Cramer's Mad Money - 5 Strategies for Making Money in a Bear Market (12/28/09)

Includes: DIA, QQQ, SPY
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday December 28.

Editor's Note: Monday's program is a repeat broadcast of a show that last aired on August 31, 2009.

Cramer discussed his strategies for investing in difficult markets.

1. A Bear Market Rally Is Still a Rally

Profits are profits, no matter what kind of market generates them. Cramer noted the stock market has been up 36% since it hit lows in March, and people who were too nervous to invest missed some serious gains. The most dangerous thing to do in such a situation is sit it out and wait for a bona fide bull market.

2. Remember: America Is No Longer Top Dog

While America dominated the world economy for most of the 20th century, "Communist China is becoming the world's most important capitalist country," observed Cramer. Chinese demand rescued U.S. stocks in the recent downturn, and while major financial institutions in the U.S. were on the verge of collapsing, China's financials stood firm. What other country is willing to buy the trillions of debt we produce? No one but China is stepping up to the plate.

3. Follow the Funds

It may be hard to predict the next move of a celebrity investor, but it isn't so hard to piggyback off of mutual funds, which tend to drive the market and certain stocks higher. Choose a mutual fund you trust, and take a look at its core holdings. If there are stocks listed with good fundamentals, you probably are looking at a buy. Fund managers like to buy more of stocks that are tried and true, and as investors see what the funds like, they also jump on the bandwagon.

4. Decide Which Indicators Matter

The market has been fluctuating wildly in the last year and a half, and while it is hard to predict change, getting a handle on the right indicator can prepare you for the next big upturn or downturn. Gold was once a tried and true gauge of where the economy was headed, and rising gold prices was a reliable measure of how afraid investors were of a decline. However, gold is now more indicative of the buying habits of emerging market countries than the U.S. economy. With China at the center of the global economy, Cramer thinks the Baltic Dry Index, which measures imports to China, is a better indication of how the U.S. economy will fare. Job numbers, the volatility index and oil prices may all contribute to the overall picture, but it is more important to know exactly what story these indicators are telling than simply to quote numbers.

5. Listen to Everyone, not Just Experts

CEOs and analysts can get it wrong, and the average Joe can get it right; it isn't necessary to evaluate someone's credentials before listening to what they have to say about the economy. "Listen to everyone, especially people who know more about consumer behavior that's different from yours," Cramer advised. He used restauranteur Danny Meyer as an example. Meyer is no economist, but he does know about food and hospitality. His theory that companies which focus on customer service and hospitality thrive even in an downturn has proven correct, and Cramer's Danny Meyer Hospitality Index continues to outperform.


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