Cramer: How to Get a Leg Up on Pros
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If you're an individual investor chances are you think the big money pros have an edge, said Jim Cramer.
After all the pros have access to state of the art computers that deliver up to the minute developments in the stock market. Those same pros have sophisticated tools that can chart patterns for so-called technical analysis. They can even commission algorithms that trigger trades based on statistics.
"Pros will always look for an edge, some kind of leg-up that provides them with an advantage over everybody else. That will never change," he said.
Individual investors often have none of that. And Cramer doesn't feel it matters in the least. In fact, he thinks it may be to your benefit.
That's because it forces individual investors to do research – what Cramer calls homework – and he says nothing matters more than homework.
Cramer believes homework can actually get you ahead of the Street. "Just by following my standard homework regimen, you should have an edge over most of the other people who trade the stocks professionally."
How's that possible?
After all, homework involves looking at public information such as earnings reports, government documents and newspaper stories. "Anyone can check that out," Cramer admitted. "The very fact that the information is out there means it should already be "baked in" the stock – that is, share price should reflect the research."
However, Wall Street has a dirty little secret.
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"That's not how the market really works," Cramer said.
"Lots of pros are lazy," he explained. "Lots of money managers are technicians, meaning they look at the charts and dismiss the fundamentals. Also there are so-called quants or mathematical traders who don't get down into the nitty-gritty of a quarterly earnings conference call," Cramer said.
And at the end of the day Cramer believes fundamentals drive stocks. And pros who rely on alternative techniques often lose sight of that.
In other words, if a company has attractive growth prospects, if it's managed well, if it's winning market share and/or if it's profit margins are strong – it will ultimately attract investors.
At the end of the day, the reasons outlined above are the reasons that the Street will pay a premium to own stock. And the only way to determine if a stock can command a greater premium is to do homework. Read More: Spec Stock - New Way to Play Recovery
"If you keep up with this kind information, I promise that you will know more about a stock than many of the professionals do," said Cramer. "And if that's not an edge, I don't know what is."
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