Cramer - Jim Cramers Get Rich Carefully

A s I put this book to bed, I know we are in for still another year during which Washington will provide no rest for the weary. This book is about getting rich carefully; Washington is writing a serial novel about bankrupting us slowly.

We would have loved to think that after the bitter conclusion of the October 2013 debt ceiling fracas we could at last invest without endless daily intrusions from politicians, many of whom dont know the difference between a stock and a bond. But lets be realistic. Politics has sewn its way into the very fabric of our daily lives, in large part because our nation has spent beyond its means (and yet seems to have so little to show for it). The fabrics going to choke us several times a year now if we arent mindful of how harmful politicians of both parties have become to our portfolios.

As you will see in this book, I dont think its for me to opine on what Washington should or shouldnt do about debt ceilings, tax rates or budget appropriations. I dont care if you are a Tea Party member or a tax-and-spend liberal. I care about making you money. I am focused on the savings side of your ledger. Given that Washingtons going to be wrangling about matters that directly impact your portfolio for years to come, let me share some tips gleaned from what has worked each time these hideous interchanges have occurred so that you can surviveand possibly even thrivethrough the partisan pulverizing that Washington is now guaranteed to do to your savings.

Within the last three years, our stock market has had four separate run-ins with politics that caused you to lose a lot of money: the 2011 federal budget bust, which led to a ratings agency debt downgrade; the 2012 fiscal cliff debacle, with its concomitant tax increases; the spring 2013 failure to avoid the federal sequester; and, finally, the pointless fall 2013 government shutdown and debt ceiling clash. All four battles curtailed business, eroded confidence, and hurt your pocketbook. Even if this litany of pain cant be broken, is there any way to profit from it?

The short answer is yes. Each Washington tussle has the same familiar pattern. All four bitter budget contests were basically scheduled events, meaning that you could tell that they were about to occur because they were provoked by deadlines that were clearly visible to all. In each case, approximately one month before each deadline, you began to hear chatter, typically from political commentators (not businesspeople), that Republicans and Democrats might be at loggerheads over some sort of budget issue or tax resolution that had to be agreed upon or the government would cease to function. Soon after, you got pleas from various money managers, who assured you there was no need to worry about the upcoming turmoil; all you needed to do was stay the course, because its just politics and every time we get one of these political dramas, the action may become twisted and tortured but all will work out in the end.

While, ultimately, these cooler heads are right that we havent defaulted yet and most likely wont, their stay the course admonition only makes sense if you are willing to experience heavy lossesrealized or unrealizedand then hope to recoup those losses once the issues are resolved. That is not now nor has it ever been my style. I say if you can dodge big declines and get back into the market at lower levels, you should do so, at least with some of your money, and not just sit there and take an undeserved beating.

But heres the trick. You must take aggressive action and do some selling the moment you hear these false reassurances and not one second later. You cannot afford to wait. Heres why: In all four of these go-rounds, the stock market lost on average about 8 percent from the moment a potential skirmish began to be talked aboutusually one month before the drop-dead deadline thats supposed to trigger a default or a downgradeto when the war was finally concluded. Given this consistent peak-to-trough decline, you would be nuts not to do some selling the instant you hear the words looming and Washington in the same sentence. You have to overcome the complacency bred by smug money managers who blithely assure you with Shakespearean wisdom that Alls Well that Ends Well. Thats because when you hear their soothing entreaties, you are at the exquisite moment at which you can still take action to preserve some of your hard-earned dollars before that coming 8 percent plunge.

Then and there, you need to trim whatever stock portion of your portfolio you can trade, be it an IRA, 401k, discretionary, or whatever; it doesnt matter. Try to sell at least 10 percent of your holdings before the alarm bells go off, because thats probably the last moment at which you will get prices that are high enough and worthwhile enough to exit whole. You can take that newfound cash and put it safely on the sidelines, readying it for the inevitable and brutal denouement that all of these phony reassurers didnt see coming during the downgrade debacle, the fiscal cliff, the sequester and the debt ceiling rows. Similarly, if you are about to make your regular contribution to one of those retirement accounts, try to hold off and wait for the ensuing stock decline. Having that money taken off the table so as to be ready for the inevitable buy point is akin to saving up for a sale at the mall. You need to have cash at the ready to take advantage of the bargains Washingtons about to give you.

Then I want you to be prepared to buy several of the stocks that I recommend here, which I believe will hold up under any politically engendered onslaught; they have catalysts that will not be stopped by the shenanigans in the Capitol. You have to pull the trigger at the point of maximum fear, because these are the kinds of stocks that rarely get clocked except in a sell-off thats extraneous to the performance of their underlying companies.