In more than 30 years of investing, Jim Cramer has picked up a lot of tricks of the trade to share. His goal is for investors to learn these rules and apply them without even thinking about it, just as he does. And while sometimes having discipline drives him nuts, it is the best portfolio protection out there on days when the market takes a nosedive.
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 a value trap.
When Jim Cramer first started out in trading, he didn't like rules. No one likes rules! His view was that either they couldn't really help, or 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, investors need 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," he added.
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.