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Normally, when Jim Cramer releases his game plan for the next week, he points out stocks that he expects will make waves in the coming days. But this time, the week ahead will be an entirely different animal altogether.
Next week is different, not just because it is the 10th anniversary of "Mad Money", but also because Cramer will be doing more learning than trading. This will be the time to listen and try to determine how the quarter will end before a new earnings season starts again.
On Monday, it will be all about Apple. Cramer expects that Apple will finally reveal the details and pricing for its highly anticipated watch.
"I'm a huge believer in Apple and have said repeatedly that you should not trade it. Instead just own the darned thing because it's a cheap stock that's still trading below the S&P 500's price-to-earnings ratio…Apple is a real undervalued winner, " the "Mad Money" host said.
One of Cramer's many reasons for believing that Apple is still undervalued is that the management is consistently underrated. Some may think that this Apple Watch will bomb, but not Cramer.
The trick to Apple's ecosystem is that whenever Apple unveils a new device, its app developers find a way to turn the machine into something that rules the world. Cramer knows that Tim Cook would never allow Apple to release a watch unless it was going to take the globe by storm.
"That's what drives me crazy. When is this man finally going to be given the benefit of the doubt?" Cramer asked.
One important rule for Cramer is to distinguish between when to buy a company's shares long after it has had a run and when to recognize when you're in a value trap.
If the company is not doing anything to make itself better, yes, it's time to bail. But if the company is like Honeywell, which is run by a strong CEO and has plenty of innovation in the pipeline, that's a keeper.
Earlier in the week, Cramer spoke with Honeywell CEO Dave Cote, who showed the "Mad Money" host some of the innovation that Honeywell is currently working on. Cramer was reminded why this stock is still cheap versus the competition—it is always innovating.
When Cramer first started out in trading, he didn't like rules. He was all about the innovation instead. His view was that either they couldn't really help, or that they would cut his upside and prevent him from making more money. Over time, and after getting burned too many times, he learned the value of discipline.
"The rules protect you against your own bad judgment about what's going on at the companies you own or what's happening in the market overall," the "Mad Money" host said.
In order to really make money in the market these days, it requires discipline. Mistakes can be costly in trading, but if you do nothing with your money, you will have a whole lot of nothing to show for it.
So what is the magic trick to bail you out of a bad situation?
"Discipline trumps conviction."
Find your own form of discipline to make sure you are watching your stocks and have a game plan for when things go wrong. For instance, Cramer has a system of ranking his stocks when things are good, so this way he can hedge himself when they go awry.
He also thinks it is important to be willing to "circle the wagons" on a few high-quality stocks, and be willing to buy them when they are down so you can get a better average price for your earnings.
Cramer used to think about his rules of investing all of the time when he was managing money, but eventually they became second nature to him. He often finds that he digs into his rule archive to answer the many questions people ask him on a daily basis.
A typical question that an investor will ask is what to do with a stock after it has had a hideous decline. The first response that Cramer will give is to ask why they bought the stock in the first place. The purpose of asking that question is to determine if they bought it as an investment or a trade.
If they bought it for investment purposes, that could mean they should buy more. If they bought it for trading purposes, then that means they were waiting for a specific event to occur and should only buy it once. These two concepts should not be intermingled.
"Why does this matter? Because one of my cardinal rules is to never turn a trade into an investment. If there is one concept you must take away from this show, it's that you must never ever trade a trade into an investment," Cramer said.
So don't fool yourself. If you know you purchased something for the purpose of trading, cut your losses quickly when it starts to go awry. Sure, there might be a time here and there where you could turn it into a long-term trade. But most of the time, you'll be on the wrong side of the trade.
However, much to his surprise, Cramer finds that a lot of people aren't prepared when a correction occurs in the market. They are charmed into the market when things are good and then unprepared when things get bad. They assume that a correction means that something is wrong and that stocks shouldn't be touched.
"That is a very big mistake. Corrections happen all of the time after big runs, and they are to be anticipated, but you can't write off the market when they happen," the "Mad Money" host added.
Another mistake that Cramer sees commonly is that many believe they are supposed to be fully invested at all times. He has even met money managers who think they are supposed to have all money invested.
This is complete nonsense!
Having cash on hand when the market corrects is the key to protecting your portfolio. Because sometimes the market will stink and there is nothing to do but just sit in cash.
"In fact one of the chief reasons that I outperformed pretty much every manager in the business during my 14-year run as a professional money manager is that there were substantial blocks of time when I was largely in cash," Cramer said.
Cash is the perfect hedge in an environment when the market hits dangerous highs and could protect from devastating losses.
Cramer considers cash to be the most underrated investment of all. Whenever he sees the market spike, he starts to sell a little and trim here and there to build up a supply of cash. He sells on strength and buys on weakness.
Otherwise, Cramer fears that investors could wind up selling their best stocks just to hang on to their worst stocks because the higher-quality stocks stopped going up—a big mistake.