Faith Doesn't Cut It - Cramer's Mad Money (8/29/08)

by: SA Editor Joan Wickham August 29, 2008 | about stocks: QQQQ    

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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday, August 29.

Faith Doesn’t Cut It

“When it comes to your money, faith doesn't cut it,” Jim Cramer told viewers. “If you want to be a truly great investor then you need to be a skeptic, if not an all-out cynic.” Whenever someone makes a pronouncement about a stock or about the market, those listening “should always consider the source,” Cramer said. Therefore, Cramer devoted the show to explaining how and why he's qualified to be on TV expressing his opinions. “I'm going to tell you why I think my way, my method, is better than putting your money in a mutual fund, or an index fund, or playing around with exchange-traded funds,” Cramer said. Even though it is true he successfully ran a hedge fund for 14 years, that's not why market players should listen to him, he said. Running a hedge fund and investing part time as an individual are two different things, Cramer said. “I was good at one, but on its own that doesn't mean I'm any good at the other.” The thing that really qualifies him, beyond his record at the hedge fund, his experience, and the fact that he “works like a dog to come up with great ideas for the show,” is the fact that he “used to play for the bad guys,” Cramer said.

How Cramer Arrived at Mad Money

“Hedge funds, especially with people like me at the helm, are predatory,” he said. “They contribute nothing to society, aside from helping the rich get richer, and all too often the tricks these funds pull end up hurting regular people, ordinary individual investors.” Now, Cramer said, he plays for the “good guys” and knows “all the tricks, all the ways hedge funds maneuver so that they make money and you don't.” This also means that he has the “insight, suggestions and caveats” that can help people become better investors. When he graduated from college, Cramer wanted to be a journalist, not a money manager, he said. In fact, his first investment, American Agronomics, was a “perfect failure,” Cramer recalled. But instead of quitting, he kept investing and got better. By the time he went to law school, he was even leaving stock tips on his answering machine, he said. Then he got lucky when The New Republic's editor-in-chief Marty Peretz, after hearing numerous stock tips over Cramer's answering machine, “dropped a check for half a million bucks in my lap and told me to invest it,” Cramer said. “Luck got me into the game. Then luck made my hedge fund serious in 1987.”

Money Manager Cramer

As a money manager, Cramer said, he was working 18-hour, sometimes 24-hour, days. “I didn't see my family, I weighed 30 pounds more than I weigh now, my blood pressure was a lot higher and I was never happy,” he said. When his family intervened in late 2000, Cramer decided to leave the fund. But as he still “loved stocks,” he kept writing for TheStreet.com, which he co-founded. Plus, he started managing his Action Alerts PLUS charitable trust. Then, Cramer got the chance to do “Mad Money.” “I didn't stop running my hedge fund because I lost my game,” he said. “I stopped because it was killing me. I'm not the kind of guy who can just scale back: it was either 18-hour days forever or retirement.”

What Motivated Mad Money

People can “feel good” about listening to Cramer, he said, because he only has two motives: “I want to have fun, and I want to help you try and beat the market for the same reason.” “Mad Money is not a scam,” Cramer said, adding that he can't profit from anything he says on the show -- only the viewers can. At the same time, Mad Money isn't a way for anyone to get rich quick and it does not cater to a single audience, he said. As the show is for a diverse audience, Cramer's advice isn't always for everyone. Moreover, people should not think they will become brilliant investors just by watching Mad Money every night, Cramer stressed. The only way to become a great investor, according to Cramer, is by doing your homework and “studying stocks with enough rigor and passion to get them right.”

Mad Money Investor Guidelines

“If you want Mad Money to work for you, if you want me to work for you, then you need to be willing to commit to doing homework for an hour a week for every stock you own,” he said. Cramer recommends individual investors own a minimum of five and a maximum of 10 stocks. Having fewer than five stocks risks a portfolio will not be diversified enough and holding more than 10 stocks gets tricky to manage diligently. As long as investors do have the time and inclination, Cramer believes his methods will beat mutual funds, index funds and ETFs. While he feels index funds “involve too many bad stocks,” he said it's OK to put money into a mutual fund if people don't have a lot of time on their hands. However, people should still do some homework to make sure the mutual fund is a good one, and not just one with a “brief year or two of mega outperformance,” Cramer said. “Second, if you're going to buy a mutual fund, you should only be in one and it should be a diversified fund,” he said. However, if market players do have the time, it is better for them to invest themselves in the stock market as mutual funds make their money off of the fees people pay them to manage their money and they only need to do well enough to attract more fees, Cramer said. “Since their job is to attract new investors and make the fund bigger so it can collect more fees, a good mutual fund will ultimately get really big,” he said. “And you know what a really big, cumbersome mutual fund looks like? It looks like an index fund.” Therefore, “if you've got the time, forget about mutual funds,” Cramer advised. And when it comes to ETFs -- these, contrary to belief, don't make things easier on the individual investor, he said. “An ETF is usually highly specialized and sector-weighted,” Cramer said. “Doing the homework to know what sectors are good is about as hard as doing the homework to know what stocks are good. Plus, when people buy an ETF, it is just like buying an index or even a mutual fund, he said. “You're buying a lot of stocks that you should know are bad.”

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This article has 20 comments:

  •  
    Aug 30 09:53 AM
    No doubt Cramer is intelligent man and reading is his first book confessions of atrader shes great isight into him.His problem is that his investments on fast money are NOT Appropriate for his audience. New investors should be buying safer high caps when they are priced FAIRLY. If you want to gamble to Vegas
    Reply | Link to Comment
  •  
    Aug 30 10:14 AM
    Hmmm. It sure has been interesting watching the last two Mad Money shows. Clearly, Jim Cramer has gotten pressure from the 'powers that be' to try to explain himself to the public--as all of the recent negative web chatter about him seems to have his star suddenly waning. Afterall, without viewers, he loses his gig (just like other notable nutcases and recent TV failures such as Suze Orman). So the the word clearly came down to "suggest" that he explain himself and his motives to We the People.

    Also clearly, I believe we will now start seeing a much more cautious JIm Cramer, when it comes to "telling" people to buy this or sell that. I think that the recent posting on You-tube of him doubling back on his stock and sector recommendations in June, was the critical mass for getting him (and his bosses) to see how out of control he really was. Hopefully he's learned that you can't outright go on the air and tell people directly to buy or sell something--and then turn around and say the equivalent of, "ooops, you screwed up, you trusted me. I'm just here having fun!" Maybe now people will understand he is really just on the air "to have fun," and that it's listen to him at their own risk. IMHO, that was nowhere near clear before Thursday and Friday. I think (in his manic mind) he thought people knew that. Instead, people have been using his word as "the expert" he claims to be, as the gospel-- and of course losing their shirts. However, I do think there is something important to consider when it comes to his stock picks (as it is with most money managers) which I would bet most people don't realize. It involves time frame. I believe the biggest mistake private investors make in general (present company included in the past) is thinking a stock will perform on command. As a former big time money manager, when someone like Cramer says 'buy it and expect a profit', they don't mean the next day. They don't even sometimes mean next week or next month. Because those guys have so much capital to play with, their time frames are yearly. So if it takes 6-10 months for them to hit their price target, even having the stock lose some ground for a time period, then so be it, they can wait. If you watch Fast Money, that example is shown time and time again. Private investors on the other hand, with much less capital, expect their returns within a week or two, maybe a month on the outside. When this doesn't happen, the private investor feels they've been screwed and that they have to cut their losses and move on. Sadly, and I used to know this all too well, it's ususally a day or two after that sell, that the stock finally moves (without you). Which btw, is exaclty what the big short players expect you to do. Their strategy is hold the stock down (and heading lower) as long as possible so you will become frustrated and sell off in a huff--then they cover up and reap the rewards. In the end, the big money manager makes his or her profit, while the private investor loses out. Again, IMHO, if there is anything a private investor needs to learn to be successful on Wall Street is that time is the key to success. If one does not have a decent time window in which to tie up funds, there will almost certain be heavy losses (or at least going nowhere fast).

    To be sure, Jim Cramer has been less than objective on many occasions--i.e when it comes to SIRI. Among other instances, in his interview with Mel Karmazen, he chose to only focus on the GS opinion about the stock (which is the most negative and has the lowest price target--and we all know why he highlighted them only), when there are plenty of other analysts who think SIRI is undervalued RIGHT NOW--and have a BUY or OVERWEIGHT rating overall (including the S&P Analyst Research Notes and Lehman Brothers) with price targets of $2 or higher. Why wouldn't Jim Cramer mention them (that's a rhetorical question)? All Jim Cramer had to say to the millions of people hanging on his every word, was "why should I buy the stock when it says right here (as he flapped his report in his hand) it's going down to $1?" Come on Jim...that's a loser tactic!

    So, Jim Cramer, if you happen to read this post, if you really want to 'help' your adoring public (which beside having fun, is the only other reason you say you are on the air), do them a favor and become more objective and responsible. Realize you have people hanging on your opinion, and acting on it). As you have now just said yourself, you come from a different world as a money manager (and worse from a hedge fund). You need to stop giving advice based on that existence, under the guise that you want to "expose the bad guys" and "tell people all the secrets that are hurting their financial performance as small investors." Stay focused on that small investing a few stocks at a time, with limited capital, requires a time investment, and tell people THAT. Keep reminding them that when they buy a position in a stock, there is a 97% probibility it will either go down first, or stagnate under short side pressure for an extended period of time. Tell them what they need to know as small investors, not as big time money managers with tons of capital with which to hold constant side cash positions (to capitalize on cost averaging and unforeseen haircuts). And certainly be WAY MORE OBJECTIVE and if you recommend or dislike a stock or sector, give BOTH SIDES OF THE STORY. You talk about homework. Obviously, either you don't do all of yours (which I don't believe), or you just choose not to reveal all the information a SMALL INVESTOR would need to know (which is more believable esp. when you know it would disrupt your friends from making their 'MAD' money hand over fist). Tell the good AND the bad Jim Cramer and then let the people make their decision. Say, "GS has a target of $1 on SIRI but then again, look, Lehman's opinion is OVERWEIGHT @ $2.10." It's fine to hammer the convertible note issues, but then turn right around and tell the people all the positives Citi has reported in the new combined company (and in owning the common stock). This was a great example of how you couldn't resist falling back into your 'alter persona' as a hedge shark. Your only real question to Mel was, "why shouldn't I (meaning his current shark friends) just keep shorting and hammering the stock to recoup my money in relation to the notes? There's no reason for me not to." If you want to help break the mold when it comes to your 'insider knowledge and former dirty practices', you can help the little guy the most by also revealing the other positive info the the money managers don't want known (about any stock or company). This is how how you can 'help people' the most--and keep your star on the rise.
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  •  
    Aug 30 01:31 PM
    Cramer is a brilliant and brave man. He tells the truth - most of which is common sense but people on Wall Street are mostly afraid to say or would fear for their lives. Also, it doesn't take much to consider his common sense approach to taking responsibility for your investment portfolio. 5-10 stocks is diversified focused investing. I don't think Warren Buffet would be upset at most of Cramer's picks nor would I. Alas, unlike some...Cramer is also man enough to change his mind if proven wrong. More people on Wall St should be so brilliant as to let college students find the needle in the haystack winners that don't always land on the top ten list. It's about value investing. Right? I'll say it again.Cramer's a brilliant man.....and we're not even related. :-D
    Reply | Link to Comment
  •  
    Aug 30 02:01 PM
    cramer is wall street shill . look at his bear sterns call before they got bought out he pounded the table and said DO NOT SELL! and look what happened , here is a linktto a guy who has tracked cramer and his purposeful bad calls in my opinion

    www.youtube.com/watch?...
    Reply | Link to Comment
  •  
    Aug 30 02:06 PM
    after watching that how can anyone have faith in jim cramer spread the word will ya . you family and friends 401K's depend on it
    Reply | Link to Comment
  •  
    Aug 30 02:15 PM
    all this about j c just gives him publicity for his show
    Reply | Link to Comment
  •  
    Aug 30 02:36 PM
    I suspect that F zriday's show was pre-taped so Cramer could take a long weekend. It had no specifics on how the market did on Friday nor any other specifics.
    Reply | Link to Comment
  •  
    Aug 30 03:03 PM
    whenever Jim says he is going on vacation thats when the market crashes
    Reply | Link to Comment
  •  
    Aug 30 03:17 PM
    JC is a "once in a life-time experience". I'm in a retirement home and actually, 45 yrs ago, thought I could trade with the "guys". I became a B/D....vol on the NYSE was around 10 mil per day. I'm wiser now but I never felt the "fun".....lj...
    Reply | Link to Comment
  •  
    Aug 30 05:33 PM
    User i45425 -- what is "B/D"?
    Reply | Link to Comment
  •  
    Aug 30 06:34 PM
    Cramer can recommend that you buy a stock, but you still have to do your own research. Do not buy a stock unless you truly believe that there are good reasons to own it. If the price goes down on a stock you truly believe in, and the reasons for buying it have not changed, you will stay the course. If the price goes down on a stock that you bought because somebody told you to buy it, you will panic out of it and the short sellers will eat your lunch, as described by sl62. The purpose of Mad Money is get you to think for yourself, not just to give you a list of stocks to buy. If you need somebody to tell you what to buy, when to buy it and when to sell it, send your money to Gorilla Trades.

    BTW Ghost Rider, Thursday's and Friday's shows were taped long ago and are part of a bunch of shows that purposely focus on education and not mentioning current stock prices so that CNBC can show them whenever JC wants a couple of days off.

    And BTW British Steel, why in the world would you invest your friends' and family's 401(k)s based on the advice from a television show? The show's called Mad Money. As in, fun money, money you can afford to lose, extra money, money that you do not need to live on, certainly not your retirement money which is much too important. JC has been very clear on this in his books and on TV.
    Reply | Link to Comment
  •  
    Aug 30 07:51 PM
    Strangely, none of the comments refer to Cramer's presentation -- the noisy, irrelevant sound effects, the objectionable shouting, screaming, ranting and raving which seems directed at attracting college-age viewers, the equally irrelevant "Boo-Yahs!"

    Personally, I've found that much of what he says is sensible, but his way of saying it is frat-party juvenile, and I assume that's the audience he is aiming at.

    I've noticed, in my on-and-off viewing, that occasionally a caller will tell Cramer that "my kids love you!" which isn't surprising because kids love clowns.

    He's a bit much for grown-ups. I'd probably watch him every day if he'd just sit at a table and talk sense, because he's not only pretty smart, but unlike almost everyone you can speak with about stocks, he doesn't have an axe to grind on the subject.
    Reply | Link to Comment
  •  
    Aug 30 10:24 PM
    I WATCHED "MAD MONEY" AND GOT BEAT BY CRAMERS MOUTH! OIL SANDS WAS BUILDING. JIM OPENS HIS MOUTH AND THE SHARK CAME OUT.IT WENT TO $6.50 AND TANKED FOR THE SHORT SELLERS AND THE SHARKS. I MISSED THE RUSH UP AND HAD TO BAIL THANKS TO CRAMERS'S MOUTH. MAY ALL VIEWER BE AWARE!
    Reply | Link to Comment
  •  
    Aug 31 12:44 AM
    Kkin, borker/dealer.
    Reply | Link to Comment
  •  
    Aug 31 03:08 AM
    I think Cramer provides unique insights on the markets, but remain skeptical to all investment ideas even from the greats. Blindly following someone's picks is not a good way to invest. Research your own ideas and find your own place to make money in the market.
    Reply | Link to Comment
  •  
    Aug 31 06:56 AM
    Cramer is a normal people. No one can be 100% right. Not even 50% sometimes. So if cramer can help you reach that 51% then you can beat the market like he says. Surely not following him blindly, but researching what he says.
    Reply | Link to Comment
  •  
    Aug 31 07:01 PM
    Cramer makes investing fun, it is an Entertainment. People bear such grudges when it comes to money. Like Fast Money is fun... Pompus dolts, more like.
    Reply | Link to Comment
  •  
    Sep 01 12:32 PM
    YEP
    Reply | Link to Comment
  •  
    Sep 02 12:50 PM
    J C in the BS fiasco reminds me of a certain other fast-talker who "didn't inhale" or very thoughtfully explained "it depends on what you mean by..."
    Since I don't watch JC anymore, I don't know if he apologized. ?
    I also know there are many financial advisers and bloggers out here on the www. Would SA consider a survey or poll of them amongst us?
    Reply | Link to Comment
  •  
    Sep 03 10:45 AM
    I thinkl the chief value of JC is getting people interested in the market in the first place. There is after all no twenty year period I am aware of that has not had stocks outperforming every other investment class.
    Yes, sometimes people take losses on stocks that they buy indiscrimately, but how much damage does that cause compared to the housing bust - say, talking a single mother cocktail waitress into 'buying' a 300,000 home with an interest only mortgage due to reset in five years? (I actually saw this person last night on CNBC). Many many many people need to be bitch-slapped into unconscuisness for that; in comparison, Cramers sometimes nutty stockpicks (Krispy Kreme Donuts?????) are misdemeanors at best
    Reply | Link to Comment
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