Equities Magazine Cover Story
Thumbs Up for Jim Cramer
BY ROBERTJ. FLAHERTY
Better than any other financial journalist today, Mad Money’s Jim Cramer gives a pure streamof useful money-making ideas in an insane, entertaining package to his cult-like audience. Meet EQUITIES newest member of our Favorites of the Famous panel of stock pickers.
ABOOYAH to everyone!
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I ?could never take anyone seriously who screams and throws telephones,” sneered an elderly, very stiff and proper elitist of my acquaintance. This famous moneyman will never listen to a single word the controversial Jim Cramer says.
But each day 500,000 cult-like investors will. Enraged competitors smear Cramer weekly and some, like Barron’s Alan Abelson, write that his advice is actually harmful to your financial health.
Boring financial editors desperately, but futilely, try to copy his amazing success in bonding with his audience. But how can you top a guy who screams “BOOYAH!,” plays the Hallelujah Chorus, and makes animal noises while throwing phones, chairs and even his subpoena from the SEC. That takes guts!
Daring to stick his neck out, he commands each telephone call-in questioner to follow his orders exactly. He can help you to decide because he has the courage to be wrong. If so, he even pastes a humiliating Post-It note on his forehead.
Beneath this surface madness is a calculated method to help his followers learn to make money. In a typical show, he tosses around several copies of his latest book, Real Money. In it he reveals the invaluable “10 Commandments of Trading” and adds his own “25 Investment Rules to Live By.” Knowing even one can really improve your investment performance.
EQUITIES finds the quality of Cramer’s comments very good and very relevant. Many are geared to industries or events in the news. By skillfully packaging entertainment around excellent research about quality stocks generally ignored by the main stream media, he is making a sincere effort to look worldwide for the best values. And despite the smears, his heart is pure. This former editor of the Harvard Crimson couldn’t earn a decent wage as a journalist and hit bottom living in an old car. Rebounding, he made a
fortune running a hedge fund, but disliked the man in the mirror. Now he has found redemption by returning to his first love of
journalism and trying to inform the masses.
FLAHERTY: Everyone is trying to link with their audience and most fail. But you are doing it!
CRAMER: It’s a combination of things. First I made a lot of money and that’s very important. Why would you want to listen to someone who hasn’t? A lot of journalists are almost against individuals’ making money, but don’t realize it. Some have perfected the attitude that it is OK to not even try. In the ‘90s when I was not a card-carrying journalist, I met with a tremendous antipathy from the profession. So I gave up my hedge fund and suddenly people were willing to say good things about me. I got publicity to allow me to be bigger.
Second, I am a common guy. I remember where I am from and that resonates with viewers and listeners. They recognize that I wasn’t always made of money.
Third, I use a lot of analogies so I don’t speak gibberish. I speak in terms of sports, of movies, books you’ve read. I work these in deliberately. I need to appeal to younger people who didn’t get stoned by the crash of l999-2000. Many identify with me as the guy who learned the system and now is beating the system for them. That contrasts with a lot of journalists I listen
to who sound like they are talking about the Holy Grail instead of how to make a buck. Most journalists look backwards.
Listen to the 2 o’clock news. Woe is us. The market is down. Why not great? Let’s find out what is on sale. Look at these
new opportunities!
FLAHERTY: When Lou Rukeyser started, he found a way to keep his original Wall Street Week simple. Now you just see talking heads debating with each other about a stock and at the end I feel more confused than when they started.
CRAMER: That’s right. I do not like the current journalism model. It’s for pre-Yahoo people. “We can’t tell you how to make money, but we can tell you how the big boys made money.” I hate that! That’s the last thing
I want to know. I want to know how to make my own.
Second, they refuse to be directional because that way they are never wrong. “Here’s the bulls; here’s the bears. You decide!” I hate that too! Hey, what we are is you ask me and I decide for you because that is what I do.
The third thing I hate about the journalism model is they act as if there is no other source. Ridiculous. If you are interested in a stock go to my TheStreet.com, go to Yahoo Finance, go to MarketWatch, etc. Don’t wait for a particular personality to decide because he may never decide or he may be too late. If you are sticking with the old journalism model, you’re a loser. The numbers demonstrate that.
FLAHERTY: You were wise to push the entertainment. Forbes in the early ‘60s started making boring financial stories entertaining and you carry that to the extreme. But it works.
CRAMER: There is a cohort that argues anything fun isn’t to be taken seriously. But entertainment is part of my package to inform and educate. I’m a great stock picker, but, hey, who cares? They will not come to my show unless I perform. All right, so let’s throw some chairs.
For instance, Central Europe is growing faster than central U.S. But as soon as I suggest it , my audience’s eyes glaze over. So I entertain these people because my job is to open their eyes.
FLAHERTY: There are about 7,000 stocks being actively traded, but you only on only about a thousand?
CRAMER: Yes. I particularly like the stocks between $250 million market cap and $5 billion. Some always spout that its time for the large caps. Yet, to make big money you have to be in a stock before it’s a large cap. I really feel regular research has let people down with 72 analysts who
follow Cisco and the 45 for Intel. For example, everyone has heard of Merck (NYSE: MRK-35.71) and Pfizer (NYSE:PFE-25.28). So it’s my job to make you know about Celgene (Nasdaq:CELG-42.85) and Genzyme (Nasdaq: GENZ-66.40).
The more I drill down and find promising small caps, the more I think I’m doing a good job. But there is no research coverage whatsoever on most of these stocks. I feel it is important for people to realize that not having heard about a stock is a positive.
“Oh, that’s too hard,” some say. It’s not too hard. You do your homework. Stay up nights late and see what is online. Work weekends. Those who do their homework and try the hardest will make the most money. Buying and selling stocks is just like any other field.
By the way, I think you guys at EQUITIES are doing fabulous stuff. It is amazing how much of the major media generally cover the same companies. But you need something new if you want people to make money.
FLAHERTY: You mention finding new stocks for the long run. But aren’t you a short-term momentum investor?
CRAMER: People declare me a momentum investor and I’m for any way to skin a cat. I like to find a bull market everywhere.
FLAHERTY: Long-term investing may be dead. We’ve got a stock market casino today.
CRAMER: I won’t disagree, but it’s not all bad. People have rediscovered that SELL is an integral part of the investment process. To just buy and hold means you can buy a stock that goes from $30 to $300 to $3.
Journalists look back at the l999-2002 debacle and declare that you should never have bought. Ridiculous. You should have bought and sold. When I gambled with my late mother she’d say, “ Big win; go buy a dress.” My mom was the Queen of Common Sense. Go buy what you need or want — a sweater, a 401(k) or a car.
FLAHERTY: What is the fountainhead of your research power? You’re amazing to be able to cover all these stocks so quickly.
CRAMER: I have a research staff of about six 20-something people, all of whom I would have hired at my old hedge fund. On Sunday I can e-mail them about a stock and they’re online and respond. They love the market, and without them I would not be who I am.
FLAHERTY: How do you feel about Wall Street research after your old Harvard Law classmate Eliot Spitzer’s reforms?
CRAMER: Research can’t pay for itself anymore. So the average firm has decided not to do it or has cut back. Before, I would ask for all the research reports on a stock I’m following and get maybe seven; now, I get probably two or three.
Fortunately, the Web has presented people with a lot more information that they can use. I don’t think the diminution of research is bad if the diminution is of corrupt research, of which there was a multitude. At my alma mater Goldman Sachs or Morgan Stanley, I felt the reason why a research report was written was not necessarily to make you money. It may have been to please certain clients or the investment banking department. It may be to show Wall Street a firm can be “the Axe” — gibberish for the market-moving expert. But I never regarded the research as the I’m-going-to-make-you-money kind. So I don’t bemoan the loss as much as others might.
You know what? When news breaks and I want to research a stock, I go to WSJ.com, Google, my own TheStreet.com, and I find instantly at my finger tips more information than I ever had. It’s pure unadulterated research and much better than a report designed to make a CEO favor a certain broker with his secondary offering.
FLAHERTY: How do you feel about paid- for research reports, where a company with zero coverage is paying to get one turned out?
CRAMER: As long as its disclosed, I’m never against it. From the ignoring of my own TheStreet.com, I know you can be a really good company and not be able to get an ounce of coverage. It’s incredible how many really good $200 million and up companies can’t get chosen for a regular research report. And if we are going to wait for those companies to get picked up, we are going to miss some of the easiest money.
Some people don’t think of paid-for research as valid because of instances where payments aren’t disclosed. But for years some of the Wall Street research I was reading was really paid-for and I just didn’t know it.
Also consider the company’s viewpoint. Take Energy Conversion Devices (Nasdaq.ENER–48.03), where the Wall Street research is negative. I need to see the defenses and if it is in paid-for research fine. I need it.
FLAHERTY: What about when the entire U.S. market gets overpriced? My friend Sir John Templeton stresses looking around the world and going where the best relative bargains are.
CRAMER: I try to have on every show at least one foreign stock a night. Why? First, I don’t think we are in an overall bull market in U. S. stocks. Friends warned me not to use foreign stocks because people don’t care. They miss the point. People want to make money. It is better to buy foreign stocks with lower p/e’s and higher growth prospects than well known U.S. stocks. Often I substitute foreign stocks with better value and growth. I’m not going to recommend a U.S. stock if there is a better foreign one. You want to buy a geothermal company? There are three in the U.S. and they all stink. Go buy a better one in Israel. You say its too hard and your broker won’t buy them for you? Switch brokers.
FLAHERTY: I have only one really difficult question for you, and naturally I saved it for close to the last. Bear raids where secret shorts used financial journalists like puppets have gone on since Bernie Barurch and Joe Kennedy, later the first SEC head, and they always will. But shouldn’t the secret short-sellers who play a major role in one-sided articles at least be identified as players or any huge short position be mentioned?
CRAMER: I have found that other than TheStreet.com, some reporters are so eager to decapitate a company that they actually appropriate the role of the shorts.
FLAHERTY: It’s a very small group and these reporters have a symbiotic relation with the secret shorts.
CRAMER: Yes, it’s symbiotic, but I wish that we knew the positive side in a
negative story, too.
FLAHERTY: Forbes Editor Emeritus Jim Michaels maintained that every story should be summarized, “This is a good company, BUT…” or “This is a bad
company, BUT…” The BUT should always be there. If you do that, you have done the job. Because bull or bear, you will be right only some of the time but wrong the rest.
CRAMER: People come to me to decide which side is right and that comes with my territory. But I agree that you should always be flexible and free enough to be able to change your mind. I do a lot.
FLAHERTY: After making enough money to be free to express whatever you want, it must be exhilarating to be a journalist again. This is a wonderful way to spend your life. You feel worthwhile , and it’s fun too.
CRAMER: I didn’t like myself when I worked at a hedge fund. But I couldn’t make a decent living as a journalist. It was scary. Now today I have enough money and power to say what I want. I don’t have to turn on the charm for anyone, and I can be as wild as I want.
FLAHERTY: We have an end of the year issue feature called Favorites of the Famous, where stock pickers select their single favorite stock for the next year. Believe it or not, it has the best record on the planet. Their combined portfolio has beaten the S&P 500 15 of the last 18 times. We should have 12 stock pickers, but friends like Sir John Templeton have been retiring and others have died so that we are down to just nine. We would love to have you join us next time.
CRAMER: Absolutely! It would be an honor to be with those guys. you, kid.”
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