Worst of all, buy and hold breeds laziness. It means you don’t have to do your research. It’s the perfect excuse to not do your homework. And the only way you can really know if your stocks are going up (or down) is by doing that homework. So that’s the rule: buy and homework, not buy and hold.
Homework should include checking your stock with CNBC.com’s investing tools, reading all the relevant news stories about it, comparing it to its peers and competitors, reading through its quarterly and annual reports, and especially listening to its quarterly conference calls. Very few nonprofessional investors listen to the conference calls, Cramer says, but they’re the single most important part of your homework. And if you don’t do this homework, you’re setting yourself up to lose a lot of money.
Don’t feel bad if you’ve been practicing buy and hold – it’s not your fault because you’ve been bamboozled. Even when Cramer started investing he believed in buy and hold. Everybody who’s new to the game believes in this ideology. And why wouldn’t you? All your life you’ve been told that buy and hold works.
And you know what, 30 or 40 years ago when taxes were high and commissions were even higher, buy and hold might have made sense. But now it’s a relic. If you own a stock and you don’t understand the business it’s in, if you don’t know any reasons why the stock should go up other than because buy and hold says so, if you don’t pay attention to your stocks to make sure nothing bad is on the horizon, you will probably end up losing money and never knowing why.