Jim Cramer’s 10 Best and Worst Investing Tips

Here are five of the best and five of the worst pieces of investment advice Jim Cramer has offered.

Over the course of his career, Jim Cramer has become known as one of the most respected investing gurus in the country. Through his numerous books and his show, “Mad Money,” Cramer has provided more than his fair share of wise market analysis, but has also had a number of noteworthy flops. These tips from Cramer — some helpful and some questionable — provide insight into his investing prowess — and also show that even the smartest investors aren’t infallible.

Read: 23 Steps to Become the Next Warren Buffett

Jim Cramer’s Best Investing Tips

Cramer is respected for providing sound financial advice. Here are five of the best investing tips he’s shared on his show and in his writing:

1. Keep a Diverse Portfolio

“Cover all five bases, and you’ll have a portfolio that can win in any market.”

The five bases Cramer was referring to when he said this on “Mad Money” are:

  • Gold
  • A dividend-paying stock with a high yield
  • Growth stocks
  • Speculative stocks
  • Stocks from a healthy geography

Cramer suggests that if you cover these five specific areas, then you can make money in any market state. The investment expert is definitely right on this one: If only 20 percent of your portfolio is in any given area, risk of personal financial crisis is greatly reduced. Because of the safety net it provides for your money, diversity is a vital part of any portfolio.

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2. Don’t Do Too Much at Once

“Never buy all at once. Never sell all at once. Stage your buys. Work your orders. Try to get the best price over time.”

Cramer shared this tip in his book, “Real Money: Sane Investing in an Insane World.” In a volatile market, it’s never a good idea to try to make lots of investments all at once. Due to the erratic behavior of the market, it’s a less risky to spread your moves out over time. As tempting as it might be to jump right into the middle of things, it’s usually a better idea to bide your time and wait until you have more knowledge of the market to make your transactions.

3. Don’t Spend If You Don’t Need To

“You can make a fortune in the market, but if you’re hemorrhaging money everywhere else, then a healthy portfolio isn’t going to do you much good.”

It’s vital to save money that isn’t in your portfolio. After all, the stock market is no bank; you can easily lose money, and you’ll have nothing to fall back on if you haven’t been saving. Jim Cramer gives sound advice in this tip he shared on his show: Frugality is a virtue, and it’s better to save your money than rely on what you have in the market.

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4. Don’t Panic and Sell Too Early

“There will always be a better time to go, a better time to leave the table than the one brought on by panic.”

Cramer also shared this tip in his book, “Real Money: Sane Investing in an Insane World.” The stock market goes through plenty of fluctuations. Five- and 10-point drops are nothing to worry about, so hold your stocks until the company is actually in trouble. If there is a continuous downward trend, then it might be time to think about selling. If the stock is simply in the red for a few days, it’s better to wait it out and see if better things are to come.

5. Keep a Limited Portfolio

“I realized that good performance could be directly linked to having fewer positions.”

In this helpful tip from “Real Money: Sane Investing in an Insane World,” Cramer advises investors not to own too many stocks. Knowing what you have is an important part of investing in stocks, and it’s vital to know your portfolio well. A good rule of thumb is to sell an old stock for every new stock you buy. That way, you keep a static number of different stocks, and can maintain a working knowledge of everything in your portfolio.

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Read: 10 Surprising Investments of Millionaires and Billionaires

Jim Cramer’s Worst Investing Tips

Cramer has dispensed plenty of sound financial advice, but you shouldn’t blindly follow his or any other financial expert’s advice. Here are five investment tips Cramer has shared that you might want to ignore.

1. Always Pay Off Your Credit Card Before You Invest

“Before you can start investing, you need to pay off your credit card debt.”

Cramer shared this tip on an episode of “Mad Money.” Although in some circumstances this piece of advice might be a good idea, it’s far from a universal necessity. Depending on the numbers, it might actually be more economical to invest so you can pay off that debt — especially if you are investing into an employer-backed investment plan like a 401k, which comes with an automatic employer match. Either way, do the math on your own debt to decide what’s right for your financial situation.

2. There’s Always a Bull Market

“There is always a bull market somewhere, and I will try to find it for you.”

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In this tip from “Real Money: Sane Investing in an Insane World,” Cramer says that at any given time, there is some market in which share prices are rising — and which you should be buying into. It might be true that there is always a bull market; however, this doesn’t mean you should jump into it.

In certain areas you might not be familiar with, it might be safer to simply stay away and wait until the bull market comes back to something you know. If there’s one thing the market is, it’s unpredictable, so you might get into a bull market, only to find that it quickly shifts back to a bear market, leaving you in unknown waters with your unfamiliar stocks.

3. When the Higher-Ups Leave, So Should You

“CEOs don’t quit for personal reasons. CFOs don’t quit for personal reasons.”

Cramer’s statement, taken from the same book, simply isn’t true. Even the most important people in a company can leave, for health concerns or family reasons. Steve Jobs left his position as CEO of Apple for a personal reason — in order to deal with cancer.

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If the entire front office of the company leaves, that could be cause for concern; however, the departure of one executive is not grounds to cut your losses and run.

4. Cut Your Losses With Any Negative Stocks

“Sell the losers and wait a day. If you really want them, go buy them back the next day. I also am certain that you never will.”

Some stocks simply go down for a time before going back up. Unless you see enough signs that you believe it’s tanking permanently, there’s no reason to panic and sell your stocks too early. Even the most reliable companies see fluctuations in their stock value all the time, but usually a fluctuation is all it is. Don’t let a 10-point monthly drop convince you to sell what has otherwise been a consistently profitable stock.

5. Don’t Dwell on Your Mistakes

“The most damaging recurring thought you can have is this: ‘If only I…’ — you can fill in the rest.”

Cramer’s logic from his book seems sound when taken at face value: Don’t let the negative transactions get you discouraged. However, you do need to think about your mistakes in order to learn from them. The way forward in your knowledge of the stock market is to recognize what you did wrong, learn more about the mistake you made, and use this new information to avoid the same mistake in the future.

So although it might seem discouraging to look at your mistakes, it’s important that you recognize them so that you might prevent them from recurring.

Read: 7 Investing Mistakes Warren Buffett Regrets

Decide for Yourself

Throughout his career, Cramer has shared plenty of sound investment advice and a wealth of wise market analysis. But it’s important to note that although his ideas are generally sound, they’re not always universally correct. Sometimes special circumstances do arise, and when they do, it’s not a good idea to unquestioningly follow Cramer’s advice — or anyone’s, for that matter.

The most important thing to take away from this is to always consider your own circumstances as well as his advice. If what Cramer suggests seems to fly in the face of reason, you might be better off going your own way.

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About the Author

Michael McDonald

Michael McDonald is an assistant finance professor and consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance and his research has been quoted in the Wall Street Journal and Bloomberg. He provides corporate consulting through Connecticut Expert Witness Consulting and teaches classes in the areas of corporate finance and investments.

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