Many people have seen or heard James Cramer’s Mad Money and it makes sense every once in a while to reread his books. The process typically does not change, the names of the companies often do. In rereading his book Real Money, Simon and Schuster, NY, 2009, it provided very good lessons to write about.

Mr. Cramer recommends 10 companies for a diversified portfolio.

1. A company that you know or can relate to. It is easier to do your homework and you can keep an eye on it.

2. An oil stock – these are consistent performers with high dividend yields, great cash flows and businesses that do well in times of tension. Perhaps the company you buy gas from.

3. A brand name blue chip that currently yields at 2.5% or greater. The yield is the current yield and the yield gives a floor so the price does not fall below it.

4. A financial company, Mr. Cramer likes to buy local.

5. Something speculative – to narrow the field, Mr. Cramer looks at stocks that have a minimum of 100,000 shares issued, $100 million in market cap and a price between $1 and $15.00. You may want to even narrow the field by stocks that have prices greater than a hamburger. In this group of companies are where the biggest percentage gains are made. You might be able to find the next google. Note the something speculative allocation is one stock out of 10 or 10% of your portfolio, most of the portfolio is in best of class, dividend companies. It is important for this stock to learn to sell for there is only capital gain or loss, no dividends.

6. Use rotation to buy the blue chips when the price has declined and sell when they have reached new highs.

7. When the news headlines is doom and gloom, some stocks will lose value because  they are in the traditional smokestack industries. However the record of Dow, Deere, DuPont, Caterpillar, 3M and others is outstanding. The stocks tend to lose market price because of worries and then come roaring back as the gloom and doom subsidizes.

8. Technology companies with yields or make the technology company your speculative pick.

9. A young retailer which has the potential to grow big

10. A hope for the future – ie biotech stock in the mid cap index.

It is okay to buy and sell part positions. Buy the best quality you can and do your homework to ensure the market helps you. There is always choice and usually the best companies trade near the right multiple, however there are times when there are mispriced securities or opportunities to buy.

Linking to dividend paying stocks, notice Mr. Cramer likes dividend paying stocks because they are consistent money makers. He asks you to consider letting the economic cycle work for you. There is no reason you have to but consider the highs and lows of the dividend paying stocks. For some companies there is a $10 gap, most of the gap is explained by the rotation of the economic cycle, note the dividend needs to be paid.

There are more questions than answers, till the next time – to raising questions.