Q&A With Jim Cramer

On his gonzo CNBC show, "Mad Money," hedge fund manager turned television star James Cramer fires off stock recommendations with the speed of an Uzi. When he's not on-air he's blogging on theStreet.com, the financial Web site he founded. But the frenzied guru can calm down enough to write longer narratives. Last week Simon & Schuster published his fifth book in five years. In "Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)" the volatile trader gets in touch with his inner life coach, forgoing rapid-fire stock picks for more considered advice on the building blocks of a prosperous life: 401(k)s, insurance, and college savings accounts.

Amid his media blitz—he had just come out of an appearance on "Live With Regis and Kelly"—Cramer spoke with NEWSWEEK's Daniel Gross about maximizing investments, the mortgage mess and his new on-air competitors at the Fox Business News Channel. Excerpts:

NEWSWEEK: This book is a departure for you.
James Cramer:
I should have written this as my first book. Coming from the hedge fund world, I had been reluctant to do a personal finance book. But too many people asked me for it. It's the first book I've written because people asked for it.

There's no shortage of personal finance advice out there, including on television and the Internet. Why do we need a new one?
People have asked me at book signings or on TV shows to show them what's best: an IRA, a Roth IRA, or a 401(k). And the answer is complicated. It doesn't lend itself to easy television viewing. Whether it's 401(k) plans or 529 college savings plans, [explaining them is] very tricky.

About half of Americans own stock. How are we doing in terms of building an ownership society?
This administration and the Federal Reserve made a very concerted push to become an ownership society by cutting taxes on dividends and capital gains. The real benefit hasn't been in increased ownership of stocks but of real estate. People began to think the only investment you needed was your home. This book is an antidote to the cavalier and reckless way that the government pushed people to buy a house. Stocks have always been the best-performing assets. We have to go back to them.

You rail against the use of credit cards and are a big proponent of thrift. But the financial press always reminds us that the U.S. economy is fueled by consumer spending, and that if we save too much we could be putting our neighbors out of a job.
There is a conflict between thrift and spending. Everyone is profligate. The recklessness with which people approach spending makes it very difficult for them to get rich. People will buy five DVDs from Disney instead of one share of Disney. They should do the opposite.

In your book one of your rules for 401(k) investing is that people should never buy their employers' stock. Why?
I'm more concerned about downside than upside throughout the book. I've seen too many 401(k)s that were 100 percent invested in the company's stock, and it's just devastating when it falls. Diversification is the only free lunch in the business.

People sometimes have a problem diversifying 401(k)s because of limited options. Many plans don't offer international funds, for example.
This steams me. These human resources people will keep you in the poorhouse. People at companies have to speak up and demand more choice, because the HR people love to hide behind ignorance. Who are they to take away the option that has been the best performer for the last 10 years?

Now you've just alienated a large sector of your potential readership.
One of the things I'm accepting about my lot in life is that people will complain when you say things. I don't care. I want to help people.

We're now seeing what seems to be a repeat of the dotcom era, when Wall Street reaped big profits selling securities that turned out to be junk to the public.
The incentives to do the wrong thing here were huge. The way you made the most money in Wall Street was to work in the department pushing that bad paper. Countrywide Financial wanted to shoot the lights out. Everybody took the risk, and it all had to do with short-term greediness. Periodically you would expect elders in the system, like the Federal Reserve, to do something. But we have a government that favors rapacious unregulated capitalism and companies that very much want to show great quarters. And that combination is horrid.

There's some pop psychology in this book. Are you impingeing on the turf of your CNBC colleague Suze Orman? And is she going to start a stock-picking show in response?
Suze Orman is fabulous. We're very good companions to each other. The expertise I add is to recommend some specific mutual funds.

Your book provides another departure from conventional wisdom. Lots of advisers believe actively managed mutual funds are a suckers' bet, since few managers can beat the indices year in and year out.
I myself was part of that orthodoxy. But when I look at the returns of hundreds of mutual funds, there are some managers who have done a great job. And everyone I talk to wants advice on mutual funds. An S&P 500 fund is OK if you don't want to spend the time. But there are some remarkable funds.

So what do you think of the just-launched Fox Business Channel ?
[Fox head] Roger Ailes has upped our game. It's made us have more urgency to what we do. Candidly, I don't know how much room there is. It's not politics. It's kind of narrow. It is a niche. That said, I like competition.