Saturday, December 29, 2007

Cramer's 'Mad Money' Recap: Invest Like a Pro


"Tonight's show is all about teaching you to invest like a pro," Jim Cramer told viewers of his "Mad Money" TV show Friday. "There are all of these money-losing mistakes that people, who don't invest for a living, make when they try to manage their money and I want to help you avoid them."

Individual investors, "amateurs who run their own money in their spare time," can make more money in the market than the professionals, who run money as their full-time job and have trained for years to be better investors, Cramer said. But most of these individual investors will never come close to that achievement mostly because of mistakes professional investors don't make and ordinary investors make constantly.

"Tonight I'll tell you how to avoid making five mistakes amateurs make and pros don't, because learning how to invest well is much more important than getting advice about individual stocks or even groups of stocks," he said.

First, from what Cramer's seen, amateurs are almost always fully invested, "meaning that all the money in their portfolios is invested in stocks and no cash is left on the side." Professional money managers, on the other hand, always have cash in their portfolios, he said.

Market players should always want to have cash and if they don't, they need to sell something, Cramer said. "This is one of the most alien and difficult concepts for most ordinary investors to understand," he said. "Nonprofessionals think it's right to be fully invested. I'm a champion of stocks, but that's totally, 100% wrong."

People need a reserve so that they can profit from declines in the market, Cramer explained. As the market will always have pullbacks, people will always need cash. "It's there so that you can take advantage of a selloff by purchasing your favorite stocks at much lower prices," he said

About 10% of an investor's portfolio should be cash, Cramer said. Once it's at 5% cash, "there's only one circumstance where it's right to use that cash to buy stocks" and that's when the market has taken a big hit, "a decline of at least 10% from the peak before the decline to the trough."

People can use the decline to pull out their shopping list of stocks they want to buy and pick up their favorite pieces of stock merchandise on the cheap, he said. "That 5% cash reserve is there to prepare for these truly massive declines and if you use it for anything else you'll regret it the next time the market tanks."

Moving on, the next mistake an amateur makes is that when he looks at a stock, he thinks about what his upside could be, Cramer said. Pros don't do that. They think about what their downside is. "If you take care of the downside then the upside takes care of itself," he said. "That means you need to spend a lot more time considering what you can lose in a stock than you do thinking about what you can gain."

Market players have to expect their stocks to go lower sometimes, Cramer said. Instead of clinging to their "bullish case for owning the stock," it's important for people to consider the potential downside and what protections are in place.

"A company with a big buyback is a company with a big cushion, because you know there will always be a buyer for the stock," he continued. "That limits your downside."

Dividends are so important, too. "We don't like dividends for the income they provide," he said. "The reason to be attracted to strong, increasing dividends is that they limit your downside and your downside is what you have to be thinking about."

When people are interested in buying a stock they already know the bull case for it. They know why the stock deserves to go higher and have a thesis of how that will actually happen. "There's no reason to think about upside beyond that," Cramer said. "Plenty of stocks have great upside potential, but far fewer have great downside protection."

On "Mad Money," Cramer said he takes inspiration from anywhere he can find it, even from "not-quite-classic '70s action films." Lesson No. 3 comes from Magnum Force, starring Clint Eastwood, he said. "In the immortal words of Clint, 'a man's got to know his own limitations.'"

Translating this to investing, Cramer explained that pros try not to invest in things they don't know or understand, while amateurs do this all the time.

"If you can't explain what a company does and how it makes its money without quoting some jargon that only an information technology expert would understand, then you shouldn't buy it," he advised viewers. "If you listen to the conference call and come away more confused than enlightened, how on earth are you supposed to know if it was a good call or a bad one?

"There will be plenty of businesses and plenty of stocks that you do understand. Buy them," Cramer said.

Fourth, while amateurs worry that they aren't making enough money, pros worry that they're making too much money, he went on. "Any schmo can make a ton of money all at once," Cramer said. "All you have to do is take on way too much risk, and that's the heart of the problem."

People need to worry about making too much money, not too little, because making too much money "is a sign that your portfolio is out of whack, that you're taking on way too much risk and that everything could fall apart for your investments at any moment," he said.

When Cramer was running his hedge fund he was "never more afraid" than when he was making huge money, he said. Market players should look at what they own and if they're "killing the averages," if they're making more money than they ever dreamed of making, then they are doing something "very wrong."

"You need to take profits immediately, start selling like there's no tomorrow, otherwise you're setting yourself up for a huge fall," Cramer said.

Finally, "amateurs try to game quarterly earnings reports to catch a quick gain," whereas professionals "learn to start living and stop worrying about the quarterly report," he said.

People, Cramer said, should never buy a stock in anticipation of a quarter. In fact, they should "actively avoid" buying right before the quarter or during earnings season in general, he said. "It's just too hard.

"On this show we talk about investing in stocks, trading stocks, speculating on stocks, but there is one thing that we absolutely never do with stocks and that is gamble because when you gamble, the house always wins," Cramer said. "Trying to guess whether or not a stock will go higher after it reports earnings -- that's gambling."

He's seen so many examples of stocks going down off of great quarters that it's taught him that people absolutely should not "game the quarterly report," he said.

"You shouldn't be making snap decisions about stocks, you should be making well-considered decisions that take a lot longer because that's how you make the... mad money," Cramer said. "It's how you stay mad for life."

Thursday, December 27, 2007

Cramer's 'Mad Money' Recap: A Playbook for Selloffs.


In an inevitable market downturn, it's crucial that investors keep their heads and follow a specific playbook, Jim Cramer told viewers of his "Mad Money" TV show Thursday.

"I don't want you to panic," Cramer said. "I don't want you to run around anymore like a chicken with its head cut off ... I want you to sit back and take a deep breath, calm down and do the right thing."

Investors can't keep calm without a playbook, Cramer stressed. Declines are inevitable, and too many regular people approach them like they're the end of the world. Cramer said market pundits don't stress that the market has naturally occurring down days.

The key to my playbook for down days is that you should never let turbulence in the market scare you out of keeping your eye on the prize, Cramer said. "There are opportunities in every market ... When stocks come down, they get cheaper."

On a down day, it's important to be able to tell the difference between real opportunities and fake ones. Cramer said that he made the most money on down days "because I got in at the right price range."

When there's a huge selloff, investors shouldn't kick themselves, but should maximize what they can get out of them. Cramer actually hoped for corrections during his final years as a hedge fund manager. "Stocks that go lower that you like you can buy more of at lower prices."

Investors often make the mistake of burying their heads in the sand, avoiding the news because it's just too painful. Cramer says this is a wrong approach: "You know when you want to pay the most attention to stocks? When they're going lower."

Have Cash Available

To take advantage on down days, investors are going to need cash. "Most homegamers are fully invested all the time, meaning their portfolio is 100% stock and zero cash. ... My rule is to never have less than 5% cash," Cramer said.

Because corrections are inevitable, it's important to have cash available to buy stocks when they get cheaper.

"A selloff is only as good or bad as you make it," Cramer said. "If you own nothing and you're trying to build up your portfolio, a selloff is a gift."

Circle the Wagons

Cramer suggests that investors make a list of stock they own and every stock they're considering. Stocks can be divided into four categories.

"Rank them every Friday," Cramer suggested. "Wait until you have a free moment catch your breath." It doesn't pay to try to rank stocks in the heat of the trading day.

The first stocks are "ones you're trying to back the truck up on. These are the stocks you plan on buying, period. They're your serious conviction names." Second are the ones that are buys, but only if they come lower. Third are stocks "you own and would sell, but only if they rally 5 to 7 percent." The fourth set of stocks is made of "stocks you own and want to sell right now," Cramer said.

smart investor will examine this list with total honesty, Cramer said. "When you get hit with a big selloff, that's going to change ratings." During that time, it's important that investors re-evaluate their positions.

"In a selloff, you don't want to sell nothing and buy more of everything. That's reckless," Cramer said. It's not panicking to sell members of the third and fourth groups, and if investors sell them at the beginning of a decline, they'll be a lot better off. It's important not to try to tough out a bad day with the least appealing stocks in a portfolio.

During a bad day, investors should shift their capital to stocks on the first and second lists. The money to buy those stocks will come from selling the stocks on the third and fourth lists, Cramer said. When the market gets hit hard, investors should throw out their worst stocks and "circle the wagons" to buy the best stocks.

Buy Broken Stocks, Not Broken Companies

A selloff is full of "opportunities to buy good companies whose stocks have become bad," Cramer said. "In a really serious correction, almost everything will go down." That's when investors should look to be getting into attractive stocks.

"Certainly a lot of stocks that don't deserve to go down will decline alongside those that do deserve to go down," Cramer said. It's important to be able to "discern between a broken company and a broken stock."

Cramer pointed to the selloffs of 2007 as an example. During the collapse of companies that issued mortgages, particularly those that had bonds, a credit crisis emerged, and along with that came selloffs. This hurt the financials and the homebuilders.

During a selloff, Cramer stressed, "look at the companies that caused it. They're probably broken. ... If you're looking at a company that's part of the reason for a correction, you're in the wrong place."

Some companies that were not directly responsible for the market turmoil should also be avoided, if whatever caused the selloff should also cause a decline in those companies."

The retailers are an example of stocks that should have been avoided during the 2007 credit crunch. Because the liquidity crisis hurt the consumer, retailers' sales got hit, and the stocks declined. "A company becomes broken when the reason you had for liking it goes away," Cramer said.

On the other hand, in the 2007 selloff, there were many great infrastructure stocks that went down. The businesses weren't broken, but their stocks came down, Cramer said. These stocks didn't have much connection to the broader selloff, but their prices decreased. "You want to look for stocks in areas that are independent of what's ailing the market," Cramer said.

In a down market, it's tempting to shop for a bottom, trying to get stocks at their cheapest as they rebound, but Cramer said "that's rarely a safe bet."

Above all, Cramer said, "Avoid broken companies at all cost."

A Mega Sale on Stocks

"A correction is, in the end, just a mega sale on stocks," Cramer said. "When you go shopping, you don't say you made a bad purchase because you got something cheap." He said it's important to take a similar attitude when approaching a market downturn.

The first place to look for opportunities, according to Cramer, is in stocks that have pulled back from their highs. Stocks that are hitting new highs tend to be more expensive, but when they get knocked off the new high list, they become more attractive.

Of course, some stocks coming off their highs will be going lower for good reasons, so it's important to choose wisely. "You'll have to use your discretion for each individual stock," Cramer said.

The rewards of picking correctly, though, are great, as stocks that are off their highs in a correction "recover hardest and fastest from the carnage unless again they are the reason for the carnage," Cramer said. Investors should have at least one stock that's off its high in their selloff playbook, so when the decline comes they can take advantage of it.

The second kind of stock to shop for during a correction is one with a dividend that becomes a whole lot more attractive share price decreases, Cramer said. "A market correction will give you higher yields," he added.

"I know dividend investing isn't sexy," Cramer said, but "no one ever woke up unhappy" the morning after buying a stock that made them money. "You want stocks that are practically guaranteed to put money in your pocket."

Again, be careful, Cramer urged. A good rule of thumb is to look at a company's earnings. If the expected earnings are at least twice the size of the dividend, the stock is a safe bet.

Two Kinds of Selloffs

Cramer noted that there are two kinds of selloffs: "a real sustained period of negative action" cause by inflation or one caused by a recession. The fear of either can spur a decline.

Cramer urged viewers: "When the market takes a 10% hit in under a month, don't get clever." No one can outsmart a down market. "Follow that darn herd," he said, at least for the duration of the negativity. "You're better off being attuned to the mood of the market than being right."

"When the Street thinks inflation is a problem, certain stocks go up. Most stocks go down. When the Street thinks recession is a problem, certain stocks go up. Most stocks go down," Cramer said. It doesn't matter whether the Street's view is correct. Investors shouldn't fight the sentiment.

During inflation-fueled selloffs, investors should buy gold or mineral stocks, which are anti-inflation plays. These stocks should preserve their value or go higher, Cramer said.

During slowdowns, "raid the supermarket aisles and the medicine chests." Soft goods and diagnostics are good bets for a recession, Cramer said.

"It's important that you not confuse these two things," Cramer emphasized. Buying the wrong stock during a selloff can be very painful.

Maharashtra clears projects worth Rs 3395cr under JNNURM

Maharashtra clears projects worth Rs 3395cr under JNNURM
BS Reporter / Mumbai December 28, 2007
The steering committee of the state government has cleared urban infrastructure projects worth Rs 3,395 cr for Centre’s approval under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) . This includes Rs 1,258 crore for the Mumbai Metropolitan Region (MMR).
The committee, chaired by chief minister Vilasrao Deshmukh, which met here on Thursday, also approved a comprehensive development plan for the MMR. The projects mostly relate to water supply, sewerage disposal and development of roads.
Once these projects are submitted, it will take the number of projects submitted by the state for Centre’s approval to 132 amounting to Rs 23,395 crore. The state is already at the number one position with 47 projects worth Rs 6,396, which have been approved by the Centre. Of this, projects worth Rs 2,574 crore are for the Mumbai city alone.
The projects, which were cleared today, include Rs 505 crore projects for Navi Mumbai, Rs 195 crore for Thane, and Rs 178 crore for the Ulhasnagar Municipal Corporation under the MMR. Besides, a Rs 217-crore project for Nashik for the development and beautification of Godavari river, was cleared.
For Nagpur, projects worth Rs 62.5 crore were cleared. These relate to new flyovers, bridges and roads. The committee cleared projects worth Rs 874.64 crore for Pune, which include additional component for Bus Rapid Transit, sewage disposal and bridges and underground passes at important junctions.
The neighbouring industrial city of Pimpri-Chinchwad received a nod for projects worth Rs 775 crore.

Tuesday, December 25, 2007

Cramer's 'Mad Money' Recap: Spotting Tops and Bottoms.

Cramer's 'Mad Money' Recap: Spotting Tops and Bottoms.


Editor's note: The following is a recap of a "Mad Money" episode that originally aired March 19, 2007.

"Tonight's all about staying one step ahead of the game," Jim Cramer told viewers of his "Mad Money" TV show. "If you can spot a big move in a stock or the whole market before it happens, you're made in the shade."

If there's one thing Cramer's done well during his career on Wall Street, it's spotting bottoms, he said.

There are no specific techniques, formulas or hard-and-fast rules for spotting a bottom, which is when a stock hits its low point and is ready to move higher. Nor do real bottoms come around often, he said, but when they do, "if you call them correctly, you can stand to make a small -- actually not so small -- fortune."

While a lot of people rely on pure technical analysis and look at charts to spot a bottom, a chart is not enough, he said. People need to consider the fundamentals, too, because "sometimes a stock that goes into free fall is only taking a breather before sprinting towards zero."

Cramer said he's also never seen a stock bottom out based on earnings reports. "The thing about a bottom is that if too many people see it coming, it won't happen," he said.

Another "crucial" fact about bottoms is that they rarely happen all at once, Cramer continued. While not always the case, usually the market bottoms in thirds and sector by sector over a period of days, he said.

Market players should see three things when looking for a bottom. First, "market sentiment must be bad," Cramer said. "When the malaise reaches all the way up there, that's a terrific indicator that we're nearing a bottom."

Second, investors should look out for mutual funds pulling out of the market in a "significant way," he said. "To correctly spot a bottom, you need to be right when almost everybody else in the market is wrong," Cramer explained. When the mutual funds give up, you get a massive "crescendo selloff," which is "one of those rare times when the market bottoms all at once, not in thirds."

Finally, big bottoms usually have a catalyst, such as a subprime lending crisis or a Fed rate hike, when the market sentiment is already in the gutter, he went on to say.

"Understand, the market hates nothing more than uncertainty," Cramer said. In the 24 hours leading up to both of the wars in Iraq, he said, he managed to catch great bottoms because investors couldn't handle the total lack of certainty.

Switching gears from bottoms to tops, Cramer told viewers that even though people don't like to talk about tops on Wall Street, it is imperative to spot one to avoid "some serious pain."

"Sooner or later, every stock, every market, reaches a point where it can go no higher and in fact starts going a whole lot lower, maybe for years," he said. "It has happened historically without fail," and even if you don't want to, you must sell a stock when you see it's nearing a top.

One of the best ways to tell that a stock, especially one that's had a lot of momentum, is played out is when the bears start disappearing and analysts who cover the stock have upgraded, Cramer said. "That's a great sign in a momentum stock that you're about to run smack into a top ... because everyone who wants the stock owns it, and that means the buying will stop soon."

The second reason to abandon a stock is competition, he said. The only way you can tell that the competition is about to come in and destroy your company's business is by being watchful, Cramer said, and "the price of profits is eternal vigilance."

It's not enough to merely do homework on your stock, you need to monitor the whole sector, Cramer stressed. "I'd say a solid 70% of the tops I've seen were caused by competition."

Another time to sell "no matter what" is when you see accounting irregularities, he added. An options-backdating problem, however, is not an accounting problem, Cramer said; it's a compensation problem.

"Companies that backdate options for their officers don't do it because business is bad, like companies that lie about their financials -- they do it because business is good," he said. "Those executives would rather take stock than cash," and, if anything, that's a reason to buy the stock, not sell it.

Another way to see a top coming "a mile away" is when the company starts over-expanding. Even though Cramer said he likes growth, sometimes an acquisition is a sign of overexpansion. "It's hard to execute these things properly, and if a company can't pull it off, your stock will end up peaking rather than going higher," he explained.

"The code for overexpansion on the Street is integration problems," Cramer said. "When you hear management say those two not-so-magic words, you know a top is coming ... and it's time to run for the exits."

Finally, the last sign of an impending top is government action, he said. The government, at the federal or the state level, can do more to hurt a company than any competitor.

To spot this kind of a top, Cramer advised people to check out the front pages of The New York Times, The Wall Street Journal, USA Today and The Washington Post. And "don't just stick to the business section, because it never pays enough attention to Washington," he said.

Also, spotting a sector rotation, "when money moves from one sector or group of sectors into another because of the business cycle, is of the utmost importance" if you want to make money in the market, Cramer added.

There are two kinds of companies: cyclical businesses, which tend to do well when the economy is growing fast and not so well when the economy is slowing down, and secular stocks, which tend not to be sensitive to the underlying strength or weakness of the economy, he said.

At the top of the cycle, before you think a downturn is coming, it's good to load up on your secular stocks. At the bottom, it's better to swap out of all of that for some "beaten up" cyclicals, Cramer said.

Now, the "holy grail" of Wall Street is "figuring out when and how a company's earnings are going to change before anybody else does," he said. "It's hard to do, and it is time consuming, but, man, does it pay off."

There are two ways to spot changes in earnings, Cramer said. One way is to "start from the bottom." For example, with retail, people can go to stores, watch the register and count the transactions.

"You've got to do this at more than one store and at more than one time," he said. "When something is flying off the shelves at a pace that isn't reflected by the earnings estimates, buy the stock of whoever makes it."

However, in the case that investors don't have the time to do that kind of homework, they can try to anticipate spending cycles, Cramer said.

For example, "the airlines have an incredibly predictable spending cycle," he said. "When you see that Boeing is getting a lot of orders, you need to buy the stocks of Boeing's suppliers, the Fairchild, the BE Aerospace, the Honeywell. As soon as the analysts start loving these stocks, you get out."

"You watch the indicators, you stay disciplined, the rest of the market will follow you; and that's the situation you want to be in," Cramer said. "The lead dog might feel lonely, but he's got the best view."

Friday, December 21, 2007

MCX: Emerging global leader in commodities.

MCX: Emerging global leader in commodities


India's largest commodity exchange, the Multi Commodity Exchange is fast emerging as a global leader in commodities trading, as the government gets ready to raise the limit on overseas investments in commodity bourses.

The exchange has chalked out a series of plans to set its foot in the global commodities platform. As a prelude to the big plans, last week, MCX roped in India's most respected financial leaders as stake holders.

ICICI Venture Funds Management Co. acquired 3.55 per cent, Infrastructure Leasing & Financial Services 5 per cent and Kotak Group 1 per cent in MCX from the holding company Financial Technologies. The transaction values the company at $1.1 billion.

The Indian investors join Citigroup Inc., Merrill Lynch & Co. and Fidelity International Ltd that have already bought stakes in the exchange to benefit from a surge in commodity futures trading in India.

Today, MCX is the second largest exchange in silver in the world, the third largest in gold; the exchange clocked a record turnover of Rs Rs. 22,93,723.7 crore during the financial year 2006-07.

MCX has also entered into various strategic agreements with global exchanges like The Tokyo Commodity Exchange (TOCOM); The Baltic Exchange, London; Chicago Climate Exchange (CCX); New York Mercantile Exchange (NYMEX), London Metal Exchange (LME); Dubai Multi Commodities Centre (DMCC); New York Board of Trade (NYBOT) and Bursa Malaysia Derivatives, Berhad (BMD).

Why are Indian and global investors and financial institutions keen to pick up stakes in MCX?

The best reasoning comes from K V Kamath, Managing Director and CEO, ICICI Bank [Get Quote] Limited, said: "I am happy that ICICI Venture is partnering with Financial Technologies in its highly successful MCX venture. FT is creating next generation financial markets within India and globally, where the benefit of technology and price transparency empowers the masses to benefit from globalization. It is our philosophy to partner with growth-oriented companies that seek to leverage technology and the power of markets for economic transformation, and this investment is a great example of such a partnership."

According to Uday Kotak, Executive Vice Chairman and Managing Director of Kotak Mahindra Bank [Get Quote] Limited, he values MCX's vision of converting India into global hub in major commodities in the economy.

"Over the last few years, commodities futures market in India has experienced an unprecedented growth in terms of the number of modern exchanges, commodities allowed for derivatives trading and the value of futures traded. Among all this, MCX has demonstrated leadership by creating a scalable and technologically sound commodities trading exchange," Kotak said.

Jignesh Shah, Managing Director & CEO, MCX says the exchange will now scale up operations with these partners and benefit from the fast-growing trade in commodity futures.

"This milestone is a testimony of the quality of the institute we have built, in and from India where the global and domestic best have converged," Shah said.

Earlier, in an interview to Commodity Online, Shah had said: "Let us be very clear that our being 'technology savvy' is not an end in itself. It is just an instrument in our efforts to be the top 'global exchange.' We do not think in terms of regional or fragmented markets either geographically or commodity-specific. We have a totally integrated approach towards deepening and widening 'commodity space' globally."

Analysts say with the fresh stakes sales, MCX is set to enter the global commodities platform actively with a series of ambitious plans.

First, with the Indian government all set to come out with specific guidelines on foreign direct investment in commodity exchanges soon, MCX may go for an initial public offering.

The exchange had dropped its IPO plan in 2006. The Cabinet Committee of Economic Affairs is all set to announce the guidelines for FDI in commodity exchanges. Following this, the Forward Markets Commission is expected to submit the proposal for ownership structure of exchanges before the Union ministry of consumer affairs.

MCX submitted a draft for the IPO before Sebi in March 2006 and received the approval in June 2006. The issue size was pegged at 50 lakh shares.

While everything was perfectly in order, a Securities and Exchange Board of India regulation towards de-mutualisation of capital market, limiting the stake-holding of a single entity in the stock market to five per cent, came. Then, a debate broke out on the ownership pattern of commodity exchanges and FDI in exchanges.

The government last year allowed overseas funds to buy up to 49 per cent in its stock exchanges. The limit for a single investor was set at 5 per cent.

The cap for commodities exchanges could be raised up to 10 per cent for each investor, or twice the limit set for stock exchanges, officials have pointed out.

The government decision in this regard is expected this month, and soon, MCX will go the IPO. And MCX will be the first trading exchange that will be listed in an Indian bourse.