Pay Close Attention To Jim Cramer’s Stock Picks But…

…don’t blindly trust anything you see on TV. Nor should you blindly invest in any of his picks without doing your own analysis.

Who Is Jim Cramer?

Jim Cramer may be the best-known stock advisor in the country. His nightly TV show “Mad Money” is broadcast to millions of viewers on CNBC, and he’s quite entertaining to watch. Investors tune in to hear his stock picks and investing strategy, and also to watch his passion filled rants about the market and US economy (see his “Ben Bernanke meltdown“).

Before Cramer secured his TV show on CNBC he was an incredibly successful hedge fund manager who earned an average annual return of 24% during his 14 years in the position. He’s also written several popular investing books which readers flock to, and he’s a trusted source when it comes to investing. His viewers love him because he’s very straightforward, and passionate about his recommendations.

Cramer is also the co-founder of TheStreet.com, which he created in 1996 with Martin Peretz. TheStreet.com is a treasure-trove of trusted investing information complete with detailed analyses of almost any company worth investing in. Additionally, it’s legal entity, TheStreet, Inc, has been developed into a network consisting of leading financial services websites.

Through TheStreet.com Cramer offers specific insight into his personal stock transactions for his charitable trust portfolio, Action Alert Plus, before they’re made. From 2002 to 2009, this trust outpaced the S&P 500 by an average of more than 7% per year. Needless to say, his credentials speak for themselves in proving he’s an incredibly savvy, and also profitable investor.

Cramer’s Advice

Jim states that his goal in providing information, both via CNBC and TheStreet.com, is to provide the tools and knowledge to empower individual investors, and as he puts it “…not to tell you what to think, but to teach you how to think about the market like a pro. This show [Mad Money] is not about picking stocks. It’s not about giving you tips that will make you money overnight – tips are for waiters. Our mission is educational, to teach you how to analyze stocks and the market through the prism of events.”

Despite this statement which is repeated at the beginning of every Mad Money show, Jim does offer specific tips on individual stocks but always gives an explanation of why he’s making a particular recommendation. After reviewing the stock, he’ll weigh in on whether he feels its a buy, sell, or hold.

Because he covers many stocks throughout the course of his show he’s is only able to offer a brief overview of the company in question before voicing his opinion and moving on to the next. Rarely does he spend more than a few minutes digging into deep details of a single stock.

What Should You Do With Cramer’s Advice?

This advice applies not only to what you hear from Jim Cramer, but really anyone whom you accept stock-picking and financial advice from.

You must listen to his advice as a trusted stock advisor, then conduct your own research to determine your own action plan. You should never blindly accept and act on his positions simply because he has a historical record of success, or because he’s on CNBC. He is very well trusted though, and has a fantastic record of success so you can feel safe in using his advice as a great starting point for finding potential stocks to invest in.

You Must Do Your Own Research

After hearing a stock pick from Cramer, you must do your own research before doing any buying or selling. If Cramer says that AAPL is a screaming buy because it had great earnings this quarter, then by all means, let’s check for ourselves to see exactly how AAPL fared. Lets also dig much deeper than earnings. Remember that earnings are only one small aspect of a company’s financial status. It’s also important to also look at profit margins, market conditions, debt, P/E ratio, P/B ratio, and many other factors that’ll ultimately influence your decision.

Also keep in mind that when hearing stock recommendations oftentimes important information can be left out either on purpose or by accident. Remember we’re all human, even Jim. He reviews so many stocks nightly on his show that it’s impossible for him to conduct as thorough of a review as you will when you’re putting your own money on the line. It’s your job as an investor to dig up all possible information on the company to have as complete of a picture as possible before making your decision to buy, hold, or sell.

While conducting your own research a great starting point can be to read other expert’s analysis of the company. You can find terrific analysis on websites such as The Motley Fool and Seeking Alpha from some very knowledgeable people. From there you can reach out directly to the prospective company to request an investor’s packet complete with financial data, market information, and other detailed information about the company. These are fantastic resources for learning about the company, and nearly all public companies have an easy to find “Investor Relations” link on their website with info on how to request this packet.

By conducting your own research, and taking all financial and economic factors into account, you’ll find yourself making much more informed investing decisions. Ultimately, this’ll help to greatly increase the chances that the value of your stock portfolio will go up over time. If a busy schedule doesn’t allow you time to do the research, or you simply don’t know how, then it’s probably best to find a trusted financial advisor that can do it for you.