1. The first rule has become a pillar of Mad Money, and that’s the notion that bulls make money, bears make money, but pigs get slaughtered.
2. It’s OK to pay taxes on your gains. Too many times investors refuse to lock in gains for fears of a big tax bill. But Cramer cautioned that it’s better to have a taxable profit than no profit at all. Make peace with the tax man and don’t get greedy.
3. Don’t buy all at once, and never sell all at once.
You’ll never be good enough to time the market perfectly, Cramer cautioned, and if you’re wrong, you’ll be really wrong. That’s why it’s always better to buy in stages. Your goal is to get the best price over time, not the best price for today. Be patient, and wait for opportunities to arise.
4. Look for broken stocks, but not broken companies.
5. Do your homework!
If you don’t have at least an hour a week to dedicate to your portfolio, Cramer said you’re probably better off investing in a good S&P 500 index fund.
Cramer said homework is not difficult, it’s mostly research. You have to visit a company’s website and learn about what it does. Then you have to listen to the conference calls and know what the analysts are saying and what’s in the news. Only then can you truly understand why you’d want to own it and what you should expect from it.
6. Diversification
Too much of one sector can sink any portfolio.
7. Know when to sell
Panic is never a strategy and there will always be a better time to sell. In the middle of a big market decline, when investors are heading for the exits, that’s never the time to sell. There will always be a rebound tomorrow or maybe the next day or even next week. You just need to ride out the storm.
It’s all too easy to get defensive when your stocks are falling, but its important to remain logical and ask yourself if your homework thesis still fits the current environment. If not, then it’s time to sell those laggards at the next sign of strength and move onto what’s working. If you don’t have a catalyst, or reason to own a stock, it shouldn’t be in your portfolio.
