A Cautious First Step


I cringe when I hear people say they know nothing about the stock market.” This is the opening line from Charles Payne’s new book, Be Smart, Act Fast, Get Rich: Your Game Plan for Getting it Right in the Stock Market (John Wiley & Sons Inc.; $24.95), in which Payne aims to demystify the stock market. His goal is to help investors feel more comfortable playing an active role so that they don’t sit passively as their investments post losses–an all too common phenomenon.

His opening sentiment may be all the more understandable given that Payne, CEO and chief analyst of his own independent research firm, Wall Street Strategies Inc., had his mother cosign so that he could buy his first mutual fund when he was 17 years old. These days he’s also spreading the word on investing as a regular commentator on the business programs of the Fox News Channel. Payne spoke with BLACK ENTERPRISE about his current market outlook.

Did the recent headlines about the likelihood of a possible economic recession cause you any pause?

Most individual investors should have at least 70% of their portfolio in long-term investments. Particularly with the volatility in the market these days–as opposed to 10 years ago or even 20 years ago–that means you’re going to have to hold through a couple of air pockets. There are going to be periods when the economy gets too hot or too cold, and the stock market is going to reflect that.
When we talk about a recession, we’re talking about two quarters of slower growth. Initially, it probably hurts the market, but then it turns out that it actually ends up helping the market–most of the time. The [Federal Reserve Board] will lower interest rates, which makes for cheaper borrowing for large corporations. Companies can then go out and make larger profit margins, and those profit margins or those earnings ultimately drive the price of the stock.

When the market fell by more than 400 points on Feb. 27, what were you looking at to figure out the significance of the drop?

When the market is falling apart, I like to scan a broad horizon of stocks and industries and find out which ones are holding on the best. If the market is down 400 points, all stocks are down, but some were down just slightly, some were up for most of the session, some really wanted to go higher.

But at the end of the day, once you start talking triple-digit moves–particularly to the downside–a large portion of that is just pure raw emotions. And it’s really difficult to distinguish, sometimes, where there are fundamental flaws as opposed to where people just tossed in the towel because they had a stop/loss order in place or they just couldn’t take the anguish.

What stocks would you currently recommend?
I’d start with Goldman Sachs (GS). If there’s really a problem on Wall Street, which is sort of reflective of America, then obviously there’s a problem everywhere. If you’re going to be in the


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