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Buy High, Sell Higher?

Tuesday, 22 Dec 2009 | 7:44 PM ET

“This is a market where you pay a much higher price for being too negative than being too positive,” Cramer said during Tuesday’s Mad Money.

A few key events this year have sent panicked investors running from stocks, a move they’d later regret as the market pushed higher and higher. While their fear was understandable, Cramer urged viewers to not make the same mistake going forward.

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Cramer looks back at the three most pivotal moments for investors.

The first tipping point came in early March, with the market teetering on a precipice after a horrible start to the new year. But what seemed like the perfect time to sell turned out to be a once-in-a-generation chance to buy, especially after Federal Reserve Chairman Ben Bernanke declared that no more big American banks would be nationalized. That’s when Cramer and others called a bottom and the Dow started its eventual climb to 10,000. Investors who bailed at that pointed forfeited some spectacular returns.

Tipping point number two came with a spate of May equity offerings, Cramer said, as banks issued stock to raise capital “pretty much stopped the financial rally right in its tracks.” Many investors then took profits, not believing the market’s run could continue without the banks. That theory, of course, proved wrong, as the weak dollar propped up the industrials and weaker-than-expected health-care reforms sent those stocks upward. In fact, it seemed like a lot of President Obama’s initiatives, such as cap and trade, lost support at that time, further catalyzing the market. Again, those who refused to believe in America’s resurgent strength missed the move.

The final tipping point came in October when the Dow slipped from over 10,000 to 9,600. Given the huge run since March, and the fact that money from the sidelines wasn’t reentering the market, many people assumed the rally was over and sold their positions.

But investors at the same time got a number of other positives to counterbalance these seemingly negative events: Gross domestic product reports were stronger than expected. Autos sales took off. Housing bottomed, and the first-time homebuyer tax credit was extended. Tech companies pre-announced better-than-expected numbers. China’s stimulus kicked in, taking the rest of the world with it. Companies found liquidity in the market and used it to clean up their balance sheets. And mergers came roaring back, eating up supply and partially making up for the lack of new money flowing in.

All of this good news removed the chance for any other significant pullbacks that would have allowed investors the chance to buy back in. At least if they were employing the classic “buy low, sell high” strategy. In fact, the three tipping points were the best times to buy stocks at discounted prices. Instead, people were scared out and then stayed bearish, unwilling to accept that things – in the economy and the markets – were getting better. Cramer recommended that viewers take this as a lesson:

“Do not let yourself get shaken out of this fabulous bull market when it sells off,” he said, “That’s your opportunity to get in, not get out.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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