Mad Money

When the Facts Change…

Mad Money’s constant pursuit is to educate its viewers. The goal has always been to level the playing field and give the everyday investor a chance against Wall Street’s titans. Over the years, Cramer has collected some key dos and don’ts into a handbook of sorts, and he regularly opens it to teach so-called amateurs how to trade like pros. Today, he shared five more rules that every home-gamer needs to know.

Change Is Inevitable

The first? If you’re proved wrong about a stock, admit it and move on. Remember the wisdom of John Maynard Keynes: “When the facts changes, I change my mind. What do you do, sir?” The same principle applies to investing. Pride can be pretty expensive, so keep it in check.

Consider the reaction to Cramer’s near-bottom call in early March. When the Dow hit 6,500 in March 2009, he urged investors to start buying. Why? Because he’d run the numbers on a worst-case scenario for the index, including the complete collapse of every financial component – Bank of America , Citigroup , JPMorgan Chase , even General Electric – the elimination of Caterpillar and 3M’s dividends and the bankruptcy of Alcoa , but even that wouldn’t have taken the Dow much lower. Cramer figured a rebound was imminent. 

Sure enough, the Dow snapped back, climbing 1,500 points in a month. More importantly, though, the people who never believed a rally was possible were angry. They were in disbelief, denial even, and they took their frustrations out on Cramer. Trust us – he has the hate e-mail to prove it. But instead of switching gears and changing strategies to suit the market, these people dug in their heels and refused to believe. In the meantime, they continued to miss stocks’ move higher.

So what’s the takeaway? Don’t be one of these people. Stay loose, stay ready, stay humble. If you make a mistake, be willing to correct it. Otherwise that mistake could cost you much more than it should have.

Cramer’s charitable trust owns Bank of America and JPMorgan Chase.

Call Cramer: 1-800-743-CNBC

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