Book Review: Jim Cramer’s Real Money

Boo-yah!  Chances are, even if you have no interest in individual stock investing, you’ve still heard of Jim Cramer at some point in your investment career.  The hyper, over-the-top host of CNBC’s Mad Money is one of the most famous personal finance personalities currently on the air, well-known and repeatedly parodied.  (How many people can claim to be a major plot point on an episode of ‘King of the Hill’ AND a throw-away joke on ‘The Simpsons’, amongst other references?)

Besides being very, uh, enthusiastic on his television show, Mr. Cramer is also a fairly prolific author.  In Jim Cramer’s Real Money (and yes, that is the real title of the book; he’s also just a wee bit egotistical at times), he details his methods of investing in the stock market.  What nuggets of wisdom can we learn about from a guy whose biggest claim to fame is using sound effects during his broadcasts?  Well, let’s find out!

Summary

Jim Cramer's Real MoneyJim Cramer’s Real Money is two parts stock trading text book, one part Jim Cramer’s greatest hits, and one part Jim Cramer’s biggest mistakes.  He opens the book with the story of how he came back from one of his biggest loses from his hedge fund days, before providing a basic explanation of stocks, where he stresses that while you can’t completely ignore the financial situation of the issuing company, stocks are by and large simply pieces of paper that are traded, before covering some of the basics of investing.

Once the general information is out of the way, Cramer goes into more details on how he goes choosing his investments, from discussing the investment cycle he follows to the factors he considers when choosing a company he expects to exhibit break out performance.  He covers his ten commandments of trading, his twenty-five rules of investing, and the five (or ten, if you have the time and inclination) types of stocks he recommends for a good, diverse portfolio.  The book finishes off with some suggestions on spotting tops and bottoms in the market, as well as a brief discussion of some more advanced techniques for investing and speculating in the market.

Pros

– Stresses Hard Work: One flaw of many ‘investment’ guides that focus on trading individual stocks is that they imply that stock investing is safe, easy and highly profitable.  Not Cramer; he acknowledges that stocks are more volatile and potentially risky than funds, and strongly encourages anyone who wants to invest in stocks to do their homework.  One of his tag lines through the book is ‘buy and homework’, that is, the need to spend one hour per week per stock doing research to make sure your investment is still a good one.

-Makes Retirement Investing a Priority: Cramer makes the distinction between money set aside for retirement, which needs to be kept safe, and money that can be used for speculative investments without putting your retirement at risk.  He pointedly tells readers to only speculate with money they can afford to lose without materially affecting their retirement.  It’s definitely good advice to keep a distance between your speculation money and your investment money, and never forget which is which.

-Thick with Good Trading Advice: The entire book comes off as ‘Professor Cramer’s Lessons to Would-Be Traders’, which is a pretty good description.  My summary only touched upon the sheer breadth of material covered in this book, which goes into much greater depth on everything and anything that can affect stock prices over the short term.  If you’re looking for a text book guide to trading, you could do worse than this book.

Cons

-One Word: Trading: A book is only as good as what you can get out of it, and if you aren’t planning to trade stocks, there’s not too much here for you.  Cramer himself tries to warn off anyone without the time or inclination to do the needed research, and if you’re going to be investing primarily in mutual funds, you should probably stick with a different book.

-‘Crameresque’: If you’ve ever watched Cramer’s shows, you’re probably aware that he tends to be full of energy and somewhat stream of conscious in his hosting style.  The book has much of the same feel, with stories and anecdotes intermingled within his explanations and examples.  It makes for a sometimes difficult, if arguably entertaining read.

-Too Optimistic: Far be it for me to try to rain on anyone’s parade, but unfortunately beating the market is a fairly difficult proposition.  (Many would go as far as arguing that it’s nigh impossible to do and costly to try, but that’s a story for another day.)  Cramer’s claims that just about anyone can do so, as long as they follow his methods, have to be reconciled with the horrible results even many professional investors suffer much of the time.

Overall

If you’re looking for a guide to individual stock investing, you would be hard pressed to come up with one more thorough, in-depth, and simply entertaining as Jim Cramer’s Real Money.  He does a good job of preparing you to invest your own money in the stock market, and of showing you how to follow the methods he uses.  Just make sure that individual stock investing is right for you, you are only trading with money you can afford to lose, and that your retirement investments are on track, and you’ll do fine.

3 Responses to Book Review: Jim Cramer’s Real Money

  1. Rog – Jim actually came and spoke to my “class” where I worked the first year out of college. He’s crazy, but quite entertaining. He’s made a lot of money, and nobody can fault him for his success. Just be careful if you follow him for investment advice!

    • FS, I would never try to argue that he wasn’t entertaining, or that he hasn’t been very successful (even before all of his shows on TV and radio). But would I try to invest the same way he does? Probably not, at least not with where I currently stand financially. Still, viewing a variety of perspectives on investing can never hurt.

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