What is Buy And Homework
Buy and homework is a slang phrase meant to stress the importance of making educated investment decisions.
BREAKING DOWN Buy And Homework
Buy and homework is a phrase coined by TV personality Jim Cramer, host of the CNBC show “Mad Money.” It is based on the idea that buy and hold is a losing strategy. In Cramer’s view, people who take a passive approach to investing are asking for trouble. Instead, he believes that investors must be prepared to make strategic decisions and react to changes in the market or unexpected fluctuations in stock performance. Cramer's buy-and-homework strategy means that investors should spend at least one hour a week researching each stock in their portfolio.
Buy and homework may sound like just another trendy buzzword, but the philosophy behind it makes sense, and is probably a good strategy for investors who want to be savvy about their financial decisions. It is always a smart idea for investors to be educated and well-informed, and to do their homework before making important moves that can affect their financial future in a significant way.
Resistance to the Buy and Homework Approach
The research the buy-and-homework strategy requires can include tactics such as listening to conference calls, knowing what analysts are looking for, paying attention to the news stories and reading financial statements. Cramer often points out that everything investors need to conduct investment research is available easily and for free on the web.
There are two main arguments that investors use against this buy and homework strategy: that people don't have the time to do this research, and that if you hold on long enough, even a poorly performing stock will eventually come back.
Cramer's argument for the first excuse is that if an investor does not have the time to spend researching each stock in their portfolio for at least one hour per week, they can hand off their portfolio to a professional manager, e.g., through a mutual fund.
The latter is even easier for Cramer to refute, by citing the crash and burn scenario of a stock like Enron. There are plenty of examples of stocks that plunged, never to return to their peak performance, or anything even remotely close to that level. This is usually due to some catastrophe or crisis experienced by the company, or some other type of unforeseen incident. Investors who reacted quickly to the first signs of trouble may have been able to at least minimize their losses.