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Cramer's Rule: Don't Take Cues From Inferior Companies

Friday, 17 Aug 2012 | 7:17 PM ET

On Friday's "Mad Money," Jim Cramer outlined his five rules to help investors make money in any environment.

Rule No. 1:"Don't dig in your heels when you're wrong"

Rule No. 2:"Price matters"

Rule No. 3: "Don't take your cue from an inferior company"

When a "worst of breed" name says things are bad for the entire sector, don't just take it on faith, Cramer said. Weak players always seek to pin their failings on the entire industry, he explained.

It's important, then, that investors are able to recognize the excuses. If a company has gotten into the habit of serial underperformance and blames its shoddy results on a shoddy environment, Cramer said the odds are that its competitors will tell a different story.

At the same time, bad news for one company might not mean bad news for another company in the same sector. Investors can't just assume that all companies in the same industry are equivalent, he noted.

Read on for Rule No. 4

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