Editor's note: This is a special excerpt from Jim Cramer's book,
Jim Cramer's Mad Money: Watch TV, Get Rich
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4. Don't be a snob. Some of the best trends are completely hidden from Wall Street.
Remember, analysts and especially money managers belong to a tiny group of incredibly rich people, mostly clustered around Manhattan. They're far from omniscient. Lots of things pass completely under their radar because they live in a bubble. This fact has created many opportunities for me and may make you a lot of money.
Because all the people who run money tend to be rich, or at the very least tend to spend money as if they were rich, they often miss trends in mid-grade or low-end products, companies and stocks. They don't shop at these places. They're not aware of what's going on because they all buy their clothes at Saks and eat dinner at The Palm.
By the same token, retailers, banks and restaurants without a presence in the New York metro area also often pass under the radar of money managers. If these companies are good, they'll eventually come to the attention of the Street, but for a brief period you can buy them while they're unnoticed.
is a classic example of a stock that made you money from Wall Street snobbery. I recommended J.C. Penney on Dec. 20, 2005, when the stock traded at $54.51. In March 2006, the stock broke through $60, and it hasn't looked back since. If you'd sold at any point while the stock was over $65, where it was for most of June, then you would have had a better-than 20% return.
What happened with J.C. Penney was simple. The company had been a wreck, but then it went through a really significant turnaround. The problem was that nobody on Wall Street noticed the changes at J.C. Penney. They didn't notice because they never shop there. Maybe they bought Venetian blinds there when they went to college, but that's about the extent of their contact with the company. I'm serious: It's just that simple. The guys on Wall Street are all going to Neiman Marcus or Saks or Nordstrom; they wouldn't be caught dead in a J.C. Penney. Even the analysts who cover the stock don't want to actually go to any J.C. Penney stores. It's too downscale for them, even though Penney is a middle-of-the-road department store.
Most of the big institutions missed out on a large part of J.C. Penney's move from $54 to $65, but I didn't, because I'm not a snob. I go to J.C. Penney, and even if I never shopped there, I still know better than to write the stock off just because it's not on my own personal radar.
The same exact thing happened with
. I liked both of these stocks from before "Mad Money" began, and they both had pretty continuous run-ups ever since the show started.
Darden is the company that owns the Olive Garden and Red Lobster. Nobody on the Street, not even the analysts who cover Darden, will go to either of these places. I consistently got behind Darden whenever anyone called in about the stock. I pleaded with people not to be snobs and to actually go to the Olive Garden, where the food is pretty good and there's always a long wait for a table. The stock moved up from $27.12 to more than $40 between March 15, 2005, and January 2006. I got help -- my kids hate fancy food, and I am not going to waste good money going to upscale restaurants with them.
The Street missed this move, most of the big institutional buyers missed this move, but you didn't miss this move if you watched "Mad Money" and you didn't act like a snob when you picked stocks.
The situation with GameStop was slightly different, but it followed the same pattern. GameStop sells video games, and because most analysts and money managers don't play video games, they ignored the stock. I liked the stock, even owned it for my
Action Alerts PLUS charitable trust, from before the show started.
On the first day of the show, March 15, 2005, the stock closed at $21.19. By June 1, the stock hit $30, and by Jan. 31, 2006, it had broken through $40. My daughters play video games, and some of my co-workers do, too, so I wasn't oblivious to the great things that were happening at GameStop. Because video games were on my radar, but not Wall Street's, I had an opportunity to buy the stock cheap, before the Street figured out what was going on.
If you can recognize the limitations of the analysts and the big institutional money managers, you can learn to spot opportunities. These guys are snobs, and they're very limited in where they go and what they do for fun. Any stock with great fundamentals that's outside the Wall Street bubble is a stock that can make you a lot of money.
From Jim Cramer's Mad Money by Jim Cramer. Copyright 2006 by Jim Cramer. Reprinted by permission of Simon & Schuster, Inc.
At the time of publication, Cramer had no positions in stocks mentioned.
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