GO
Loading...

In Investing, Be a Lemming

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.

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 would keep 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 do so.

Questions? Comments? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book