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COMMENTARY | When I read zany Jim Cramer's latest book, I couldn't help but smile at the fitting title. "Getting Back to Even," is what many of us have been trying to do since the stock market took a major dive. Cramer, the hyperactive Ritalin-free star of "Mad Money," says the book can be "your personal economic recovery plan."
"How are you as an individual, supposed to cope with the worst economic catastrophe since the Great Depression?" Cramer asks. "How do you get by, let alone get back to even, when virtually everything that could be stacked against you is stacked against you?"
Those are pretty pessimistic words coming from one of the most upbeat personal finance gurus on television, but they are also very true. In fact, I got back to even after my portfolio took an enormous dive during the recession by following the rules he outlined.
Stocks are no substitute for savings
He makes an excellent point. I know people who locked in their losses by selling their stocks after losing their jobs. They didn't have enough in savings. I had to turn to my savings after receiving several pay cuts or "furlough days." I kept my hands off my long-term 401 (k) investments.
Never, ever be afraid to sell…
Cramer says it's OK to sell when things look like they are headed down the tubes. He's right. It's no longer a buy and hold forever type of world. If I held onto my shares of stock in companies that were headed to bankruptcy, I'd be left with zero. I had to make bold moves with my separate brokerage account that was not for retirement.
Skip the stages of portfolio grief
Cramer says people go through stages of "portfolio grief" that is similar to the stages of grief. They experience denial, anger, bargaining and depression. Bargaining is that idea of waiting and waiting for a stock to come back to even so you won't have to sell at a loss. Cramer is right. In order to get back to even myself, I had to sell a few stock "clunkers."
To stop bleeding, shun stocks that are cheap
I was grabbed up stocks that I thought were "on sale," only to watch as they slid further down. "One of the most difficult things to grasp during a downturn when the economy is in the dumps is that cheap stocks just get cheaper," Cramer says. I got back to even and saw a profit in my portfolio by studying the balance sheet of companies and focusing on the fundamentals.
Cramer also points out that investing is a way to augment one's paycheck. If a person his unemployed, they have bigger things to worry about than their stock portfolio. I think the same applies to people who are in debt. I would never invest discretionary money, besides the match in the company 401 (k) unless I was out of consumer debt.
The stock market has been wild and crazy, but I am just sticking with Cramer through it all.
- Finance/Investment & Company Information/Personal Investing Ideas & Strategies
- Jim Cramer
- stock market