Rules of the Game - Cramer's Mad Money In-Depth (4. 17.08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program,Thursday April 17. Click on a stock ticker for more analysis.

Note: The following Mad Money program is a rebroadcast of a show that first aired on December 27, 2006

Don't Buy and Hold

In spite of the fact that Cramer was a money manager "with a terrific track record" he admitted to having made every mistake he describes in his book, Jim Cramer's Real Money, Sane Investing in an Insane World, as well as every faux pas mentioned in his new publication, Jim Cramer's Mad Money: Watch TV, Get Rich. Cramer identifies the single worst and most common mistake as adopting a "buy and hold" strategy, which is disastrous because "it's just not true that your stock will necessarily bounce back." Just hanging onto a stock might have worked 30 or 40 years ago when "taxes were high and commissions were even higher," but in today's world, investors need to do homework on their stocks, and investors who don't have the time to research their investments on a weekly basis should go into mutual funds.

Don't Dwell on Regrets

Although Cramer says he is the worst offender when it comes to this vice, he urges investors not to waste precious time grieving over past mistakes, since one "cannot afford to get thrown off their game." Instead Cramer emphasizes the importance of going forward and not losing confidence.

Tips are for Waiters not for Traders

"You have to discipline yourself so that you never, ever take a tip seriously," Cramer said, and he discussed the non-existence of real stock tips. For instance, if someone would say that Nokia is about to buy Research in Motion, the only way he would know is if he were an insider, and taking a tip from an insider is illegal. Cramer emphasized the importance of avoiding temptation in such a case: "Having the Securities and Exchange Commission investigate you is pure hell even if you haven't done anything wrong," he said. "Imagine how bad it would be if you were actually guilty of something." However, A non-insider who would tell an investor about a potential, unpublicized merger would have no basis for knowing, and should also be ignored: "If you get a tip, it's either illegal, incorrect or straight-up manipulative."

Diversify, Diversify

"I like to think that I'm universally loved, but people really tend to hate me when one sector is en fuego and I tell them to take some money out of it and spread it around because you can't keep all your eggs in one basket," Cramer said. However, once the "hot" sector falls out of favor, people thank Cramer for telling them to stay diversified. Cramer warns investors not to have more than 20% of their money invested in a single sector. "You absolutely must stay diversified, and this rule can't be bent, broken or spindled."

Don't Buy an Entire Postion at Once

"The single most arrogant thing you can do as an investor is buy your whole position in a stock at once," Cramer said. Investors who buy incrementally make more money and do not have the regret of having jumped hastily into a stock. Cramer suggests looking for opportunities to buy gradually.

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Comments

[Jimmie5497:]

The shows are re-runs all week. These are taped about a 12-18 months ago.

2008 Apr 18 07:54 AM

[Norman Lepo...:]

I don't blame them for doing re-runs. The truth about Cramer is that he stinks at picking stocks. He must have been running his hedge fund during the 1990's when everything went up. Either that or he was lucky because he is really bad at picking stocks.

2008 Apr 18 10:29 AM

[DIGGER:]

My impression of Cramer is that he is a speculator-cum-market timer. he rarely, if ever, counsels "investing" in a sector, i.e. solar tech, water purification, alternative energy, etc. and then staying the course as the respective companies go through their various growth and development stages. He reminds me of a racetrack tout who knows that there is a winner in every race, and all you have to do to get attention is recommend a bunch of horses in each race...

2008 Apr 18 11:30 AM

[Timmah!:]

Truth is Cramer got me interested in stocks. But much like he says over and over. DO YOUR HOMEWORK. Never take a stock pick because someone said so....so many people whine about Cramer's bad picking....perhaps he has a hidden agenda.....his strategies are sound....diversify, homework, buy incrementally, buy weak sell strong...good solid advice....

2008 Apr 18 11:31 AM

[maelstrom:]

I could not help but laugh Timmah, like you I also became more interested in doing my own work and managing my own money. As a result I too discovered Cramers' horrible track record re: stock picks.I think his wife is far more astute, perhaps he has become a celebrity in his own mind.

2008 Apr 18 06:38 PM

[rw mac:]

Are any of yu better day in & out? Jim's lead stock an analysis is usually spot on. If yu rode Jims Oil Patch call in 2005 & 2006 yu wud not have to work now or even invest. Yu cud switch to munis and be on the beach! Problem is thee is no follow up when to leave a stk he suggests yu review.

2008 Apr 20 11:18 AM