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Cramer's 'Mad Money' Recap: Beware 'Treacherous' Contrarians

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NEW YORK (TheStreet) -- Don't pay attention to which sectors are "under-owned," pay attention to companies that are improving. That was Jim Cramer's thoughts to "Mad Money" viewers Wednesday as he sounded off against the notion of contrarian investing.

Cramer explained when a sector has been going down for a while, the contrarians -- those betting against the prevailing market wisdom -- will come in and say that sector is a buy. Their thinking is that big money managers will own less, or be under-weighted, in that sector as a percentage, compared to that sector's weighting in the Standard & Poor's 500 index.

But Cramer called contrarian investing "treacherous," noting that sometimes even out-of-favor sectors can still fall lower. Contrarian investing to too risky, he said. Case in point: the banks and the industrials, two sectors that have been "under-weighted" by money managers ever since Europe took its latest turn for the worse.

The contrarian view totally backfired for the industrials, said Cramer, as executives announced things were looking weaker than expected in Europe, sending shares even lower than they were. The banks, on the other hand, have been gaining strength, thanks in part to stronger than expected real estate loans. Two contrarian theses, two very different outcomes.

Cramer said that he doesn't think contrarian thinking matters much in today's markets. He said that the smart money seeks out and invests in companies that are improving and those that offer protection from Europe and the other ailing sectors in the economy.

Executive Decision

In the "Executive Decision" segment, Cramer spoke with Dinesh Paliwal, chairman, president and CEO of Harman International (HAR), the auto infotainment company whose shares fell 4% Tuesday on the news that nine automakers would integrate Siri, Apple's (AAPL) popular voice assistance, into their cars.

Paliwal said the Apple news is actually good news for both Harman and the entire auto industry as it helps promote the value of integrated electronics systems, something only two out of every 10 cars currently have installed. He said Harman has been a big advocate of hands-free systems such as what Apple has proposed with Siri. Harman sees Apple as a collaborator, not as an adversary, said Paliwal.

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