Cramer's Mad Money - Tricks of the Trades (4/12/09)

Includes: CHTRQ, CTXS
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, April 12.
Monday's program was a repeat program that last aired on January 2, 2008.

Investment versus Trade

Cramer began his show enlightening viewers about common investment mistakes with a discussion of the difference between investments and trades. “A trade is when you buy a stock for some specific event, a catalyst,” he said, while an investment is a “stock that has the potential to work over a long-time horizon.” One mistake investors often make is to sell a stock that has gone up but is actually worth holding for the long-term. He warned against turning an investment into a trade until the thesis for buying has been given a chance.

The Cheap Mystique: Charter Communications (CHTR)

Cramer warned viewers against being seduced by the mystique of a single-digit stock thinking that the price is so low there is practically nothing to lose. Cramer lost $130,000 on $4 stock Charter Communications when he was forced to sell it at $2 to stave off even further losses. But are all single-digit stocks losers? Cramer introduced his “multiply-by-ten” test; if you like a stock at $4, and would still like it at $40, 10 times its current price, then it may be worth buying. "If I had done that with Charter, which was drowning under the weight of its debt, I would've never bought the thing in the first place," he said, and reminded viewers most stocks with absurdly low prices are cheap for a reason.

Avoid Infatuation: Citrix Systems (CTXS)

Sometimes investors are seduced by the promise of a hot new product only to find out it has been around for a while. This is what happened to Cramer when he bought Citrix Systems because of a “spanking new” product called “Go To My PC” only to find it was released three years earlier, and he was forced to sell Citrix 10 points lower.

Mutual Funds vs. Going it Alone

While Cramer thinks most people would be more successful doing their own homework and buying individual stocks, he says people who do not have the one hour per week per stock needed for this essential research should consider a cheap index fund that mirrors the S&P and has low fees. He urged those looking at funds to check the performance of the manager, and how he has done in bear as well as bull markets. “Any Schmoe can make money in a bull market,” Cramer said.

What about Retirement?

While the topic of 401K plans and IRAs may seem boring to some, they are important to consider because of the security they provide for the golden years and for tax savings. No taxes are paid on money that goes into the funds and there are no taxes on dividends and capital gains that are kept in. Investors are taxed only once upon retirement. For more tax savings, Cramer recommended lookinat REITs and royalty trusts.


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