This next rule sounds intuitive but it’s actually the exact opposite: past performance is not indicative of future success.

If you’ve made a lot of money playing a trend, or just investing in a hot industry, then your natural instinct is to keep finding new ways to play that trend. It’s an easy mistake to make, but it’s also an easy way to get burned. If you’ve been successful playing a sector trend, you can’t let that make you feel invinsible, Cramer says, because it’s a surefire way to lose money.

Back in late 2005 Cramer made this mistake, which is why he instated the rule. He nailed two stocks – JDS Uniphase and Conexant – small names in telco and cable equipment. Then he went and recommended a stock called Bookham , not because he liked it, but because it looked so similar to JDSU and CNXT. He figured if they could make you money, why not Bookham? The stock did actually shoot up after he recommended it, but instead of encouraging people to take profits, Cramer said he thought you should hang on. Sure enough, Bookham gave back all its gains and then some. When Cramer recommended it, the stock was just under $7. Seven months later it was trading between $2 and $3.

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