So you are getting your check from the government. You want to invest. What do you do?
First, I want you to be sure that investing is right for you. Do you owe credit card debt. Don't be stupid. Pay that down. Chances do not favor you outperforming the rates that card companies are charging you.
Second, do you have enough health care? If you aren't protected, health care costs can wipe you out. Do you have enough health insurance? Put the money toward that.
How about stocks? Bitcoin? Look, I am not going to tell you whether you should buy a piece of a bitcoin. I am a believer. You can buy a sliver by going to Square (SQ) . They'll sell it to you. It's one of the reasons why I like the stock of Square. Then my preferred investment for most of the money that's left after these other imperatives: an S&P index fund. You need diversification to protect yourself from downside risk while keeping upside potential.
Finally, there's your "Mad Money," a fitting concept and title given that Monday is our 16-year anniversary.
So what do you do?
First, you are probably asking: What the heck, a stock guy giving you a checklist that includes individual stocks as last on the menu? The answer is that's right, because if you got a check from the government, it means that you might not be making enough money to have built up enough capital to have $10,000 saved up in an index fund, the sum I have always held to be essential before you start buying individual stocks.
Second, your choice of stocks depends on what you think is suitable to your personality, a lost concept that must be considered first, before you make your choice of stocks. Right now, for example, there's a great debate going on between buying the stocks of companies that do well if we stay at home and work vs. the stocks of companies that benefit from the reopening of America, because of what may be the most return to some degree of normalcy, something demonstrated by the fact that we had as many people travel this weekend as we did a year ago, the last decent week of air travel before the pandemic set in.
If you are getting a check from the government, this debate should mean nothing to you. Here's what matters: If you are young, and have a lifetime of paychecks ahead of you, then you need to take on risk if you are willing to, and are not afraid to do so. You shouldn't be afraid, but I can't tell you not to be, hence the notion of suitability.
In the old days, I would tell you that you should pick a stock of a company that you know and like, that you should get the annual, or listen to the quarterly conference call, look up articles about the company and perhaps do some buying. Invariably, you would have done all of that and then said that the stock is too high a dollar value so forget about it. Now that we have fractional shares, that's no longer the case. There's no reason to avoid buying a share of Tesla (TSLA) or Amazon (AMZN) or Alphabet (GOOGL) simply because the dollar amount's so big.
The younger you are, the more I would prefer you to take an aggressive stance on something that would be considered speculative. Here's a classic example: the stock of Moderna (MRNA) . Now we know that this young company has had an amazing bout of success when it comes to COVID-19. I think you have to believe that its technology extends well beyond just COVID. I think that can justify buying a fractional share in the stock, given that its management team has staked out a series of areas for which it might be successful in offering vaccines.
But how about if you are older? What then? I think that your goal should be to find a stock like Johnson & Johnson (JNJ) , a company with a long track record of paying dividends that has done remarkable work on its one-shot solution for COVID. Sure, it doesn't have the upside that you would get from Moderna. In fact, it's not even trying to make money on its vaccine. But it does have a tremendous history of doing things right by shareholders, managing its capital well -- it is one of a handful of companies with a triple-A balance sheet -- and having a tremendous pipeline of new drugs.
We see this dichotomy in many an industry. Monday we learned that a private company in the red-hot payments industry, Stripe, had a round of financing that valued the company at almost $100 billion.
What does that say about this space? It's got some incredible prospects ahead of it. So you might be drawn to Square, which has the cash application, among other payment aspects, that could grow for years and years. Same with Paypal (PYPL) , which I think is the worldwide digital bank of the future. But perhaps you might be drawn to a financial that has a longer track record that is also into payments: that would be either Visa (V) or Mastercard (MA) , fast growing and seasoned. Or, maybe you just want a slower grower with a solid history of dividends: that's JP Morgan (JPM) .
We know that investing in companies that make their home in the cloud, or cloud native, have a bright future. Younger people have to consider Snowflake (SNOW) , which is the fastest growing cloud computing company with amazing analytics that is crushing the numbers. For those who are a little skittish, I like Salesforce.com (CRM) , Adobe (ADBE) or Service Now (NOW) . If you are capable of compromise and are more worried about staying power, you might be drawn to Microsoft (MSFT) even as I would argue that a Salesforce.com will give it a multi-year run for the money.
I can't stop anyone from buying Tesla, I like it too much, even as Elon Musk manages to shock me with his pronouncements about himself that are both defiant and just plain comedic -- like his decision to crown himself "Technoking" in an actual filing with the Securities and Exchange Commission.
But, believe it or not, I now regard Tesla as a senior growth stock. If you are young and want a junior growth stock, have you considered Churchill Capital IV, a special purpose acquisition company, that is merging with a company that might be the next Tesla, Lucid Motors. Now, this is an example of the kind of ultra-risky stock that I am talking about that could flame out, but you still have many years to make the money back. I have heard the catcalls of those who say I hate SPACs. Wrong. I hate SPACs that don't have good operators and seem pie in the sky. That's not the case with the well-funded Lucid Motors.
Now how about the rages of the day: AMC (AMC) , the movie theater company that is just now opening two theaters in California after being hammered by COVID. Or GameStop (GME) , the much-loved company of the WallStreetBets crowd, a group I hesitate to generalize about.
To me, these are stocks that have moved too much. But I am not going to discourage you from buying either of them, because so many have a great affinity for both and believe that those who are betting against them will ultimately become useful idiots of the bulls when they realize that there's much more to both of them and the prospects are incredibly bright. Again, though, like Lucid, think suitability. You have a greater chance to lose money in these, simply because history says that stocks that have advanced tremendously without any real news tend not to have as brighter long-term prospects as you think they would. If you are young enough, though? I say be my guest. same rationale: whole life of paychecks ahead of you.
Now I am using the stimulus check example as a way to try to drive home what kind of investor you are or might be. If you didn't qualify for one, I think that this progression still can pay off. And if you are already very wealthy, remember my dictum: You only need to get rich once, so you shouldn't even be fooling around with stocks. That said, I want you to put enough away to be thinking about that Mad Money and putting it to work in levels of risk that suit you, and not others and that have a long-term perspective. That way, I am confident you will do well over the long run.