Cramer's 'Mad Money' Recap: Life Lessons
Not to be discouraged, Cramer said his next trade was in Bob Evans Farms (BOBE) after eating at one of its restaurants and doing a lot of homework on the company's outlook. That trade proved to be successful as the company had a good quarter and shares split shortly thereafter.
Cramer's lesson learned: Know what you own and why you own it. He didn't know anything about oranges, he admitted, but a good breakfast made sense to him.
Cramer recalled an investment he made shortly thereafter in SPS Technologies, a company that made airplane fasteners, now part of Precision Castparts (PCP) . He said a buddy had worked there and told him the company was hiring like mad. Cramer again did the homework and deduced that SPS was a win, especially with no news yet to be filed on the hiring binge. Combine what you know with what you can find out, he concluded.
It's All in the Trade
Cramer's next lesson was all about trading, something that has become more difficult over the years, he said, but that's also been helped along by low commission rates, readily available information and lightning fast trading.
Cramer said that while in college he taught himself discipline by committing to coming up with one trading idea per week. That idea, he said, eventually made it into his "Mr. Bullish" newsletter, which he mailed to his parents every week. Eventually he put the tips onto his voicemail message as a sign of his commitment to his ideas.
That conviction, he said, enticed a friend to give him $500,000 to invest. Cramer said he promptly lost $70,000 of that money while learning another tough lesson: You can never invest big sums of money all at once. Stick with the companies you know and know why you like them, he said. With conviction and discipline that big sum will slowly start to grow.
He also learned lessons while trading at Goldman Sachs (GS) . Cramer said he learned how to build a portfolio from the ground up, how to properly manage capital for the long term and the value of diversification. He learned how to explain investments in plain English, and about humility when things don't go your way.
Cramer reminded viewers that individuals can, and do, beat the markets regularly. But that's only accomplished by having solid ideas on which to build.
Trades shouldn't be turned into investments if things go south, nor should investments become trades if you rack up quick gains. Only by knowing why you own a stock will you know when it's time to sell, cut your losses or let your gains ride.
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