Some Like ‘Em Hot

The key to investing is to buy stocks, not when they’re hot, but when they’re cold. That was Cramer’s message on Friday as he hosted a studio audience for his “Mad Money: It’s a Family Affair” special.

Cramer works the crowd during his "Mad Money: It's a Family Affair" special.
Jonathan Li
Cramer works the crowd during his "Mad Money: It's a Family Affair" special.

Take these past couple of weeks, for instance. The oils, banks and tech stocks that had led the market higher since early March stalled out and dipped back down. As a result, investors dumped their holdings and scrambled to buy defensive plays – the foods, the drugs and health care. But if you believe in an economic recovery, as Cramer does, there’s probably no better time to buy the rally’s leaders.

Meanwhile, the so-called safety stocks are being bid up to prices beyond their true value. Coca-Cola , Pepsico and General Mills have jumped a quick $5, while Con Ed and Dominion Resources have gained 10%, as investors seek haven in their dividends. If these people had listened to Cramer, they would have been buying defense weeks ago – at a discount. The group was out of favor then.

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This ties into another investing principle that Cramer always endorses: diversification. He recommended that every portfolio hold two safety stocks out of five stocks total – 40% – as a way to offset losses caused by more economically sensitive companies. No doubt there would be much less gnashing of teeth right now if investors had spread the risk.

The bottom line? Stay diversified, and buy on weakness to get there. And remember, in stocks, you want to get ‘em while they’re cold.

Cramer’s charitable trust owns BP, General Mills, JPMorgan Chase and Pepsico.

Call Cramer: 1-800-743-CNBC

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