Stay Mad for Life by Jim Cramer with Cliff Mason. This is the fifth book from the excitable and entertaining host of CNBC’s Mad Money and it is a significant departure from his two most recent volumes. Those books focused on stock picking and trading with primarily a shorter-term perspective developed during his days as a hedge fund manager. Stay Mad is more a general personal finance book, although the second half is heavy with investing advice with a longer-term outlook. Most of the advice follows conventional wisdom: spend where necessary for housing, utilities and education, but try to save as much as possible for discretionary spending and investing. Pay off credit card debt, create a feasible long-term budget and buy health and long-term disability insurance in order to prevent yourself from becoming poor if things go bad. Contribute to your 401k and IRA accounts for retirement and then invest heavily in stocks over many years.
He breaks from the crowd to some degree with his criticism of 401k plans as the primary retirement vehicle. He feels that poor investment options and hidden high fees are such a drain on returns that individuals should only contribute enough to receive matching funds from their employer. After doing that and contributing to an IRA, he feels a non-professional investor is better off with a portfolio of five to ten stocks than adding to the 401k. As he does in his previous books, he insists that if you’re going to buy stocks, then you need to do one hour per week of maintenance research on each stock you own. If you’re not willing to do this homework, then he suggests not buying stocks at all. Instead, use index funds and ETFs which are broad-based and not sector exclusive. He feels that without this weekly research individuals will just end up losing money.
The large section of the book on investing is full of lists: 20 rules for investing (several overlap, so it’s more like 15), seven things pros do right and amateurs do wrong, five sectors and twenty stocks for the future (of which I own only two, but have five more on my shopping list), and thirteen mutual funds you might consider.
While I respect his experience in the field and enjoy watching his show on tv, I don’t always agree with his rules and ideas. However, that’s specifically why I read his books, because his ideas force me to defend my own investing philosophy. Frequently I will find myself staring at the same page for several minutes while I conduct an imaginary debate on a topic in my head. It’s an excellent exercise for anyone doing their own investing. In the past, I’ve disagreed with him more, primarily because those earlier books had a short-term perspective. I found the investing rules in Stay Mad to be much more in line with my own. However, I thought his mutual fund analysis a bit skimpy, resulting in too many similar funds.
I would suggest an alternative for those who feel they couldn’t do the weekly homework Cramer insists upon. Create a portfolio of ten stocks from different sectors and do an hour of research on two or three of them each week, rotating through the ten over the course of a month. These are all supposedly long-term investments, so a monthly check-up should be sufficient. In addition, do two hours of general research by reading business and news publications, watching shows like Mad Money, listening to your kids and younger colleagues about fashion trends and products in order to generate new investing ideas. Then, do four hours of research each week on these new ideas to narrow them down to the best and to create a future shopping list with purchase price targets. If a new idea is better than one of your existing ten and maintains the diversity of the entire portfolio, then make the switch.
I’d love to get Cramer, Suze Orman, and Kimberly Lankford, my favorite columnist from Kiplinger’s together for a round table debate on some of these topics.