Mad Money 4 October 2005

The Mortgage-Pro · Site Admin Joined: 19 Jan 2005 Posts: 2248

Jim Cramer’s Mad Money Recap 10/4/405

Jim Cramer did not have any stock tips. He broke down the differences between investments and trading. When in investing you should be looking to hold your position up to 18 months. Trades or short term positions which are usually driven by a speculative catalyst. Once you thesis is proven or disproved you need to cash out and go on to the next trade.

Cramer mad the analogue of the great baseball player Ted Williams. He was a great hitter with a batting average of only 400. So you can be a great investor who makes mad money when being correct only 40% of the time.

Stock investing disciplines:

Don’t lie to yourself – if you make a bad trade exit now!

Only invest in viable companies – learn to read quarterly and 10K financial statements. Usewww.sec.govand then enter the ticker symbol of the stock for these financials.

You must invest one hour in research per stock you own.

Make sure you attend all conference calls on companies you own or plan to invest in.

Pay attention to gross margins. Gross margins = how much profitability a sale generates.

Learn and understand how companies or compared to their peers. This is done by evaluating metrics.

A couple examples:

Cable companies: Would be evaluated by enterprise value (market cap + debt) divided by subscriber base.

Hotels: Gauged by average revenue per room.

Aircraft: Revenue per seat.

Retail stores: Same store sales. Gauges revenue generated by the same store year over year.

Tech stocks: Gross margins

Financial companies: Returns made on each asset dollar in there portfolio.