Cramer's Mad Money - Who Needs Mutual Funds? (7/17/09)

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Includes: BPT, C, CTXS, PBT
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday July 17.

Going Solo

Cramer warned viewers against "professionals" who might try to tell them that the market is too hard and they don't have the expertise to choose individual stocks. While index and mutual funds seem to be a flight to safety for novice investors, they have at least as many drawbacks as advantages. Those who invest only in index funds will have a hard time matching the market and will probably never beat it. Mutual funds tend to be overinvested, and this makes funds vulnerable to the ups and downs of the market. Anyone can choose individual stocks; the trick is knowing what to buy and when to sell.

Investments versus Trades

When it comes to choosing stocks and when to buy or sell, discipline matters more than conviction, says Cramer who admits he's gained more by playing by the rules than following his gut instinct. One of the most important rules is not to turn a trade into an investment, and to get out of a stock if the catalyst is over and the move has been made. Similarly, it is important not to turn an investment into a trade and to avoid the temptation to unload all of a stock that has made a big move if it has a good long-term story.

Single Digit Danger: Citigroup (NYSE:C)

While many investors might not see danger in cheap stocks, a false feeling of safety about individual stocks is one of the biggest dangers. Those who thought Citigroup was cheap at $10 saw their "safe" investment evaporate as the stock continued to slide down. The key to determining whether or not a stock is cheap is to do homework on the company. Investors who find out about single-digit stocks and are aware of their risks can afford to gamble on these speculative trades.

Love the Product, not the Stock: Citrix (NASDAQ:CTXS)

While a company might have a fantastic product, its stock may not necessarily a buy, said Cramer. He admitted he made a mistake buying Citrix because he loved the company's software, but he failed to realize that the story was stale and everyone who wanted the product had already bought it.

Dividends and Retirement: BP Prudhoe Bay (NYSE:BPT), Permian Basin Royalty (NYSE:PBT)

The key to investing for retirement is choosing stocks with generous yields, said Cramer, especially since earnings from dividends are only taxed at 15%. He recommended REITs and master-limited partnerships, which pay out their earnings in the form of big dividends. BPT and PBT pay from 10% to 15% yields. Cramer says these companies are ideal investments but warned viewers to look at the balance sheets.

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