Jim Cramer sees a lot of investors freaking out when the market drops, which is why he has taken the time to reveal his top tricks to managing the damage to a portfolio during a decline. His tricks simply come down to one word—discipline.
While having rules in place is certainly not fun when it prevents you from making boatloads of money when the market is high, Cramer knows that it pays off in the long run by controlling the damage to your portfolio when the averages take a nosedive.
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.
Why does he ask that? Because one of his cardinal rules is to never turn a trade into an investment. If there is one thing he wants investors to take away from "Mad Money," it is to never confuse these two concepts.
That means understanding the purpose of why you are buying a stock.