Jim Cramer's Stay Mad for Life Read online

  ALSO BY JAMES J. CRAMER

  Jim Cramer’s Mad Money: Watch TV, Get Rich (with Cliff Mason)

  Jim Cramer’s Real Money: Sane Investing in an Insane World

  You Got Screwed! Why Wall Street Tanked and How You Can Prosper

  Confessions of a Street Addict

  This publication contains the opinions and ideas of its author. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, tax, investment, insurance, financial, accounting, or other professional advice or services. If the reader requires such advice or services, a competent professional should be consulted. Relevant laws vary from state to state. The strategies outlined in this book may not be suitable for every individual, and are not guaranteed or warranted to produce any particular results.

  No warranty is made with respect to the accuracy or completeness of the information contained herein, and both the author and the publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.

  Simon & Schuster

  1230 Avenue of the Americas

  New York, NY 10020

  Copyright © 2007 by J. J. Cramer & Co.

  All rights reserved,

  including the right to reproduce

  this book or portions thereof in any form whatsoever.

  For information address Simon & Schuster Subsidiary Rights Department,

  1230 Avenue of the Americas, New York, NY 10020

  SIMON & SCHUSTER and colophon are registered trademarks of Simon & Schuster, Inc.

  Library of Congress Cataloging-in-Publication Data

  Cramer, Jim.

  Jim Cramer’s stay mad for life: get rich, stay rich

  (make your kids even richer) / James J. Cramer with Cliff Mason.

  p. cm.

  Includes index.

  1. Finance, Personal—United States. 2. Investments—United States. 3. Stocks—United States. 4. Financial security—United States. I. Mason, Cliff. II. Title. III. Title: Stay mad for life: get rich, stay rich (make your kids even richer).

  HG179.C68985 2007

  332.60973—dc22 2007037838

  ISBN-13: 978-1-4165-7740-9

  ISBN-10: 1-4165-7740-8

  Visit us on the World Wide Web:

  http://www.SimonSays.com

  For Ken Cramer,

  our wonderful father and grandfather, respectively,

  whose good parenting and financial savvy are doubtless

  the reasons for our success.

  CONTENTS

  Acknowledgments

  Introduction: Get Rich and Stay Rich

  1 Getting Started

  2 How to Stop Yourself from Becoming Poor

  3 Planning for Retirement

  4 Investing for a Lifetime—and What You’re Investing In

  5 Family Finances

  6 Twenty New Rules for Investing

  7 What the Pros Do Right and the Amateurs Do Wrong

  8 Five Bull Markets and Twenty Stocks for the Long Term

  9 My Guide to Mutual Funds

  Index

  ACKNOWLEDGMENTS

  First and foremost, I have to thank all of the regular people who came up to me, called, or emailed to ask for help on more than just stocks. I wish I had a nickel for every person who hails me as I walk down Wall Street every day and says, “Jimmy, how about a good mutual fund?” or, “Jimmy, why don’t you talk about 401(k)s?” Well, I’ve done it! Without them, without the well-wishers and the enthusiastic fans of my work, this book never would have come to be. Second, I need to thank the vast majority of personal finance writers out there who, though their hearts are in the right place, just haven’t done the job, leaving the door open for me to write something from the perspective of someone who made his living managing money, not writing books about other people who have made money.

  As always, behind this book and everything else I produce are legions of people who work hard to make it all possible and make me look great, but don’t get anything like the publicity I do. In terms of the actual production of this book at Simon & Schuster, I continue to have the great pleasure of working with Bob Bender, whom I consider the greatest financial editor in the world, and David Rosenthal, the publisher and the man who got me to start writing books in the first place. He’s the best on the planet, and I would go further, but I have no empirical evidence of life beyond earth. Many hands go into making a book like this, and at Simon & Schuster those hands belong to Johanna Li, Phil Metcalf, Judith Hoover, Rebecca Davis, Leah Wasielewski, and of course the amazing Aileen Boyle, the go-to person whenever you want to spread book-gospel. And, while I’m praising Simon & Schuster, may I pose a question? What are those other authors doing working at those other publishing houses when they could be working with the absolute best?

  I wouldn’t have written this book, or any other for that matter, without all of the great folks at CNBC who have helped make Mad Money the most enjoyable part of my life, and perhaps the most enjoyable thing I’ve ever done. It shouldn’t come as a shock to anyone that having your own national television program is a lot of fun—I haven’t thrown a keyboard in anger for years because of this show! But it’s the people I work with who make it so worthwhile.

  I owe a great debt to everyone at CNBC who helps to make Mad Money great every single day of the week. First, Mark Hoffman, the CEO of CNBC, who gave us unprecedented backing to do a new and different kind of financial show, an interactive one with you, and then gave us the resources to promote and protect the franchise in a spectacular way. He gets the job done like no other and deserves total credit for the fabulous and fabulously successful Mad Money College Tour. Jonathan Wald, the senior VP of business news, who has been a fabulously creative influence for us and is the best TV newsman in the business. We’re unbelievably lucky at CNBC to have someone of Wald’s caliber urging us on every day and then praising us when we get it right.

  On a day-to-day basis my life is made so much better by Regina Gilgan, who as executive producer of the show has done an absolutely terrific job, as have Rich Flynn, Chris Schwarz, Kat Ricker, George Manessis, Ben Rippey, Joanna Chow, Candy Cheng, Jackie Palombo, Jackie Fabozzi, Keith Greenwood, Bryan Russo, Laura Koski, Ed Hartley, Kyle Remaly, Henry Fraga, Kareem Bynes, and Sean Riley. I would be just another 53-year-old bald dad talking to himself in an odd way if these people didn’t work their magic and turn it into a TV show every night. Special thanks to Kevin Goldman, the head of CNBC PR, who’s done more to spread the gospel of Mad Money than anyone else, along with Jenn Dauble, who’s also been terrific when it comes to getting the word out. Beyond Mad Money, thanks to Erin Burnett for being such a great teammate and letting me rant on Stop Trading every day.

  And a special thanks to Jeff Zucker, the head honcho at NBC Universal, who believed in Mad Money from the moment he saw it and has stayed a believer the whole way. He’s so good he doesn’t even seem like a suit, the highest compliment I can pay an executive! I intend to play for the Z-man for the rest of my career. He inspires loyalty in a business that allegedly has no loyalty.

  At TheStreet.com, my thanks go to Tom Clarke, the still-amazing CEO, along with Dave Morrow, the editor in chief, and Bill McCandless, our new head of multimedia. Each of them has continued to make our business a real success. Without their hard work, I’m sure I would’ve had a nervous breakdown years ago. Bill Gruver, a member of TheStreet.com’s board, in addition to being a professor at Bucknell and my own teacher at Goldman Sachs, deserves my undying gratitude. I cannot express enough thanks to Debbie Slater for practically runn
ing my life, and running it well, for so many years. Also at TheStreet.com I must thank my spectacular editor and copy editor on this book, Gretchen Lembach, and my brain trust: Dave Peltier, Jonathan Edwards, Michael Comeau, Frank Curzio, Larsen Kusick, Sanket Patel, and Patrick Schultz; without these guys I wouldn’t look half as smart as I do.

  For my two agents, both the best in their businesses, I have nothing but love, thanks, and praise. Suzanne Gluck is incomparable as a literary agent, and Henry Reisch is phenomenal at getting things done and getting me what I need, not to mention providing the more-than-occasional dose of inspiration. Plus, they’re both great shoulders to cry on if ever the need arises. It should be William Morris, Gluck, and Reisch, but hey, I don’t make the rules.

  I owe another debt of gratitude, beyond the retainer, to Bruce Birenboim, my Paul Weiss attorney, who has saved my hide more times than I care to remember. I know that I would be writing this book while sipping bad Scotch on a cheap linoleum floor if it weren’t for Bruce. Shakespeare was wrong about that “kill all the lawyers” nonsense; clearly he’d never met Birenboim, or maybe he had but from the wrong side of the courtroom.

  Words cannot express my gratitude to Betsy and Gene Hackman, who taught me pretty much everything there is to know about life in general, let alone acting. Tremendous thanks as well go to Michael Chiklis, the majority leader of Cramerica, and the star of the show that I wish I was both acting in and writing. May The Shield rest in peace, and live long in reruns.

  To Lisa Detwiler, who put up with an immense amount of angst about this book and everything else for that matter and smiled and cheered and encouraged endlessly and selflessly. Saints do exist, maybe even übersaints.

  There are three people specifically whose work helped directly in the writing of Stay Mad For Life. Nick Nocera, our researcher and intern, was invaluable, and we never would have finished on time without his hard work and assistance. Nick, it was a pleasure having you on the team. Thanks also for the constant support to the lovely Jenny Graff, whose expertise in tax law helped enormously with every part of the book where taxes are discussed or even mentioned. And CNBC’s own Luke Bauer also deserves great thanks for inspiring more than one crucial idea in Stay Mad.

  I owe my sister, Nan, and my brother-in-law, Todd Mason, more than I can say. My sister is the one person who has always been there for me and stood by me, and her husband, still the smartest man alive, has given me so much personal and professional help that you might call him the man behind the man. They also deserve thanks for leasing me the use of their son, Cliff, and trusting me not to damage him beyond all repair. Cliff waived his Thirteenth Amendment rights when he turned 13 and he’s never going to be emancipated if I have my way. Who said nepotism wasn’t a good thing?

  And thanks as well and as always to my two daughters, Cece and Emma, who make life worth living, and must never, ever know that I wrote this book when they were sleeping, because they are always worried that I work too hard.

  JIM CRAMER’S STAY MAD FOR LIFE

  INTRODUCTION: GET RICH AND STAY RICH

  Most people don’t think about it, but there’s a difference between making a lot of money and building lasting wealth. When it comes to money we think that striking it rich is the ultimate goal. I know because I used to feel that way. In reality, getting rich isn’t the financial finish line. It’s the first lap of a much longer race. I’m talking about ensuring long-term prosperity for you and your family: not just getting rich, but staying rich. That’s what each and every one of us truly wants to achieve with our money, and I don’t care who you are, who your parents are, where you live, or what you do for a living: you can do it if you let me help you. I don’t care if you don’t have two cents to your name or if you owe thousands of dollars in credit card debt. I am confident I can get you there. You may think of yourself as someone who’s awful with money; you could be a person who’s tried and failed to get anywhere with every single financial plan you’ve ever been handed, like so many failed faddish diets. Whether you’re 16 or 60, sending your kids to college or sending yourself to college, I’m writing this book to tell you everything you will ever need to know and everything you must do to create and maintain the kind of wealth that lasts a lifetime. I want you to get there and stay there.

  A lot of people who try to sell you advice about your money are doing it to make money themselves. They don’t care whether you succeed or fail with their advice because they’re just looking to sell books or earn fees. I made more money than anyone ever needs working at my old hedge fund, and if I wanted more, I’d start another one. I am confident that I could raise a billion dollars to manage tomorrow, but frankly, I’d rather help you. That means more to me than working for people who are already rich. Perhaps it’s because I’m a good guy, or because I just want to look like a good guy, or maybe I do it because I love positive attention. Maybe it’s because after years of making money for myself, it just feels right. At the end of the day, the “why” isn’t important, as long as you’re satisfied that I’m writing this book in good faith to help you. What’s important is the “what.” I spent fourteen years running a hedge fund, which means that the only higher purpose my job had was to make incredibly rich people even richer. I used to joke that my job was to move people higher on the Forbes 400 richest people list—not a higher calling.

  I’ve now spent the past seven years since I retired from the fund writing books and columns for TheStreet.com and New York magazine and hosting a radio show and two television shows: first Kudlow & Cramer, then Mad Money. The venues have changed, but my goal was always the same: to share my experience and expertise with regular people to help them become rich. In this book, I’m aiming even higher than that: I’m teaching you how to make money and use it to ensure enduring prosperity and permanent financial security over the course of your entire life. The disciplines and the knowledge you need to build a firm foundation for your wealth and maintain it for the rest of your life are not the same as the ones you would need to make yourself rich by investing in stocks, the subject of my previous two books. If you’re looking for long-term financial security, I would hope you’d set your sights higher. For long-term extravagant wealth, you need to know how to take advantage of tax-favored vehicles like 401(k) plans and IRAs; you need to know when you should buy bonds rather than stocks, not to mention the kinds of bonds you should choose; you need to know how to save for college; how to guarantee you have a smooth retirement; how to save; how to borrow; when you should buy a house; when you should be taking risks; when you should be avoiding risks; what you must teach your children about money; which mutual funds you should put your money in; and which stocks will look good for the long haul, the next twenty-five years. These are the subjects people beg me to address, and I am ready and willing to do so. I have the answers for all of the financial questions you, your parents, and your kids have about getting rich and staying rich. Don’t be intimidated—I’ll explain everything in layman’s terms, not in the Wall Street gibberish the professionals use to scare you into relying on them instead of using your own judgment.

  But what about my judgment? You want to know where my advice comes from, and I don’t blame you. Most of what I know about making money I learned in my years on Wall Street, first as a broker at Goldman Sachs, advising the wealthiest of the wealthy about all these lifetime issues, and then as the manager of my own hedge fund, Cramer, Berkowitz & Company. I’ve had a long love affair with stocks, but stocks are only one of many tools, albeit the most important one, that we’re going to use to create lasting prosperity for you and your family. I know better than most people the difference between having money and not having it, or having it and having a whole lot of it. I’m a self-made multimillionaire, and I’m going to share with you the lifelong disciplines that made me rich and have kept me that way.

  As I said, I made my own money. I’ve also been poor. In fact, I wasn’t just poor; I was homeless and destitute. In 1978 I spent six months living
in the backseat of my Ford Fairmont while I worked as a homicide reporter for the Los Angeles Herald Examiner, unable to afford even rent money. By 1979 I had moved up in the world: I was living in the most spacious corner of my big sister’s studio apartment in New York City. I was the last person in the world anyone was ever going to ask for financial advice, but even then I was diligent and self-disciplined about money. I may have skimped on the auto insurance and skipped on the rent, but I still put $50 a month into the best mutual fund I could find, Fidelity’s Magellan Fund. I have always been fascinated with mutual funds and managers, and I am going to tell you all about which ones you need and which ones you should avoid. I know what it’s like to need money and not have it, and ever since those early days I have lived in desperate fear of poverty. Living out of my car with barely enough money to get by convinced me that I had to become rich, that no amount of money was too much, and that I would have to do it with more than just my meager paycheck. I would have to parlay that paycheck into something much bigger, using whatever financial resources I could get my hands on. I spent twenty years single-mindedly pursuing greater and greater sums of money until well past the point where more money made a bit of difference. I know it’s possible for anyone to get rich and stay rich because I did it myself and I’m no different from any of you.

  Like most things in life, getting rich and staying that way take a lot of hard work, a lot of knowledge, and a little bit of good advice. There are many ways to get your hands on a whole lot of money, though few of them can be called easy. You can invest in the right stocks, get a high-paying job, start your own business, or inherit the money, to name just a few. But there’s only one way to make sure your newfound wealth leads to long-term prosperity: you have to use your money to make more money, and you need to do it the right way. It’s hard work, and it takes diligence, but in this book I’ve already done a lot of the work for you. No, I don’t have six easy steps to financial security, nor do I have three magic habits that will make you a millionaire, and I can’t tell you the financial secrets of the superrich because as far as I know, they’re just as feckless with money as ordinary people. People who promise that they can make you truckloads of cash and help you keep it as long as you follow their simple five-point program aren’t telling you the whole story. Easy steps turn out to be not so easy, and advice that seemed great in theory turns out to be next to useless in practice. I suspect that many of these people have never made a dime except in book sales! I read a ton of these personal finance guides because every time someone writes a new one, which seems like every five minutes, the publisher comes to me to pen the introduction and give it my seal of approval. Many of these books are well-written, some of them by terrific people, but they generally don’t tell you what you need to know. I swear, more books have been written about creating and keeping wealth than any one person could read in a lifetime, but I have yet to find a single one that actually tells you, in detail, what you must do during every stage of your life to develop enduring wealth and ensure that you never have to worry about your money again. So I decided to fix that problem by writing this one.