Tonight, Jim said that fools are abound, speculating in the market. However, they do not know what they are doing.
"I love speculating, but you have to do it
right," he said. "Speculating is not investing, when you confuse the
two you get annihilated."
"You should only speculate if you are comfortable
with it" Cramer said. "You have to separate it from investing. If you
want to speculate right, this is the time to do it," he said.
Speculative stocks are small, cheap and usually have no earnings to
speak of. They are extremely risky and "there are usually one or
two things that could
make or break a speculative stock, so you must follow some ground
rules," Cramer said.
1. Never speculate with borrowed $$. Too risky.
2. Only speculate with money you can afford
to lose,
And he
recommended 54 as the cut-off age for speculating.
3. Never put more than 20% of your portfolio in speculative stocks.
4. Do your homework! How did
they get to this price, what is their
history?
5. Don't speculate on debt-ridden companies
6. Companies like this usually need alot of financing. You have to keep track.
"The bottom line: Know what you are doing so you
don't speculate when you mean to invest," Cramer said. "And when you
decide to speculate, do it the right way."
Jim went on to announce that he has out together a speculative stock index!! Here are the picks.
We will track them daily.
They are all risky. They
are all speculative. And
even though we've got everything
from oil to tech to minerals to
optical equipment, all these
speculative stocks - they trade
together as if they are one
stock.
Not only have my speculative
stocks traded together - very
interesting; they've also been
radically under-performing the
rest of this market since the
top on May 11th.
From that top, my speculative
index is down a whopping 15.49%.
I mean the DOW's only down about
5%... The NASDAQ composite's
down a little bit more than 5%
and the S&P is down only 3.67%.
Cramer's going to keep track of
the speculative index. I'm
going to pick apart the winners
from the losers.
Now our speculative index is
cheap; this is when we start to
get in.
The rule of thumb is: If
you have five $2 stocks, two of
them will do nothing; two will
go to zero, and one of them will
go to $10. That's how you
make money speculating.
Speculation is risky.
Which is why this index - this
speculative basket is a smarter,
safer way to speculate.
You've got a responsible,
diversified speculative
portfolio; of course, you
do what's right. I can't
shoe-horn it.
The bottom line!:
We've got a new index! The
Mad Money Speculative Index!
It's telling me that these
speculative stocks are getting
cheap enough to buy, as long as
you're speculating, as long as
you're in it for the short haul,
not the long haul. If you
buy these stocks and speculate,
like a pro, I think you could
make some Mad moolah.
