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While big up days in the market feel a whole lot better than soul-crushing declines, they are just as easy to screw up. So Cramer has mapped out some rules to follow when the market looks too good to be true.
For one, you should be really tough on your portfolio during big gains. Use this time to give each stock you own the harshest possible evaluation. Forget about the benefit of the doubt, focus on the worst qualities of each stock, emphasize the downside and make each stock you own prove that it would be worth buying all over again.
As far as Cramer is concerned, you shouldn’t give your stocks too much credit for making big gains during a rally unless they dramatically outperformed the rest of the market. Remember, everything is now more expensive, the risk/reward got a lot worse and your holdings are thus less desirable. It’s the perfect time to figure out what to sell. It sounds counterintuitive, but there’s no better time to sell than during or after a rally.
When everyone else is euphoric, you need to get to a place where you can sell in spite of your emotions. Cramer likes to rank his stocks every week to help him figure out what’s best to sell and to prevent him from becoming an enthusiastic buyer.
So don’t get swept away by the excitement of a big gain. Take a breath, give your stocks a hard time, hold them to a higher standard and get into selling mode.
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