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Cramer’s Hedge Fund Playbook

Thursday, 1 Dec 2011 | 7:18 PM ET
Cramer: Time to Temper Market Enthusiasm
Mad Money host Jim Cramer says all the good news the Street is getting lately may not be enough to maintain the market's momentum, and explains why investors may want to "curb their enthusiasm".

In this volatile market, you need to temper your enthusiasm, Cramer said Thursday.

There has been some good news lately, like China announcing it would loosen itsmonetary policy, Black Friday retail sales, the better-than-expected ADP jobs report and the central banks'action to support the global financial system.

But there was also news that China’s factory sector shrunk, chain store sales figures were disappointing, and weekly jobless claims were “downright miserable.”

With that in mind, Cramer laid out his playbook of what he’d do right now if he still was at the helm of his hedge fund.

He would own:

  • Select retailers like TJX or Ross Stores , both of which hit their 52-week high Thursday
  • Some higher yielding drug companies like Bristol-Myers Squibb
  • A global food and beverage stock like Philip Morris or Coca Cola
  • A couple of higher yielding industrials like DuPont or Nucor
  • If you have a favorite tech, like Google , he would own it with deep-in-the-money call options
  • A couple of oil and oil services stocks like Schlumberger or Occidental Petroleum because Brent crude is not coming down
  • Gold , preferably via an ETF
  • A core of utilities and master limited partnerships, like Verizon , Kinder Morgan Energy Partners , Enterprise Product Partners , or Dominion Resources

He would also hedge those long positions by buying a lot of put options on a bank ETF, “some in-the-money and some out-of-the-money, meaning that some you start to profit from a decline immediately and others that make you a lot of money if the index falls off a cliff.”

This would offer protection if the market drops on a series of major European bank failures, which would cause a loss on the stocks.

“With this playbook, betting on strong domestic companies, companies with good yields, as well as the oils and gold, you’d be in the sectors that are the least damaged by Europe, or can actually do well even if Europe goes kerflooey,” Cramer said.

But remember, he added, this is his hedge fund play book, not his advice to homegamers. For them, he would just advise selling all the banks and having a hefty cash position.

Call Cramer: 1-800-743-CNBC

When this story was published, Cramer's charitable trust owned Schlumberger and DuPont.

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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