Cramer's Rally Rules
As exciting as market rallies can be, investors have to approach them with a “grain of pessimism,” Cramer urged viewers during Mad Money. His words of caution came after the Dow lost 167 points Friday, only to reverse direction when CBNC announced that Ambac Financial’s triple-A rating might be saved. The index finished the day up 97 points.
The euphoria’s contagious in situations likes these. As stocks soar, so does your net worth. But those gains are only on paper until you take some profits, Cramer pointed out. So despite a gut instinct to let your money ride, a rally is actually a great time to sell.
And that’s always been the Mad Money maxim: Sell into strength. Even when – especially when – you’re being swept up in a surging market, take some money off the table, Cramer said. You don’t have to unload all your holdings, but definitely take some profits. If the rally holds up, you can do it again.
By following Cramer’s advice you’re adhering to one of investing’s most basic rules: Buy low, sell high. And you’re preparing your portfolio for the next sell-off. There’s no better time than a rally to do that.
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