Do you think Jim Cramer knows what he’s talking about?
There are several types of investors out there who commit their hard-earned bucks to the stock market (or other markets) to try to squeeze a little more from the savings they have. Some have decided to abandon their high interest savings accounts for something more “exciting”. While others enter the market with a lot of planning involved.
There are investors who tend to be more conservative: they are careful with how they pick their stocks, and with how they time the market. For these people, most of their stock market timing endeavors consist of figuring out when to jump into the market at an optimal time in order to rebalance their portfolios. At the other end of the spectrum are those who love and enjoy picking stocks, performing short term day trades and figuring out how to beat market returns.
For those who are interested in stock picking, there’s that cross section who care to hear about what certain “financial gurus” have to say about the stock market. So let’s delve into the mind of a stock picker, shall we?
Jim Cramer’s Stock Picks and Tips
There are legions of people who swear by Jim Cramer and I am one of those who finds value in the advice he offers stock pickers. Take note that these tips will apply more to those investors who have decided to dedicate all or part of their portfolios to individual stocks. Here are a few of Cramer’s tips:
1. Do your homework! Cramer believes that you shouldn’t be in the business of picking stocks unless you’re willing to do at least one hour per week of research for each investment you own. For this reason, he recommends only owning as many stocks as you can keep up with, using that hour time frame. I think a lot of people blame the market when they should be blaming themselves for not being involved enough in their portfolio. For those who don’t have the time nor interest in managing their portfolio this way, then you’re better off with passive investing strategies.
2. Buy and sell in increments. Don’t try to call bottoms or tops. Buy in smaller amounts as the stock price goes down and sell in increments when the price goes up. Don’t buy and sell all at once.
3. Don’t care where a stock has been, only where it’s going. Never look backwards. Just because a stock has been at a certain level doesn’t mean it will go back there; it also doesn’t mean it could never go back there. Analyze a stock carefully and get a feel for where it’s going using stock charting tools and research; don’t buy based on emotion or based on recommendations from unreliable sources. Just because a stock is at cheaper prices now relative to what it’s been in the past, doesn’t mean it’s the right stock to buy.
4. No more than 20% should be speculative plays. Everybody wants to get rich quickly which explains the love so many people have for speculative stocks. Cramer says that 80% of your portfolio should be in the best of breed stocks in the best sectors. Only 20% should be those stocks that aren’t proven yet. Depending on your stomach for aggressive investments, I’d adjust that 20% limit accordingly. You may find it more comfortable to keep 5% or less of your portfolio in speculative areas.
5. Don’t fight the big guys. Hedge funds, mutual funds, and big money investors move the market. If you try to invest by going against them, you will often lose money.
I’m actually a member of Cramer’s Action Alerts Plus service and love Jim Cramer’s market analysis. I’m able to keep tabs on stocks that he recommends through this service and I’ve personally found it useful. I also feel that this investment “guru” caters to the average person (or tries to). Since most of us don’t have the resources to do the research work ourselves, I do appreciate that Cramer is out there supporting the average investor.
Listen To Money Advice, Make Your Own Financial Decisions
Of course, when it comes to investing, we all have our comfort zones, so when it comes to Cramer, your mileage may vary. I actually find the guy entertaining, and often try to catch his Mad Money show on television. As far as financial gurus go, I am quite particular about what kind of advice I follow. After being burned a few times by a few other on air advisers, I’ve realized that nobody is infallible and completely prescient (this should be obvious, but many gurus pretend they are) and that it’s best to take all the information out there in stride (who knew that even Warren Buffet’s investments could falter so badly in this crisis?). Let’s make our own decisions based on the stuff we listen to and read. Even if I check out the advice of gurus, I do so to for the sake of expanding my knowledge; nevertheless, I still do my best to separate the wheat from the chaff when it comes to handling my money.
As for your own thoughts on Cramer? Bring it on!
- Stock trades: Free stock trades from Zecco, Cheap stock trades from TradeKing, Stock news and Investment info at INO TV Free, No cost Trend Analysis for stocks
- Earn top returns: FNBO Direct [1.90%], HSBC Direct [1.65%], WTDirect [1.76%], E*Trade Bank [0.95%], ING Direct [.25% to 1.65%]
- Cash bonus: Discover More [$50], American Express [$25], Lending Club [$25]
If you enjoyed this post, you can get free regular updates through our RSS Feed, or you can have our latest posts delivered to your email inbox by supplying your address here. Your address will only be used for this purpose, and you can unsubscribe anytime.
{ 8 comments… read them below or add one }
I as well find Cramer entertaining, and I agree with you that the average investor should steer away from stock picking.
p.s. I love your blog. You have inspired me to write one of my own!
I think I better be clear on why I’m investing before I make an investment. If my goal is to grow my money safely for my retirement, I’ll do better by sticking w/funds.
It’s not always about making the most money I think. It’s about making the most money for the least risk and individual stocks can really bite me. I’ll stick with funds….
While at times I find him entertaining and at other times, obnoxious, if you have read any of his books he will tell you his wife was the brains of his operation when he ran his hedge fund.
I think I better be clear on why I’m investing before I make an investment. If my goal is to grow my money safely for my retirement, I’ll do better by sticking w/funds.
It’s not always about making the most money I think. It’s about making the most money for the least risk and individual stocks can really bite me. I’ll stick with funds….
Oops…forgot to say great post! Looking forward to your next one.
Unless you intend to spend hours and hours of research on the market, it’s probably best to stick to safe stock picks and index funds.
Terrified of stock. I think it’s a crap shoot!
I can’t stand to watch him because of his style. There is one thing that I think equity analysts have got that other folks don’t and that’s access. They have access to CFOs and CEOs and the ability to talk to them and ask questions. There are some gurus who are willing to talk about their calls with the company personnel and often that is the most important thing out of their analysis probably because it doesn’t contain any analysis.
A couple thoughts as the guy who was quoted in the article. First, I have read all of Jim Cramer’s books and he says that his wife has helped to keep his sometimes hot head in check but I didn’t get the impression that she was the brains of the two. Next, you can’t knock the guy for what he’s doing. He took all kinds of heat when he was on the Today show and told people to take a significant amount of money out of the market. He was right. Back in March, he told people to put money back in and if you listened, your portfolio is up an average of 30% or so. I’m not in any way saying he’s perfect but he Action Alerts Plus service has made me a lot of money. I don’t have time to do my own research so I follow him and it has been well worth it. I hold on to 20% of my portfolio to make my own speculative decisions.
Think what you want about him but I admire that he is putting together a show that does cater to the average soccer mom-type American. If the statistics are true and only 20% of all mutual funds beat the market, are you really doing yourself a favor by taking a passive investing approach?