Cramer's Mad Money Daily Recap 8/9/05 - Speculation Special

[Thierry Martin]

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Cramer's Mad Money Daily Recap 8/9/05

IMPORTANT NOTE
This is a rerun of the show that originally aired on June 29, 2005

How to Speculate

Speculation can be necessary under the right circumstances, Jim Cramer said on "Mad Money" tonight.

"I've got a long track record, and many of my biggest wins are from pure speculation," he said. "You've got to know the rules before I give you the permission to use the tools."

Cramer is against using IRAs or other savings for speculating. Investors should have two portfolios, one for retirement and another one with discretionary money.

Cramer bought a several telecom stocks in 2002 including Lucent (LU), Nortel (NT) and JDS Uniphase (JDSU). The group brought in gains of more than 42% in less than a year.

In a portfolio outside retirement savings, Cramer would be willing to use 20% of the extra money for speculation. For those with than $10,000, a better option would be to put the money into a diversified mutual fund portfolio.

Cramer looks at younger companies, rather than just those that are beaten down, when speculating. "I like to find the new ideas," he said. "We do not speculate on companies with bad balance sheets. Speculate in the young companies and the ones with good balance sheets."

"Luck shouldn't be part of the equation," and Cramer recommended against using margin for speculation.

Am I Diversified?

Cramer rated viewers' portfolios. A caller with GE (GE), Home Depot (HD), Pfizer (PFE), Cisco (CSCO) and Bank of America (BAC) had a diversified portfolio, according to Cramer.

Cramer spoke about market bottoms, which are good buying opportunities if called correctly. Don't rely on technical analysis, Cramer said, because fundamentals must be considered. Clues to market bottoms are sentiment reaching low levels and bulls giving up and becoming bearish.

"You need to be right, when almost everybody else in the market is wrong," he said.

Cramer said investors should never buy or sell stocks through market orders. They should place limit orders, with the broker getting instructions on the exact price to buy or sell.