jim+cramer's+real+money

__ Jim Cramer’s Real Money __ Review by David Decker __Jim Cramer’s Real Money__, by James Cramer, is an intuitive guide to Wall Street for beginning investors. The book, while by no means dull read (it is far too disorganized to be dull), can be a little overwhelming if you try to sit down and read it like you would a novel. Cramer seems to intend that his book be read by investors as they go through the process of buying (and eventually selling or trading) their stocks. As such, it would probable be less helpful in a classroom setting than it would be if used more practically. Nevertheless, __Jim Cramer’s Real Money__ is certainly an educational work that proposes radically different (yet logical) ideas about the stock market. Cramer begins his book with a resoundingly appealing idea; he tells his readers right of that he “wants them to be rich. Really rich.” The entire prologue is dedicated to trying to convince his readers that he is not just another stock-picker. Instead he tries to portray himself as a teacher or, in his own words, a “stock coach.” To this effect, the first third of the book (or so) is dedicated to teaching the basics of how the stock market works. As he begins to reveal how Wall Street works, Cramer first tells his readers to forget everything that they have heard about buying and selling stocks. He does this not to be arrogant, but try to get his readers to see Wall Street from an entirely new perspective. Cramer discusses, through anecdotal accounts of his time working for Goldman Sachs (an investment fund) and his individual investing, just what is happening when stocks are traded. He tries to simplify the process for the layman investor, but it is something that is rather difficult to neatly pack into a few short sentences. However, without having to reprint the whole chapter here, trading stocks is basically trading portions of specific companies between two parties. The next portion of the book deal with choices investors make when they are first getting involved in the market. Cramer recommends that, if you truly wish to have a chance at success, you invest at least $2500 in your starting portfolio. Otherwise, he argues, you will not have enough capital to own any significant amount of reliable stock and still have money left for speculation, which Cramer places great value in. In choosing your core stocks, Cramer instructs his readers to “do the homework”. When considering purchasing a stock, “the homework” consists of hours of research into 1) the profit per share of the company in the past two quarters, 2) the companies’ balance sheet (record of debt), 3) the companies’ management executives and 4) the companies’ competition. According to Cramer, a trader’s worst mistake is to forget that a stock is not simply a priced piece of paper, but rather a physical investment into a company which will gain or depreciate in value proportionally to how well or poorly the company performs. Cramer has relatively little else to say about your core stocks specifically. He spends the vast majority of the remainder of his book discussing the merits of speculation and the “homework” and techniques required to keep your stock portfolio profitable. Cramer spends at least one hundred pages discussing the merits of speculative investing and how to manage the levels of risks you take. Speculative stocks are stocks that are not part of your core portfolio, but rather stocks that are bought with either extra capital or profits from existing investments. While Cramer gives very little advice on how to pick one’s core stocks, he does give a rather simple yet logical formula for increasing the chances to make a profit on speculative stocks. When the economy is doing well, speculate in area such as automotives or, preferably, the field of technology. When the economy starts to falter, shift your focus more towards pharmaceuticals. His reasoning is that when people are doing well, they are likely to go out and feel comfortable buying a new piece of technology; business are going to be more willing to invest in their futures by updating their infrastructures. When times are rough, however, consumers will be much less willing to purchase luxuries such as a computer but no less likely to forgo the medical treatments for their sick child. The generally prevailing feeling on Wall Street is that heavy speculation is incredibly bad. Cramer, however, at least partially challenges this point of view. He believes that speculation early in life is essential for wealth in the future. Cramer recommends that someone with a steady paycheck in their 20’s or 30’s should invest as much as a third of their portfolio in stocks that have not yet caught on with mainstream investors. Cramer refutes the belief that investors have access to “perfect information”, and seems to enjoy (he is a Harvard grad) talking about the “stupidity” of many short term investors, and how that can keep many investors from making profitable speculative investments. The plus side to this, in Cramer’s opinion, is that it gives investors willing to research new stocks more time to find, and act upon these new stocks. The rest of the book primarily deals recommendations of techniques that can be used to help investors turn a profit. The most recurring piece of advice, appearing in almost every chapter (if not actually each chapter) is, instead of Wall Street’s “buy and hold”, Cramer’s philosophy of “buy and do homework.” Cramer absolutely hates the idea of “buy and hold.” He sees it as dogmatic and inflexible principle that prohibits investors from adapting to an ever changing market system. While he hates the principle, he loves the people who act upon it. In Cramer’s view, the more people who lose money with their precious “buy and hold” strategy, the more money to be made for everyone else who is capable of changing with the market. He advises his investors, if they feel that their stocks are going to depreciate, to sell and to sell quickly. The way to adapt with the market, according to Cramer, is diligent and disciplined research or “homework.” He recommends that for each stock in your portfolio, you spend about one hour per week researching it. This can be done by checking newspapers for information about the company (if it’s local or big enough to be in a national paper) or, more frequently, accessing information about the companies financial situation that companies are required to make public. In addition to a company’s financial status, Cramer argues that its leadership is equally important. He specifically mentions Apple CEO Steve Jobs’ revitalization of Apple after he was re-hired in 1997. When Jobs resumed working as CEO, Apple shares skyrocketed even before any new merchandise had hit the market; the mere expectation of success was enough to drive prices of Apple shares through the roof. Anyone who had been able to capitalize on this completely non-financial change in the way Apple was run would have been able to become obscenely rich extremely quickly. Apple, while certainly an extreme example, is not the only business that has its stocks rapidly appreciate due to stimuli Cramer terms as outside the “financial zone.” The ability to determine how these stimuli (and those inside the “financial zone”) will affect a company is what, according to Cramer, separates mediocre and outstanding investors. Overall, Cramer presents an intuitive guide to investing in the stock market. It is not a book arranged in any particular order, and therefore would be very difficult to study to base an investment strategy off of by itself. Instead, it should be used in conjunction with other material by Cramer, such as his TV show, radio show, or other books. Or, if you do not want to emulate Cramer, __Real Money__ will still provide readers with a new outlook towards Wall Street that they can take use to supplement their own existing views.

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