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.