Mad Money

Lessons Learned

Tonight is the 500th episode of Mad Money, but instead of celebrating, Cramer thinks a little self-recrimination is in order. He’s focusing on some of his worst, most humbling mistakes in the hope that you don’t repeat them.

Back in August of 2005, Cramer recommended Dick’s Sporting Goods as a buy the night before it reported. Dick’s reported a terrible quarter and the stock dropped 18% overnight. It doesn’t get much worse than that, Cramer says, but it taught a valuable lesson about never recommending a company immediately before it reports (when the shorts are circling like vultures in after-hours trading). In hindsight, it would have been best to think of Dick’s as a great long-term story – which it has shown to be – and if the stock got hit after the quarter, it would have represented a great buying opportunity, Cramer says.

Cramer made another mistake that same month when he recommended Montpelier Re , a reinsurance company that did most of its business in the southeast, right before the tragedy that was Hurricane Katrina. The thinking was that insurance companies always get driven down before a big storm but they rarely lose money and instead just get an excuse to raise rates. Obviously, Katrina was a bigger disaster than anyone anticipated and Montpelier was almost wiped out. Betting on insurance stocks before a big storm is too risky, Cramer says, even if there’s only a one in 10 chance the storm ends up costing the companies a fortune in claims. As for MRH, it still hasn’t recovered from Katrina and Cramer wouldn’t touch it here, as another hurricane season begins.

In April of 2006, Cramer got behind the mattress company Sealy , which was about to come public. He recommended paying up to $18 for the IPO. Sealy peaked at $18 and change and then dropped to $12 and hasn’t moved back to where Cramer thought it was worth. Cramer admits he got bamboozled on this one. The management was putting on a serious road show before the IPO and Cramer bought it hook, line and sinker, thinking Sealy would do well based on the success many other IPOs were having last year. But it turned out the market for newly public stocks was tapped out, and Sealy ended up being a low quality IPO, he says. Now he knows to be smart enough not to always take the bait.

Jim’s charitable trust owns NYSE Euronext.

Questions? Comments?