Wednesday, April 11, 2007

Real Money: Sane Investing in an Insane World

Real Money: Sane Investing in an Insane World by James Cramer.

Jim Cramer of Mad Money (on MSNBC) fame was once a hedge fund manager trading stocks and made his investors tons of money. He's retired from that business nowadays and goes more the route of advising people through his radio show, TV show, and website. In this book, he describes the ins and outs of investing and trading on the stock market and strategies for playing the cycles of the market.

One of his rules is that if you are going to invest in individual stocks, you need to spend at least an hour per week keeping up to speed on it. He also recommends diversification by having a minimum of 5 stocks in a variety of businesses sectors such technology, health care, oil, grocery/consumer goods, financial companies such as banks, among others.

He makes clear that he does not advise nearly as aggressive a strategy when looking at retirement versus more discretionary income. Mutual funds are definitely the way to go for a vast majority of people who don't have the time or inclination to truly research and investigate the fundamentals and news of a stock. He provides advice on good mutual fund managers if one wants to go more that route.

I enjoyed the stories from his days as a hedge fund manager also told in his book Confessions of a Street Addict. These helped illustrate lots of his points and rules to live by when trading/investing in the stock market.

Overall, he does a good job at helping the reader to understand the nuances of the stock market which can be esoteric to those not in the know or who don't do it professionally.

My personal advice is that unless one believes they can beat the market or the return of a professional mutual fund manager, he/she should stay away from individual stocks. While the reward can be high, the risk is also very high compared to the diversification of an index or mutual fund.

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