Jim Cramer: Don’t get mad, get ‘Back to Even’

In his new book, "Getting Back to Even," Jim Cramer, with "Mad Money" head writer Cliff Mason, offers a wholly new, even radical approach to investing in the new postapocalyptic financial climate. An excerpt.

From chapter one
Everyone remembers that famous quotation from Franklin Roosevelt's first inaugural address, "the only thing we have to fear is fear itself," but you hardly ever hear the rest of that sentence, the most important part, expanding on this fear: "nameless, unreasoning, unjustified terror, which paralyzes needed efforts to convert retreat into advance." Now, obviously, if you've just had your retirement fund shredded or are in danger of losing your house, you have more to fear than fear itself. Fear is a great motivator but not when it paralyzes needed efforts to convert retreat into advance. We've been through nasty recessions before, and believe it or not, it's possible to overcome the problems they create for you personally, and even to profit from the broader crisis and come out wealthier than ever. But to do that, you have to recognize that in extraordinarily difficult times, the stock market doesn't always operate according to ordinary rules. However, there are new rules, and rules I have pioneered to help you navigate your way through these brutal times. I can teach you how to learn from and play by these new rules and win while everyone else is trying to show you how to avoid a crash that already happened.

Why should you listen to me, and what makes this book so different from the standard fare? I'm a stock guy after all, and aren't stocks what got us into this mess in the first place? Look, I have been at this for thirty years. Unlike the usual peddlers of financial advice, I actually made myself rich by investing in the stock market and managing the money of my wealthy clients at my old hedge fund, Cramer Berkowitz & Company, including cleaning up during the devastating crash of 2000, when my fund was up 36 percent, while the Dow Jones Industrial Average took a 6.18 percent hit, the S&P 500 fell by 9.1 percent, and the NASDAQ plummeted 39.29 percent. I know how to make money in bear markets and during recessions. But beyond that, I've also been where you are right now. I know what it's like to lose a vast amount of money in a short period of time. I know how it feels to have my very future on the line. I understand the stress and the fear, but I also understand how to come back.

I still keep a memento of one of the lowest points in my life tucked into my wallet, and carry it with me wherever I go. It's a little piece of paper, a cutout from my daily portfolio run on the single worst day my hedge fund ever had, October 8, 1998, a date that, at least for me, will live in infamy. With less than three months left until the end of the year, my hedge fund, which was supposed to be managing $281 million, at the time was down $90,915,674 or 32 percent, because I'd made a series of boneheaded bets in the market. That's the kind of loss that would destroy most hedge funds, like the hundreds of funds that were brought low by 2008. It wasn't just my money that was at risk, it was my job and my entire career, too, not to mention my reputation, as virtually everyone I knew had written me off as a failure. Even The New York Times had written my premature financial obituary.

Video   Making your retirement money work Oct. 9: CNBC’s Suze Orman has tips for making sure your retirement savings will be there for you and your partner. Today show

I was in the very same position that most of you are probably in right now. My investments had cratered and my future was in jeopardy. Practically everyone around me urged me to quit and head for the hills, wherever the hills might be, since I live in a Jersey suburb of New York City. So you see, I know exactly how you feel. But I'm not telling you this to show that I feel your pain. Empathy is great, but it won't make you money. You need concrete solutions and this book is filled with them.

Between October 8, that dark day when I was down almost $91 million, and the end of the year, I did what I'm going to teach you to do in this book. I got back to even, and actually finished the year with a small profit of 2 percent. I buckled down and in less than three months I made back $110 million, averaging $1.4 million in profits every single day. Not only is it possible to come back from devastating losses, but also, if you're lucky, you can even do it quickly. Now, in one respect you're in a much better position than I was in 1998: you don't have to worry about arbitrary time constraints the way a hedge fund manager does. No clients are trying to pull out money while you try to rebuild your capital, nor is anyone even looking over your shoulder, forcing you to get back to even by the end of the year. You can afford to be patient. Of course some of you have less time than others. If you're on the verge of retirement or you're about to send a child off to an expensive college that you're paying for, then you can't be as patient as someone who's in their twenties with no dependents and no big, unavoidable expenditures on the horizon. But you still have a heck of a lot longer than I did at the end of 1998, and that makes things easier.

On the other hand, I also recognize that this is not 1998. The rules of the game have changed, and it's become harder to make money in the market. Not everything that used to work for me when I was running my hedge fund still works today. Many money managers have given up and returned to other professions, too baffled or fed up with a stock market they perceive as intractable or inscrutable at best, and downright malevolent at its worst. Ideas that were common sense or conventional wisdom even just a year and a half ago can now seem downright insane. I have always believed that putting part of your income in stocks is the best way to augment your paycheck every month, that anyone can make themselves rich by investing wisely. I still think that's true, but we also have to come to terms with some harsh new realities.

First and foremost is the fact that for many people the stock market feels broken, a totally justifiable attitude. The market has taken on a level of risk that makes it a much more dangerous place to keep any money that you think you'll need to make a major purchase any time in the next few years. And beyond that, many of you probably feel betrayed by stocks. I don't blame you! Instead of being a time-tested vehicle for wealth creation, stocks have come to be viewed as the reason why people are forced to postpone retirement or take on a second job. Stocks that were once considered "blue-chip" investments, household names that lots and lots of people owned, such as General Motors, Bear Stearns, Lehman Brothers, Citigroup, AIG, and Kodak, just to name a handful, have been bent, spindled, mutilated, and then mutilated some more. This is not like the aftermath of the dot-com bubble, where the stocks that lost people money could all be written off as overvalued, overhyped, speculative junk. These were considered real companies, revered time-tested institutions, part of the bedrock of the market — and if you owned them you got killed.

More from TODAY Who is People’s Sexiest Man of 2009? | Vote!  Feed your libido! Get the better sex diet  ‘Loser’: Rudy's grudge sends a player home Tina Brown: Newsweek Palin cover not sexist | Vote Ambush! He shaves Santa beard for his wife

So why should you believe that investing in stocks, which got us into the mess we're in, can also get us out of it? Why not just cut your losses and stick your money in a traditional savings account where you won't have to worry about it? First of all, because you'll never get back to even that way, and second, because there is a world of difference between owning stocks, which has caused so much wealth to disappear, and trying to make money in stocks, an approach that at the very least lets you sidestep some of the pain. You can get back to even if you follow the latter course. Most peddlers of financial advice, even after the wealth-shattering crash of 2008, preach the virtues of owning stocks just for the sake of owning them. They will still tell you to buy and hold, an investing shibboleth that I have been trying to smash for ages. The buy-and-hold strategy, if you can even call it one, is to pick a bunch of good-looking blue-chip companies, buy their stocks, and hang on to them till kingdom come. Selling is strictly forbidden. It's considered a sign of recklessness, of "trading," which all too many supposed experts think of as a dirty word. Same goes for the once-sacred mutual funds, with managers who adopted the same careless buy-and-hold, one-decision philosophy.

MORE FROM TODAY BOOKS: MONEY

Jim Cramer: How to invest in current economy

Jim Cramer: How to invest in current economy Help! I'm buried in bills and my credit is bad Rules of dating can help you land a dream job   Young millionaires share their secrets High gas prices may be good for us, author says How ‘The Roof Caved’ on Wall Street ‘Gift to My Children’ teaches about money, life Reach financial goals in your 20s and 30s How to ‘Fight for Your Money’ Be savvy! 10 ways to save on groceries   Add Today Books: Money headlines to your news reader: