InvestorGeeks

You can’t deny the popularity of investing guru Jim Cramer. He’s become an icon. But should you read his book Jim Cramer’s Real Money: Sane Investing in an Insane World? I think you should.

First off, fans of Jim Cramer should read this book no questions asked. I mean who wouldn’t enjoy a book that starts off with “I want you to be rich. Really rich.”? If you’re a fan of the TV or radio show, you’ll get more of that same old Jim you love.

Besides being a quick and entertaining read, Real Money can be a useful part of your investing education. I believe that investors of all levels can benefit from this book. For new investors, Real Money does a great job of explaining the basics. For intermediate investors, Jim’s anecdotes and rules can help you stay disciplined. Advanced investors will at least have a chance to better understanding a man who has a noticeable effect on the market and holds a lot of sway with many of today’s small investors.

In Real Money, Jim comes off as a guy who doesn’t like investment rules. His least favorite rule (something that may be universally out of favor these days) is the “buy and hold” mantra. Of course, this doesn’t keep Jim from having his own rules. He devotes an entire chapter to the “Ten Commandments of Trading” and 25 other “Stock Picking Rules to Live By.” This includes his version of “buy and hold”: “buy and homework”.

What is homework? Well Jim won’t lie to you and say that investing is easy. In fact, he suggests that people spend at least 1 hour per week per holding to keep tabs. And it can take even longer to properly research a stock before making a purchase. All you need is time though, and Jim gives a few ideas for how to spend your homework time: listening to earnings calls, reading news on your stock and sector, following up on the competition, etc.

For those that don’t have enough time to run their own portfolios, reading Real Money can also make you a better “customer”. You’ll learn a bit about how your money is being handled by mutual funds and how exchange-traded funds (ETFs) work, but you won’t find much in the way of specific recommendations. The book is focused on teaching how to make good decisions rather than giving specific stock picks. For those, you’ll have to checkout his TV or radio show.

By far the biggest thing this book has going for it is that it is an easy read. And I mean this as a compliment. You’ll have to make it all the way through the book to get it, but Real Money has some of the best explanations of common stock ideas like P/E ratios and Limit Orders I’ve ever read. (This topics may be old hat for experienced investors, but newbies should appreciate it.) In chapter 2, “Getting Started the Right Way”, Cramer explains what a stock actually is and how prices are set. He also explains more advanced trading concepts like short selling and options trading in an easy-to-understand way.

Some of the other insightful moments of the book include the “cyclical investing and trading” chart (found on page 115). This chart follows the rollercoaster of annual national gross domestic product (GDP) growth and Federal Reserve interest rate hikes and eases, explaining what sectors are good to buy when. For instance, according to the chart, towards the end of the Fed’s tightening schedule (like now - 3/20/2006) you might want to look into buying medicine and supermarket stocks. Jim’s chapters on how to spot stock moves, market tops, and market bottoms are also useful.

Overall, if you’re looking for a trading manual, this may not be the book for you. But if you’re looking for a book to get you into the investing frame of mind, to refocus on your discipline, and learn a few things, Real Money may be right for you.

Rating: 4.5 out of 5 Stars
Best Suited For: Jim Cramer fans and anyone considering managing their own money for the first time.
Buy the Book: Jim Cramer’s Real Money at Amazon.com