“Anyone who says you can make money in stocks without keeping track of short-term developments at the underlying companies is like a personal trainer who promises that you can get in shape without doing any exercise,” he said.
There’s no magic in buying so-called buy blue chip stocks, which many people think will “work their way higher and higher by some law of reverse gravitation,” Cramer said. “That’'s always been a lousy strategy, if you can even call it a strategy, but in recent years it’s been pretty darned horrific.”
Every stock comes with an expiration date, Cramer said, and knowing when to sell is just as important as knowing when to buy.
“When you’ve got a serious winner, even if you think it still has many years of gains left in it, you have to take some profits. Period. No discussion,” he said. “I know you’ll be tempted to let your winners ride, but that’s a mistake.”
Cramer said that investors haven’t really won until they’ve taken something off the table.
Another important concept: Playing with the house’s money.
“When you own a stock that’s had a huge multiyear run, you want to trim your position to the point where all the money you have invested in that stock comes from profits you’ve already made, and not a penny comes from your original investment.
“Once you pare back your winners so that you're playing with the house’s money, you can afford to take more risks with what’s left. That’s the holy grail of investing because you are in a can’t-lose position.”
Related Long-Term Investment Advice:
- Cramer: Long-Term Investing Requires Focus
- Cramer: How to Buy Stocks at the Right Price
- Cramer: ‘Most Company 401(k) Plans Stink’
- Cramer’s Tips for Spotting Secular Growth
- Cramer: Find Your Mix of Trading and Investing
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