The European Central Bank's attempts to stimulate Europe's economy sent markets on a wild ride Thursday morning, with investors first frantically trying to buy anything they could and then sending stocks sliding as the day wore on. Jim Cramer shared some lessons learned from this event.
"Stop being a herd animal. Don't chase. You will likely lose money, especially when you are chasing stocks for the wrong reasons," the "Mad Money" host said.
The first lesson to understand is that whatever happens in Europe doesn't really matter to most companies in the U.S. unless there is systematic risk occurring. For example, fears over European banks surfaced in February when rumors that European banks might be fail prompted U.S. stock traders to sell financials.
While Cramer acknowledged that there was a time that U.S. banks were very interrelated to Europe, the exposure these days is reduced.
On Thursday, the dollar gained strength when ECB President Mario Draghi introduced a new action plan. European stocks soared, and it triggered a wave of selling in the S&P 500 futures.
"But that buying was a stupid as you can get, because the dollar was flying higher at the same time that the European stocks roared up, and the strong dollar is bad for us," Cramer said.
Read more from Mad Money with Jim Cramer
As soon as stocks jumped, Draghi hinted that, with interest rates so negative, the ECB might not take further action. European stocks plunged, and so did those in the U.S.
Some of that drop was caused by oil, but Cramer attributed the rest to investors trading with Europe.
"If these traders were my students in the classroom, I would give them all Fs and make them sit in the corner with dunce caps on," Cramer said.
The "Mad Money" host says the stupidity increased when Europeans assumed Draghi was also done with his multiyear attempt to weaken the euro to give European companies a competitive advantage to the rest of the world. This fear caused the dollar to weaken versus the euro. At the same time U.S. stocks were crushed, and U.S.-based international companies led the way down.
Cramer thinks this is lunacy.
U.S. based international companies should have gone up, not down. From this ridiculous action, he drafted the following lessons:
No. 1 Never chase stocks. It is not worth it. It is better to say you missed it and wait for the next downturn.
No. 2 When the market rallies, try to figure out why. Even if there is a real reason, it's worth waiting for lower prices before pulling the trigger.
No. 3 Wait for a market-wide pullback before buying. The intra-day decline was a classic buying opportunity for Cramer.
"It has been a winning strategy longer-term, even if there is no instant gratification," Cramer said.