Jim Cramer's Mad Money Review

Although people might not like Cramer the disciplinarian, he said his new book, which has 20 brand-new rules, should prevent market players from losing money. And because Cramer's aim is to help make people rich, he went on to explain five of those new rules.Cramer's first new rule is, There's a market for everything; pay attention to how it works. Investors need to remember that there are lots of different reasons why stocks are traded in a stock market and that there are submarkets, he said.Although it makes total intuitive sense, most people rarely keep in mind when investing that there's a market for oil stocks, a market for newly public stocks and a market for small-cap value stocks, all of which are governed by supply and demand, Cramer said.If you ignore the supply and demand for certain kinds of stocks, or stocks in general, you'll be totally perplexed by the market, he said. This rule is especially true for trendy, hyped-up stocks.Taking the ethanol trade in 2005 and 2006 as an example, Cramer said at the end of 2005, because the supply of ethanol stocks was so low and demand was intense, people were able to make truckloads of money in stocks such as Archer Daniels Midland (ADM) and Andersons (ANDE).But then the ethanol game changed, as a company called VeraSun (VSE) came public on June 14, 2006, and added to the supply of ethanol stocks, he said. The VeraSun initial public offering was further followed by IPOs of companies with worse fundamentals - but just as much ethanol exposure.If you'd just been paying attention to the fundamentals, or to the hype about ethanol in the media, you would've been caught totally off-guard by the downturn in ethanol, Cramer said.The day VeraSun came public, I called the end of the ethanol, and I got it right ... because I was paying attention to the amount of ethanol stock in the market and the market's demand for it.Know What You HoldMoving on to rule No. 2: when playing a rally, make sure your stocks actually fit the bill, he said. Don't be bamboozled by what sector your stock belongs to. Instead, know precisely what you own and why you own it.Although Cramer always advises his viewers to do their homework and know what they own, this rule is different because the point is to recognize that sectors don't always matter when it comes to giving stocks momentum.People should never confuse a rally within a sector for a rally of that entire sector, he said.Also, he knows people don't always do their homework before buying stocks - behavior Cramer said he does not approve of. He iterated that he believes people need to spend at least an hour a week per stock they own doing homework to make sure the stock is still a sound investment.Breaking down the rule, Cramer said there are times people will see a rally in an entire sector. For example, if the Fed cuts rates, investors will see a rally in almost everything cyclical, or if the economy gets pummeled, people will see a rally in consumer staples and food and beverage companies, he said.These are broad, sector-based rallies and you don't have to be all that discerning to pick out a good stock that will make you plenty of money when these things happen, Cramer said. But most rallies don't work that way.Market players will hear about health care rallies or transports rallies or tech rallies, but that doesn't mean the whole sector's rallying, he explained, because within sectors there are industries.This is what really counts and what people should pay attention to, Cramer said.Cramer said he came up with this rule on June 22, 2005, when he got caught up in the idea of a tech rally and picked the two names that most represent tech: Microsoft (MSFT) and Cisco (CSCO). But later Cramer realized that the so-called tech rally was really a gadget rally.I fooled myself because Microsoft and Cisco had always been the tech stocks, he said. It didn't matter that they didn't have any real exposure to the rally, because I was thinking of it as a tech rally, and in a tech rally you buy Microsoft.It's easy to mistake a rally in an industry for a rally in the sector it belongs to, Cramer said, but if people remember this second rule, they should be able to make a lot more money.

Labels: ADM, ANDE, CSCO, Jim Cramer, Mad Money, MSFT, VSE

New Rule #1 : There's a market for everything; pay attention to how it works, Archer Daniels Midland (ADM), Andersons (ANDE) and VeraSun (VSE)
Cramer reiterated his recommendation that investors read his first book: Jim Cramer's Real Money: Sane Investing in an Insane World, in addition to his newest publication, Jim Cramer's Mad Money: Watch TV Get Rich, which contains 20 brand new investment rules, 5 of which he described on Tuesday's show. His first new rule requires that investors be aware of how stocks trade and that there are many sub-markets within the market. When faced with a trendy stock, it is more important to pay attention to supply and demand than media hype. For instance, late in 2005 when demand for ethanol stocks was high and supply was low, it was possible to make truckloads of money with ADM and ANDE. However, when VeraSun went public in June 2006, Cramer declared that the ethanol story was over, since the supply of ethanol exceeded demand. If you'd just been paying attention to the fundamentals, or to the hype about ethanol in the media, you would've been caught totally off-guard by the downturn in ethanol, Cramer said.
New Rule #2: Make sure your stocks actually fit the bill, Microsoft (MSFT) and Cisco (CSCO)
In addition to doing homework, Cramer warned, Don't be bamboozled by what sector your stock belongs to. Instead, know precisely what you own and why you own it. Cramer cautions viewers not to confuse a rally in an entire sector with a rally within the sector. Broad sector rallies are not too difficult to spot or predict. For instance, when the Fed cuts interest rates, rallies are prevalent among cyclicals, and when the economy is perceived as being weak, consumer staples rally. However, most rallies don't work that way, Cramer said. For instance, when there were stories about a tech rally in June 2005, Cramer chose MSFT and CSCO as names that represented tech, when the upsurge was actually a gadget rally, and did not affect these stocks. Cramer suggests looking at industries within sectors.
New Rule #3: Latin America is Always a Trade, BanColombia (CIB)
Cramer envisions that one day this rule may be revoked, but not in the near future, because every time there is an amazing, long-term growth story in Latin America, it will wind up being a trade. This has nothing to do with the fundamentals of the companies, but is the result of huge market-moving investment firms which have the conviction that Latin America is always a trade, and the stocks get hammered as soon as they move on. Cramer admitted that he made this mistake by thinking that CIB was an investment when it was actually a trade.
New Rule #4: Be a Lemming.
Although he confessed that, at first, this rule may sound stupid and terrible, it actually makes sense to go with the big institutions and the movement of the market if the investor has done sufficient homework. This doesn't mean to ride momentum blindly, but it is true that stocks which hit a 52-week high often keep increasing. This isn't about being a unique and individual snowflake. It's about trying to make money, Cramer said.
New Rule #5: Don't be afraid to say something is too hard.
Some things are just too difficult to game, even after doing lot of homework. Cramer confesses that his rough spot is predicting restaurant same-store sales growth; There are too many better, easier ways to make money in the market, he said. Restaurant CEOs have a hard time predicting their own same-store sales, and the weirdest, most unexpected factors can cause worse-than-expected results. Since there is always a bull market somewhere, Cramer doesn't see the point in knocking one's head against the wall with something that is too hard.
Published By SeekingAlpha

Labels: ADM, ANDE, CIB, CSCO, Jim Cramer, Mad Money, MSFT, VSE

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday December 26. Click on a stock ticker for more analysis:
New Rule #1 : "There's a market for everything; pay attention to how it works," Archer Daniels Midland (NYSE: ADM - News), Andersons (NASDAQ: ANDE - News) and VeraSun (NYSE: VSE - News)
Cramer reiterated his recommendation that investors read his first book: Jim Cramer's Real Money: Sane Investing in an Insane World, in addition to his newest publication, Jim Cramer's Mad Money: Watch TV Get Rich, which contains 20 brand new investment rules, 5 of which he described on Tuesday's show. His first new rule requires that investors be aware of how stocks trade and that there are many sub-markets within the market. When faced with a trendy stock, it is more important to pay attention to supply and demand than media hype. For instance, late in 2005 when demand for ethanol stocks was high and supply was low, it was possible to make "truckloads of money" with ADM and ANDE. However, when VeraSun went public in June 2006, Cramer declared that the ethanol story was over, since the supply of ethanol exceeded demand. "If you'd just been paying attention to the fundamentals, or to the hype about ethanol in the media, you would've been caught totally off-guard by the downturn in ethanol," Cramer said.
New Rule #2: "Make sure your stocks actually fit the bill," Microsoft (NASDAQ: MSFT - News) and Cisco (NASDAQ: CSCO - News)
In addition to doing homework, Cramer warned, "Don't be bamboozled by what sector your stock belongs to. Instead, know precisely what you own and why you own it." Cramer cautions viewers not to confuse a rally in an entire sector with a rally within the sector. Broad sector rallies are not too difficult to spot or predict. For instance, when the Fed cuts interest rates, rallies are prevalent among cyclicals, and when the economy is perceived as being weak, consumer staples rally. However, "most rallies don't work that way," Cramer said. For instance, when there were stories about a tech rally in June 2005, Cramer chose MSFT and CSCO as names that "represented" tech, when the upsurge was actually a gadget rally, and did not affect these stocks. Cramer suggests looking at industries within sectors.
New Rule #3: "Latin America is Always a Trade," BanColombia (NYSE: CIB - News)
Cramer envisions that one day this rule may be revoked, but not in the near future, because every time there is an "amazing, long-term growth story" in Latin America, it will wind up being a trade. This has nothing to do with the fundamentals of the companies, but is the result of huge market-moving investment firms which have the conviction that Latin America is always a trade, and the stocks get hammered as soon as they move on. Cramer admitted that he made this mistake by thinking that CIB was an investment when it was actually a trade.
New Rule #4: "Be a Lemming."
Although he confessed that, at first, this rule may sound "stupid" and "terrible," it actually makes sense to go with the big institutions and the movement of the market if the investor has done sufficient homework. This doesn't mean to ride momentum blindly, but it is true that stocks which hit a 52-week high often keep increasing. "This isn't about being a unique and individual snowflake. It's about trying to make money," Cramer said.
New Rule #5: "Don't be afraid to say something is too hard."
Some things are just too difficult to game, even after doing lot of homework. Cramer confesses that his rough spot is predicting restaurant same-store sales growth; "There are too many better, easier ways to make money in the market," he said. "Restaurant CEOs have a hard time predicting their own same-store sales, and the weirdest, most unexpected factors can cause worse-than-expected results." Since there is always a bull market somewhere, Cramer doesn't see the point in knocking one's head against the wall with something that is too hard.

Labels: ADM, ANDE, CIB, CSCO, MSFT, VSE