Updated on 12.14.07

Review: Stay Mad for Life

Trent Hamm

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.

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  1. Nick says:

    I read this book as well. He offers some great info and really breaks things down into terms we all can understand. He also covers a large area of the different kinds of people who invest. He talks about people in college all the way up to when your 80 or 90. I recommend this book.

  2. Eden says:

    Interesting. I didn’t know he had another book coming out. I really enjoyed his first two (I think first two)- Confessions of a Street Addict and Real Money.

    Cramer is actually quite brilliant and rather risk averse in my opinion. If someone only saw him during the ‘lightning round’ it would be easy to assume otherwise. However, the time he spends on his show to educate people is when his knowledge comes through and I know a lot of that was evident in his other books as well. I’ll have to take a look at this one some day.

  3. I kind of like the guy as well… perhaps I’ll pick this up for a weekend read. Thanks for breaking it down, MC Trent.

  4. aly says:

    Thanks for the review!

    Am I missing something, though? How can you just “put everything else you’re going to invest into an IRA”. Regular IRAs have the same contribution limits as Roth IRAs (5000/yr for 2008). I don’t understand how his advice is any different than what you’re doing now. If you were going to invest more than 5000 then you’d either have to go back to your 401k or invest in a taxable account.

  5. Marjorie says:

    Dear Trent,

    Greetings! I’m not much for abrasive people in real life, but I find Cramer entertaining, at the least. I saw him on The Colbert Report once (I think) which was a great place for him to showcase his personality.

    I was wondering if you’ve ever reviewed Suze Orman’s books “Women and Money” or “Young, Fabulous and Broke?” Or perhaps Jean Chatzky’s “Make Money, Not Excuses?” I read all three, and while I didn’t find anything new in “Women and Money,” I liked the other two.

    Great post!


  6. It’s refreshing to hear that such a popular TV personality has some common-sense substance to him beyond the boo-yas and crazy camera work from his show.

    It’s good that people watch him and get interested in investing. Although it sounds like they would be much better off reading his book than watching his show to get ahead financially.

    Too bad most people won’t.

  7. I enjoy the financial and investment advice he pours out during his show but the camera shaking and angle changes can be quite distracting. The sound effects are mildly amusing :)

  8. Sarah says:

    Whether you like his personal style or not is a matter of taste, I suppose, but why you would like a guy who has admitted to manipulating the market is beyond me.

  9. BigRed says:

    much better to listen to on the radio–he used to be on from 1-2 on our local dial, and if I was running errands or heading to/from work/lunch, it was an amusing hour of wackiness, with some nuggets of good advice mixed in with a lot of yelling and boo-ya and such. I can’t imagine watching the man, though–yikes!

    I take that back–I did catch a video clip of Cramer having a total apocalyptic meltdown over the subprime mortgage issues, as a guest on someone else’s financial segment (MSNBC, maybe), and he got “het up”, as we say down South. Yowza!

  10. Ryan says:

    I’m glad this book did offer some solid advice. There are lots of reasons to dislike the guy including http://www.fundadvice.com/articles/psychological-hurdles/paul-merriman-ten-reasons-to-ignore-jim-cramer-s-advice.html
    Paul Merriman’s a little harsh, but his site has some excellent info.

  11. atlas says:

    The investment options on the average 401(k) are terrible

    I assume he means they’re terrible because 401k’s are usually limited to high-fee mutual funds? Did he say to do 401k->max roth IRA->taxable account, OR, 401k->max roth IRA->traditional IRA with Vanguard/Fidelity/etc?

    Tax avoidance is critical in long-term investment accounts so I don’t see the huge benefit in saving for retirement in a retail taxable account, especially if one sticks to conservative investments without shorts or options, unless all tax-advantaged methods are max’ed out first.

  12. Trent Hamm Trent says:

    Ryan, that criticism is mostly about his “lightning round” segment, which is mostly purely entertainment – all he’s doing is giving very snap judgments on things that should have hours of homework before you invest.

    As for market manipulation, that’s what hedge fund managers are supposed to do. They’re supposed to hedge.

  13. “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”

    How interesting, I never thought about this before. I am reasonably happy with the selection for my 401(k), and I’ve always considered 401(k) higher priority than funding taxable accounts. Basically he’s saying 401(k) is useless except for the employer match. I wonder what he says about Roth 401(k)?

    Another thing to consider is that once you leave your employer you can rollover the 401(k) into more options. If you change employers every few years, I guess Cramer’s advice doesn’t apply.

    A question is, why are 401(k) options so generally “terrible”? Why don’t employers have good options in order to attract top employees? I have no idea how employers put together 401(k) plans and what the considerations are.

  14. Sarah says:

    “The investment options on the average 401(k) are terrible”

    Amen – I agree. That is also true for some 529 plans, which is why we are just earmarking some of our invested money for the children and not using a 529. (Another reason being that we are not planning to pay for all of their education, but would rather encourage them to be frugal, work and get scholarships).

  15. plonkee says:

    I’m going to guess that you want to read the details of your specific plan before you decide the 401(k)s always have poor investment choices.

    My equivalent (money purchase pension) has essentially the same funds that I would be investing in anyway – as in low cost funds that track the same indices.

    If your fund choices in your 401(k) are poor, then you should look to see if something else would be better. If they’re quite good – use that.

  16. John Aitek says:

    I hear a lot of people say that you should invest in index funds to avoid stock picking. But that begs the question: which index fund?

    By selecting index funds aren’t you fund picking?

  17. Peachy says:

    “Another thing to consider is that once you leave your employer you can rollover the 401(k) into more options. If you change employers every few years, I guess Cramer’s advice doesn’t apply.”-Frugal Bachelor

    I disagree. I’ve had several jobs and every time I leave, I put my money in an IRA account that I have with USAA. I can use the “new money” to buy whatever I want. I don’t regularly contribute to this IRA otherwise, so it gives me a chance to diversify and watch my retirement money grow.

  18. Larry P says:

    Please help me undersand. Chapter 3 in this book gives me a new way to look at my savings. However, i am confused. On the bottom of page 89 he states that “An IRA gives you the same tax savings as a 401(K)….” I went to the IRS website and looked at IRS publication 590 and it is not the case. I used an example of a single person making less then 90K. IRS says with an AGI of 63+ no deduction.

    What am i missing?

  19. option says:

    Thanks for the review… I found it useful. One thing I notice about all of the pros is that their number one focus is on correctly managing their money, and protecting themselves.
    One thing that I’ve noticed in the past is your distain for leverage. Leverage can be horrible in terms of credit cards, and in borrowed money and margin, and it’s certainly understandible why you would think that it carries additional risk, and often in real estate it does as well. In the stock market, trading on margin is probably the riskiest thing you could ever do… But there are some forms of leverage that do work.
    I believe you can use 1 form of leverage to protect your stock gains from a downturn.
    Leverage can be used in a conservative manner as a method for protection, but only if you take the time to learn about what you are doing. Leverage can be used in stocks through options, not in a way to expose yourself to more risk, but to protect your gains. If you buy a 100 shares of a stock at $100 that you believe to be worth $150 and in only 2 months it climbs to $125, you know it still has upside, but you aren’t willing to take the risk, and you realize that any stock could have some dramatic accounting fraud or event that makes them go to $0, So you can sell all of your shares, or you can hold on, and hope you’re not being too greedy, sure it’s worth $125, but you just got a 20% gain in 2 months, and you know stocks that go up quickly, often go down even more.
    But there’s one way to still use common sense to hold on to an undervalued stock, AND protect your profits from a sharp sell off.
    So in this situation you’ll have $2500 in profits, but you can actually buy 1 option contract for 100 shares at a price much less than that $2500, rather than having $12500 exposed. In that way, you can play with the house’s money, without losing exposure. You are taking in more risk in terms of volitility, and it loses time value, but I believe it’s a better solution than holding, as although it has great upside, it’s more important to conquer greed, and sell. But it still has a 25% upside, and probably less downside, so selling as long as you still protect that money by keeping it in cash or money market until you sell that option, is often a better solution. If you buy an at the money or slightly out of the money option, you’ll still be taking a significant amount of profits, and as long as you have the disapline and ability to properly manage money and sell that option a month before it expires or sooner, before the time value decay accelerates, and if it gets below a certain amount.

    It requires a lot of knowledge to trade options in a conservative way, and most people have no idea how much risk they’re really taking, and it’s easy to get caught in the trap of exceeding risk for the attractive huge rewards that aggressively trading options provide, but when used as a secondary protection method, and to protect the downside through options spreads and to use as hedges, options can be a very conservative, and more profitable solution. But like anything else, the less knowledge you have, and the less structured your system, the more risk there is.

    Let’s face it, you don’t want to owe a lot of money, such form of leverage puts MORE money on the table, not less…
    Such a concept would be more like “doubling down” on your bets at a roulette table until you win, and represents MORE risk, not LESS.
    But you DO want to “play with the house’s money” after a gain to protect yourself.
    AND you DO want leverage in the form of money that you won’t ever have to pay back. Maybe you do some JV brokering, you find a business with a huge list of subscribers but no product, and you find someone with a list of products on the same or similar topic but no list. Then you let a bunch of people know you’re looking for people with a list that need a product, and people with a product but no list, and to send them to you. You have that leverage cost absolutely nothing, except the one time cost of your time setting it all up, and you have an infinite return on your $0 risk.
    You can do that for real estate as well, or you can find an investment club and find the deals and present them and find someone who’s looking for a deal and willing to finance and give up a portion of his profits if someone can find him the property he’s looking for… THAT kind of leverage contains much LESS risk, not more.

    Then comes forms of leverage that contain less risk, if used right. Such as buying a preorder for a hot item like the next playstation (PS4), hoping to either sell the actual playstation, or to sell the contract that guarantees you get it, as you predict it will be in demand. You might risk $100 to gain the rights to own a playstation, but thatis minimal compared to the risk of buying an entire PS4. This in essance is how options work… BUT if you manage your money with options the same as you would in terms of actually buying the underlying asset, only spending 5% on each deal, you can get in a lot of trouble and it can often times be MORE risky. But if you consider the amount of the underlying asset, and risk 5% of the underlying asset control that you gain, and not the option, you will find roughly the same returns, but lowered risks. You give up the ability to own that PS4 for all of eternity, but if you can define the maximum amount of time you are going to own it, and then throw in some extra time just for the heck of it, you might pay a little more for that time, but it’s still much less than the actual costs of the underlying asset.

  20. index says:

    Is there a good way to measure risk? I want to know if SSO is twice as risky as an S+Pindex fund. It gets twice the gain as the S+P index, but are the risk really twice as much as an S+P Index funds? Although declines are twice as great, they both stop at zero. If you buy the regular S+P index fund, your maximum loss is everything you invested, but with SSO, it’s the same in terms of maximum loss. The people issuing the fund might lose more than their costs since they’re leveraged, but you do not. However, your declines are twice as great.

    If 80% of all fund managers can’t beat the S+P, it’s pretty logical just to invest in the S+P index fund. But you can do over TWICE as good, by buying SSO, a leveraged index fund. You do not get the risks of having a margin call and paying more than you owe. You can never have your expenses go below the costs of your stock like you can in margin calls. It’s twice as volitile, but with a long term time perspective, is that different than twice as risky? The whole S+P isn’t going to crash. You might say, but the whole S+P could crash, and it could go to zero, but if it did, you’d still lose the same amount you would if you invested in the S+P index.
    Plus, even if the whole S+P declines 25%, thus making your loss TWICE as great in SSO… It also means that SSO is trading at TWICE the discount, and is TWICE as valuable, so if you planned on buying more at this point, wouldn’t buying more SSO at this point, not only be a better deal, but also be “cheaper”?
    You might need twice as much money available, or wait for twice the decline until you buy more, but is it really twice as risky, even though you get twice the return?

  21. Robert says:

    Larry, I believe that these deduction limits apply only to people who are also participating in their employer sponsored retirement plans. If you are not participating in an employer sponsored retirement plan, then these limits do not apply.

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