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New investors forget to plan for this, says Cramer

Too many new investors, who are otherwise thoroughly prepared for the market, often forget to plan for this. That is, they forget to develop a strategy for selling, says Jim Cramer.

You may decide on gains of 1 percent in 1 day, or you may decide on gains of 10 percent in a year or more. The specifics are negotiable. But what's not negotiable is an exit strategy .

Ironically, Cramer finds that most investors do hours and hours of research deciding at what level to buy. However they put little or no time into determining when they should sell.

"Yet, every stock comes with an expiration date," he said.

One of the worst things an investor can do is hold too long.

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Take Pets.com as an example. When it went public in February 2000, its stock started at $11. Investors who sold at $14 turned a profit. Those who had no exit plan, that is those who just held the stock; well, let's just say they didn't do terribly well. Ultimately the company went out of business.

Pets.com is an extreme example but the lesson is clear, deciding when to sell is just as important as when to buy.

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Of course that doesn't mean you have to completely cash out. Cramer wouldn't do that.

Just as he advocates scaling into a position as you buy, the Mad Money host also advocates scaling out when you sell.

"Ring the register on some of your position," he said. "I like to sell incrementally into strength."

And don't forget that you don't have profits at all, until you sell. "No matter what you think, you haven't really won until you have taken something off the table."

And one final caveat; the time to develop a sell strategy isn't once you're already in the stock, it's before you ever put your first penny to work.

(Click for video of this Mad Money segment)

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