Investment Book Reviews

Review by Mike Price

Despite my dislike for Jim Cramer's stock-picking method, a friend recently convinced me to read Confessions of a Street Addict.

The book starts out when Cramer is in 5th grade and he comes home from school everyday to skip the comics and sports to get to the stock tables so he can see which stocks have changed since the day before. After a disappointing presentation where his class refuses to participate in picking stocks, Cramer decides to quit it and goes back to baseball.

We then skip ahead to after Cramer has graduated Harvard - where he was editor of the Crimson; he is now working for a newspaper in California.

After a stalker steals everything he owns, Cramer ends up living in his car with only a .22 and his old boy scout hatchet. Because of this, his boss - who Cramer shows his loathing for throughout the book - ridicules him at the office and sends him on the most ridiculous stories. Cramer was the reporter who had to interview the next of kin for murder victims, go on the most dangerous trips – and the overnight ones, because “he didn't have a home to go back to anyway.”

Eventually, he got rid of this job and went back to Harvard Law where he started to like stocks again.

Cramer writes that if you don't know what to do with your career, just go to law school; then you will figure out what you want to do.

After getting cable in his dorm, Cramer started spending most of his time watching the stock tickers fly by as he sat at his desk trading all day. When he did go to class, he sat in the back and read The Wall Street Journal to find more good trades.

His professors didn't care because he was reviewing their portfolios and giving them stock tips. Eventually, Harvard's resident anti-trust expert advised him on a case that he ended up using to make big money.

Because there was nowhere else to give people stock ideas Cramer would record them on his answering machine saying, "Hi this is Jim. I'm not here, but Boeing is a good buy at $12," or other variations.

His future partner at thestreet.com, Marty Peretz, repeatedly called him and left messages on his answering machine. Because Cramer was not interested in what Marty had to offer at the time, he didn't return the calls. Eventually, Marty admitted the only reason he called Cramer was to get the stock picks on the answering machine.

The two men met for lunch, where Peretz gave Cramer $500,000 to manage. Cramer promptly lost $78,000. After repeated sleepless nights, Cramer told Peretz he had lost the money, would give it back, and would mow Peretz’s lawn until he could repay the lost money.

Marty just laughed and told him to make it back. And so Peretz became Cramer's first paying client.

Cramer then attempted to get into the coveted summer job at Goldman Sachs, where thousands of business school MBAs didn't have much of a chance - much less a Harvard lawyer with no real investing experience.

But Cramer was persistent; he once stayed for six hours in a windowless room waiting for an interview. At his next interview, he wowed the people grilling him by knowing about each of the stocks on Goldman's list and recommending new ones for the list. After the interview, Cramer took the wrong jacket and didn't realize it until right before Goldman closed; when Cramer went back to retrieve the jacket, his interviewer thought he had stayed the whole time and said how much he liked that in a candidate.

Cramer got the summer job.

He went on to endure the torture new investment bankers go through - see Monkey Business and Liar’s Poker for more on investment bankers and what they go through for their big checks. Cramer missed his sister’s wedding because he was at a presentation he had to attend to keep his job.

After repeatedly getting in trouble for buying stocks for clients from his recommended list - not Goldman's - Cramer quit the firm and decided to open his own hedge fund.

Expert hedge fund manager Michael Steinhardt took Cramer under his wing. Steinhardt gave Cramer an office in the building, and told his traders to train Cramer.

This is where he met the Trading Goddess, Karen, his future wife and partner at the hedge fund.

Eventually, Cramer moved into his own building where the Trading Goddess would put him and all the traders through a vicious grilling on why each stock was owned every morning. If she didn't like a stock that the fund owned she would simply sell it when the trader who had bought it took a trip to the bathroom; this undoubtedly created a few cases of kidney disease for frightened traders.

Later, when Karen became pregnant, she left the fund and would only come back for one more day before moving into owning only bonds.

Cramer realized the rising popularity of the internet after online chat rooms caused some small cap stocks he wrote about in SmartMoney to shoot up. That’s when Cramer came up with the idea of starting a subscription website.

One weekend Cramer, Marty Peretz, business writer Michael Lewis and others came together to discuss the idea of building the website. Though Lewis agreed to write for them, then never returned any calls, he did come up with the name of the site: thestreet.com.

Thestreet.com would go on to have two criminal CEOs; one was an alcoholic who did no work and one gave Barbara Streisand free stock just to get a private dinner.

Thestreet.com also went a day and a half into trading before it opened on the IPO; the book has more stories on Cramer's struggles with the site.

On his last trading day Cramer went crazy while one of his trades, Brocade, kept going down. During this rampage he destroyed two keyboards, two phones and almost overturned his desk, all while shouting “that f***ing Brocade!” After this episode, which apparently happened often, Cramer decided he was not going to miss any more family vacations or soccer games and he hung it up.

The next day he went in and announced his retirement from the fund. After being in cash for the '87 crash, almost dissolving in '98 while down 30%, buying into the next crash to make millions in one day and being down 9.9% in his first week after he promised investors the fund would close if it ever went down 10% or more, Cramer finally hung it up.

Cramer stopped waking up at 3:45 am, stopped fining traders for bad trades, stopped sending his blood pressure up a hundred points every time a stock fell one point and embraced his new full time job at thestreet.com.

I loved this book and devoured it in a few days. I feel it is required reading for anyone who is contemplating starting a hedge fund, or who is leaning towards trading and speculating instead of investing.

Mike Price is a fifteen year-old value investor who has been investing since the age of thirteen. He started by reading the Motley Fool discussion boards and Robert Hagstrom's many Warren Buffet books. He now writes his own blog: Value Investing, and a Few Cigar Butts.