Cramer: Never buy a stock all at once — you'll almost definitely get burned

  • "Mad Money" host Jim Cramer doubles down on his key investing rule of never buying a desired stock all in one go.
  • Investors are only human and can make mistakes. This rule can prevent some of the worst ones, Cramer says.

At the end of the day, CNBC's Jim Cramer knows investors are only human.

That's why the "Mad Money" host has come up with a set of investing rules to help guide them through the emotion and the fallibility that can come with being involved in stocks.

One of Cramer's most important rules has to do with buying stocks.

"This is a real important one: never buy a stock all at once," Cramer said. "I can't stress it enough: do not, under any circumstances, buy all at once."

Plenty of Wall Street brokers and advisors prefer not to deal with partial orders or buying a stock gradually over time. They like to go in big and make a statement with their purchases.

"From where I stand, that's all wrong — 100 percent wrong," the "Mad Money" host said. "What I want you to do is stage your buys. Stage your sells. The term we use on Wall Street is 'Work your orders.' Try to get the best price over time, and not necessarily in one day. Maybe multiple days."

Cramer remembers how he learned this lesson when he started as a money manager. He wanted to prove how smart he was, so he bought 50,000 shares of Caterpillar's stock.

Looking back, Cramer saw that as a really dumb bet.

"All I can say is that I was one arrogant son of a gun. I was arrogant and I was wrong," he said. "I should've been buying CAT in increments of 5,000 shares."

This strategy would've insured that Cramer got the stock he wanted at the best price he could get, instead of going in big and hoping Caterpillar wouldn't immediately go down.

Today, Cramer runs his charitable trust the same way: Whenever he chooses a new name to buy, he buys 500 shares at a time or less over the course of a few days.

"When you buy all at once, you're basically declaring that the stock absolutely won't go any lower," the "Mad Money" host said. "Don't you think that's crazy when I say it? No one has that kind of insight. Buying gradually, in stages, is all about recognizing that our judgment is fallible."

Buying shares of a stock shouldn't be about making a statement, he added. If you resist the arrogance and buy slowly, you'll be more organized, less emotional and better off as an investor.

"Humility beats hubris every time," Cramer said. "If you take your time, you're much less likely to end up with a large quantity of broken merchandise."

WATCH: Why Cramer never buys stocks all at once

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