Understand How The Market Really Works: Read Cramer

I have probably read close to every single article that Jim Cramer has written since he started TheStreet.com. At best, I think he's a mediocre trader and probably a slightly worse investor. I know Jim would take issue with that notion, given his performance at his hedge fund over the 1990s ("24% compounded from 1989 to 2001", we know, we know) but my father - who only understands the basics of investing - outperformed him by holding and buying only one stock during the decade - GE (my father worked for GE and it was his primary investment - it compounded at about 28% over the 1990s). Forget the incessant "trading around positions," finding the hot sector, hedging with options, gaming the Fed, etc, etc. Most individual investors should find a couple of high quality companies trading at a discounted valuation and buy. Then they should hold them until they trade at a premium valuation. Sell and repeat. My father sold his GE "when it got too expensive" in 2000. I would say that's genius. The way Jim Cramer trades is controlled insanity - it's not genius.

That said I think Jim Cramer the absolute best at gaming the system - Jim understands better than anyone how the market works and he's the best at making money from the market's machinations. I would garner that most mutual fund portfolio managers, stock analysts and reporters don't have a clue how the market actually works. That's why every professional investor should be required to read every article written by Cramer at thestreet.com, especially the ones from 1997 - 2001. If you really want to learn why stocks go up or down, go to thestreet.com and search for his articles from those years. Print them off and read them. Then read them again.

If you don't have time to do that, watch this Cramer video from the end of 2006. It gives you a great introductory insight into how hedge funds play with the market. It's why the market confuses most people. You don't have to do what Cramer does to beat the market, but you do have to understand it. For example, as a long-term investor, I use these silly hedge fund games to my advantage. I buy when hedge funds are trying to knock stocks down and I sell when hedge funds are trying to prop stocks up. That's why, even if you're not a hedge fund manager, it's a good idea to know why stocks do things you don't expect.

This video is Jim Cramer at his very best - being brutally honest and giving you an insight into the inner workings of the stock market. This is Cramer's genius and it's why I still read everything that Cramer writes.

Comments

[Sonia Mirza]

Thanks for this. I don't particularly enjoy Cramer's antics, and find myself yelling at the TV for his lack of fundamental analysis or any other reasonable basis for recommending a stock (or otherwise) on a frequent basis, but that doesn't mean I don't listen to some of what he says with half an ear. That's of course if he isn't on MUTE.