Cramer Shares His Stock-Picking Secrets

Why not go into cash?

Isn’t that the ultimate personal finance question? I mean I sit here night after night writing a show that advocates stocks and what have stocks done for us?

Nothing.

Shouldn’t we just forget about the whole exercise? Isn’t that the real lesson of the flat Dow Jones averages?

You would think that if:

1. You looked at the market as a stock market instead of a market of stocks with different aisles, some of them serving day old bread and spoiled merchandise and some of them serving merchandise that aged perfectly in your account.

And:

2. If you bought and never sold. The reality is that the returns in the Nasdaq from 1998 until March of 2000 were spectacular. After that the returns in the foods and drugs were unbeatable and then the oils took off and never looked back until now. A diversified portfolio that included actual homework might have allowed you to capture a lot of these points.

More important, what really matters here is opportunity cost. It may turn out that this is the one period in the history of 20 years -- not 10 years -- where stocks genuinely underperform real estate, gold, cash and bonds. We won’t know for another 20 years but the tolling that started ten years ago gives us only 10 more years to be right. So, do you want to bet against history? Or do you want to say, “this time is not different,” which is what I would do.

I know that there is a whole industry out there that I have been railing against for more than two decades -- first in the New Republic and Manhattan Lawyer (I kid you not) then in Smart Money and then GQ, Time, and New York Magazine and the TheStreet.com -- which says forget it, bud, you can’t make more money than the indices.

If that is true, I shouldn’t exist. I should fold up my tent. But how do I justify my record after all fees? (It wasn’t short-term trading). How do I justify the fact that there are stocks that do better than other stocks and they are accessible to people: oil and gas for the last four years and now health care and consumables? Are these really that hard?

Yes, after the sessions we have had in the last few months, the ones that have seen a near wipe out of the financials, it is awfully hard to think about anything other than cash.

So let me give you one more thought. In 1979 everyone told me that the stock market was a sucker’s game and you could never make money. I did research, I came to the conclusion that oil stocks would be good bets and I bought a bunch of them through calls. I made a huge amount of money doing so, enough to pay for law school.

Was I a genius? All I did was read the papers, same as you could have. I didn’t take any courses. I didn’t study with people who, of course, would have just told me that what I wanted to do was impossible anyway.

In retrospect, cash looked great then. And I guess I would be safe in it.

But I would be real sorry because, alas, can I just admit to you, that I got rich picking stocks? Not selling stocks. Not hawking bad product. Not trading in and out without knowledge. But buy owning good stocks and remembering the rules: bulls, bears and pigs make money. Don’t be greedy. Cut your losses. All the standard stuff.

It all worked for me.

Why can’t it work for you?