I really enjoy books that give a glimpse into another lifestyle. That’s why I enjoyed Trading with the Enemy, in which Nicholas Maier describes his experience working for Jim Cramer at his hedge fund. That’s why I enjoyed A Million Bucks by 30 by Alan Corey, which was the story of how Alan “overcame a crap job, stingy parents, and a useless degree to become a millionaire before (or after) turning thirty.” When I was asked to check out Adam Shepard’s book, Scratch Beginnings, I agreed. Scratch Beginnings is a true story, written in Adam’s own words, about him starting literally from scratch with $25 in Charleston, South Carolina.

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When can a stock rating of Buy be a bad thing? When the stock market analyst’s firm has a rating higher than a Buy. Analyst don’t like rating things a sell, which is essentially the kiss of death, and so oftentimes you’ll see a Hold or a Neutral rating when the analyst really means sell. Have you heard of this before? Yeah me too, it’s like some big joke. Analysts are just like you and me, many of them are terrible at picking stocks, like their jobs, and don’t want their boss or their customers breathing down their throat. They don’t rate stocks a hold because the company will start hassling them and institutional investors will start asking why, they can easily just put down a Hold or Neutral, indicate the negative outlook, and no one gets all hot and bothered. That’s just one nugget in Stephen McClellan’s Full of Bull.

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I have having lunch with a co-worker last week when he mentioned he was considering signing up for Motley Fool’s Hidden Gems newsletter run by Tom Gardner himself. A single year’s subscription to the newsletter costs $199 a year! Is it worth it?

I have no idea, but I know who might, the resident investment blogger that I talk to on a semi-regular basis and the only one I’ve actually met in person – George of Fat Pitch Financials (you may remember he gave me a sneak peek at his Contributor’s Corner). What did George say?

I’ve tried most of the MF investment newsletter subscriptions. The Hidden Gems research is pretty good and they use to have a great message board back when I tried it out. The subscriptions also give you access to the Fool forums. The only drawback with Hidden Gems that I’ve heard of is that the members often drive up the price of these small cap stock picks real quick when they are selected and the price can drop dramatically when the stock is no longer recommended. The picks also often tend to be higher risk growth stocks.

I think the biggest drawback of the Motley Fool products is that you only get research on a few stocks each month. I like MorningStar as an alternative because they cover 1500+ stocks. I think for even less than the cost of a MF subscription, you get a lot more with the MorningStar Premium Subscription.

Sounds like the newsletter is certainly of value but there are certainly very obvious drawbacks. While there appears to be value in the MF Hidden Gems one specifically, I can see how most of those drawbacks are systemic problems for all newsletters. Just think of the picks Jim Cramer gives away for free on his television show, the stocks spike the next day and any value that was there is quickly diminished. While the picks may or may not be good in the long run, in the short run they are made “less good” by virtue of being broadcast on CNBC. The only mitigating factor (to the popularity issue) of Hidden Gems is that the annual entrance fee of $199 dissuades many an investor so you won’t get the throng that pant over Jim Cramer’s daily selections.

Beyond the short term spike, George mentions something that may be obvious if you think about it – they tend to pick higher risk growth stocks. Well they’re looking for hidden gems, so they’ll probably be picking riskier propositions but ones with long term potential. With venture capital, the old maxim is that you pick one home run, four treadwaters, and five busts (something like that… I’m not a VC); so if you apply that to stock picking, you don’t have to be mega-successful percentage-wise to be mega-successful dollar-wise. All it takes is one twelve-bagger…

Lastly, there is also the issue of coverage, since the newsletter has to make certain picks, it can’t cover the whole field and provide extensive research on a lot of securities. Also, what if there aren’t any hidden gems or they don’t find any? There is the possibility that right now there are no hidden gems worth taking a shot at, so do they trot out something or just research a bunch of securities and let you have at them? It’s an interesting question that I don’t know if anyone has asked them yet. That’s why George recommended Morningstar, especially if you’re a more active investor because you get significantly more information.

Lastly, I do have to give a shoutout to George’s Contributor’s Corner (especially since his email was very thorough), it certainly has value and comes with a cheaper sticker price of only a hundred dollars a year. George finds all sorts of arbitrage opportunities that come with little risk and requires quite a bit of work on George’s part. Making back the $100 is a cinch through the various going private, reverse split, and buyout opportunities he digs up. (George isn’t cutting me in on the action though )

Anyone out there use MF Hidden Gems or any other investment newsletter and care to share their experiences? MF Hidden Gems does have a 30 day trial so my friend might dip his toe in to see how it is, I’ll report back if and when he does.

Disclaimer: Insider trading is illegal. Don’t do it.

A seasoned friend (he wouldn’t call himself an investor) once told me that unless you have some sort of insider information, the average investor is likely to be killed by the professionals because those professionals have friends in high places, right places, to give them some good informational nuggets to trade with. He worked on the efficient market hypothesis, that is the market value reflects all the information available, and I’m generally inclined to believe the same as well. Now, we take that information, put it together with what we may have learned reading Trading With The Enemy and it’s not difficult to believe that the professionals are all in bed together, playing by a different set of rules, and that some sort of shenanigans are going on. Oh yeah, add in the latest bit on Cramer and “fomenting” for a little bit of spice in that recipe.

Lately I’ve had my eye on one particular stock in a pretty sizzling industry, watching it fly high, fall, fly high some more but I’ve never bought any. In fact, I’m probably never going to buy any but that doesn’t stop me from peeking at it from time to time to see what’s going on. So, about a month ago it was at a high, let’s say in the high 20’s, but some mediocre news and the absence of news caused the stock to drift downward until it was in the low teens. Then, miraculously, it spiked up 15% two days in a row (Wednesday and Thursday) for absolutely no reason. At least no reason publicly. Then the following Monday, the company reported some excellent news and the stock took off (in part from short sellers looking to cover).

So, what did the buyers on Wednesday and Thursday know? Certainly they didn’t bid up the stock 15% two days in a row (32% gain in two days!) on the anticipation of good news, did they? Depending on the market cap of a stock, you might see maybe +5% the day or two before a potentially good earnings announcement (thought that’s not indicative of whether the announcement would be good or bad) but +15% two days in a row? People knew something (and other people didn’t).

Trading without insider information is like going bear hunting with a BB gun.

At the risk of not ending this article on a ridiculous image (who goes bear hunting anyway?), I am really curious to hear everyone else’s thoughts on this; whether you’ve seen something similar and agree or you think I’m full of crap and all conspiracy theory.

It’s been popular these days for bloggers to scour their logs for questions that visitors have had (based on search engine referral pages) and answering them… so I’m joining the party!

An Ask.com visitor asks: How old is Jim Cramer?
According to Wikipedia, Jim Cramer was born on February 10th, 1955 in Wyndmoor, PA, which makes him 51 years old.

A Googler wants to know when the “tax free day” [in] michigan is:
According to my research on 2006 Sales Tax Free dates, Michigan doesn’t have a tax free day(s). Sorry folks!

And lastly, A Googler wonders about the “401k max for 2006″:
For 2006, the maximum you can contribute to your 401k according tot he IRS is $15,000 unless you are over the age of 50, then you are permitted an additiona $5,000 “catch-up.” Your employer can also impose their own limit, usually a percentage of your salary, if they so choose.

If you ever watch Jim Cramer’s Mad Money, you’ll recognize the lightning round where callers mention a whole multitude of stocks and ask Jim Cramer for his opinion of them. He’ll usually give you his opinion of the stock, its competitors, the industry its in, and a few choices sound bytes from his array of sound effects. While a lot of his antics are for show, he does have a remarkable ability to know that much about so many stocks. So, I once asked, how does he do it? That’s where CK comes in.

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Trading With The Enemy: Seduction and Betrayal on Jim Cramer’s Wall Street, written by Nicholas Maier, relives Nick’s experience working for Jim Cramer at his hedge fund, Cramer & Company, from 1994 to 1998. I picked up the book because it details the inner workings of Jim Cramer’s hedge fund and I always enjoy these “inside look” type books and this one did not disappoint. If you’re familiar with Jim Cramer or his hot show Mad Money, you’ll know that he always seems to be a madman on television. The intensity he shows on that show is a mere fraction of how intense he can get when real money is on the line and you never see the mean streak on television. In the book, Jim throws monitors, screams at brokers, and basically is insane while managing hundreds of millions of dollars and managing it quite well. Don’t screw up because you’ll might not even live to regret it.

The book will reveal a lot of insights on the inner workings of Wall Street (Cramer & Company pay six cents a share traded, way more than a private investor, but there is a reason for that – “you get what you pay for”), what it takes to be a power player in the markets, and why Jim Cramer acts the way he does. It’s really an eye opening learning experience, to be perfectly honest, because it’s amazing how much information is passed around before they hit “official news.”

How much of it is embellished? I have no idea, it was published in 2002 before Mad Money premiered but after Jim Cramer made a huge name for himself, and the author acknowledges that many are reading it just to learn about Jim Cramer. I bet some of it is since he quotes things from memory, so take that with a James Frey grain of salt, maybe a little smaller grain though. Still, a fun read if you have a lazy Sunday afternoon free.

Amazon doesn’t have any more copies but they do have a summary and some reviews available, your best bet is to try to find it in your local library.

Ahhh the clahhsic Best of 2005 post that you may or may not have been waiting for. Considering this blog was started on January 31st of this year, this really could be titled the Best Ever post and still be accurately titled. However, that is a bit presumptuous to say that what I consider the best is what you should consider the best but we’ll give it a shot anyway. Of the 433 posts written this year, here are the ones, categorized for your convenience, that I believe are worthy of re-reading:

Incredibly Detailed House Hunting Search

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There are a lot of websites out there that blog about Mad Money and recap the entire show in painful detail for you. Some go as deep as listing every call in the Lightning Round and indicating Cramer’s opinion. TheStreet.com Staff writers also produce a detailed recap each show which probably guarantees that their recap is complete and correct (something difficult to believe when it’s one person typing furiously at their computer day after day). In addition to listing every company Cramer is bearish or bullish on; they discuss the interviews held, the opinions expounded, and the other little things mentioned on the show. If you’re a fan of Cramer, who looks perpetually on the precipice of an aneurysm, you’ll want to make these recaps part of your daily read.

This is the home stretch, the final five rules of investing are here for your general consumption. If you’re interested and haven’t read reviews on Jim Cramer’s “new” book “Real Money: Sane Investing in an Insane World,” be sure to check out some of the reviews to see if this book is for you. While the past few articles and this one are summaries of these rules, the book goes into greater detail and may be worth checking out. Now… onto the final five rules:

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