A Must-Read for Long-Term Equity Investors

7 Investment Themes to Watch for This DecadeThe business section of any bookstore is littered with leadership stories of big corporations, musings on personal finance, and countless how-to manuals.

However, there are very few books that deal specifically with capital markets and how to improve your skills in picking stocks and honing your market view. Jim Cramer’s latest book, Get Rich Carefully, is a worthwhile read, especially if you’re not a full-time investor/speculator and you’re either saving for retirement or you’re in retirement and looking to improve your portfolio.

Cramer always has a lot to say, and like his shows on CNBC, his latest book is wordy and somewhat laborious. But he offers a lot of tips that he’s garnered through his experiences in trading and picking stocks, with each chapter offering a summary of lessons learned—the dos and don’ts.

The first chapter offers what 99% of all business books do not—“What Moves a Stock.” Cramer examines the pricing mechanism for all securities—supply and demand—and demonstrates the power that buy-side institutional investors and professional Wall Street traders have over stocks. As evidenced in the stock market crash of 1987, index futures have now overwhelmed traditional share price movements. Cramer says that stocks now trade like commodities, and individual investors are basically helpless in the face of such vast amounts of institutional money.

Cramer talks about a number of companies that he thinks make for excellent long-term holdings. He’s a big fan of dividend paying stocks and the domestic energy sector revolution, which he feels will generate good investment returns for the rest of this decade.

He also likes technology—not pure-play technology, but rather technological innovation that’s happening in companies like Colgate-Palmolive Company (CL) and Under Armour, Inc. (UA). (See “Top Market Sectors for 2014.”)

In addition to Colgate-Palmolive and Under Armour, some of the stocks Cramer likes for the long-term include: Johnson & Johnson (JNJ), V.F. Corporation (VFC), EOG Resources, Inc. (EOG), Becton, Dickinson and Company (BDX), PepsiCo, Inc. (PEP), Schlumberger Limited (SLB), Union Pacific Corporation (UNP), Starbucks Corporation (SBUX), Costco Wholesale Corporation (COST), salesforce.com, inc. (CRM), Google Inc. (GOOG), and Kinder Morgan Energy Partners, L.P. (KMP).

Cramer breaks down seven big investment themes going forward, which he feels will last over the coming years. They are:

  • Technology for social, mobile, and cloud-based applications, not products that are easily commoditized
  • Food chain health and wellness stocks, like Whole Foods Market, Inc. (WFM) and The Hain Celestial Group, Inc. (HAIN)
  • Post-recession value in goods and services stocks, like Costco, The TJX Companies, Inc. (TJX), priceline.com Incorporated (PCLN), and Cedar Fair, L.P. (FUN)
  • Companies that merge with others or divest operating divisions
  • Stealth technology plays in food, consumer packaged goods, and apparel
  • Large-cap biotechnology stocks, like Celgene Corporation (CELG), Biogen Idec Inc. (BIIB), Gilead Sciences, Inc. (GILD), and Regeneron Pharmaceuticals, Inc. (REGN)
  • The energy revolution: According to Cramer, shale success is in its infancy, with very good investment returns to be had for a number of years

Cramer makes a point of highlighting the wealth effect that is often created by companies that break themselves up. Stocks like Phillips 66 (PSX) and Kraft Foods Group, Inc. (KRFT) were powerful spin-offs from their parent companies. These stocks (and their previous parent companies) created a lot of wealth after being spun off.

Finally, Cramer reiterates (over and over) the most valuable information available to investors—what corporations actually say about their businesses. The only economic statistic with lasting impact on share prices is the unemployment report. Everything else is just noise.

He recommends the conference calls/transcripts of big, international companies like Caterpillar Inc. (CAT) and General Electric Company (GE). Even if you aren’t interested in these stocks, the quarterly information they provide is unique, global, and very valuable for honing your market view.

Cramer likes to talk and he likes to write. Many of his observations about investing and the way institutional investors trade stocks are spot-on.

Get Rich Carefully is a worthwhile read and the chapter summaries are excellent. It’s no Market Wizards, by Jack Schwager, but it fits today’s world for long-term equity investors.