Review: Stay Mad for Life

Cramer 4A lot of people like to make fun of Jim Cramer’s antics, but I actually quite like the guy. His stock picks are generally useless (because of the “Cramer effect” of a herd of people buying them), but if you ignore that, listen carefully to his discussion of fundamentals, and let yourself be entertained a bit, he’s quite worthwhile. In fact, I found his book Real Money to be a very interesting, readable, and fundamentally sound book on individual stock investing.

This brings us to Cramer’s latest book, Stay Mad for Life. This time around, Cramer’s actually addressing general personal finance issues (for the most part) instead of focusing strictly on individual stock investing as he has in his last two investing books. The end result is a personal finance book with a mix of long term and relatively short term perspectives, particularly as compared to other books. It also has a healthy dollop of the Cramer entertainment factor, for better or worse, and there is some coverage of individual stock investing, too.

Is the advice good, or at least thought provoking? Definitely. Does it measure up to many of the best personal finance books out there? Let’s leap in and find out.

A Trip Through Stay Mad for Life

Right off the bat, in the introduction, Cramer frames this book with this interesting comment: “Too many books about money go wrong because they try to offer timeless advice. There’s no such thing as great timeless advice.” Some are going to immediately say he’s wrong, and he is to a certain degree. It is always a good idea to spend less money than you earn, for example, and it’s always a good idea to avoid high interest debt.

The catch here is that Cramer’s using a different definition of personal finance. To him (at least, as best as I can judge by this book), personal finance refers to the way that you allocate your money. You might put some in your 401(k), put some in your Roth IRA, put some in your checking account, perhaps put a little in your taxable investments, and so on. He basically assumes that the “spend less than you earn” mantra is completely common sense, and the idea that you should put money away for your future is just assumed. Thus, Cramer’s definition of personal finance is what you do next. For the most part, that’s the perspective that the entire book takes, particularly once you get past the second chapter.

Chapter 1: Getting Started
The entire first chapter of this book can be summed up in one word. Save. That’s right, Cramer’s most fundamental principle of all is the right one: spend less than you earn. Put some of your hard-earned money away so that you can live out your dreams in the future.

Sure, some wiseacre will probably show up and start mumbling about “leverage” and stuff like that, but “leverage” doesn’t mean that much if a giant tidal wave of personal destruction shows up at your house, leaving you jobless and with $150,000 in borrowed money sitting in an investment account that has just coughed up 20% in the last month.

Cramer’s pretty clear in this chapter, and I agree, so I’ll state it again: the only real way to get ahead is to spend less than you earn and do something intelligent with the cash left over.

Chapter 2: How to Stop Yourself from Becoming Poor
Cramer offers six basic steps for sound personal finance management:

Step 1: Learn from the past. Basically, this means to keep track of your spending for a period of time. Note everything that you spend for at least a month, if not three months.

Step 2: Judge the past. Take all that data and spend some time studying it. Look for things that you’re obviously spending too much on, and consider ways to reduce that load. The biggest one to look for are repetitive things and high-dollar things.

Step 3: Create your short term budget. This is basically short-term goal setting. Set some personal finance targets for reducing your spending and putting some money away into savings for the next month, next quarter, and/or next year.

Step 4: Create your long term budget. After that, identify and begin planning for any major personal finance moves that are coming in the next ten years or so. Plan ahead for that next car purchase, for that mortgage, and so on, because by planning now, you’ll save yourself some financial pain later.

Step 5: Hold yourself accountable every month. Each month, sit down and do an honest look at the numbers. Don’t flinch, and don’t skip it – without this honest look, it’s very easy to convince yourself you’re doing well.

Step 6: If you fail, take drastic measures. Basically, this means automate it if you’re not getting it done yourself. I see what Cramer’s getting at here – it’s far better to exercise your own willpower than to rely on automation – but I think automatic deductions from your checking account can be really useful.

Chapter 3: Planning for Retirement
This is one of the best summaries of retirement accounts I’ve ever read – this is probably the best chapter in the entire book. In fact, Cramer’s argument is so persuasive and well thought out that I’m going to seriously look at a minor change in how I put away money for retirement.

The usual advice for people investing for retirement is to put money in their 401(k) up to the employer match, fully fund a Roth IRA, then max out your 401(k) if you can afford it. Cramer advises a bit differently: put into your 401(k) up to the match, then max out an IRA (using a Roth IRA for some of this if you’re eligible), then invest in a taxable account. Why? The investment options on the average 401(k) are terrible – you’re far better off putting your cash into an IRA managed by Vanguard or Fidelity where they have some very efficient and strong investment options. This makes a lot of sense – I’ve fully funded a Roth IRA with Vanguard this year and am dumping as much as I can into my 401(k) plan, but I’m now thinking about just doing up to the employer match and then moving the rest of my contribution into a taxable account with Vanguard.

Another tip: if you leave your job and have a traditional 401(k), take advantage of the rollover and roll it into an IRA that you can control and that has strong investment options.

Chapter 4: Investing for a Lifetime – and What You’re Investing In
What about investing outside of a retirement account? There’s a lot of appeal to this, because you can invest for non-retirement goals as well; in fact, I’m doing this very thing. Unfortunately, this chapter really doesn’t offer anything new that isn’t found in other investment books.

Cramer offers a few basic guidelines for this type of investing, including some very simple stock vs. bond allocations, and he provides a lot of background material on different investment options. Generally, Cramer encourages people to invest in bonds via an index fund and to invest in individual stocks if you have the time and tolerance – otherwise, you should focus on stock index funds.

Chapter 5: Family Finances
This chapter is basically three short chapters rolled up into one: handling money and children, saving for college, and buying a home.

On children and money If you want to teach children about money, don’t just get them a passbook for a savings account at the local bank – it’s boring, and they won’t learn anything. Instead, try to involve them in what you do for finances and get them excited in getting ahead financially. This is much the same advice found in the excellent The First National Bank of Dad.

On saving for college Start putting money in a 529 and/or a Coverdell – and do it now. I actually started my daughter’s 529 before she was born, and my son has more put away for college right now (he’s just over two years old) than either of his parents had the day that they went off to college. Do it now – you won’t regret it.

On buying a house Save up for a down payment first and do not get a subprime mortgage unless you like watching money burn. If you need to live in cheap housing for a while until you can afford it, do it – don’t jump the gun and waste mountains of cash for the rest of your life.

Chapter 6: Twenty New Rules for Investing
At this point, the book somewhat takes a turn to being more like an update on Cramer’s earlier books. This chapter is mostly a list of the lessons Cramer has learned about investing since quitting his hedge fund and instead investing like an “ordinary investor” in his charitable trust. It’s interesting reading if you’re heavily into individual stock investing, but it feels like an abrupt change from the rest of the book.

The most interesting nugget for me from this chapter is that he repeatedly says in various ways that you don’t need to invest in anything: you don’t have to buy a certain stock to fill a hole in your portfolio, you don’t have to invest in what your friends are suggesting, and you certainly don’t have to follow the up and down vagaries of the day to day market. In other words, groupthink is pretty atrocious, and I think anyone who is involved with investing can agree with that.

Chapter 7: What the Pros Do Right and the Amateurs Do Wrong
This was an excellent chapter for anyone who is beginning to invest in individual stocks to read. What it boils down to is that amateur investors often don’t have discipline, even when they convince themselves that they do.

What does that really mean? It basically means that short term market timing doesn’t work, that investing if you aren’t already in good financial shape is stupid, and that investing in businesses you know nothing about is stupid. If you think of stock investing purely as a fun game, you will lose, because for countless people out there, stock investing is a business.

Chapter 8: Five Bull Markets and Twenty Stocks for the Long Term
It wouldn’t be a Cramer investment book without some specific individual stock picks and this one is no different. Of course, this time Cramer is definitely focusing on the long term – he suggests these picks to buy and just sit on over a long period.

The one pick I found very interesting is Sears Holdings (SHLD), a company that’s unquestionably going through some seriously hard times right now. Cramer’s faith in the company is mostly due to the person steering the ship, who Cramer professes a great deal of personal respect for.

Chapter 9: My Guide to Mutual Funds
Cramer closes the book by returning to advice more useful to a broader personal finance audience after his sojourn into individual stock picking. Here, Cramer looks specifically at mutual funds, and for the most part, he says they’re junk for the most part and that you should invest in an index fund if you’re going to go that route. I think it’s telling that someone with such an aggressive perspective feels as strongly about index funds as conservative investors do.

He does go on to pick a small handful of actively-managed mutual funds for people who insist on investing in them, but it’s pretty obvious that Cramer’s pretty strongly in the index fund camp.

Buy or Don’t Buy?

This book offers an interesting perspective on personal finance, one that’s not often seen in other books. Cramer’s perspective is that of a risk-taking investor – once he’s sure his most fundamental matters are covered, he’s quite willing to take rather large risks with his money, and he lives very much in the moment. It’s because of this philosophy (and Cramer’s personal bombast) that his show is so popular and he’s gained so much mainstream recognition.

Admittedly, Cramer’s persona is not for everyone. He’s loud, fairly abrasive, and bombastic. If you tune into his show and within one minute are quite ready to turn the channel, you probably won’t like this book, even if there’s some interesting information inside.

On the other hand, if you’re okay with Cramer himself, this book does offer some insight into personal finance management, particularly in the investment mechanisms and goals of the average investor. Cramer is a big advocate of individual stock investing (something I’m pretty wary of, being rather conservative in how I invest my money), and some of the specific advice is definitely “in the moment,” but the perspectives are interesting and sensible and Cramer’s writing style is as entertaining as always.

Is there something to learn from this book? Undoubtedly. I’d recommend everyone who can stomach Cramer’s persona read it. Should you follow it blindly? Of course not, but you should never follow any book blindly. Think with your own mind and combine this book’s teachings with others on personal finance, like Your Money or Your Life and The Boglehead’s Guide to Investing and The Total Money Makeover, and figure out which pieces ring true to you.