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Be a Lemming

Tuesday, 3 Jul 2007 | 11:18 AM ET

Only two rules left for tonight’s show. We’ve already been over paying attention to markets, knowing your stocks and playing Latin America for the short term only. Now it’s time to cover a rule that might betray your contrarian leanings: Be a lemming.

That’s right. You want to follow the Street’s lead because most of the time it works.

Stock Rules
Cramer names the rules of the game

Cramer wants to be clear: This doesn’t mean you stop thinking. If you think the Street is wrong about a stock or group of stocks, then don’t buy in. But if you do your homework and you like the direction in which the big institutional investors are headed, then be a follower.

Wall Street is often right. Stocks on the 52-week high list often stay there for days or weeks by hitting new highs. You don’t have to follow the momentum, but if there is momentum and you’ve done your homework and you like the stock, then Cramer says go for it.

Sometimes stocks will get anointed by money managers. These are the best-of-breed stocks that are meant to stand in for the entirety of a great sector. They’re like the Energizer bunny – they just keep going and going and going.

Cramer called one such stock, Allegheny Tech. He recommended it at $36.05 in February 2006, saying it would be anointed – and it did. ATI shot to about $51, up 41%. Even then, Home Gamers could have bought in. Months later the stock was still climbing, passing the $60 and $70 marks, until it peaked at $84 in May.

At some point you had to get out and take profits, Cramer says, but with Allegheny, you had months and months where you knew the Street loved the stock, you knew it kept going up, and if you’d bought it, you still could’ve made a lot of money, because money managers love to buy what’s working.

Bottom Line: It’s OK to follow the Street’s lead. In fact, it often pays to follow the Street’s lead and buy the stocks that are going up, but only if you agree that the stock is worthy.

Questions? Comments? madmoney@cnbc.com

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