I’ve been reading Jim Cramer’s Real Money: Sane Investing in an Insane World on and off for a while now. I came across a section on how Cramer recommends a person pick stocks (if they decide to engage in active stock picking). I found it interesting, and maybe you will too. 
1. Buy local.
Buy stock in a company that has a presence in your community. He recommends checking the business section of your local paper for a truly local business, though a local franchise of national chain is OK too. It’s good to support the people who live and work in your community, but it’s also a great way to get in on the potential growth from day one. If you pick a winner, you’ve done so before it’s hit the national radar.
2. Oil stock.
Oil stocks are consistent performers, and offer high dividends. They also tend to be solid when times are tough, as we’ve seen over the 2007-2008 market. Obvious players here are Exxon Mobil (XOM ), ConocoPhillips (COP ), BP PLC (BP ), etc..
3. Brand name blue chip that sells at yield above the S&P 500.
Look for history of raising dividends, high quality company. Especially good if you can get one from the S&P 500 Dividend Aristocrats (companies with a history of increasing dividends every year for the past 25 years.)
4. Financial stock.
Historically, financial stocks tend to be stable, and secure. They also offer nice dividends. Of course, the past year or so is the exception to the rule, but now is probably a good time to start looking for one. Interestingly, Cramer emphasizes regional banks over national banks. This is presumably because of the greater possibility of growth, though it seems that regional banks have managed the credit crisis far better than the larger, national banks.
5. A Speculative stock.
Go for a risky, under $10 stock of a small company. This is where you swing for the fences, but never have more than 25% of your portfolio in speculation.
It is important to note that Cramer recommends the above sample portfolio for discretionary investment capital only, i.e. not for your retirement savings.!
It was at this point when I started to think he wasn’t as big an idiot as his loud mouth demeanor led me to believe
[...] is a companion post to Cramer’s top 5 picks for stocks to buy and is based on the tips from Jim Cramer’s Real Money: Sane Investing in an Insane [...]
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