Jim Cramer: A Momentum Monsters Manifesto


NEW YORK (Real Money) -- My hallmark is opportunism. I try to be opportunistic when the market gives you a chance to make some big money.

Sometimes that means simply looking for the stocks of undervalued companies and being patient with them as the marketplace or the executives who run these companies bring out value. That's classic investing.

But sometimes that means accepting the peculiar aspects of the money-management business. Namely, at times you must accept the imperative to outperform by taking on a huge amount of risk in order to buy the most aggressive growth companies, particularly at a time when the world is facing subpar growth.

Everyone's happy when I outline the very rational process of attempting to find companies that sell for cheaper prices than they should. This is when I either believe these companies can beat expectations and raise them, or when management is so motivated to help shareholders that it takes matters into its own hands.

So you may be able to spot undervalued companies or recognize when executives are superior coaches that produce winning teams. Or you may be able to predict that executives are going to shrink their companies to grow or, perhaps, restructure out of slower-growing divisions and into faster ones. Alternatively, perhaps they're likely to buy another company in order to help consolidate an industry that would therefore diminish competition and increase gross. If you can pick out these names, then you should beat the performance of the average stock.

That's classic investing and I love it. That's what most of Get Rich Carefully is about.

However, I have discovered that there is another way to profit from stocks, and that's by recognizing the imperatives not of the managers and their companies, but of the money managers themselves. A huge cohort of money managers do not seek to find traditionally undervalued stocks, meaning those of companies that don't recognize the potential for bigger profit.

Instead, these managers attempt to find the highest-growth companies, regardless of their actual profit potential. These are capital allocators who believe the best way to beat the averages -- and, believe me, that's the game I am gaming with this strategy -- is to buy companies with the highest revenue growth and the most fantastic opportunities to dominate the total addressable markets in which they toil.

Or, to use shorthand, these are the money managers who are driven to find the biggest momentum names at any given time, even if the valuations can't be justified by traditional price-to-earnings analysis.

I have, of late, focused on these stocks in my writings, on my shows and in Get Rich Carefully. That's because, like it or not, they have been the real winners in this stock market. I want to repeat that, like it or not, they have been the biggest winners.