Mad Money Machine

MMM-056: Who You Callin’ Fool, Fool?

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Hot stocks this week: NEWC, TSCM. Hot funds this week: Amidex Cancer & Innovative Healthcare CNCRX. The expense ratio is only 4.7% with a front-end load of 5.5%.
PASMX Pacific Advisors Small Cap. Rated 4 stars at Morningstar. Expense ratio is 3.37% Front end loat is 5.75% to get into it. with a 2% redemption fee.
SAOAX: Security Alpha Opportunity. Has a waiver on some fees until the end of 2008. Get in now while the getting is good!
AACFX: AIM China. China is hot. Get some now. Expense ratio 2.05%, 12b-1 fee 0.25%, Management fee 0.94%, Initial load 5.5%. 30 day redemption fee 2% Morninstar cost projections for investing $10,000 in this fund? After 10 years, you will pay them the low low price of $4517.

Bogle, Bogle, Bogle: He was on Consuelo Mack WealthTrack, a couple of other podcasts, CNBC, and lots of other places I’m sure, promoting his new book. David Darst? says active managers can do well in small stocks, international, or emerging markets.

Casino Royale!

My shoulder is sore from playing Wii baseball. Any games you recommend for the Wii?

TV shows: Heroes, Prison Break, Lost, 24, American Idol.

Are the Fast Money guys beating their benchmark? What is their benchmark? Why don’t they put together a portfolio that they make trades in and show us their performance results?

Have you watched the ad for IFA on CNBC? Go to IFA.com and see it along the right hand side. What is that music genre called? I’d like to find some podsafe music like that. Call me 206-734-4763.

Index Funds Advisors are advisors that help get you into the Dimensional Fund Advisors funds which have a small and value not only in the US, but also internationally and in emerging markets.

I review the Portfolio Smackdown.

Phish43 calls in.

Fu_Fish is getting married. Congratulations! I hope you get a Better Life. Life intrudes when we’re trying to actively trade, doesn’t it?

I review Chapter 4 of Jim Cramer’s Mad Money: Watch TV, Get Rich entitled “How to Sell a Stock”.

Mad Money Ch 4: How to sell a stock
“You haven’t made a dime until you sell and take your profits to the bank.” Is Jim saying he wants you to put your money into the bank?
Why and How to sell:
Why: It’s either made or going to lose you money.(Taking profits or cutting losses) He doesn’t devote as much time on his show to selling… its is more subjective. (You do the homework) “Selling is a … decision.. you must make on your own”

How: People get caught up in the emotions of owning a stock. It should be fun. “We have fun because investing is interesting…” [HE should be using the word TRADING here] If a stock goes from $50 to $20 on deteriorating fundamentals, it is irrational not to sell. [value stocks have higher returns] If a stock goes form $50 to $80 sell most of it. [How about if a stock goes from $100 to $160? (same % as 50 to 80) Do you know of any stocks that have done that? Don’t you think you’d feel like an idiot for selling Google at $160? If you owned an index fund, you would have owned google from $100 all the way to $450 and you’d still own it.]

Taking Profits the Right Way: “Truth be told, this whole game requires flexibility and you shouldn’t adhere strictly to any tight rules about profit taking” [So basically he’s saying, nobody knows when to take a profit.] Then he gives six “guidelines” (Not rules!) that one should follow when trying to take profits. [what follows is as close to a horoscope for stock trading as one could get] 1) keep your stock position the same 2) set a target price 3) when target is reached, what do you do? 4) when you think it won’t go higher, sell it 5) if it goes up big, you’re being a pig… selling is an art 6) you should be eager to take profits. [no mention of evaluating the tax impact or the impact of commissions or what you’ll do with your money after you sell… you have to be right on that decision also] [Not only do you have to be right about when to sell the stock, you have to be right about what to do with the money. Compare performance to buy and hold.. If the market continues going up and you’re in cash… You Lose. If you buy a different stock that goes down while the market goes up, YOU LOSE BIG.

Cutting Your Losses: “Some of the stocks I pick are gonna be losers.” If I’m right just two-thirds of the time, then you can make a lot of money from listening to me” [Well as we’ve seen, he hasn’t been right two-thirds of the time but instead less than one half of the time.] More conditional statements, more talk about doing your homework, says to call him during the lightning round, talks about going to read his previous book.

[Who loves Cramer’s advice the most? The folks that get your money from making the trades… the stock market casinos.]

So how do we reconcile the fact that Jim Cramer said he manipulated the market, for example with RIMM, while at his hedge fund and that he is now telling us how to sell a stock? Do you remember the book that Jim’s said in his Real Money book was his favorite book on investing? Not Peter Lynch, not Warren Buffet…Picking Winners by Andy Beyer. And no, that’s not a book on picking stocks, it is a book about picking winners at the horse track. Does that give you any kind of background on where Jim is coming from on his so called investment advice to you?

I am not saying this as a rant, not saying this because it is fun to pick on celebrities. I am saying it because I truly believe that the suggestions are hazardous to your wealth. I know from personal experience… I tried following his advice and ended up lagging the market returns I could have gotten from investing instead of trading. And OH the tax headaches using TurboTax!

Here’s Chapter 4 of my book Paul Douglas Boyer’s Mad Money Machine: Play Video Games, Get Rich:

Don’t own individual stocks.
Sell when you need the money.
Go play video games.

The Suze Orman Moment: “Can I get my money back from my old employer’s 401K?” Yep. Read your ex-employer’s policy. Then roll that over into your own IRA.

Our Tool in the Toolcrib helps you with your asset allocation.

Get out your cell phone and type in 206-734-4763, add it to your contacts, make a call.

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Email me: feedback at Mad Money Machine dot com, or comment, or Call me on the Mad Money Machine voicemail line at 206-734-4763

Download the show directly MMM-056.mp3

Music from music.podshow.com

Alta Plaza – XRAY Dogs
Runaway Train – Under Feather
The Answer – Eric Vardeman
Voltage Clamp – Rubber Band Banjo
I Want a Better Life – The Shakes
Money – Theory in Motion