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Follow the Herd?
Cramer on Monday served up some of his characteristic contrarian wisdom. Consider this gem: Sometimes clueless investors are better guides than even the best of Wall Street money managers.
For example, a lot of people – those who either can’t manage their own money or don’t care enough to do it – invest in mutual funds when stocks have enjoyed a good run. In turn, those funds put the cash to work in the market, usually on Mondays, and it has pushed share prices higher like clockwork. So much so that Cramer back in his hedge-fund days called the trend “mutual fund Mondays.”
“It doesn’t get much more predictable than what they do,” he said.
The key then for the rest of us is to drill down a bit deeper and find out where that money will go. Luckily, all of this information can be found on the Internet. Here’s how you do it:
These uneducated investors will search for the top-performing mutual funds, so look for the one that has beaten its peers over the past quarter, or even month. The fund has to manage over $50 billion, though. That way its purchase of any meaningful amount of stock will boost the share price. If you can get in ahead of that buying, then you stand to make a decent profit.
Beyond that, you want to find out the fund’s holdings and which of those stocks were bought most recently. Money managers tend to stick with the companies they know and like, so you can pretty much assume that they’ll build bigger positions in their most successful stocks. As long as your own homework proves that these investments are sound, Cramer said, then “those are the stocks to buy.”
One note of caution, though: Keep a close on these trends from quarter to quarter. As soon as the fund starts to underperform, the money will come pouring back out.
“And so will your trade’s profits,” Cramer said.
Call Cramer: 1-800-743-CNBC
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