Cramer's Faith in the Fundamentals

We've spent a lot of time explaining how to look at charts and use technical analysis lately, but if you wanted to know why we rely on the fundamentals, the facts about the underlying company, whenever we recommend a stock, look no further than what the market did on Tuesday.

The action on Tuesday was absolutely brutal: a 332-point, 4% decline in the Dow, and a 5% decline in the S&P 500. If the only reason you have for owning a stock is the chart and what it tells you about investor sentiment, then a day like Tuesday, where both deserving and undeserving stocks get slaughtered, leaves you with very little reason to own anything.

But if you rely on the fundamentals, you have a thesis that works no matter what the market does, and you can buy the stocks you like at lower prices. The charts may give you many insights about what buyers and sellers are thinking about a stock at any given moment, but as a stock goes lower, the chart gets uglier. With our method, relying on the fundamentals, we like stocks more as they get cheaper.

We've talked about buying a lot of the accidental high-yielders on the way down--Caterpillar, AT&T, Verizon, PPG, and Kimberly-Clark, all accidental high-yielders we've recommended on the show. We didn't recommend them because we liked the charts. We recommended them because we believed that the businesses would be able to make it through this downturn, and the dividends would give you more and more income as the share prices decline.

No question, this market stinks. It's stunk for a long time. But you can't let a bad market shake you out of a good long-term thesis--that's rule number four in Jim Cramer's Stay Mad For Life. Things may get worse before they get better, but if you know why you like the company underneath a stock, especially if it has a high-yield, then you have the conviction necessary to hang on, and buy more as that stock goes lower.

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 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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