As the host of CNBC's "Mad Money," Jim Cramer has earned a reputation for assertive, impactful insight on matters of investing. In 'Get Rich Carefully,' he spells out a thorough, long-term plan for you to maximize your stock strategy. Here's an excerpt.
Introduction
We’ve been beat up. We’ve been struggling to come back. We’re finally breaking out to levels that were thought to be unthinkable given how poorly stocks have performed in the past decade and a half. We need to stop getting knocked around and settling for incremental strides. It’s time to use the stock market to build wealth again. It’s time to get rich, but to do so carefully this go-around, not recklessly and not with blind disregard to the new world of investing. We accept that this market has overpowered most small investors. The big funds too seem to have lost their ability to beat the averages, perhaps permanently, because of their size and because of their collective bunker mentality that has them simply trying to mimic the Standard & Poor’s 500. I am confident you can beat the averages if you work with me to triumph over the obfuscating, infuriating and often broken process of trying to profit from short- and long-term stock price movements.
What does it take to Get Rich Carefully? In the last eight years, watching the markets for Mad Money and then Squawk on the Street, as well as investing in them for my charitable trust, I have had to rethink entirely how you can use stocks to generate the wealth you need to put children through school, buy a house, afford your leisure time, and ultimately fund your retirement needs. During my frequent trips to colleges for Mad Money, I have seen that a whole new generation has discovered the wonders and dangers of the stock market but they do not have the tools to profit from its gifts or protect themselves from its pitfalls.
Most of all I have come to realize that the basics continue to elude people, that most people feel left out, that they “never took the course,” so to speak, about how the markets really work. Consequently, they feel ignorant and disenfranchised. They know a small number of people are making money again. They yearn to be a part of that select group, but they know that the losses in the past few years have been staggering and that bonds and cash are the only choices for those who don’t know how money creation works.
Unfortunately, the thirty-year bull market in bonds—where prices went up and interest rates went down—has now ended. The easy, safe, if not guaranteed money has turned into the risky money that’s anything but guaranteed and has been generating humongous losses over short periods of time. That’s not what these bond holders expected when they stashed trillions of their hard-earned dollars in these funds. They didn’t know they could lose money. But switching that giant horde to stocks without the tools, without the knowledge base? That’s just foolhardy, isn’t it?
No, not if you read this book. Get Rich Carefully is designed for the investor who thought he was being careful playing it safe, storing cash in bond funds and keeping it in low-interest certificates of deposit. It’s tailored for those who are befuddled about and distrustful of stocks but seek better returns than they’ve gotten from somnambulant managers and underperforming mutual funds. It’s meant for those who think they can profit from stock price gyrations but don’t know how and why stocks really go up or down. They are mystified by the process though eager to learn about how to gain wealth from stocks in a prudent but opportunistic way.
What will you find here to help you make the transition from amateur investor to someone who can go toe-to-toe with professionals—although they have hardly distinguished themselves in the last fifteen years—and become the more informed client who produces the best results? How about a novel, fast-paced how-to book that gives you insights into how stocks really work and how you can profit from this market’s machinations and mysteries rather than be turned off or freaked out by them?
First I let you in on secrets that you don’t know unless you worked within every part of the process of how the stock market works, a process I’ve been exposed to throughout my financial career. Then I explain what propels stocks, why they really advance or decline. No matter what I have done and how hard I have tried in my media career, I still run into thousands—yes, thousands—of people who do not understand the anatomy of a one-point gain. How can a stock move up a dollar? Why does a stock shed three points in a heartbeat? How does it actually work? After all the chicanery that’s been visited upon this stock market, many people think it’s all alchemy. Others think it is just plain crooked. They don’t trust the explanations they hear daily about why their stocks moved up or down and why the market rallied or swooned.
They’re right to be suspicious and skeptical. After you read Get Rich Carefully you’ll be wise to what really happened on a given day’s trading and, therefore, ready to make money in the next day’s session, or the next week’s, or month’s , or even years’ worth of sessions ahead of us. No, I am not able to give you tomorrow’s cyber paper today, but I can try to do the next closest thing, showing you how to predict moves with a degree of certainty that will make you more comfortable and better at creating your own wealth.
Next, I show you how to take advantage of the confusion and obfuscation that surrounds the movements of equities to pick the right stocks at the right prices. Why not get your portfolio in tip-top shape to profit from what looks to be the chaos of daily trading?
People always ask me what I read, how I get my input, how I have such an edge when it comes to so many stocks and so many sectors. How come it seems to come so easily for me? Believe me, I wish it did. Sure, I have resources that you can’t have, but they are way overvalued compared to the information I glean from public information about stocks that is readily available to you on dozens of sites around the web. You just haven’t been taught how to parse the releases, how to understand the research and, most important, how you can use the conference calls to make sense of things. Yes, these sources can be arcane and, difficult to divine, but they are a unique part of the stock market firmament that you must tame so you can try to profit from every earnings report. They are among the most important sources for understanding why individual stocks advance over longer periods of time, sources I am confident you will understand after reading Get Rich Carefully. Once you have learned how to do the homework, I bet you will become as good a student of the market as I am, maybe better, because you will focus only on what matters, not on the millions of extraneous details that I have, at last, learned to cull and discard.
Everything I do, almost every stock I pick, emanates from major themes that are playing out underneath the market. What are those themes? I refer to them on television and I try to flesh them out as carefully as I can. However, I have never done them justice. If you are going to Get Rich Carefully, you are going to have to get rich over time—no shortcuts. So you need longer-term investment ideas, rooted in concepts that can withstand the vicissitudes of a sometimes broken, often confounding market over the next five to ten years. I’ve got seven of them, seven themes all built to last no matter what the world’s economies throw at you. Don’t worry, I don’t just detail the themes. This book is practical; I give you the best stocks to profit from them, stocks to buy now and hold as the themes unfold over many years’ time.
I want you to benefit from some of the insights I have gained, specifically from hosting Mad Money and running ActionAlertsPlus.com, the fancy name for my $3 million charitable trust. For example, I have seen chief executive officers take their poorly performing ugly duckling stocks and turn them into extremely profitable swans through acquisitions and breakups. I show you who might be next to create that wealth for shareholders. That means no matter how sick or tortured the market might be at any given moment, there’s still a huge amount of money to be made. No one else is talking about this new and amazing money-making process, yet I think it is the most lucrative path to great wealth currently playing out today.
You want proprietary ways to wealth? I have now conducted hundreds of interviews with chief executive officers and spent thousands upon thousands of hours prepping for, sitting with and learning from the best of the best executive talent that America has to offer. Here, for the first time ever, I reveal my Bankable 21, my salute to the twenty-one best leaders who have come on Mad Money and why you should invest with them and ride their coattails to tremendous gains. The list will surprise you, might even amaze you, because most are anything but household names. I want you to pick your favorites of my favorites and invest in their stocks and stay with them through thick and thin. That’s what my Bankable 21 CEO list is all about.
As Bob Dylan noted years ago, the times, they are a-changing, and I have had to change with them. For years I have described myself as a fundamentalist, someone who looks strictly at the companies underlying the stocks and tries to discern where, when combined with the news of the day, they are heading. I have shunned technical trading and charting because I thought those methods were lazy and less rigorous than my routine of homework and selection of individual stocks. However, through the regular and wildly popular “Off The Charts” segment of Mad Money I have validated the success that can come from interpreting the arcane and seemingly inscrutable stock pictographs that the segment explores. Now, at last, I teach you how to harness the “technical” and divine the charts in a digestible way that makes you better at picking winning stocks and what prices to pay for them. Through my “Charting for Fundamentalists” chapter I hope to augment the timing of your buys and sells and even short-sales using better, more precise, entry and exit points.
I also want you to glean from my lessons learned after a decade of picking stocks with an open hand through the brutal gauntlet that is ActionAlertsPlus.com. I critique my own moves after examining the contemporaneous bulletins, looking for misjudgments, pitfalls and bogus rationalizations that you must never make if you are going to Get Rich Carefully. I give you the raw, often embarrassing insights and the dos and don’ts these insights spawn. Twenty-twenty hindsight can actually be a brilliant teacher when you learn from my mistakes. Be my student; let me show you how to learn from what I have done right, and perhaps more important, what I have done wrong. Be wary of a creeping lack of diversification, reckless stock picking masked as prudent portfolio management and dozens of other sand traps that you must avoid if you’re going to use stocks to get rich.
Finally, you know how important I believe discipline is to managing your own money. When I say Get Rich Carefully, I mean get rich with disciplines that I have pioneered and, hopefully, by now almost perfected. I say “almost perfected” because I have sometimes let emotions get through the door instead of leaving them outside so I could become a better trader and investor. I give you the coat checks to your anxieties and fears and, yes, greedy tendencies. So sit back and enjoy my keys to “What Matters? What Doesn’t? What We Should Care About,” “When and How to Sell in the New, More Difficult World of Investing,” and how to “Check your Emotions at the Door,” so you know how to discipline yourself. Believe me, after reading those chapters you will be cracking your own whip and will be your own best critic and disciplinarian.
I know, lots of tall, ambitious orders here. And certainly lots of new orders, not anything warmed over or seen in any other investment book, including my own. Because this is a different market. It’s a better one than we have had in decades, even though it seems ever more treacherous and unfair. The rallies are happening at a period of tremendous and deserved disenfranchisement for the everyday investor. How in heck are you going to make big money in that case? Personal income levels are stagnant. They have been for years. Bond funds have gone from cautious friends to reckless, wily enemies. Real estate seems played out, gold stymied, commodities kaput. But stocks? Let’s go figure them out. Let’s go harness them together. Let’s go get rich with them, carefully this time, so you don’t give it back. Let’s go forward and make some hay, because at last, the sun is shining, and we have the tools to harvest the money that’s within our grasp after years of toiling in the most barren of vineyards.
Text copyright © 2013 by J.J. Cramer & Co. From JIM CRAMER’S GET RICH CAREFULLY, reprinted with permission from Blue Rider Press, a member of Penguin Group (USA) LLC.