Book Review - Mad Money: Watch TV, Get Rich by Jim Cramer

Jim Cramer, star of several television shows including CNBC’s Mad Money, is well-known for his stock market knowledge and ability to pick winners.  Whether you are among the many that have made substantial amounts of money due to his stock advice or you dislike him due to his accusations of setting many Americans up for failure in 2008 and 2009, it is clear that he is a master of the stock market. 

If you go to the book store or any online shopping website, the investment section is likely to have Jim Cramer’s books advertised very well.  This is not only because he is very marketable; it is also because his books are well-written and legit.  Cramer’s book titled Mad Money: Watch TV, Get Rich is probably his best and most recent book on the stock market.  In this book, he lays out guidelines for investing in the stock market, from doing your homework and buying a stock to how long you should hold onto it before selling.  The book is divided into eleven chapters as discussed below.

The first chapter is titled Buying a Stock Mad Money Style – Step One: Know Yourself and Your Goals.  This chapter is an introduction to Cramer’s investing style and techniques and lays the groundwork for how you should invest.  Of the many topics he covers, the most important are how you should set a goal for yourself and how much of your money you should invest.  Cramer talks much about how when a person is younger one should invest more if comfortable with the idea since he/she has an entire lifetime to make up any losses.  To counter this idea, when someone is old and living off social security or retirement paychecks and not receiving large paychecks anymore, investment opportunities like CDs and bonds are a much safer and wiser idea. 

The second chapter is titled Buying a Stock Mad Money Style – Step Two: Do Your Homework.  This chapter is crucial to the rest of Jim Cramer’s book.  You can read the book over and over again and apply all of his tips and techniques to the market, but this chapter underlies all of his techniques.  Cramer explains in chapter two how you cannot simply go out and buy a stock that he recommends; you have to study it and make sure he is accurate and not making a bad recommendation.  Cramer makes a lot of people tons of money, but he also causes people to lose tons of money.  You need to do your homework before you act on one of Cramer’s recommendations and make sure you agree with Cramer’s reasoning on the stock market. 

The third chapter is called Buying a Stock Mad Money Style – Step Three: Use Limit Orders and Buy Incrementally.  The main lesson to learn from this chapter is that you should never order market shares without using the “limit” option.  This means that the stock purchase order will not go through unless the price is at a number which you specify.  For example, if you think shares of a company are great at $40 and you place an order late in the day, then the stock plummets and you did not place a limit order, you are stuck buying the stock at whatever price the broker can get for you.  This could be a very bad situation if you place an order and bad news or a downgrade occurs, and you have to buy the stock at a very unattractive price.  Therefore, think of a fair price that you want to pay for the stock and order your shares at that price.  You may not even have your order placed that same day and will have to request the purchase again the next day, but at least you know you will not get ripped off and will buy the stock on your own terms. 

Chapter four is titled Selling Stocks the Right Way.  The main lesson to learn from this chapter is that you should not hold on to your stocks for too long, and if you see that you have made a good profit, lighten your position in the companies you own.  Cramer says that if you have made a fifty percent profit from your stock purchases, you should sell a very minimum of one-third of your current positions and secure your profits.  Most people never look at the stock market this way and will put all of their money into one stock and keep it there until they feel the peak has been reached.  This is silly when you think about it though; why not sell thirty or forty percent of your shares, keep the profit and feel good about it, and possibly even invest that money in another company that you have had your eye on. 

Chapter five is called The “Lightning Round”: How We Do It on the Show and How You Too Can Pull It Off (and Why You Should Try).  The “Lightning Round” is undoubtedly one of the most entertaining parts of Mad Money.  This portion of the show is where Cramer goes absolutely nuts, yelling and screaming, punching all of the sound effects on his board, and taking call after call without any prior knowledge.  He informs readers that he simply has a computer screen that gives him very basic knowledge about the stock in question such as price-to-earnings ratio, the sector, and possibly how other stocks in the sector are performing.  Using this basic information and the knowledge that Cramer acquires by doing his extensive homework every day, he tells callers whether they should buy, hold, or sell stocks within fifteen to twenty seconds.  He really shows off his stock market knowledge in the “Lightning Round” and is able to make accurate recommendations and predictions based on sector knowledge, company performance, knowledge of chief officers, and recent news on the company.    

Chapter six is titled The Lightning Round Home Game: Stock Market Strength Training.  Jim Cramer recommends that readers try the “Lightning Round” at home in order to become a better stock picker.  He says that readers should know every sector of the stock market and the stocks which are best-of-breed in each sector.  Knowing the best-of-breed makes picking stocks easy in the “Lightning Round” because when you see an average stock that is not performing as well as other elite stocks, you can quickly tell someone to sell their average stock and go directly for the best of the best.  Cramer says that if you do your homework for a few hours every day as mentioned in chapter two, you should be able to master each sector and know the best stocks of every sector within a matter of weeks.  Not only will this make you a more knowledgeable investor, but you will be able to help your friends and colleagues out as well with your own “Lightning Round”. 

Chapter seven is called Why and How You Should Watch My CEO Interviews.  This is one of the more interesting chapters of the book because Cramer tells viewers and readers how you can better comprehend and read what the CEOs who appear on his show are saying.  It is interesting how some CEOs seem to come on Mad Money to publicize their companies and say how everything will be fine, but Cramer usually knows better and will destroy a CEO if he thinks he is lying to his viewers.  Also, Cramer will tell you to buy a stock or at least keep an eye on it if the company is going through hard times, but the company is still fundamentally sound and the CEO has confidence he/she can turn things around.  The interviews on the show are actually very informing if you know what to look for, and while a CEO can never say that his company will have a huge quarter or give any advice on whether to buy or sell, sometimes subtle hints are given that can allow viewers an “unofficial” insider tip on the company. 

Chapter eight is titled New Mistakes, New Rules: Ten Lessons from My Bad Calls.  Jim Cramer gives ten pieces of advice that he learned the hard way; by losing money for himself and his viewers by making a bad call.  Cramer’s ten pieces of advice that he learned the hard way are: 1) Resisting the business cycle is futile, 2) There’s a market for everything; pay attention to it, 3) It’s not enough to do the homework; you have to do the right homework, 4) Latin America is always a trade, 5) Don’t be afraid to say it’s too hard: some things like restaurant same-store sales, are just too difficult to game, 6) Not all companies that produce commodities are as interchangeable as their products, 7) Past performance is not an indicator of future success, 8) Never invest based on borrowed convictions, 9) When you’re playing a big rally, make sure your stocks actually fit the bill, and 10) Don’t try to smash iconic truths; try to make money.  All ten pieces of advice have a true story of failure and money loss behind them which Cramer tells his audience shamelessly.  He admits that he has lost people large amounts of money in the past, but like everyone, he has learned from his mistakes and believes he is better because of those mistakes. 

Chapter nine is titled Ten Lessons from Success: Some Buy and Sell Rules.  Just as everyone fails at some point and must learn from mistakes, people can be very successful too and make large amounts of money.  In this chapter, Cramer gives ten pieces of advice that have made him and his viewers successful and will hopefully make you money as well.  The advice Cramer provides the reader with is as follows: 1) Follow the Street’s lead: most of the time it works, 2) How you can be a contrarian and still make money, 3) The Street is never bullish enough on good stocks, and it’s never bearish enough on bad stocks, 4) Don’t be a snob, 5) Pay attention to politics, because the Street is too focused on money, 6) There’s a rhythm to investing in small-cap stocks with momentum and not much analyst coverage, 7) Use tips as a contraindicator, 8) Hype plus massive short interest equals sell, 9) How to spot downturns in cycles other than the business cycle, and 10) Look out for multiple contraction.  Chapter nine is probably the most useful chapter in this book.  These are straightforward tips with real examples as support that can definitely make the reader money if he/she puts in enough time doing market homework. 

Chapter ten is called How Do I Pick Stocks for the Show?  The tenth chapter is only five pages long and not incredibly useful, but still interesting nevertheless.  This chapter discusses how Cramer finds the stocks that he devotes large portions of his airtime to.  The main idea of the chapter is that Cramer reads dozens of publications on the market, finance, and economics in general and selects his topics for discussion based on what he reads that is interesting to him.  Some of the ways he picks a stock are: stocks that have a recent pull back from their 52-week high, products and services that Oprah endorses, what is featured in the New York Times and The Wall Street Journal, and stocks that appear on his websites.  He pulls his topics for discussion from all over the place and from publications and television shows both.  Some people will even try to predict what Cramer will discuss on his upcoming shows so when he does talk about the company, the individual will be in a prime position for the stock’s price to skyrocket due to the Cramer bump.  However, this is extremely difficult to do and is usually a waste of time.

The final chapter is titled Everything You Ever Wanted to Know About Mad Money But Were Afraid to Ask.  Cramer tackles the oddball questions in this chapter that viewers ask him time after time but he does not get the chance to answer.  For example, he talks about all of the buttons on his sound effects board and what they really mean, why he is so destructive towards the chairs on his set, what his various “Cramerisms” mean, and why he always has to roll up his sleeves.  This chapter definitely does not provide any investment advice, but it is very entertaining.  You will get a true taste of Cramer’s quirkiness and crazy antics in chapter eleven. 

After reading the book, there are two appendices which Cramer provides to help you make wise investment decisions.  Appendix A is a worksheet that Cramer advises you fill out honestly before you invest money in a company.  The worksheet helps you think about the stock’s sector performance, how the stock has performed recently, and can the stock survive its balance sheet.  Appendix B is a chart to help you make good investments for cyclical stocks.  Some stocks tend to follow the business cycle, and based on where interest rates and GDP growth rate are, certain stocks fare better and are better investments according to the economy.  This chart is very basic and easy to understand, and even gives stock symbols that Cramer recommends you look into. 

Overall, Jim Cramer’s book Mad Money: Watch TV, Get Rich is very informative and well-written.  After reading this book, you will likely realize that there is an infinite amount of information to learn about the stock market and how the market is set up for the hedge funds and large market players to succeed, not the small individual investors.  However, people like Jim Cramer really want you to succeed and gives invaluable information for you to apply to your next limit purchase.  Cramer has made millions upon millions of dollars in the market and his hedge funds continue to do so.  His book will give you insight to how he makes millions of dollars and hopefully how you can apply these bits of knowledge to improve your own portfolio.  Due to the usefulness and practicality of the information in this book, I rate it a 4.5 out of 5.