Mad Money Machine

Economics of the Debate

I had the unfortunate bad luck of watching the CNN/YouTube debate of the Republican presidential candidates last night. I thought it was a shockingly horribly run affair by CNN. I will hope to not waste my time watching these again. The Internet is a much better place to learn about the candidates.

Nonetheless, I took it upon myself to do a word count of each candidate from the CNN transcript. Here are the results:

How have my “Ten Best Cramer Picks” done?

If you’ve been reading closely, you’d notice that a couple of September’s ago I listed the “Ten Best Cramer Stocks to Buy Now” as a kind of a joke. You see, what I did then was choose ten Cramer picks that had already gone down the most from when he recommended them the previous March. The thinking was that if he still was recommending them (and he was) that they would be best poised for some upside potential. Good thinking, right? Here’s how it has turned out from 9/20/2006 thru 10/27/2007:

And for a comparison to the IFA IndexFolio 100’s Risk and Return for the same period, here’s a handy graph:

Oh, but hey, he got MATK right!

MMM Compact Calendar 2008

I’ve already had a request for the 2008 version of the Compact Calendar you can print from Excel.

If you don’t want to see December 2007 on the calendar, you can select rows 5 thru 9 and delete them. Let me be the first to say “Happy New Year.” Enjoy!

My Response to Cramer’s Response to Farrell’s Response

My antennae are not quite as alert to all things Cramer as they once were, so it has taken me some time to come across these two articles from MarketWatch where Paul B. Farrell wrote about how bad it was to watch Cramer’s Mad Money. And then Cramer responded and wrote about how badly Farrell mis-characterized his show. I haven’t seen a further response from Farrell (perhaps it exists?) but here’s how I would respond to Cramer’s quotes from the article:

When I read Paul Farrell’s screed on MarketWatch the other day, the one where he listened to “Mad Money” once, it savaged me. He didn’t talk to me and wrote my show off as a waste of time at best and pernicious at worst. It reminded me how misunderstood both my show and my viewers really are.

Jim, if you are reminded about being misunderstood, what are you doing on your show to correct the misunderstanding?

…It’s certainly possible to make a lot of money trading actively, but, as anyone who’s watched the show a few times knows, I don’t encourage ordinary people to trade.

Really? I thought I heard “buy, buy, buy” or “sell, sell, sell”. Not exactly words from a buy-and-holder. More about buy-and-hold in a minute…

Believe it or not, my advice on “Mad Money” is for investors who are looking for stocks that will work over the next 12 to 18 months.

And I’d say that even trading within an 18 month time frame is still actively trading. More about buy-and-hold in a minute…

… Yes, I try to get people excited about stocks. Pardon me for encouraging people to own equities. It’s just that they’ve been proven to generate the best returns of any asset class over a 20-year period. I see and hear people all the time who thank me for getting them into stocks and enabling them to be a better client and a better investor. That’s what the show’s heart and soul is, and that’s evident from even a casual look-see.

Yes, but individuals shouldn’t own individual stocks. And even more imporantly, people shouldn’t get excited about stocks. Perhaps this is the biggest disconnect. Emotions work against one in investing.

I devote half of a broadcast to rigorously explaining what’s happening and what I expect to happen in the market, and then I load the show up with caveats, prohibitions, and the occasional warning that investors will lose money if they don’t do their homework or stick to fairly standard, widely accepted investing disciplines.

But your predictions about the market are no better than your predictions about any individual stock, which is slightly worse than market returns. For me, the best part of Mad Money is learning about the companies and what they do. I never knew about Turbo Chef or Sonic or TransOcean or Crystallex or many others until Jim mentioned them. Nonetheless, I’m not really all that better off for knowing about them. I shouldn’t be buying their stocks, so it actually tends to do more harm than good to get excited about their potential prospects.

Believe it or not, my advice on ‘Mad Money’ is for investors who are looking for stocks that will work over the next 12 to 18 months.

Here’s that 18 month time frame again. Jim, we need to think 18 YEARS not months!

When I say multiple times in every show that investors must do their homework, when I have devoted multiple broadcasts to explaining what that homework should entail, not to mention the book I wrote, “Mad Money: Watch TV, Get Rich,” to encourage and explain homework, I can’t imagine how anyone could think that this advice somehow gets lost in the din.

When we learn that picking individual stocks actually leads to poorer returns than just buying the whole market, we realize what a waste of time doing all this homework really is.

Every Wednesday, I play a game called “Am I Diversified?” to help viewers balance their portfolios. I can understand how someone who hasn’t really watched would miss all of the emphasis I place on such foundational and educational themes, but I can’t see why anyone would write a column about something without getting a little bit familiar with the subject at hand.

I’ve always thought this “Am I Diversified?” game was the silliest thing on the show. How in the world can you say owning 5 stocks is diversified? How about owning 16,000 stocks? Now we’re talking diversification!

… I have never before been criticized for telling investors to research the stocks they buy. If Farrell is to be believed, spending an hour per week researching each of the stocks you own is simply a waste of time. I am glad I didn’t listen to Farrell. I never would have made the hundreds of millions of dollars I made for myself and for my investors before I retired. And I am using the same skill sets now every night on my show.

Hmmm, you’re not really using the same skills as at your hedge fund. There, you traded on an intra-day basis and scraped to make a quarter of a point on each share. Really, how many stocks did you hold at your hedge fund for even 18 months?

Call me crazy if you want, but I just can’t accept that, all else equal, someone who diligently researches his or her stocks won’t make more money than someone who doesn’t.

Jim, please do some research into these lazy portfolios. Their risk vs. return over the long term blows away your stock picking technique. Visit IFA.com and do some reading.

If anything, buy and hold is a completely reckless and irresponsible strategy. This is why I have always preached “buy and homework.” There’s nothing wrong with buying a stock with the intention of owning it for years, as long as you’re willing to check up on that stock every week to make sure that your thesis for owning it hasn’t fallen apart.

Buy and hold of an individual stock as you are suggesting may be irresponsible. But buy and hold of a basket of index funds is genius. No taxes, no commissions, no bid-ask spread, no emotions, no homework.

Too often people regard buy and hold as a license to pay no attention to their investments and hide their heads in the sand when things turn sour. How many nuclear utility stocks did our parents own mindlessly with buy and hold? How many Enrons and WorldComs and Webvans and eToys.coms were bought and held? Don’t be silly, Mr. Farrell: You are the reckless one.

I can see that Farrell is talking apples and you are talking Microsofts. A misunderstanding of investment styles. We may have owned Enron, but only at 0.1% of our portfolio or less. Meanwhile we own all of the other companies that have done well by the good grace of capitalism. You are talking about buying one stock. Farrell is talking about buying ALL stocks. Farrell is talking Lazy Portfolios. You are talking Mad Money. We need a better dividing line between the two. Investing vs. Speculating. Buy and hold vs. Trading. Apples vs. MSFT. It is the misunderstanding you mention in your first paragraph and it is that misunderstanding you rely upon to entice more viewers, those who are looking to invest.

Having said all that, I’ve got a copy of your new book in which you talk about owning mutual funds. I’ll read and review soon.

Win Jim Cramer’s New Book “Stay Mad for Life” Here

Want a free copy of Jim Cramer’s new book, Jim Cramer’s Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)? Well, I’ll be giving one away to a lucky reviewer of this podcast in iTunes as soon as we reach 52 reviews. Get over there, submit a review for the Mad Money Machine, then email me your iTunes account name. Once we’ve reached 52 reviews (we only need 7 more), I’ll give away this book. If you act quickly, you’ll get it even before before the book is released on Dec 4th!

How to submit a review in iTunes? Open the iTunes software, go to the iTunes Store. Click on the Podcasts category, then Business, then Investing. Find the Mad Money Machine podcast pictured. Click the picture. Click on Write a Review. You’ll of course need an iTunes account to write and submit a review. Email me your account name when you’re done to Feedback AT MadMoneyMachine DOT com.

Check out the book here or there:

And come back to this blog as I review the book over the Thanksgiving holiday.

MMM-087: A SMILER Portfolio

Find out about the SMILER Portfolio: It will make you smile! Guitar Hero III and Rock Band. Christmas Lights. Cramer’s new book giveaway. Win Audio CD set. How to keep investments straight. Commanding Heights. Guru. Tool. Liberty Dollar raid.

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A SMILER Portfolilo [ 36:04 ] Play Now | Play in Popup | Download

• Thank you Zune for making the Mad Money Machine the 2nd-most subscribed podcast in your marketplace.
• Call IFA 888-6433-133
• I had the Unanimous Decision at Moe’s. (Not the Ugly Naked Guy)
• We played Guitar Hero III and Rock Band at Best Buy.
• I predicted this on show #3: GE’s Lights and Sounds of Christmas available at Costco. Lights are synchronized to the beat of the music.
• Cramer is going to send me some copies of his new book Stay Mad for Life and guess who will get the extra copies? YOU!
• WIN WIN WIN a copy of the 4-CD set called “An Audio Journey to Tradeless Nirvana” by making a comment about this show in iTunes.
• On Sound Investing a caller asked, “How do I keep all my asset allocation straight across our several accounts?” I think you need to create a spreadsheet with columns for taxable, my retirement, and my wife’s retirement and then rows for each of the asset classes.
• This portfolio will make you a SMILER:
  S: Small Cap (also Small Cap Value)
  M: Micro Cap
  I: International (include small cap international here too)
  L: Large Cap
  E: Emerging Market
  R: REITsIf you are a do-it-yourselfer, here are ETF and Mutual Fund options for each:

  SMILER	ETF	Mutual Fund
  S	VBR	VISVX
  M	IWC	BRSIX
  I	VEU	VGTSX
  L	VTI	VTSMX
  E	VWO	VEIEX
  R	VNQ	VGSIX

  If you want someone to help you invest in a SMILER-like portfolio, please contact Index Funds Advisors at 1-888-643-3133 (and tell them Paul Douglas Boyer sent you).

  From the period 1 Jan 2000 through 1 Oct 2007, the SMILER mutual fund portfolio (each fund equal-weighted at the start) has had an annualized return of 13.7% with an annualized risk of 13.5%.

• I recommend you watch the first couple of hours of Commanding Heights.
• I watched The Money Masters. Three and a half hours of talk about the Federal Reserve system takes some dedication to get through, but I do recommend at least watching snippets of it.
• We look at the Portfolio Smackdown results so far. WHAT SHOULD WE DO FOR 2008??? A Risk vs. Reward Portfolio Smackdown where each participant tries to buy and hold index funds to get the biggest reward for the least amount of risk? Anyone know how to write a web application to facilitate this?
• I plotted some of your portfolios. Every one had funds less than eight years old. One had great returns but also was exposed to great risk. Most had actively-managed funds with high expenses. Want your portfolio examined? Send me the ticker symbols and percentages and I’ll run it through my spreadsheet.
• Our Guru really believes in the individual, small government, and strict protection of private property. You can read his treatise online.
• Our Tool scraps a previous tool and keeps my wife and I in sync even better.
• I’ll be back the week after Thanksgiving. Be on the lookout for the full-page advertisement in the USA Today for Ron Paul for President on 20 or 21 November. Also, please sign up at TeaParty07.com to pledge your support for December 16th.
• The Feds Raid the offices of Liberty Dollar and take all their stuff.

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS – not played on this show!
Remember Hope – Farewell Redemption
Ever After – Farewell Redemption
Life Less Ordinary – Carbon Leaf
The Pop Culture – DJ Top Shelf
What About Everything – Carbon Leaf
Ruby In the Dust – The Runaway Train – Under Feather

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.
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

Thank you Zune Subscribers

Thank you Zune subscribers for making the Mad Money Machine you’re 2nd-most subscribed podcast! The new Microsoft Zune software is available today at Zune.net and is an attractive alternative to Apple’s iTunes.

MMM-086: Maybe I’m Amazed at Jimmy

A new song for Jimmy. Ron Paul to eliminate IRS. Guru answers: What is money? Why is the dollar falling? How should the Boys and Girls Club invest? Performance Chasers Underperform. GIVEAWAY! Tool to calculate your portfolio’s risk versus return. Buy BRK now?

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Maybe I'm Amazed at Jimmy [ 29:39 ] Play Now | Play in Popup | Download

• Maybe I’m Amazed at Jimmy (lyrics below)
• “We have it in our power to begin the world over again.” -Thomas Paine
• Warning: Political Rant Ahead. Ron Paul wants to drastically reduce the size of the Federal government. And ELIMINATE the IRS. Is there something in Ron Paul’s message that you don’t agree with? Let me know.
• Our Guru schools us about constitutional money. Watch the 7-hour class on the US Constitution. Or just watch the part about money.
  Actually, it seems his talk is largely derived from this video of The Money Masters.

We have the best money that Congress can buy. Why are gold and silver used as money? They have value. There is a limited amount of it so it won’t inflate as easily. You want to buy my apple, you give me some gold. Disadvantage, it is heavy and makes noise. I take my gold to the goldsmith. He turns it into coins. He stores it in a lock box and gives me a receipt. If I want to buy your apple, I take my receipt to the goldsmith to get some gold, give you the gold you give me the apple, then you take the gold to the goldsmith and get a receipt. That’s too many trips. Instead of all that, I could just give you my gold receipt.
The goldsmith realizes now that only 10% of all people holding gold receipts come in to pick up their gold. Being rather unscrupulous, he prints more gold receipts: basically legally counterfeiting money. This is called fractional reserve banking. He can’t use the excess gold receipts himself, but he can lend them out to others. He lends gold and gives out a receipt for it. He gets paid interest, in gold. He is now making money hand over fist. Eventually, he runs out of people to lend to. He finds a big borrower: governments. The love to borrow to pay for wars. He lends to both sides. If they stop fighting, it is bad news for him.
Who is this unscrupulous goldsmith? The Federal Reserve.
The Federal Reserve Notes are basically IOUs that they own. They have the right to charge rent. Are there competing options? The Liberty Dollar.

• Speaking of dollars, what is happening to the dollar?
• Boys and Girls club gets a donation of poorly-performing stock. What should they do with it now that it was sold for nearly $14 Million? Please, please invest it in INDEX FUNDS.
• Performance Chasers Underperform. Here is the full article. Lesson: Get rid of your active managers.
• GIVEAWAY: The 4-CD set entitled An Audio Journey to Tradeless Nirvana. Fantastic listening for your commute. Give it to a friend who is in need of sound investment advice. Make a comment about the Mad Money Machine in iTunes then email me your iTunes account name. I’ll pick a winner randomly.
• Our Tool is a lot different from other tools. Send me your portfolio of mutual funds (up to 11 funds), their ticker symbols and percentages, and I will calculate the portfolio’s annualized return and annualized risk so you can compare with the performance of the Lazy Portfolios.
• The Onion’s report on what banks are doing to make up their losses.
• Molly calls and asks whether she should buy Berkshire Hathaway (BRK.B) or buy a mutual fund. Take a look at the chart showing its risk versus return for the last 20 years. Instead of just one company, buy all of them. But first, take the Risk Capacity Survey.
• As I See a Black Tornado

Maybe I’m Amazed at Jimmy
Lyrics by Paul Douglas Boyer

Maybe I’m amazed at the stocks you’re loving all the time
Maybe I’m afraid if I watch I’ll trust you
Maybe I’m amazed at the way you trade at the wrong time
And are hungry for a climb
Maybe I’m amazed at the way I don’t need you

CHORUS:
Maybe I’m a man and maybe I’m the only man
Who’s figured out something
That Jimmy doesn’t really understand
Maybe I’m a man and maybe you’re the only man
Who could never help me
But now I’m rising up to take a stand

Maybe I’m amazed at the way you’re on TV all the time
Maybe I’m afraid of the way I believed you
Maybe I’m amazed at the way you never buy and hold
You’re stocks are bought and sold
Maybe I’m amazed that they think they really need you

CHORUS

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS – not played on this show!
Maybe I’m Amazed – Blake Morgan
Ruby In the Dust – The Runaway Train – Under Feather
Talk 2 Me – Aaron
Lonely Boy – Aaron

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.
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

Ron Paul R3VOLUTION in the making

You know that the Mad Money Machine is not a political thing. But it is about financial freedom. And I also interviewed Russ Roberts of EconTalk and we learned about Hayek, libertarianism, and free markets. Somehow, I learned about Ron Paul. The more I read about and listen to Ron Paul, the more I am genuinely excited about his message. I’ve never heard any politician talk like this, not even Ronald Reagan (the true American Idol). Get rid of the IRS? Drastically reduce the size and scope of the Federal Government? Dude, you’re speaking my language. And he’s speaking the language of about 35,000 people that have found out about him and have GIVEN THEIR MONEY to help promote his message today.

I’ll be talking more about this on my show #86 to be released by 9 October. Subscribe via iTunes and get it as soon as it comes out. Or just come back to this website and listen through your computer.

Here was a snapshot of last night’s total quarterly giving since 1 Oct.

Here’s what it was when I made my contribution this morning:

And here’s an embedded view of the current tally:

Here’s an excellent, extended interview of Ron Paul hosted by Google at the Google campus.

MMM-085: It’s Like Christmas All Year ‘Round

Boo? Cramer’s Five Mistakes of the Amateur Investor. 401K to IRA. Guitar Hero III and Rock Band. A tool to keep you and your spouse in sync. Our Guru limits your investment choices to DFA or ETFs.

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MMM-085: It's Like Christmas All Year 'Round [ 40:04 ] Play Now | Play in Popup | Download

• Who came up with this Boo! thing anyway? A pyramid scheme for the candy companies?
• Guitar Hero III and Rock Band on the way.
• Our Guru has a book that is three, count ’em, three advertisements in one.
• We finally get the chance to move money from a 401K to an IRA.
• Garen’s email asks about “cash” and things we might learn about it.
• I look at Jim Cramer’s Five Mistakes of the Amateur Investor
• Our Tool keeps you and your spouse in sync!

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Ruby In the Dust – The Michael E. Thomas Band
rubber robots – Charlie Catura
hitman – StudioMig
Good News – How To Win At Life
Mirror – The Ninth King
O Cio da Terra – Chico Buarque, Milton Nascimento – EMI/Arlequim Brazil – eversonpaladini
Wonderful World – Plastic Soul Band
loop – Plastic Soul Band
Runaway Train – Under Feather
If Every Day Were Christmas – Podsafe for Peace

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.
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

MMM-084: Something to be Enthusiastic About

Risk vs Return. Happiness. Free is not cheap enough! Radiohead. Baby Bonds? XBOX and HDTV. Ron Paul and libertarianism. David Beckham’s Hollywood ending. Global investing. The amazing chart from IFA showing the risk of individual stocks.

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But, if you just can’t possibly deal with that then go ahead and
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MMM-084: Something to be Enthusiastic About [ 30:13 ] Play Now | Play in Popup | Download

• “We act as though comfort and luxury were the chief requirements of life, when all that we need to make us happy is something to be enthusiastic about.” – Charles Kingsley.
• Happiness – Business Week
• Happiness – Jonathan Clements
• Free is not cheap enough.
• Hilary’s Baby Bonds.
• Adam Curry interviews Ron Paul.
• David Beckham, better luck next season.
• Ken’s email: global investing?
• Our Tool shows Risk vs Reward here
• Our Guru keeps making more Lazy Portfolios. Seven Silly Sectors anyone?

Music from music.podshow.com:
ALTA PLAZA – XRAY DOGS
Ruby In the Dust – The Michael E. Thomas Band
No Surprises AUTHORIZED COVER – Blake Morgan
Runaway Train – Under Feather

The Mad Money Machine is proud to be sponsored by Index Funds Advisors at ifa.com.
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