Jim Cramer has made a name for himself as a financial guru in investing. He is one of America’s most recognized and respected investment professionals. Not only does he have the knowledge but he also has the experience and personal proof to show that what he knows works. He came up with twenty five rules for investing. We will revisit just a chosen twelve out of the twenty five.
Rule 3: Don’t Buy All at Once
Though it is not the norm, you should not buy everything at a go and you should also not sell everything at a go. Buy and sell in stages so that you can get the overall best prices over a period of time. For instance, if you want to buy one hundred thousand share units, instead of buying all of them at once, buy them in increments of say, ten thousand share units at a time.
Rule 6: Do Your Stock Homework
Find out all you can about a company before you buy its stock. You took the time to learn about your spouse (if you are married, that is) before you decided to invest your life in them, right? Well, most people do. Why then would you want to invest your money in a company you know nothing about? Some may say that it is because they are too busy or because they do not know how to read financial statements. Well, you could always hire a financial manager to do the research on your behalf. It will be worth your time and money as it could save you from being slaughtered.
Rule 7: No One Made a Dime by Panicking
When things go bad with a company, people instinctively run. Everybody wants to sell to protect their interests. These panic moves do not profit. The summary of this rule is that there will always be a better time to sell than during those moments of panic. Therefore, when the masses are fleeing due to a downturn in the market, do not go with the flow. There is usually some sort of bounce back later that will enable you to sell at a better price.
Rule 11: Don’t Own Too Many Names
Cramer never buys new stock without selling off another. His advice? Stick to few positions that you know inside out. It can be constraining but you will perform better. When he was a hedge fund manager he made the most losses when he had a thick investment portfolio and he made the most money when he had only one position sheet, which itself was double-spaced.
Rule 13: No Woulda, Shoulda, Coulda’s
The woulda, shoulda, coulda’s define the world of regret. Regret is a damaging emotion. When you get caught up in past investment mistakes, it interferes with your ability to make sound investment decisions going forward. It erodes your confidence. Learn how to forget your past mistakes and losses.
Rule 17: Check Hope At The Door
Hope is an emotion and playing the stock market is not a game of emotion. You should not base your decision on hope by, for example, hoping that something good will happen that will drive your stocks higher so that you can sell them. It is not about hope when it comes to business. It is about reason. It is about rigor. Leave hope at the door when you choose to enter the stock market.
Rule 18: Be Flexible
This is the most important rule. Business is naturally dynamic. Markets are always changing. What was a good stock yesterday may become a bad stock tomorrow. If you are not flexible, you will hold on to that bad stock because you know it to be good or are emotionally attached to the company and will be unable to embrace the change.
Rule 19: When the Chiefs Retreat, So Should You
When CEOs and CFOs quit a company, it is good enough reason for you to sell those stocks. It is usually an indicator that something is wrong in the company – although there are exceptions.
Rule 20: Giving Up on Value Is A Sin
A worthwhile company may not be doing well now but it is bound to pick up later. Recognize potential. Cramer keeps two portfolios; one that has companies that are currently working and another that has companies that will work in the future. This is where patience is required. It is such a critical requirement that if you do not have it, you should seriously consider allowing someone who does to run your investments.
Rule 21: Be A TV Critic
You may have heard the adage, “Don’t believe everything you read.” In the same vein, do not believe everything you see in the financial news. Money managers on television can pretty much get away with saying whatever they want on air. Cramer accepts that what he hears on television is probably right but does not take it beyond that. He should know what he is talking about because after all, he is the host of CNBC’s TV show called “Mad Money” where he shares his own personal opinions. Read more now to get a glimpse of what he thinks.
Rule 22: Wait 30 Days After Warnings (Pre-announcements)
Cramer confesses that this is one of the rules that has saved him multiple times. Whenever a company pre-announces a bad quarter, do not rush in to buy. Pre-announcements are usually signs that a company is experiencing some form of weakness. Wait at least thirty days and see if there will be any changes or if things will get any better. Most of the time, they do not.
Rule 24: Explain Your Picks
Talk to someone about what you want to buy. You should always be able to explain to somebody why you picked a certain stock. We are all human; we all make mistakes. Explaining our decisions to other human beings can help minimize the mistakes we make. Simply articulating your reasoning can help you recognize any inherent errors.
If you are thinking of investing, it is wise to follow a man who has been playing the game for years, has learnt it and is winning. Start by engaging the above rules as you begin to make moves. Trust the experts.