Jim Cramer's 'Mad Money' Recap: Life Lessons

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This program aired on Dec. 31, 2013.


NEW YORK (TheStreet) -- "There are some things I've been keeping from you," Jim Cramer told "Mad Money" viewers.

So he went a little autobiographical to tell viewers how he came to make the markets his life and where he learned his most valuable lessons about money and investing.

Cramer said that unlike most people who became interested in the stock market, his love of stocks didn't start in college or even in high school. He said it was fourth grade when he first noticed how his father's mood would change based on whether his stocks were going up or down that day. That piqued his interest, he said. That started an investment education from dad that has stuck with him ever since.

Cramer recalled how his father brought home the 1964 board game "Stocks & Bonds," manufactured by, of all companies, 3M (MMM) , which drew him into the markets even further. It turned out stocks are a lot like his obsession with baseball since you're always on the lookout for which players are hot and which ones are not.

What's the lesson from Cramer's elementary school days? Get your kids involved with money early in life and they may just play for life, which is a good thing since the stock market is a long-term game.

It Pays to Save

Cramer's next life lesson stemmed from his high school and college days and the first jobs that followed. He said the lesson is to always be saving, no matter how hard things are at the time.

It was selling ice cream at Veterans Stadium in Philadelphia that taught Cramer his first lessons in business, he said, including how much money there was to be made by obtaining exclusive rights to sell something cold on hot afternoons in the upper decks. But it was Cramer's father who again helped him open an account at Fidelity to invest in mutual funds. Cramer said he put money away every week.

That dedication to investing carried on after college, Cramer noted, even when his first job as a reporter was only paying him $156 a month. As he graduated into more lucrative jobs, ones that paid $179 a week, he continued the savings.

But Cramer's most challenging point was while in San Diego, after his apartment was robbed and he lost everything. He spent six months living out of his car while he rebuilt his life, but continued to put money away -- enough so that 35 years later those mutual funds total well into the six figures.

Start Small

Cramer's next life lesson: Start small and do your homework. He recounted how he started his career as a stock picker in 1979, making his first trade in an orange grower in Florida. He bought 10 shares for a total of $9, he recalled. A week later, an early frost wiped out the orange crop and he lost 50% of his investment.

Not to be discouraged, Cramer said his next trade was in Bob Evans Farms (BOBE) after eating at one of its restaurants and doing a lot of homework on the company's outlook. That trade proved to be successful as the company had a good quarter and shares split shortly thereafter.

Cramer's lesson learned: Know what you own and why you own it. He didn't know anything about oranges, he admitted, but a good breakfast made sense to him.

Cramer recalled an investment he made shortly thereafter in SPS Technologies, a company that made airplane fasteners, now part of Precision Castparts (PCP) . He said a buddy had worked there and told him the company was hiring like mad. Cramer again did the homework and deduced that SPS was a win, especially with no news yet to be filed on the hiring binge. Combine what you know with what you can find out, he concluded.

It's All in the Trade

Cramer's next lesson was all about trading, something that has become more difficult over the years, he said, but that's also been helped along by low commission rates, readily available information and lightning fast trading.

Cramer said that while in college he taught himself discipline by committing to coming up with one trading idea per week. That idea, he said, eventually made it into his "Mr. Bullish" newsletter, which he mailed to his parents every week. Eventually he put the tips onto his voicemail message as a sign of his commitment to his ideas.

That conviction, he said, enticed a friend to give him $500,000 to invest. Cramer said he promptly lost $70,000 of that money while learning another tough lesson: You can never invest big sums of money all at once. Stick with the companies you know and know why you like them, he said. With conviction and discipline that big sum will slowly start to grow.

Remember Humility

He also learned lessons while trading at Goldman Sachs (GS) . Cramer said he learned how to build a portfolio from the ground up, how to properly manage capital for the long term and the value of diversification. He learned how to explain investments in plain English, and about humility when things don't go your way.

Cramer reminded viewers that individuals can, and do, beat the markets regularly. But that's only accomplished by having solid ideas on which to build.

Trades shouldn't be turned into investments if things go south, nor should investments become trades if you rack up quick gains. Only by knowing why you own a stock will you know when it's time to sell, cut your losses or let your gains ride.

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-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

At the time of publication, Cramer's Action Alerts PLUS had a position in GS.

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