Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday June 30.
Note: The following is a repeat of a program that last aired on December 26, 2008.
Know Thyself
Cramer says good investing requires discipline and self-knowledge. Too many people think buying stocks is like gambling. Investors should be honest with themselves about what kind of investors they are and why they are buying the stocks they buy. “Never turn a trade into an investment,” he advises. "Be honest about your expectations, clear about your plan, and willing to abandon ship the moment those expectations are not met," said Cramer, "then you'll make yourself a lot of money."
On Speculation
Cramer says an investor should speculate with care, and in general, risk is alright for younger investors who can compensate for any losses. Older investors should stay away from risky stocks, but this is only a rule of thumb. Speculative stocks can be incorporated into every portfolio provided that risk is limited and stocks are well researched. It is not a good idea to speculate in a bear market.
Do Your Homework
It is not enough to know oneself and the types of stocks one should own; investors should do homework to ensure the companies they like are viable. When researching companies, Cramer suggests looking at the amount of debt, which directly affects shareholders. Cashflow is also another factor to pay attention to when researching companies. Homework need not be daunting; Regulation FD, passed by the Securities Exchange Commission in 1999 requires any information known about a company to be made public. This allows the average Joe investor access to the same information as the Fat Cats. A good place to start is at
www.sec.gov; enter to company’s ticker symbol. Investors will find a company’s 10-K annual reports and other filings. He also said it is essential to listen to or read a company’s conference call. While some can be boring, “There is no excuse not to listen.”
Key Metrics: Microsoft (
MSFT), Coke (
KO) and Whirlpool (
WHR)
When doing homework it is important to keep in mind that “not all information is created equal,” said Cramer. First, look at the sector. Microsoft has very high margins because it is practically a monopoly while supermarkets and airlines have thin margins because of the amount of competition they face. Second, pay attention to whether a company is secular or cyclical. Secular stocks like Coke are not as affected by a downturn as cyclical companies like Whirlpool. Every industry has its own metric. For example, cable’s key metric is enterprise value divided by the total number of subscribers. For hotels, it is the average revenue per room and for wireless, it is the average revenue per user.
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This article has 2 comments:
On the other hand, I have tax clients that make money year after year by investing in dividend paying investments such as CEFs, MLPs, bonds, trusts, and preferred stock. So, guess what I do.
I always have wondered why the so called experts do not recommend this approach to investing.
I invest using the boring method, as you note above - MLPs, bonds (Corporate, High Yield, Munis, Mtge Backed Securities, bond funds, dividend paying stocks... It's easier, safer and doesn't take as much time. When markets/sectors crash, you survive.