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What’s Your Exit Strategy?

Inflexibility is the opposite of good investing, Cramer told viewers on Monday. Today’s market can turn on a dime, so the ability to reassess and readjust is crucial. It doesn’t matter how well that runaway stock’s been working – when the facts change, your strategy must as well.

That’s especially true in today’s market because the facts change fast. Gone are the days when mutual funds patiently watched the business cycle’s ebb and flow, waiting for an eventual turn higher. Hedge funds have rewritten the rules, so to speak, driving sectors up and down with voluminous buying and selling. Investors, i.e., the rest of us, have to anticipate these moves before the fundamentals change and these funds stampede.

What’s the best way to be ready? Know when to get out. Cramer recommended compiling a list of circumstances or events that would invalidate your reasons for buying a stock in the first place. Write down anything that would make you change your mind. That way you’re less likely to be swept up in a hedge-fund buying frenzy or get caught when the big money managers bail out.

“If you’re wrong about one of your stocks,” Cramer said, “then being able to recognize that fact quickly allows you to try to avoid big losses and catch great opportunities that you otherwise would have missed.”

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  • 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."

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