Mad Mail: Buy Freddie Mac?
Dear Jim:Booyah from blazing Baltimore! With Freddie Mac back in the black for at least a quarter and claiming to not need any further government assistance, could this be the bottom floor as it digs itself out of the subprime hole it fell into last year? --Charles
Cramer says:“I spent a lot of time on this and Fannie Mae today. It’s really difficult to figure out what will ultimately accrue to common-stock shareholders because these companies were basically bankrupt, and they got a huge amount of money from the government. And in the pecking order of things the common stock is very low … if I owned Freddie and you had that big gain today, I would ring the register. That is pure [speculation]. We don’t know how much of a call the common stock has on the turn in the company, if there really is a turn.”
Cramer:A great big booyah from the land of 10,000 lakes. I have heard that, as an investor, one should manage risk rather than returns. I would like to know your take on using the key metric "beta" to balance risk and how it plays into your portfolio management. What type of factors should be considered when experimenting with my own beta calculations? Or is it all a bunch of mumbo jumbo chicken gumbo? --Jeff
Cramer says:“Actually, Jeff, not at all. It’s very, very important. If you asked Lloyd Blankfein at Goldman Sachs , he would tell you managing risk is the number-one thing. But he’s running a gigantic brokerage house that also has basically within it a lot exposure to all kinds of stocks and bonds. [On my charitable trust,] we spend a huge amount of time thinking about beta. At my old hedge fund, we spent a lot of time thinking about beta … so beta is probably the most important thing I think about when I’m managing [my charitable trust].”
Hey Jim:After taking your advice, I've built up a portfolio of strong stocks with good dividends that are working out fine. The problem is that I'd like to take some profits as you've suggested, but I don't want to give up the great yields. What do I do? --Ed
Cramer says:“This is when you scale out, Ed. As stocks go higher, you take some off the table. And then if we get a big sell-off … then you’ve got accidentally high yields as you go right back in. I don’t care that you have big gains and you want to keep them for the dividend. It’s irresponsible to turn any gain into a loss regardless of the dividend. I need you to take something off the table.”
Jim:After working a year and a half for Merck, I returned to medical school. I am a 25-year-old, full-time student and own some shares of MRK. How do you feel about the merger and holding the stock over the long term? --James
Cramer says:“I’m not a believer … I think that there are some good drug stocks out there. But I don’t think that Merck has the great drug prospects. All you’ll really be having is cost cuts and consolidation. That’s not enough to make me want to pull the trigger.”
Cramer’s charitable trust owns Goldman Sachs.
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