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Don’t Listen to Jim Cramer on Mad Money

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Don't Listen to Jim Cramer on CNBC's 'Mad Money' TV Show

If you ever tune in to CNBC’s popular Mad Money show, you’ll notice that host Jim Cramer speaks about the financial markets with unabashed certainty. Behind the goofy sound effects and the onscreen antics lies his particular brand of stock market punditry.

Cramer’s energy and confidence are most evident in the lightning round where his devotees hail “Booyah” and ask for his take on a barrage of stocks. In response, Cramer presents quick statistics and declares, “Same-store sales in China rose 12% last quarter. It’s a screaming buy; they’re doing great. BUY! BUY! BUY!” Or, he blurts out, “This company is involved with deep water rigs, the deep water market has not come back at all. If it does go up at all, SELL, SELL, SELL!”

What’s most notable about Mad Money is that Cramer is seemingly equipped to answer questions about any listed company with all the gusto he can muster. How could he possibly know the ins and outs of every company: their products, finances, cash flow, competitive positions, market prospects, and current valuation? He may know of many companies cursorily, but how could he have intimate knowledge of every ticker symbol that his fans throw at him? You’ll never hear him say, “Sorry, never heard of them,” or “Gee … truth be told, I’m not familiar with their new products or how they compare to the competitor’s products. I really couldn’t tell you.” He’s loud. He’s boisterous. And, he’s got to have an opinion on every stock—if he doesn’t, there is no show.

Jim Cramer, the best entertainer in the financial media

'Jim Cramer's Mad Money: Watch TV, Get Rich' by Jim Cramer (ISBN 1416537902) Jim Cramer’s credentials are impressive: Harvard, Goldman Sachs, hedge fund management, and TheStreet.com. He is the author of many investment-advice books with titles as appealing as “Get Rich Carefully”, “Sane Investing in an Insane World”, “Confessions of a Street Addict”, “Watch TV Get Rich”. He is experienced. He has extensive knowledge of the markets. He is passionate. He is smart.

Nonetheless, do not let Cramer’s credentials fool you about Mad Money‘s intent. His antics are entertaining. He wears silly costumes, yells at the camera, throws chairs around when angry, hits things with mallets, and chews heads off foam bears—all while producing goofy sound effects that include squealing pigs and a flushing toilet.

Jim Cramer’s opinions on Mad Money are often one-dimensional, half-baked, oversimplified, or wide of the mark. In the very first Mad Money episode I watched in 2005, a caller on the lightening round asked him about a company called PetroKazakhstan. Cramer’s response was that he did not trust the Russians. PetroKazakhstan was a Calgary-based Canadian oil company that was led by Canadian executives, did all its business in Kazakhstan, and had little to do with Russia. (The state-owned PetroChina acquired PetroKazakhstan in 2006.)

Don’t identify Cramer’s show with sound investment advice

Jim Cramer's Sound Effects and Onscreen Antics on 'Mad Money' As with other programs in the financial media that are teeming with talking heads, watching Mad Money can give you pointers as to what’s happening in the markets and in business trends. You can get ideas for what stocks to research or even speculate on. However, none of it constitutes sound investment advice.

Cramer’s job is not to make you money. He gets paid by CNBC to generate viewership and to entertain viewers with the pretext of dishing out dependable investment advice. He is not a trickster; he just is an entertainer on Mad Money, a fact that he acknowledged in a 2007 essay in the New York Magazine: “On the show, I say stupid things, yell ‘Booyah’ with alarming frequency, and occasionally wear a diaper or jump into a pile of lettuce to illustrate the finer points of investing. … God knows why, but there seems to be a market for this kind of idiocy.”

Watch Mad Money for the frenzy and personality-driven entertainment. Don’t take his speculative tips or investment advice seriously. Instead, do on your own research.

Rule #21 in Cramer’s 25 Rules of Investing states, “Be a TV critic: accept that what you hear on television is probably right, but no more than that.” Now, that’s good advice.

Book Summary of John Bogle’s ‘Little Book of Common Sense Investing’

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The Little Book of Common Sense Investing, John Bogle “In investing, the winning strategy for reaping the rewards of capitalism depends on owning businesses, not trading stocks,” argues John Bogle in making a strong case for low-cost index funds in his text, “The Little Book of Common Sense Investing.” With statistics and graphs, Bogle rationalizes that low-cost index funds outperform most investment professionals and offer better-than-average returns for investors over the long term.

John Bogle is the legendary founder of the investor-owned Vanguard Group, currently the world’s largest mutual fund company by total assets under management. Over the course of 25 years at the helm of Vanguard, until his retirement in 1999, he focused the efforts of Vanguard on offering cost-conscious investment choices to the masses. John Bogle is the bestselling author of many other books on investment advice.

Superiority of Low-Cost Index Funds

John C. Bogle, Founder of The Vanguard Group John Bogle founded the world’s first index mutual fund, the Vanguard 500 Index Fund in 1975. Since then, “Saint Jack” (as critics labeled Bogle mockingly) has untiringly promoted the virtues of low-fee, no-load, low-turnover, passively-managed index (or more precisely, index-tracking) mutual funds. Investing in such funds, he contends in “The Little Book,” is the simplest and most effective way to invest in a diversified portfolio of stocks and bonds, and profit from earnings growth of businesses and the dividends they yield.

John Bogle methodically discusses every theme relevant to successful investing: the myths of speculation and market timing, inflation, frictional costs (fees charged by brokers and investment advisors, costs of transactions, front-end and back-end loads,) and the effects of compounding and taxes. He then convincingly counters arguments against investing in total market index funds through easy-to-follow quantitative appraisals of investing in individual stocks and bonds, actively managed funds, hedge funds, and sector-specific funds. At the end of each chapter, Bogle reinforces his position with words of wisdom from some of the greatest minds in economics and investing: Ben Graham, Warren Buffet, John Maynard Keynes, Peter Lynch, and the like.

Invaluable Insights for Investors

The majority of people do not have the time, energy, determination, or aptitude for understanding economics, examining investments, managing risk, and building wealth for themselves. They are either overly cautious, or they invest heedlessly, submit to market trends, or engage in speculation. In reading John Bogle’s authoritative book, modest investors will recognize that low-cost index funds offer them broad diversification, reasonably good returns over the long-term, and the ability to outperform a majority of investment professionals.

Informed investors will find, notwithstanding many drawn-out discussions, a great reiteration of John Bogle’s now-familiar, commonsensical ideas on the merits of index investing.

Leadership Reader’s Bottom-line

Tips To Improve Your Financial Habits And Knowledge

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Managing our finances can come easier to some than others, and some of us may feel we need to brush up on our knowledge when it comes to handling money. Well, if that’s the case for you then take a look at the following guide we have put together. It features advice and guidance for how to improve your spending, saving, and increase your income. Read on if you’d like to learn more.

Create A Budget Plan

The first step in better understanding your finances is to create a budget plan. The purpose of a budget plan is for you to be able to more clearly track and control your habits surrounding money. It also allows you to create a plan for the month of how your income will be spread out. To create a budget plan, go through any documents you may have that cover outgoings such as bills, receipts, and the like. You can also use your banking app for this if you have one as it will usually list your outgoings made on your card. Work out how much of your income is going on what, and whether you need to spend as much as you are on certain things. Of course, no two budget plans will look the same, as everyone prioritises different things. From there you can create separate sections to your budget plan such as shopping, bills, direct debits, savings, and spending money, and how much you aim to spend on each going forward.

Cut Down On Unnecessary Spending

By studying your budget plan, you’ll be able to see areas that you may be overspending on, such as meals out or shopping. You can then make arrangements for how you’ll try and save money in these areas. For example, set yourself a smaller budget for certain things and stick to this for the month. If you know on a certain month you may be spending more than usual (like on a holiday) then you can plan to cut back on other financial areas to help you save money. If you enjoy nice meals out or takeaways, consider cooking from home more often. This also allows you to budget better as you can plan how much you want to spend on the food shop in advance, which can last you for the coming week or two.

Cancel Some Direct Debits

Another way to save money is to have a look through your direct debits and see which you don’t make the most of or really need. This could include things such as TV subscriptions, gym memberships that aren’t used, and magazine subscriptions. Direct debits may not cost much individually, but when they are added up and get taken out each month, they can really affect your ability to save and control your money.

Take Out Loans

If handled responsibly, loans can help you out financially when needed. If you’ve had an unexpected payment that you can’t afford until you’ve been paid, sometimes taking out pay day loans can help you to overcome a financial bump in the road.When taking out a loan it’s important to make sure that you will be able to pay it off within the specified timeframe. Therefore, pay day loans should only be considered as a short-term option, when you know you will be able to pay it back relatively quickly. For longer-term financial support, other options should be considered.

Explore Passive Income Streams

If you’re looking to boost your income, but you’re not willing to change jobs, then it’s worth considering setting up some form of passive income. Passive income is money that flows in for you without requiring constant or much work on your part. It’s ideal to have a form of passive income running alongside an existing job as it will allow you to boost your income without taking too much of your attention away from your day job. There are a number of different options to consider when it comes to setting up a side-hustle. So, give the process plenty of thought before choosing what to do, and consider the different options out there and which would fit best into your lifestyle and interests. For example, if you have the time and enjoy writing, you could look into becoming a freelance writer. Or if you’re bilingual, you could consider part-time language tuition.

Consider Investing

Another way to boost your income is through investment.This can take a number of forms. For example, you could invest in stocks and dividends. Or if you’re good at DIY, you could invest in property development. The best way for you to invest is through choosing something you have good knowledge of already. Or if you’re interested in getting into an investment, make sure to do plenty of research first or get advice to make sure you make wise investments.

Knowing And Improving Your Credit Score

Your credit score is the number you are given based on your credit history. It can be affected by whether you are in debt, whether you pay bills on time, and your ability to manage your finances well. Your credit score will be what lenders use to decide whether or not to lend you money. It will also affect the rate of interest lenders will charge on the money you borrow. You can find out your credit score through online credit score calculators. You simply have to answer a few questions and it will search through your credit history and give you your score based on this. If you wish to improve your credit score, you will need to ensure you’re doing the following:

  • Pay bills and direct debits on time
  • Avoid credit checks from various lenders
  • Using a credit card WISELY

How Can Credit Cards Be Used Wisely?

Credit cards need to be used carefully in order to benefit from the increased credit score they can provide. It can be incredibly tempting to overuse credit cards and buy things we can’t afford. If you’re going to be using a credit card you will need to be strict with yourself and control the spending on it. A good way to use credit cards is by using them to spread the cost of something. For example, buying something you know you can easily break up into payments over a few months. If you’re going to be using this tactic, then make sure to only be paying off one purchase at a time, so you can keep on track of what you’re paying off more easily. You could also use credit cards to make small regular payments such as shopping, and then pay it off immediately upon getting paid. It will depend on the card provider you choose as to how much interest you get charged and what bonuses you can receive, so make sure you do your research before choosing a provider.

Seek Expert Advice

If you want to have the best knowledge and control of your finances as possible, it’s worth hiring a qualified expert financial advisor to go through your finances with you. They will be able to give you tailored advice and financial solutions according to your personal situation. An accountant will be able to give advice when it comes to sorting and paying taxes.

Is Dave Ramsey Wrong? Pay Off Your Mortgage as Quickly as You Can?

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Sure, personal finance guru Dave Ramsey’s advice has encouraged thousands of devoted followers to get out of debt and stop living paycheck to paycheck. Yet, depending on your circumstances, he may be dead wrong on paying off your mortgage early.

Is Dave Ramsey Wrong? Pay Off Your Mortgage as Quickly as You Can? A generation ago, mortgage rates were 6–10%. With interest rates that high, paying off your mortgage was a no-brainer. Today, however, interest rates are 2.5–4%, making a different story. You could pay off your mortgage quicker if you’d like. But with the low-interest rates today, you may want to consider investing instead of paying off the low-interest debt. The average stock market return for buy-and-hold investors over the long term is about 7% annually, even after considering inflation.

In sum, Dave Ramsey’s advice just doesn’t make as much sense today with how low-interest rates are comparatively.

'Total Money Makeover' by Dave Ramsey (ISBN 1595555277) But some nuance is in order: Ramsey promotes financial stability. He accepts the risk of missed investment returns in exchange for the guarantee of reduced financial obligations. On balance, investing in the market while carrying a mortgage is tantamount to leveraging debt.

Idea for Impact: Ramsey measures opportunity cost as the difference between paying down your mortgage and the worst-case stock market investment scenario. So, unless you’re extraordinarily risk-averse and can’t take the risk in the market, you shouldn’t pay off your mortgage early. Invest in a low-cost index fund, and don’t let short-term movements sway your decisions.

The Simple Life, The Good Life // Book Summary of Greg Mckeown’s ‘Essentialism’

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One of the great struggles of modern life is the intense complexity, chaos, and exhaustion of activity and reactivity. We have a tendency to take on too much, become accountable to too many people, and say ‘yes’ to too many demands on our time and our energy.

As I mentioned in my world’s shortest course on time management, the merits of ignoring the trivial many and focusing on the vital few is often overlooked. The need for essentialism—less responsibility, less fame, less money, fewer possessions, less mess—is something that’s easy to identify with, but requires abundant self-discipline to put into consistent action.

Business consultant Greg McKeown’s Essentialism: The Disciplined Pursuit of Less (2014) is an excellent reminder that a rich, meaningful life entails the elimination of the non-essential:

Essentialism is more than a time-management strategy or a productivity technique. It is a systematic discipline for discerning what is absolutely essential, then eliminating everything that is not, so we can make the highest possible contribution toward the things that really matter.

'Essentialism - The Disciplined Pursuit of Less' by Greg McKeown (ISBN 0753555166) McKeown’s wide-ranging discussion covers insightful get-a-hold-of-your-life principles—frugality, sufficiency, moderation, restraint, minimalism, and mindfulness—reframed in the essential-avoidable dichotomy. Here are prominent insights from Essentialism:

  • Get to grips with selectivity—whenever you can, judiciously select which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. “The basic value proposition of Essentialism [is,] only once you give yourself permission to stop trying to do it all, to stop saying yes to everyone, can you make your highest contribution towards the things that really matter.”
  • Most top performers have one thing in common: they accept fewer tasks and then fixate on getting them right. “Essentialism is not about how to get more things done; it’s about how to get the right things done. It doesn’t mean just doing less for the sake of less either. It is about making the wisest possible investment of your time and energy in order to operate at our highest point of contribution by doing only what is essential.”
  • If you don’t arrange your life, someone else will. “When we forget our ability to choose, we learn to be helpless. Drip by drip we allow our power to be taken away until we end up becoming a function of other people’s choices-or even a function of our own past choices. In turn, we surrender our power to choose. That is the path of the Nonessentialist. … The Essentialist doesn’t just recognize the power of choice, he celebrates it. The Essentialist knows that when we surrender our right to choose, we give others not just the power but also the explicit permission to choose for us.”
  • Pop out at least once a year to reflect and ask questions about what you’re doing and why. “The faster and busier things get, the more we need to build thinking time into our schedule. And the noisier things get, the more we need to build quiet reflection spaces in which we can truly focus.”
  • Pursue a well-lived, joyful, meaningful life. “The life of an Essentialist is a life lived without regret. If you have correctly identified what really matters, if you invest your time and energy in it, then it is difficult to regret the choices you make. You become proud of the life you have chosen to live.”

Recommendation: Speedread Greg McKeown’s Essentialism: The Disciplined Pursuit of Less. It will remind you of the wisdom to think through—and act upon—what really matters. Essentialism is chockfull of useful instructions on how to say ‘no’ gracefully, exercise your freedom to set boundaries, discover the power of small wins, and harness the power of routines to evade the pull of nonessential distractions that can subsume you easily.

Is Day Trading and Speculation for You?

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A few weeks ago, even as stock markets around the world suffered a turmoil triggered by downbeat economic news from China, a prolific 36-year-old Japanese day trader claimed to have made $34 million by betting big against the market trends and timing the bottom precisely.

Notwithstanding frequent mention of such success stories and blaring ads in the media tempting you to stake money on your wits and your instinct to profit from market swings, it can be very hard to make money consistently in day trading and short-term speculation.

As a fundamentals-based long-term investor, I don’t think there is anything wrong with day trading or short-term speculation. With skill, strategy, and the right temperament, it’s possible to be just as profitable in speculating as in investing with any other time horizon.

Over the years, many sophisticated stock-analysis services have emerged to facilitate trading and speculation by amateurs such as these pictured day-traders from Bangalore. Vast online social networks such as StockTwits engage in the exchange of information, opinion, gossip, rumors, and stories of successes and losses.

Day Trading and Speculating by Amateurs in Bangalore, India

For a few successful trades, luck may be the main factor. However, in the fullness of time, the most important factors for consistent stock market gains are discipline, temperament, and risk management.

Most day traders fail because it’s too darn hard to time the market. They lack a coherent technique that works consistently. Instead of following a definite strategy rooted in fundamentals or a structured thought-process, they follow the news-tickers, minute-by-minute stock prices, volume- and price-trends, and poorly understood media-fed euphoria. Moreover, most day traders engage in short selling, a complex skill that goes against the grain of the conventional buy-and-hold mindset. Worst of all, most speculators don’t understand how their emotions come into play—both when they lose and when they win.

Like anything that requires focus, drive, discipline, persistence and a stroke of luck, day trading and speculation are hard to do successfully. It may take years of painful education and experimentation before creditable success. The U.S. market regulator Securities and Exchange Commission (SEC) offers the following cautions on day trading:

  • Be prepared to suffer severe financial losses
  • Day traders do not “invest”
  • Day trading is an extremely stressful and expensive full-time job
  • Day traders depend heavily on borrowing money or buying stocks on margin
  • Don’t believe claims of easy profits
  • Watch out for “hot tips” and “expert advice” from newsletters and websites catering to day traders
  • Remember that “educational” seminars, classes, and books about day trading may not be objective

'Reminiscences of a Stock Operator' by Edwin Lefevre (ISBN 1500541052) Idea for Impact: Most studies on day trading and speculation reckon that over three-fourths of amateur traders lose money, some of which may have been borrowed. The high risk that comes with high-yield investments and the self-inflicted stress of loss and debt may not be for you.

A Low-risk Alternative: There is no fail-safe way to invest without any risk. If you don’t have the time, energy, determination, or a strong understanding of investing, consider low-cost index funds. Do your own research. Read my previous article about John Bogle, founder of Vanguard and his tireless advocacy of low-cost index funds.

Recommended Reading: Edwin Lefevre’s 1923 classic, “Reminiscences of a Stock Operator”, is a fictionalized biography of Jesse Livermore (1877–1940), one of the greatest stock market speculators of all time. This “font of investing wisdom” (per Alan Greenspan) is filled with insightful trading advice and shrewd market/price movement analyses.