Sane advice from “Mad Money” host Jim Cramer

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Known for his wild antics, Jim Cramer’s newest book is titled “Jim Cramer’s Stay Mad for Life.” But that does little to describe this financial guru’s mild-mannered disposition, as he reveals to CD his financial insights from his observations and mistakes.

Cramer, co-founder of and host of CNBC’s “Mad Money,” says he got his best investing advice from reading Peter Lynch’s “One Up on Wall Street: How to Use What You Already Know to Make Money in the Market.” By reading that book, he learned the fundamental premise that you have to like what you buy, but you also should know about what you buy. And, if the stock price drops, buy more, he says.

On the other hand, Cramer learned on his own not to hold on to losers. All stocks don’t have to come back, he says. “You just can’t make any money if you let the losses run,” Cramer says. As an example, he recounts the time he bought shares of Charter Communications (NASDAQ: CHTR; Price: $1.20). Thinking everyone had to have cable, he figured it would be a great play at $4 a share. “How much can you lose [at that price]?” he thought. He says he fooled himself into believing a low-price stock was the place to be. He lost 50 percent of the money he invested, and he realized he could have lost all of it.

Cramer learned another important lesson from the school of hard knocks—trusting management blinded him to the fundamentals. Corporate executives are good actors, politicians and salespeople, he says. Cramer says he believes he got suckered into Tyco by ex-CEO Dennis Kozlowski and into WorldCom by ex-CEO Bernard Ebbers, both of whom he deems to be con artists. Worry about the business first, then management, he advises. He also admits he used to buy stock too quickly, getting excited over technology he didn’t understand. Often in such cases, he found out that the products in which he invested had been around a long time, and he missed the move. If you come in late on technology, you’ll get killed, he warns.

Not surprisingly, Cramer’s portfolio doesn’t include stock he recommends. Security and Exchange Commission won’t hesitate to take legal action against those who make plays on stocks they’re publicly critiquing. And, as one would guess, Cramer is doing very well with his non-stock investments. His portfolio is cash (T-bills), with the exception of his retirement fund in Fidelity, his shares of and restricted stock units in GE from his employment with CNBC.

S. Berg