Cramer's Mad Money - Common Investment Mistakes (1/2/09)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday January 2.

Friday’s program was a repeat program that last aired in 2008.

Investment versus Trade

Cramer began his show enlightening viewers about common investment mistakes with a discussion of the difference between investments and trades. “A trade is when you buy a stock for some specific event, a catalyst,” he said, while an investment is a “stock that has the potential to work over a long-time horizon.” One mistake investors often make is to sell a stock that has gone up but is actually worth holding for the long-term. He warned against turning an investment into a trade until the thesis for buying has been given a chance.

The Cheap Mystique: Charter Communications (CHTR)

Cramer warned viewers against being seduced by the mystique of a single-digit stock thinking that the price is so low there is practically nothing to lose. Cramer lost $130,000 on $4 stock Charter Communications when he was forced to sell it at $2 to stave off even further losses. But are all single-digit stocks losers? Cramer introduced his “multiply-by-ten” test; if you like a stock at $4, and would still like it at $40, 10 times its current price, then it may be worth buying. "If I had done that with Charter, which was drowning under the weight of its debt, I would've never bought the thing in the first place," he said, and reminded viewers most stocks with absurdly low prices are cheap for a reason.

Avoid Infatuation: Citrix Systems (CTXS)

Sometimes investors are seduced by the promise of a hot new product only to find out it has been around for a while. This is what happened to Cramer when he bought Citrix Systems because of a “spanking new” product called “Go To My PC” only to find it was released three years earlier, and he was forced to sell Citrix 10 points lower.

Mutual Funds vs. Going it Alone

While Cramer thinks most people would be more successful doing their own homework and buying individual stocks, he says people who do not have the one hour per week per stock needed for this essential research should consider a cheap index fund that mirrors the S&P and has low fees. He urged those looking at funds to check the performance of the manager, and how he has done in bear as well as bull markets. “Any Schmoe can make money in a bull market,” Cramer said.

What about Retirement?

While the topic of 401K plans and IRAs may seem boring to some, they are important to consider because of the security they provide for the golden years and for tax savings. No taxes are paid on money that goes into the funds and there are no taxes on dividends and capital gains that are kept in. Investors are taxed only once upon retirement. For more tax savings, Cramer recommended lookinat REITs and royalty trusts.

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Comments

[Paul Price:]

Now that the averages have made significant moves up off their Nov. 21st lows...

How long until Cramer disavows his "sell everything you can't afford to put away for five years minimum" shout out?

Jan 04 08:18 AM

[Norman Lepo...:]

The biggest mistake is to listen to Cramer!

Jan 04 08:31 AM

[ArtfulDodger:]

Beware of this Cramer character. I remember when he was on FOX hollering to buy, buy, buy into the chip sector just before the DOT.bomb explosion on March 10, 2000. Atmel (ATML) was in the high forties at that time, and he claimed that chips were no longer cylical, that you could just buy, buy, buy and keep buying them.

The chips crashed right along with the rest of the techs.

He's in a stock today and out the next. I noticed he'll mention one or two losers and apologize for them; but he has had what he used to call bullet-proof stocks, and I think they've all crashed.

I only catch him every now and then (mainly to see what not to do), but I understand he doesn't mention these bullet-proofs anymore.

Personally, I don't think he can pick his nose.

Jan 04 11:04 AM

[whisperonth...:]

It's generalizing to assume Cramer is always wrong. He isn't wrong any more often than the others, but he is more vocal about his thoughts/beliefs. And those who don't like him probably lost money. Those who do, probably didn't lose. If you do your own research, you may discover why this or that stock didn't do well for you, maybe because you got in too late, or too early, or didn't get enough, or got too much, or maybe you just don't like that one. I don't know that ANY analyst - professional or otherwise - has anything I want to hear, since they sway the market and then no one knows if it was the market that swayed things or the analyst's analysis. So I write a lot of stuff down, and then go out and research things over and over, and often miss a good buy, but maybe just as often catch one incidentally. But I am not going to say "Do what Cramer says NOT to do," because he's had the same good days others have had. Cramer didn't crash any stocks. I don't think he's that powerful. But the more danger you ascribe to him, the sillier you look.

Jan 04 12:24 PM

[Britishsteel:]

The mistake people make is listening to the so called experts and phd's who created this financial terrorism inflicted on the taxpayers of the United States of America.They lied to you and will continue to lie to you. The stock market is not a bank account although they would have you believe that.
What government has done to date and proposes to do cannot work any more than it did the last time. We know this for a fact because it was done just seven years ago and failed to produce lasting prosperity.

These actions failed (and will again) not because they were "not big enough" or "ill timed" or any such claptrap - they failed because it is mathematically impossible for them to succeed.

The problem is that there is too much debt in the system; adding more debt to the system simply makes the problem worse at an exponentially-increasi... rate.

It is impossible to fix a problem that is best explained as "too much" of something by adding more of that same thing.

This is true whether the "too much" is a drunk who wants a bottle of whiskey, a crackhead who wants another hit, or a heroin addict who begs for another shot.

You can't solve any of their problems with more of what ails them any more than you can solve a debt problem with yet more debt.

Our government's actions to date and Obama's plans will fail; any "benefit" that appears will be fleeting and simply compound the necessary pain that we must take in order to clear the economy.

Irrespective of whether the bankers, homeowners and government like it or not, the insolvent will be forced into the open and bankrupted. We are only arguing over whether the government does the right thing and forces it to happen now or whether it occurs as part and parcel of a full-on economic (and possibly government, if they don't quit taking on debt themselves!) collapse.

Those are the only two choices.

There is no other solution that is mathematically possible, no matter what you are told - or by whom.

I strongly suggest that you prepare for our government to do the wrong thing, and to lie to you for as long as it is able.
exerprt from Karl Denninger. All rights reserved.

Jan 04 02:55 PM

[canary:]

It is good to see the year off to a good start, showing support for Obama's good intentions.
The best of the infrastructure ideas for immediate benefit to the country is to plan on 1000 CNG new outlets, 52 per state, less Hawaii. This will involve hundreds of contractors (jobs), can untilize brownfield properties, will create an immediate market for Ford & GM vehicles (they have supplied thousands in Brazil and elsewhere), will stabilize gasoline prices on the low side, weaken OPECs hold, put a good dent in the $700 billion US per year for foreign oil from people that don't like us, and create a surplus cash flow for families every week to buy other goods.

Jan 04 05:53 PM

[Britishsteel:]

Canary how do you propose we pay for Obama's infrastructure deals? Through more printing of DEBT? we do not print money we print DEBT! And who pays for this DEBT? The taxpayer? AND that is contingent on the taxpayer still having a job because debt is issued based on production and production in the governments world is based on paying off debt from the worker earning money and paying taxes . So now with unemployment growing by the month and less workers paying taxes the end result can only be higher income tax and local property taxes and of course all sorts of new taxes . So my question to you is, are you really that ignorant?
Now if GM has BORROWED money from the government at 8% and then is turning around and lending this cash at 0% to people with a less than stellar credit rating{ 620 FICO is acceptable for GM to lend } where are they making money ? You need to study economics dude. And as far as oil prices go its due to deflation and not less demand people are scared and want cash my man not willing to speculate here. oil is being driven up now by geopolitical tensions as is gold. As far as surplus cash? you gotta be kidding me . I would suggest you prepare for rioting and civil unrest like our military is being trained for right now! We have been already threatened with martial law by Paulson to get his bailout bill passed and wheteher you know it or not Bush has signed into law that the president can declare martial law at any time without congressional approval. You my friend have been duped take another prozac will ya?

Jan 04 06:41 PM

[deckx:]

I remember him last April or so, making fun of XOM with him using a wig as a prop. can't rememeber exactly what he was saying but he portrayed them as a pretty stagnated company and to be avoided.

At least they didn't plummet like the other oil companies !! Long term XOM is money in the bank with steady returns.

Other than that he is pretty entertaining although he's just abit too manic for me to take seriously ... wonder if he's on stimulants or something ?

Jan 04 10:45 PM

[consumerons...:]

Problem with Cramer and the fast money crew is there's nothing to provide any balance. The herd buys and as soon as there's any significant rise they all rush to "take some profits", "take some off the table."
I don't care what he says, he can claim "buy and hold is dead. We believe in buy and homework" all he wants. I have NEVER witnessed him admitting that under any circumstance that some investments might be woth holding onto for many many years.
Cramer and the fast money crew contribute to the casino mentality that drives the volatility in our markets.
Anyone who thinks buy and hold is dead should go check out Dividendmachine's website. Here is commonsense investing and there is no show on CNBC that tries to teach people this very sensible alternative to trying to capitalize on the rollercoaster volatility of the market.
A person doesn't have to be a trader to do well and no one on CNBC says anything about that. I won't sell my dividend paying stocks unless they go up a RIDICULOUS amount because I didn't buy them for a quick buck. In 5 or 10 years many of these outstanding companies with a long history of annual dividend increases have a fantastic yield on original cost. Again, check out Dividendmachine's website.
I like to watch Cramer but there should be something to provide some balance. Some companies ARE worth buying and holding and it upsets me when he keeps on denying it.

Jan 05 03:06 PM

[consumerons...:]

One-dimensional. Just thought of that. I don't think he should be so one-dimensional. There are many styles and there is no show for those of us who think building income with plain old boring dividend-paying stocks in plain old boring conservatively financed campanies with fortress-like balance sheets can be fun.

Jan 05 03:55 PM