Ask Jim Cramer
Someone out there has to be making cash. Our money expert wants it to be you.
Whenever I think about investing, people say I should look at the stock’s fundamentals. What are fundamentals?
Check the company’s profits. You need to see the sales—are they growing? If a company’s earnings are growing more than 10 percent year to year, there’s something exciting going on there.
I want to invest in a housing company, but I keep reading that the housing sector is a terrible place to invest. How much effect does a sector have on a stock?
Sector selection makes up about 50 percent of a stock’s performance. The sectors that are ramping now—agriculture, aerospace, energy, machinery, and minerals— will remain the best places to be for several years.
Should I be looking to invest in China-based companies? If so, how do I identify opportunities abroad?
There are only two Chinese companies I would invest in right now on a speculative basis: Baidu, the big Internet company, and Focus Media, the advertising company. PetroChina intrigues me as well, as does China Mobile. I just wish they would come down in price a bit. In general, I would advise being very cautious when investing in the Chinese market. I fear one day the Chinese government might say, “Look, we want stocks lower. We’re not going to allow people to borrow money to buy stocks.” And that can really hurt the market, so I don’t want to be overinvolved in China.
What’s the minimum amount of money I should invest when I get started with a broker? Should I put it all on one stock or spread it out?
I have always felt that it takes $10,000 to invest in individual stocks because you need to be diversified. Put $2,000 in five different stocks. Start out with companies that make products you like. That way it’ll be much harder to get spooked out if the price dips early. You can still say, “Well, I like going to McDonald’s.” If you don’t have $10,000, just go buy an S&P 500 index fund.
Is it safer to put my money in a big blue-chip company or should I let it ride on something a little more risky?
My philosophy is that you can put up to 20 percent in speculative stocks to stay interested, but the rest must be put in dividend-yielding stocks from different sectors to encourage diversification. Buy into a big-name brand company like a Chevron or a Verizon. What’s your phone company? Your cable company? Where do you fill up for gas? Those are all going to be stable investments. So many people start with companies that don’t have a long-term track record, and when things go bad they leave the market altogether. Meanwhile, the massive companies that make up the Dow Jones have been doing fabulous. These companies do a lot of business overseas, so they’re in great shape.