Cramer's 'Mad Money' Recap: Methods to My Madness
A version of this program aired May 1, 2012.
NEW YORK (TheStreet) -- Individual investors can not only invest like the pros, they can beat them, too, Jim Cramer told "Mad Money" viewers as he dedicated the entire show to detailing the methods to his madness.
Cramer said it doesn't take a lot of effort to invest one's own money, just a few hours a week for research, the "homework," as he so often calls it. But the results from that research will bear far more fruit than blindly dumping money into an index fund or, worse, a bond fund in a time of historically low interest rates.
Where can investors find their research? Fortunately, it's practically everywhere, said Cramer, on sites like CNBC.com, TheStreet.com, Yahoo! Finance and others, as well as on the Web sites of every publicly traded company.
When starting out, Cramer recommended using the 52-week high list. The new highs list shows stocks with true momentum, said Cramer, especially in a bad market. But that does not mean that investors should just blindly chase every stock on that list. Instead, research will still need to be done to separate the truly great stocks from the ones that are just lucky.
After researching the new high list and picking out the true winners, Cramer said the next step is determining when to buy them. He said a pullback of at least 5% is usually a good entry point, especially when that pullback is caused by general market weakness. You should only buy stocks that have pulled back from the new high list if you're confident they'll make a comeback, he continued.
Cramer said he always advises adding to a position on weakness, then trimming those positions into strength. A broad, market-wide sell off provides an excellent entry point for the former, he concluded.
Look for the Insiders
Cramer's next trick for investors, look for stocks with strong insider buying. Company executives are no dummies, explained Cramer. If they're buying their company's stock, then maybe you should, too.