For 16 years, the exuberant James J. Cramer has celebrated the joys and rewards of playing the stock market. On CNBC’s Mad Money With Jim Cramer, the former hedge fund manager analyzes economic trends, interviews CEOs and gives lightning-fast buy-or-sell investing advice to viewers. Ever enthusiastic about searching for stocks that will outperform the market, Cramer, 66, recently announced new ventures to spread his active-investing gospel.
But Cramer, to comply with ethical restrictions, hasn’t used his own wealth to buy individual stocks for years. Instead, he trades on behalf of a charitable trust. All his personal stock investments are in index funds — funds on autopilot, with no stock picker at the helm, filled with shares of companies representing a broad slice of the market.
Perhaps more surprising: Cramer cashed out half of his own investments in 2020. And despite his show’s focus, he thinks that for many people, trying to invest in stocks that will beat the market is a terrible idea. He explains himself to AARP senior editor George Mannes (who worked at TheStreet.com, cofounded by Cramer, from 1998 to 2005).
How is your personal money invested?
Let’s say it’s a pie chart of a hundred percent. The breakdown I used to like was 80 percent in U.S. stocks, 10 percent in international stocks and 10 percent divided between gold and [cryptocurrencies].
What do you mean, “used to like”?
That’s what I did. But when I turned 65, I cut that in half. Before, I had almost no money in cash. So now I have 40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency. The other half of my money is in cash.
Why the change?
I had this long discussion with my wife, Lisa, when I turned 65, and she said, “You know what? You’ve always said that you’ve got to cut back [on stocks] as you get older, but you’ve refused to.” And I said, “Well, I really feel I should have as much exposure to the stock market as possible.” And she said, “We got to be wealthy. What is your point? We can only get unwealthy. That’s all that can happen to us.”
I said, “Yeah, but first of all, my dad lived to almost 92, and I always tell people that you don’t want to bet against yourself — that stocks are better than any other investment.” And she goes, “No. No. You’ve got to be true to what you always say: You only need to get rich once. We can’t keep risking.”
We’ve had many disputes about this. She has said over and over again, “What happens if I outlive you? I don’t want to feel that I am in trouble — that I had a lot of money, and that somehow, because my crazy husband decided to let it all roll, I don’t.” So I cut [our investments] to where I think it’s reasonable.
I believe everybody has to sit down with their partner, and both people have to be comfortable. I could have easily said to Lisa, “I have a TV show, I worked at Goldman Sachs, I was a hedge fund manager. This is what we’re going to do.” And I’ve come around to thinking that that’s wrong, that money’s a partnership, and that the partnership has to be over the dinner table, and everybody has to be happy. I need her to feel really confident, and her confidence was to cut back a lot of stock. So I did it.
How did you feel after that?
It was so hard. I remember when I did it, then the market went up the next two days, and I said, “You see?” And she goes, “Jim, what I’m really talking about is that I have peace of mind, and I thank you so much for letting me have peace of mind. And now we don’t have to talk about money.” And we haven’t talked about it since.
What do people not understand about the stock market?
The stock market is a very counterintuitive thing. When the economy is bad, a lot of times the stock market is good, and when the economy is good, a lot of times the stock market’s bad. And stocks aren’t what they seem. People should recognize that stocks no longer really reflect a lot of what’s going on at a company. They really reflect what’s going on in the stock market. These stocks pretty much all trade together now, and that’s something that didn’t use to be the case.
When did things change?
It really started changing when people lost so much money in the 2000s. And then they lost even more money in 2007. So a lot of people just decided, “The hell with it. It’s too hard, but I have to save some. So I’ll put money in an index fund.”
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So, why is your show so focused on picking winners?
Well, I try to find the anomalies. But the stocks that can really break out are very few and far between.
What’s your advice for me if I’m trying to find those winners?
If you’re going to buy a company’s stock, you have to know what they do. You have to know who their clients are. You have to know how they do when the economy’s doing well and when the economy’s doing badly. You have to read articles about the company. You have to read the [transcripts of] conference calls [in which companies discuss their financial results].
And really, for most people, that’s too much. They don’t have the time, and more importantly, they don’t have the inclination. That’s fine. If you don’t have any time, you just own an index fund; you own good with the bad. It’s perfectly good for an individual to own an index fund.
People are unwilling to do the work. I have friends who tell me, “These stocks seem OK, and so I’m just going to buy them.” And I’m, like, “No, please don’t do that. Please don’t do that.”
You say that not owning stocks is like betting against yourself. What do you tell older people who are afraid to even invest in index funds?
I think that they are courting the possibility of not having enough money to handle their health care. Those who are afraid would do best to dip their toe in the water slowly. I don’t want them to get in and discover that today the market goes down 5 percent. Just slowly, over several months, try it. Get in. And I’m not asking for people to be 100 percent invested [in stocks].
How about a balanced mutual fund? One that’s 60 percent in stocks, 40 percent in bonds?
I love 60/40. I think that’s a terrific idea.
You don’t seem to like investing in foreign markets. Why is that?
I’ve been convinced that a huge percentage of other countries just do not enjoy capitalism. They have just been compromised into ways that do not produce great results, and I just got tired of watching this.
What concerns you about the U.S. economy?
My number one worry is that the Chinese will move in against Taiwan, which is a critical ally, and that’s where almost all of our semiconductors are made. That would be incredibly bad for our economy.
And what makes you optimistic about the U.S. economy?
The amazing entrepreneurial nature. I have many companies on my show, and I’m always blown away at how smart people are. They really understand things, and they know how to do their businesses right.
Let’s go back to family life. Your two daughters did not go into investing, did they?
No, not at all. One was a youth counselor, and then she went to Spain to teach English. The other graduated in the midst of the pandemic. She’s trying to figure out her next move.
What have you tried to pass along to them about money?
Thrift. Don’t be taken in. Be very concerned that other people might want to harm you financially, but do what your heart desires — because, fortunately, your dad made a lot of money. I did not have that advantage. My parents were not well-off.
I hope that they will, if they want to, lead their lives doing charitable things. If my daughter wants to be a teacher, I regard that as a great legacy. I want them to be independent, and I want them to be conscious of people who are more in need than they are.
Is there anything else important that we didn’t cover?
I got hurt this year. I hurt my back. I wasn't able to walk for four days. I had thought I was indestructible, and I didn’t have a plan for not being indestructible. I did have health insurance, but I think that people have to be mindful that nothing works unless they’re in good health. So, sacrifice everything first to be in good health. Everything.
That should be your number one priority, because money you can make or lose, and hopefully make. But if you do not take care of your health, then it’s all over. I can’t help you.