On tonight’s show, Jim suggested buying Motorola and Yahoo! because Carl Icahn, who has large positions in both companies, is on the warpath, trying to force each of them to make major changes that we believe would send their stocks higher. We call this piggybacking: buying stock in a company that’s already under pressure to unlock or create shareholder value from an activist investor (I wish we were still allowed to call these guys corporate raiders) like Icahn. If the activist investor gets what he wants and the stock goes higher, you benefit from all his hard work bullying management without having to contribute squat. And you get the added satisfaction of being a free-rider problem for some master-of-the-universe, wheeler-and-dealer type.
But we don’t want there to be any confusion about this strategy. You’re not piggybacking if you buy a stock because it happens to be owned by a famous investor, you’re being lazy. There has to be a thesis behind an investment other than, “Well, this guy’s really smart and good at investing, so I’ll just rely on his judgment instead of my own.” That’s more copycat than piggyback. Believe me, you do not have Cramer’s permission to go out and buy any stock in Carl Icahn’s portfolio just because it’s there. “Because so-and-so owns it” is not a reason to buy anything.
There’s a world of difference between buying stock in a Motorola or a Yahoo! where you have good reasons to believe the big shareholders will revolt, forcing the company to make big changes that send the stock higher, and buying a stock because, say, Warren Buffett likes it.
And one more point on piggybacking: There are plenty of activist investors who don't have a clue, so make sure your guy (or gal) has a good track record before you take your piggyback ride.
Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Rich and Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.
Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.
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