Full Disclosure Finance

By Andrew,

On a recent road trip I listened to the audio version of Jim Cramer’s new book Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer). I enjoyed it a lot and decided that it would be a good idea to review it here on the site.

Stay Mad is the third book that Cramer has written on investing in the past three years. This book is a great read for anyone from the beginner/amateur investor to a more experienced investor looking for insight into the direction of the market in the next few years. The thing that I like best about this book is a lot of the advice that Cramer offers is specific to the present. He gives his opinion on what investments will be the most prosperous in the next 3-5 years. Cramer states that too many books on personal finance go wrong by trying to offer timeless advice. However, he believes that the really useful financial information is time sensitive.

In this book Cramer covers all the essentials on how to create lasting wealth including how to save, where to invest and which pitfalls to avoid. In the first section of the book Cramer talks about the basics of investing. Much of this section is similar to the advice you would find in typical personal finance books. Boring but important advice such as eliminating your credit card dept, how to save, creating a budget, setting up and managing up your retirement accounts, and how to fund them. For retirement accounts Cramer writes that if your company offers a 401k with a company match you MUST take advantage of it. Fund the 401k up to the point where you maximize the company match. Because you are typically highly limited in what you can invest in, it isn’t worth committing any money after the company match. Any additional retirement funds should be invested in a IRA. Cramer favours a Roth IRA over a Traditional IRA especially for investors in their 20s (he must have read my post). He says that most people put way too much money in bonds in their retirement accounts thanks to poor advice from so called financial gurus. Cramer advises tilting your stock-to-bond mix heavily towards stocks even as you get older and near retirement. After funding your 401k and IRA you should set up a discretionary investment portfolio. This account is where you put any investment money that isn’t going towards funding your retirement. The drawback with retirement accounts is you can’t touch the money until you’re about 60 without stiff penalties. The money in your discretionary account will be much more liquid. You can also afford to be more speculative with your discretionary money.

In the second section of the book Cramer lays out 20 lessons that he has learned from running his charitable trust. Some of these include, “Don’t let the market shake you out of a good long term thesis”, “Trust your instincts and not your friends”, “Scale out of a stock as it goes higher until you are playing with the house’s money”, “Never turn an investment into a trade”, and “Don’t let short term bad news scare you out of a good long term stock”. He backs up each lesson with real life situations to illustrate his point. Next he tries to bridge the gap between professional and amateur investor by outlining 10 things that pros due right and amateurs do wrong when managing their money. One point that particularly made sense to me was that pros always have cash available whereas amateurs are fully invested. If you don’t have money on the sideline you can’t take advantage of opportunities that the market hands you. Justin and I have talked about this a number of times. Every time the market takes a big hit one of us will call the other and talk about how we wished that we had some capital to put into stocks right now. Everything is on sale!! Cramer advises keeping at least 5% in cash on the sidelines to take advantage of these opportunities. Cramer also writes that pros try not to invest in what they don’t know. They’re not going to put money into something just because it seems cool. Taking a pass might be the best thing that you can do. If you understand what the company does and how they do it you will likely have a better idea of if it will be a good investment or not. This point goes along with the whole Peter Lynch ‘Invest in what you know’ idea.

The next section of the book is really where Cramer separates himself from the other personal finance authors. He lays his 5 bull markets and 20 stocks for the next 5 years. The bull markets are as follows:

Aerospace and Defense

Agriculture

Oil and Oil Services

Minerals and Mining

Infrastructure

What do all these sectors have in common? They are all plays on global growth. They don’t depend on the US economy in order to do well. Cramer thinks that the US is entering a stage of slowing growth for the foreseeable future and we don’t want to be held hostage by the US economy. Each of these sectors is tied to the rapidly growing economies of Brazil, India, China, and Russia. Cramer believes, and I agree, that if you want to invest successfully in the next 5 years you must have high exposure to these developing areas. Especially in times of economic uncertainty at home. Cramer outlines why he believes each of these sectors will work and most of his 20 stock picks are tied to these markets. For me this section makes the book worth reading in itself. The way Cramer lays everything out makes fundamental sense to me. When something is that logical it makes it very easy to understand how you can implement it yourself.

The second half of the book is unique to most personal finance books I’ve read for two reasons. First, Cramer shares his own experiences to provide the reader investment lessons so that you can learn from his mistakes. Second, he discusses what sectors he thinks will be bull markets for the next 5 years and specific stocks that are tied to these sectors. The book is definitely worth the read even if just for the last section. So for anyone who is looking for some insight into investments for the next 5 or so years I highly recommend that you check out Cramer’s new book.