree america's back at least for this holiday season. at home thanks for joining us
every night to 6:00 p.m. easte eastern. if you can't see the show, dvr it. lou dobbs is next, keep it on fox business. good evening, everybody. president obama conducting his annual year end news conference today and not surprisingly he declared this year to be one of his best. president obama began his press conference by acknowledging that north korea was behind the massive breach of