For those interested in speculation, Jim offered more tips on where and how to find the best opportunities during his show. Having already covered some of the main points on a prior show, he said he wanted viewers to “speculate like you mean it.” Among the many emails he receives, Jim said a significant number of them are from investors with questions about penny stocks, companies with no earnings or issues trading on the Pink Sheets, a loosely regulated trading system that handles mainly small firms. Avoid those, along with the names traded by way of the over-the-counter Bulletin Board, he said. “There’s a sweet spot in the speculation business the $2 to $10 spot,” he said. “This is where you’ll make all the money.” Should there be a stock that interests an investor but trades above $10, “you might want to consider using options to speculate.” As for the names under $2, “the company is probably managed by incompetents,” he said. “Don’t waste your time with anything under $2.” He cautioned that many stocks on which one speculates will become worthless, but they should be balanced out by the picks that more than make up for the weak performers. As on the previous show, Jim emphasized that speculation must be done only with discretionary money that is, money that won’t be missed if it’s lost and never money in a retirement account. One caller to the show asked what opportunities might exist in foreign-exchange speculation. “Have you ever seen a sheep before and after? Before and after they fleece it? That’s what happens when you speculate in currencies,” warned Jim. Speculative stocks grow very quickly, but they can die very quickly as well, meaning investors must keep an eye on what he called the life cycle of the company.
One example he offered was Taser International (TASR), where “you could have made a fortune speculating” if the trades had been timed correctly. The time to be in Taser was before the company started getting contracts for its products. After that, more investors started following the news, buying the stock and driving up the price, he explained. In order to spot a stock worth taking a chance on, investors should speculate only on the companies with solid fundamentals, he said. The essentials for a good speculative opportunity are a sound balance sheet, a good product and a small float. A small float is important because that means the stock is subject to potentially big moves if only one large institutional investor starts buying. And as for knowing when to get out, the key is to watch the volume. When the volume is spiking, cash out, he urged. Crucially, he pointed out that bad speculators are prone to certain bad habits. Among them are selling too soon, holding a position that keeps going down, believing the hype, buying the worst company in a good sector and speculating on takeovers.

Editor’s note: The following is a recap of a show that originally aired on April 14 and was rebroadcast on May 22 and today.. CHECK IT OUT HERE! ENJOY!

Today was a rebroadcast of a show that originally aired on August 25. You can read it HERE. Enjoy!

Tuesday was a rebroadcast of a previous show that taught us about trading.
Investor, Know Thyself.
Investing isn’t a game, make plans and stick to them to be successful, said Jim. Understanding what you are buying and why you are buying it is key, without this understanding you will lose money, he said. Further don’t lie to yourself when you’re wrong. That only compounds the problem. When you’re wrong recognize it quickly. Don’t let hope creep in or give yourself the benefit of the doubt. If you’re wrong, sell the stock and find something new. “Hope has no place,” said Jim. “If you can’t be honest with yourself, you can’t make a dime.” He recommends only buying stocks you have the time and the inclination to research and follow. “Buy and homework,” was the advice. For a diversified portfolio, five stocks and maximum of 10. A rule for diversification also includes having no more than 20% of your portfolio in a particular sector. That means if you have five stocks, you should own, for example, no more than one tech stock, one oil stock, one health care stock, one defense stock, etc. Managing his portfolio involves trading around investment positions. He likes to sell some of an investment if it goes up too much and buy it back lower, always keeping a core position in the stock. When dealing in pure trades if he has a clear entrance strategy, a clear exit strategy, a defined time frame and catalysts to propel the stock. How should one decide when to sell? His mantra: Bulls make money, bears make money, pigs get slaughtered. If a stock has a good gain, take some off the table so that you’re playing with the house’s money, and let the rest run.

Ground Those Airlines
Jim uses rubric and rigor to decide which companies are good and which are bad. Step one is investing in companies that make money and don not have much debt. Debt is often overlooked, he said, but you have to pay attention to it to accurately value a stock. You don’t want your stock becoming collateral for the company’s debt. “Debt matters,” Jim proclaims. “Lots of debt can strangle a healthy business.” If the company goes bankrupt, the shareholders usually wind up with nothing. People who own the debt, “get first dibs to cannibalize the company,” he said.
But, all debt isn’t necessarily bad, he said, but you need to be careful with it. For example, retailers often take on debt in the fourth quarter to buy merchandise for the holiday season. Jim feels this is acceptable as long as the sales turn out well. Cable companies might need to take on debt to finance building their networks. This is understandable according to Jim. Airlines take on debt to buy expensive planes. That too is understandable, he said, adding, however, that he would never recommend investing in an airline. He said it is only wise to invest in companies emerging from bankruptcy if you’ve read the bankruptcy trustee’s report to find out if the common stock is worth anything. Jim has rarely done well investing in such a situation, however.

Heed the Conference Call
Homework is more than looking at debt, you should budget an hour per week per stock to do homework. By homework, he recommends reading the company’s SEC filings, available at www.sec.gov. Pay special attention to the quarterly and annual reports, he said. Also recommended is reading analysts’ reports. Most are also available via the Internet. Although sometimes you have to pay for the reports, most of the time, it’s worth it. Finally, the “holy grail” of homework is the quarterly earnings conference call held in conjunction with the company’s release of its quarterly earnings report. Conference calls can be listened to via the Web, and transcripts are often available after the call. Regulation FD has gone a long way toward leveling the playing field for individual investors. Whereas the best information used to only be available to the wealthiest and the most well-connected investors, Regulation FD dictates that all investors should have equal and simultaneous access to information. Thus, it’s possible, if you have the time and the inclination, said Jim, to do work that is equal to or better than that of Wall Street analysts. However, if you don’t have the time and inclination, you should have a professional do that work for you.

Tons of Metrics
In order to tell how a company is doing, you need to know how fast a company is growing, which is measured by revenue growth (sometimes called sales growth), and how profitable a company is, which is measured by earnings. For a young company, revenue growth should be rapid, he said. An older company should have healthy profits, some of which can be turned into dividends. A really mature company should maximize cash flow and return that cash in some way to shareholders. Also pay attention to gross margin, which is a measure of how much of a company’s sales are available to be turned into earnings. Things that give clues about gross margin are how much competition a company has, how expensive the company’s products are to make and the cost of doing business in general. Companies that have little competition will have a higher gross margin. Companies experiencing an increase in demand for their products should see gross margin going up. Companies whose costs for raw material are going up should see gross margin go down. Know which industry-specific metric is important to be able to judge a company, he said. For a cable company, the key metric is enterprise value (market cap plus debt) divided by the number of subscribers. For a hotel, the key metric is average revenue per room. For airlines, it’s average revenue per seat. For retailers and restaurants, the key metric is same-store sales. For tech stocks, it’s gross margin per product sold. For financial stocks, it’s net interest margin, i.e., how much money was made on each dollar the financial institution had in assets. Once you know the key metric, compare it with the company’s peers. The retailer with the best same-store sales, for example, is the one you want to own, said Jim. Similarly, you want to own the tech stock with the best gross margin, he said. As for leading economic indicators, Jim said the conventional wisdom is to pay attention to GDP, retail sales and employment growth. However, he likes to pay attention to companies on the front lines of the economy. If those companies are saying that inventories are up and gross margin is down, for example, Jim would expect a slowdown in the economy even though the more conventional, leading economic indicators might not yet be signaling one.

Jim is still on vacation. Here is the show which was a repeat from August 11, 2006.

In Tuesday’s special radio show dedicated to answering his listeners’ questions, Jim said by first looking at the question-and-answer section in the transcript he can tell the difference between a genuine conference call and one in which management is snowing him.Taking the Sprint Nextel Corp (S) quarterly conference call as an example, Jim said that if people read the body of the call’s transcript, they would believe the company is doing great. But then the Q&A started, and it was a nightmare, he said. The second thing he looks for is the guidance, he said. Little to no guidance makes him skeptical, while a lot of guidance is a good thing and provides visibility, he said. Jim said he also looks for management confidence and company buybacks, including the price the company paid for the buyback. Another thing to look for is if the buyback has retriggered the company’s earnings. Energizer (ENR) has systematically bought back stock and managed to raise its bar, Jim said. “That shows false growth, so be careful,” he warned. “I also like to hear about what pace of acceleration or deceleration the revenues are at,” he said. “Accelerated growth is fantastic.” Answering his next question, Jim said the changes in technology have not changed the market significantly, other than allowing people to buy and sell much more cheaply and read a lot more about companies. When a mailer asked what the most satisfying part of market is, he said the market is not a game of culture or helping people, but of making money. “It’s not satisfying when you lose a lot, and it is when you make a lot,” he said. “It’s a bad day when you lose money and a good day when you make some.”

IPO Odyssey

Initial public offerings can be good or bad, Jim told a caller. The best IPOs tend to be companies that are early on in a new business cycle, he said, adding that the dogs come in by the time every one has come public. Jim said he was intrigued when MasterCard Incorporated (MA) became public. Nobody thought much of this company, but it has become a big winner, he said. “I look for out-of-the-way stuff that could work,” he said. “When I look at an IPO, I don’t necessarily want the hottest one.” When he was a hedge fund manger, he said he liked the ones that went up over time, like iRobot Corporation (IRBT). Jim said he tends to like a company when it “gingerly” becomes public, adding that a lot of banks are like this. In addition to banks, he looks for good IPOs in the aerospace sector, but two places he said he doesn’t like are the biotech or tech areas.

Middleman March

Jim said investment banks are a key part of corporate acquisitions.”A company wants to grow when it feels its current growth is tapped,” he said. For this reason, companies go to investment banks, he said. A Procter & Gamble (PG) does not reach out to Gillette on its own. It’s all done by bankers the middlemen, he said. When an emailer asked about foreign markets, Jim said he has historically not liked the Chinese IPO market because he feels as if he’s being taken advantage of, since there is no serious Securities and Exchange Commission there. In addition, he feels the Chinese market is an insider’s game. The Indian market, however, is very much like the U.S., he said, adding that he would own any of the Indian consulting companies or Tata Motors Ltd (TTM) India’s big car company, he said. He doesn’t even care which consulting company people buy, he said. “That’s how bullish I am about them,” he said. Jim said he also recommends Bangalore-based Wipro (NYSE:WIT), which is a little speculative. People should go to India to diversify themselves overseas, he said. For Latin America exposure, Jim advised looking at America Movil SA de CV (AMX), Bancolombia SA (CIB) and Homex Development (NYSE:HXM). Jim also suggested The Colgate Palmolive Company (CL), an American company that has a lot of Latin America exposure. Responding to a high-schooler who wrote in asking about how one prepares for a job on Wall Street, Jim emphasized the necessity of reading the paper, and particularly the business section. Jim said that whenever he comes across an interviewee who wants to work for him and it becomes evident that that person doesn’t read the paper, he doesn’t consider that applicant any further. The second piece of advice Jim gave was to “be armed with two or three stocks you believe in.” “Don’t be a wallflower when trying to get a job,” he said “It won’t work.” Also, show that you are a hustler and are willing to do things people are not willing to, he said. “Never be afraid to do something that you regard beneath your station,” he said. “There has to be some swallowing of pride.”

Tonight was a repeat of a repeat, originally aired January 31, 2006. Once again aired on April 24, 2006. Reread this special show and see you tomorrow.

As part of a special “Frequently Asked Questions” edition of his radio show Monday, Jim offered a different kind of show, where he said he wanted to “loosen the tie, sit at the corner table and take your questions.” After 25 years in the market, Jim said he has seen a lot that has gone on and has pretty much held every job there is. “There are some questions people ask me regularly,” he said. For one, people like to ask him about the most he has ever lost. Jim said he lost close to $300 million in 2000. However, that same year he made $450 million. He lost $15 million in one day with Cendant Corp (CD) while he was on vacation. It was a miserable experience, he said. Another question people like to ask is whether or not college courses in business and finance are worth taking. Most professors have not made a dime, and they believe stocks are priced perfectly, which is not true, Jim said. Many times, stock prices diverge from their fundamentals, but that’s when the money’s made, he said. When a stock is down, but the company’s fundamentals are good, people are likely to make money. In response to the question “What does ‘Booyah’ mean?” Jim said the word stems from a listener who made a lot of money in KMart. Another frequently asked question: “What are the factors that most affect the price of a stock?” Jim said that 50% of a stock’s move is due to its sector, while the other 50% is based on the individual workings of a company. A company’s sector matters so significantly because it is generally influenced by larger forces like the Fed. When the Fed tightens rates, some sectors do better, and some don’t, he said.

Working Wall Street

Looking back at his years of experience in the market, Jim said he first got into this business by managing his own account, and then he moved on to managing other people’s money. He worked at Goldman Sachs Group Inc (GS), and now he handles his charitable trust. The best job on Wall Street is the job of being a full-time trader, he said. The trader is the guy that makes the meeting of the minds occur. He is the one that brings the seller and the buyer together and negotiates the price. The second-best job is that of a broker, he said. This is the person who finds the client that wants to do the stock trade. As a broker, Jim said he got his clients by taking them out to shows and dinner every night.. The reasons Jim believes this is the best job on Wall Street is because: a) you’re paid a fortune and b) you get in at 8:30 a.m. and are out by 4 p.m. “When I was a trader I entertained four times a week and it made me a lot of money,” he said. Another job one can have on Wall Street is that of an analyst. They would try to find companies that are private and try to convince them to become public. But it was corrupt, and New York State Attorney General Eliot Spitzer found out, Jim said. Now analysts have to actually be good at what they do, since only a few survive, and some of them have gone over to the buy side, which are the hedge funds, he said. A terrible job that used to be great is that of a floor trader. Floor traders used to be able to clip you and take a little extra money from your pocket, but because of wiretaps and cameras and other ways of checking this behavior, this job is no good, he said. “When everybody else is having a great family life, you are working,” he said. “You’re sitting in that linoleum cafeteria and trying to drink a little scotch in between making deals on the weekends.” But at the same time, you make $10 million if you’re bad, and $20 million if you’re good at your job, he said. In the end, all jobs have upsides and downsides, he said. Now that you have the menu, maybe you’ll decide to stay away from all these jobs, or maybe you’ll make a move to Wall Street, where there is big money. Either way, Jim said, he couldn’t blame you. Another area to work is in mergers and acquisitions. These people are slaves to their work, Jim said.

CEO Size-Up

Another question Jim gets asked a lot is what CEOs are like, and what makes them good.
“A CEO is like a politician,” he said. “He has to be able to talk the talk and make you believe in the company.” A CEO is 50% operator and 50% promoter, because if they can’t sell the company, what good are they? he asked. At the same time, they need to act as an operator, too, and know what’s going on in the company otherwise it “might mess up.” An example of a bad operator is 3M Company (NYSE:MMM) CEO George Buckley, he said, adding that James McNerney, the company’s former CEO and current CEO of The Boeing Company (NYSE:BA), is an example of a good operator. CEOs should be gregarious and tireless, and give up their personal life while they hold the position. While some people might call this heartless, it’s just business, Jim said. “In business there’s no touchy-feely,” he said. “If you’re not going to put in the time and make the company great, then give it to someone else.” In response to another frequently asked question, “Can the market ever crash like it did in 1929?” Jim said that while it is unfortunate, it could happen. We could also have a multiday decline. It crashed in 1987. However, it is unlikely, he said. The characteristic of a bad stock is when it gets good news it barely goes up, and when it gets bad news it gets hammered, Jim said. A bad stock is one that goes nowhere when everything in the market is going up, and when everything is going down, it plummets. A bad stock has no buyback in place, so when everyone comes to sell it, it gets annihilated, he said. In this case, you must sell a little, Jim advised. In response to another question, Jim said the most he has made in one day is $18 million. He said it hurt his family life, because the day it happened he was supposed to go on vacation with his family to Mexico, but then he decided at the last minute not to go. It was in April 2000, when the market had declined for two straight weeks. In terms of life, it was a mistake, but in terms of business, Jim said he ended up making a lot of money. “I missed the vacation, but I do know that sometimes you have to be there and get it right, and that time I nailed it,” he said.

Today Jim went though all of his bad picks in a day of atonement, this is a recap of a show that was first broadcast on Oct. 13, 2005. This show was just a recap of his bad picks going back, thank you for reading and see all you soon.

As part of a special “Frequently Asked Questions” edition of his radio show Friday, Jim said his biggest market mistake has been believing he’s “hot and nothing can go wrong,” he said. “When I have gotten it right over the course of three or four weeks, I get cocky and feel invincible,” Jim said. But every time this happens, he “gets crushed and destroyed.” “I need you to recognize when you’re hot, you’re not,” Jim said. Otherwise, people will get hurt. Moving on to another frequent question, Jim said he doesn’t believe bonds have a place in people’s portfolios until they’re in their 50s. “Bonds don’t kick in” until people reach that age, he said. If people start with bonds initially, they will not have made any money. Bonds are places where you can lose money, too. That’s why Jim said he always suggests Treasuries, as they are “best-of-breed.” Otherwise, forget going into bonds as “they are too conservative,” he said. Jim said he avoids panic by doing advance homework on stocks he invests in. However, he said he has lost money with his charitable trust, since he has restrictions and is not able to get out of a stock right away when he has done the wrong homework.

Fed Talk
Jim reminded investors that they should focus on the Federal Reserve. Jim said people need to constantly think about interest rates, as they determine what stocks traders should be in. The Fed determines if the market is “slowing or roaring,” he said. “You need to focus on the Fed because it’s important.” When doing homework or research on a company Jim likes he starts at the back first. When he has a printout of the company’s conference call, for example, he’ll first go to the back, since that’s where the where the Q&A section is. He also likes to hear what the management has to say and if it believes in itself or not. In addition, it’s important to listen to what the company’s businesses are levered to or dependent on, and how they are doing vs. last year, Jim said. “Are they making more money with what they sell?” he asked. “This matters because it helps people predict what’s going to happen in the future.” Jim said the strategy of buy-and-hold is not the best way to make it in the market today. In the past, many companies were oligopolies, and they set the prices for products. But now things have changed and “businesses are fluid,” he said. When businesses get bad, we need to get out of them and sell, Cramer said. “Buy-and-hold does not include sell, and that’s wrong,” he said. “It’s a recipe to lose money.”

How To Play The Stock Market

Jim said people should never buy a stock just for the sake of being in the market because it will cause them to get hurt. In addition, buying all at once is another way to get hurt, he said. Buy stocks in stages and over time at better prices, Jim recommended. An important question he gets asked is how the media affects the stock market. “It is a very powerful influence for the short term, but not a very powerful influence for the long term,” unless the news being reported is correct, which it is often not, Jim said. Most people you listen to on the TV or in the media wish they weren’t covering business, so consequently, you get journalists who are not able to give the general public “the inside skinny,” he said. However, “nobody deliberately sets out to get it wrong,” Jim said. He said he relies on media outlets that move stocks. Jim said he reads The Wall Street Journal, Barron’s, and The Financial Times. In addition, he watches Bloomberg and CNN and reads trade papers.

MasterCard Incorporated (MA), The Boeing Company (BA), Consolidated Edison (ED), TXU Corp (TXU), The Hewlett-Packard Company (NYSE:HPQ), Rayonier Inc (RYN), The Weyerhaeuser Company (WY), Yahoo! Inc (YHOO), Corning Incorporated (GLW) and Southwestern Energy Company (SWN).

Bearish
Lucent Technologies Inc (LU), Sara Lee Corp (SLE), Caterpillar Inc (CAT) and Rediff.com India Limited (REDF).

In the “Sudden Death” round, Jim was bullish on Kraft Foods Inc (KFT) and Dynegy (NYSE:DYN).

He was bearish on Williams Companies (WMB), Juniper Networks (JNPR) and Comtech Group Inc. (NASDAQ:COGO).