Click here for an archive of Cramer's "Mad Money" recaps.
Editor's note: The following is a recap of a "Mad Money" episode that originally aired Dec. 25, 2006.
"When it comes to your money, faith doesn't cut it," Jim Cramer told viewers of his "Mad Money" show. "If you want to be a truly great investor then you need to be a skeptic, if not an all-out cynic."
Whenever someone makes a pronouncement about a stock or about the market, those listening "should always consider the source," Cramer said.
Therefore, Cramer devoted the show to explaining how and why he's qualified to be on TV expressing his opinions. "I'm going to tell you why I think my way, my method, is better than putting your money in a mutual fund, or an index fund, or playing around with exchange-traded funds," Cramer said.
Even though it is true he successfully ran a hedge fund for 14 years, that's not why market players should listen to him, he said. Running a hedge fund and investing part time as an individual are two different things, Cramer said. "I was good at one, but on its own that doesn't mean I'm any good at the other."
The thing that really qualifies him, beyond his record at the hedge fund, his experience, and the fact that he "works like a dog to come up with great ideas for the show," is the fact that he "used to play for the bad guys," Cramer said.
Cramer's Path to 'Mad Money'
"Hedge funds, especially with people like me at the helm, are predatory," he said. "They contribute nothing to society, aside from helping the rich get richer, and all too often the tricks these funds pull end up hurting regular people -- ordinary individual investors."
Now, Cramer said, he plays for the "good guys" and knows "all the tricks, all the ways hedge funds maneuver so that they make money and you don't." This also means that he has the "insight, suggestions and caveats" that can help people become better investors.
When he graduated from college, Cramer wanted to be a journalist, not a money manager, he said. In fact, his first investment, American Agronomics, was a "perfect failure," Cramer recalled. But instead of quitting, he kept investing and got better. By the time he went to law school, he was even leaving stock tips on his answering machine, he said.
Then he got lucky when
The New Republic's
editor-in-chief Marty Peretz, after hearing numerous stock tips over Cramer's answering machine, "dropped a check for half a million bucks in my lap and told me to invest it," Cramer said. "Luck got me into the game. Then luck made my hedge fund serious in 1987."
As a money manager, Cramer said, he was working 18-, sometimes 24-hour, days. "I didn't see my family, I weighed 30 pounds more than I weigh now, my blood pressure was a lot higher and I was never happy," he said.
When his family intervened in late 2000, Cramer decided to leave the fund. But as he still "loved stocks," he kept writing for
, which he co-founded. Plus, he started managing his
Action Alerts PLUS charitable trust. Then, Cramer got the chance to do "Mad Money."
"I didn't stop running my hedge fund because I lost my game," he said. "I stopped because it was killing me. I'm not the kind of guy who can just scale back: it was either 18-hour days forever or retirement."
The Motivation Behind 'Mad Money'
People can "feel good" about listening to Cramer, he said, because he only has two motives: "I want to have fun, and I want to help you try and beat the market for the same reason."
"'Mad Money' is not a scam," Cramer said, adding that he can't profit from anything he says on the show -- only the viewers can.
At the same time, "Mad Money" isn't a way for anyone to get rich quick and it does not cater to a single audience, he said. As the show is for a diverse audience, Cramer's advice isn't always for everyone.
Moreover, people should not think they will become brilliant investors just by watching "Mad Money" every night, Cramer stressed. The only way to become a great investor, according to Cramer, is by doing your homework and "studying stocks with enough rigor and passion to get them right."
'Mad Money' Investor Guidelines
"If you want 'Mad Money' to work for you, if you want me to work for you, then you need to be willing to commit to doing homework for an hour a week for every stock you own," he said.
Cramer recommends individual investors own at least five and no more than 10 stocks. Having fewer than five stocks puts a portfolio at the risk of not being diversified enough and having more than 10 stocks gets tricky to manage diligently.
As long as investors do have the time and inclination, Cramer believes his methods will beat mutual funds, index funds and ETFs.
While he feels index funds "involve too many bad stocks," he said it's OK to put money into a mutual fund if people don't have a lot of time on their hands. However, people should still do some homework to make sure the mutual fund is a good one, and not just one with a "brief year or two of mega outperformance," Cramer said.
"Second, if you're going to buy a mutual fund, you should only be in one and it should be a diversified fund," he said.
However, if market players do have the time, it is better for them to invest themselves in the stock market as mutual funds make their money off of the fees people pay them to manage their money and they only need to do well enough to attract more fees, Cramer said.
"Since their job is to attract new investors and make the fund bigger so it can collect more fees, a good mutual fund will ultimately get really big," he said. "And you know what a really big, cumbersome mutual fund looks like? It looks like an index fund."
Therefore, "if you've got the time, forget about mutual funds," Cramer advised.
And when it comes to ETFs -- these, contrary to belief, don't make things easier on the individual investor, he said.
"An ETF is usually highly specialized and sector-weighted," Cramer said. "Doing the homework to know what sectors are good is about as hard as doing the homework to know what stocks are good."
Plus, when people buy an ETF, it is just like buying an index or even a mutual fund, he said. "You're buying a lot of stocks that you should know are bad."
Want more Cramer? Check out Jim's rules and commandments for investing from his popular book by
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.