How Can Someone Make Money Shorting Jim Cramer’s Stock Picks?
I’ve heard there is a temporary period after Cramer mentions a pick that you can short and make money. Any idea how someone does this?
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November 21st, 2009 at 2:43 pm
Jim Cramer’s stock picks don’t always seem logical to me. I think that when he is right it is often a self fulfilling prophecy where people think the stock will increase in value and it does because all of his viewers go out and buy it. Truth be told, all long term value increases will happen because the company is making money. You could be taking a big risk by shorting or buying anything that Jim Cramer discusses, only basing your decision on that data.
Assuming you aren’t an institutional investor, and you have a limited amount of time to pick stocks, you might want to use his info for ideas that help you focus into individual sectors or companies. Once you get that far, I would use Yahoo Finance, Value Line reports, the 10K’s and any other information you can get your hands on in order to get an accurate assessment of the company’s value. You could try to use some P/E ratio analysis to try to determine this, but I personally would use the Capital Asset Pricing Model. If you are comfortable with statistics, there are a number of great models you can use, many of them used by analysts at JP Morgan, Merrill Lynch and GS.
November 21st, 2009 at 2:43 pm
all markets in a panic sell
November 21st, 2009 at 2:43 pm
Corey’s answer is very good for a typical Cramer stock pick. Another way to look at it is to be very selective and wait for Cramer to strongly recommend a small cap stock.
I believe that he never recommends stock with market caps below $100M or $200M. But he has occasionally strongly recommended a few stocks at $250M to $400M. Some of these will run up by large percentages, and then pull back a lot.
He pushed Crox and Lululemon up tremendously, & both have crashed recently. Although these are a bit bigger companies than I was refering to above.
November 21st, 2009 at 2:43 pm
I think after he mentions a stock on the air, there is an initial bump in the price of the stock. After this spurt in the stock, it will pull back. This may only be a couple of percentage points, but if you use leverage, it can add up. You can either short the stock, or you can use put options which allow you to magnify your gains through leverage. However if you don’t know what you are doing this is a recipe for disaster.