In case you haven't already spotted what we've been doing with our Dow Jones all-stars, Jim's top five stocks in the Dow Jones Industrial Average for 2009, let me give you a hint.
So far we've named Hewlett-Packard, a technology company, Verizon, a telco company, Johnson & Johnson, a drug and consumer-products company, and on Thursday night's show Caterpillar, a classic industrial manufacturer. You seeing a pattern here?
That's right, we're creating a diversified portfolio of stocks. This was kind of an accident. Jim's five favorite Dow stocks could've been clustered together so they weren't diversified, but we happened to get lucky. I won't spoil the surprise about the fifth stock, but it doesn't really overlap with the other four.
This has come out as we've talked about the individual stocks. Johnson & Johnson should be owned in case the stimulus fails. Caterpillar in case it works. Exactly what you want from a diversified portfolio--some insurance in case things don't work out the way you thought they would. Now, of course, we think all of these stocks will do well, otherwise we'd have picked different ones. But the point stands.
In past years we've named a stock of the year, or a group of stocks of the year in early January. This year we decided to do a series about Jim's favorite five Dow stocks, which just happened to turn out to be well-diversified, instead.
Why? Not because it's too hard to predict what will happen over the course of the next 12 months, but because, as Jim notes in Real Money the book (now out in paperback!), arrogance is a sin. To be a good investor, you have to recognize that, to a certain extent, the future is unknowable. This year it seems more unknowable than usual. That doesn't mean we can't make good predictions that work out most of the time. It does mean that we should take precautions against our own ignorance. Thus, the diversified portfolio of Dow all-stars, which is balanced so that no matter who 2009 turns out, there should still be some winners.
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 Richand 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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