Jim Cramer’s Real Money: Sane Investing in an Insane World

Review by Michael A. Shoemaker for Jim Cramer’s Real Money: Sane Investing in an Insane World
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I loved the book! I hated the book! And I have recommended it to many and continue to do so, but with caveats and frustrations.

First, if you haven’t watched Cramer’s `Mad Money’ program at least once on CNBC, you need to do so. One show will give you more insight into Cramer’s emotional make up and give you more of what to expect from his writings than any review! He is, at once, informative, opinionated, contradictory and entertaining. Well, my wife would disagree about the latter!

Second, like him or not, he is one of those rare investment book writers whose track record is quite public. And he has practiced what he preaches to make (and lose and make again) millions in the market, mostly using other peoples money! To ignore someone with his success is not smart, but to take anyone’s investment opinion as the `only truth’ is equally risky.

So, let’s get to why I stated that I loved this book. Because I do strongly recommend this book to people relatively new to managing their own investments. I especially appreciate his `buy and homework’ mentality since many people try to manage their investments without accepting that there is indeed work to be done. He does a good job of explaining why fundamentals are important and how to utilize basic measurements. He does a very good job in explaining market cycles, especially the major ones that cause `big money’ (pension funds, mutuals, etc.) to move in and out of various sectors. In general, this is an excellent first read for people new to investing and a reminder of some basics for the rest of us.

Okay, so why did I sometimes feel that I hated the book. Well, first let’s acknowledge that there is no perfect investing book or system. There are too many variables, especially those that include each investor’s personal status – time available to do the work, time horizon before retiring, money available, etc. Every writer brings their own background and bias into their writings and, in turn, tends to become dismissive of other thoughts. But if you read many differing investment books by successful traders, you will find that the methods that they use differ and are at odds with each other. While I generally like Cramer’s honesty, I find that sometimes he dismisses some investing methods out of hand which, since this books and programs are targeted to the average investor, serves to bias people based on his own personal biases. Some examples:

a) Jim is a `fundamental’ investor – he relies on more traditional analysis of a companies balance sheet and earnings to determine whether to invest in a stock. That is fine, but he goes on to essentially dismiss people who trade predominantly on technical analysis, with a portion of his book essentially saying “nobody has ever made any money trading that way.” This is simply not true. Technical trading is simply a different type and method of trading and, indeed, many people have made significant money trading based upon technicals and combined fundamental + technical strategies. While Jim may not use technicals, his wife does, and quite successfully according to him. So dismissing anyone using or promoting technical analysis in the book does not serve the reader. It simply supports his bias.

b) While not in the book, you will find if you read more from him or watch his program that he dismisses alternative investments like options. Again, it is not that the average investor should jump into options without having clear knowledge and understanding of the risks, but to simply dismiss other investment area is to do a disservice to investors who wish to advance and learn more about various markets. (Options, for example, are as risky as stocks – no more so. Their risks, however are different and the knowledge needed is greater than for straight stocks, but given the investor’s willingness to learn and understand options BEFORE beginning to trade them, options can actually REDUCE the risks of stock investing.)

Cramer strongly advises against simply following any advisors opinion to guide stock investments, yet sometimes his dismissals without substantiation serve the same purpose for those who may `believe’ only Jim Cramer.

So, I highly recommend this book, especially for people who are relatively new to managing their own investments. Even people who only have a 401k can learn a great deal that can help them do a far better job managing the limited options most 401ks offer and improve their results. This is a great starting point for the average investor. But don’t become so enamored with Cramer’s forceful style that you stop thinking for yourself. Take his advice – learn from his experience – put it into practice = become comfortable that you can implement it and make money from it. And then, when ready, keep your mind open to the many other investment methods and markets that exist. Each requires study and work, but if your temperament, time and dedication allow you to, you may find it even more profitable to move beyond this first step.

Review by Renee for Jim Cramer’s Real Money: Sane Investing in an Insane World
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Many of Jim Cramer’s recommendations are nothing new — diversify; know companies before you buy; keep up with your holdings; know when to get out. What’s new is in his temperament. His take on evaluating risk, when to make a quick trade or a longer-term investments, what constitutes diversity. How to know when a company is over or undervalued. The “before buying” and “when to sell” checklists are really useful — a reminder not to skip any steps. The anecdotes are illustrative and amusing. Especially the one where he sets himself up in a short squeeze. A lot of this seems logical, and I can see how it can help me avoid errors I have made in the past.

Something is missing though — HOW to do homework. How to calculate growth. How much growth is enough? Enough for what? How much growth is needed to justify that PE? And how long would that kind of growth have to continue? Why? (a couple of spreadsheets would help here). Using price appreciation + dividends when figuring how your portfolio is doing. How about some discussion of the different ways different types of businesses are run, and how this is reflected in their financial statements? For each of the “diversification” sectors he recommends, what can we expect the financial statements to look like? What are the important features? How does the banking business work? And what REALLY goes on when you place a buy or sell order?

This must all be second nature to Mr. Cramer, but those buying his book generally lack his education, apprenticeship, and/or career experience. We didn’t start learning the stock market in high school. We need the nuts and bolts. This knowledge can be pulled from a variety of sources, but a companion “how to” volume would be a great help.

Review by Winston Kotzan for Jim Cramer’s Real Money: Sane Investing in an Insane World
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A perfect complement to his popular CNBC show “Mad Money”, Real Money gives Cramer fans an in-depth look at what drives his stock market sageness. Many viewers of his show may be mystified as to what Cramer looks at when analyzing a company, but this book explains it all! He describes the Cramer ideas on utilizing P/E ratios, decisions from Fed, and even tips on how to judge a company’s top management. This book is extremely practical because Cramer uses his saavy from 30+ years of investing experience and the lessons learned from working as a mighty hedge fund manager.

A portion of this book deals much with investment discipline – deciding how much of a portfolio should be dedicated to speculation, how to properly diversify, etc. Another focus is about reading the market and predicting which sectors will be the performers based on the overall conditions of the market. Cramer also throws in signs to look for in individual stocks by presenting many examples of good CEOs (Commerce Bank) vs. wish-washy management (Sunbeam). Cramer gives reasons why “buy and hold” no longer works and why at least a small portion of everyone’s portfolio should be devoted to short-term speculation.

Real Money is a great read for anyone with money in the market. It’s written for investing professionals as well as home gamers (individual investors). The investment advice is practical and definitely this is the best investment guide I ever read.