This episode of Mad Money was a rebroadcast of a show that first aired on December 27, 2006.
Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Wednesday February 20. Click on a stock ticker for more analysis:
Don't Buy and Hold
In spite of the fact that Cramer was a money manager "with a terrific track record" he admitted to having made every mistake he describes in his book, Jim Cramer's Real Money, Sane Investing in an Insane World, as well as every faux pas mentioned in his new publication, Jim Cramer's Mad Money: Watch TV, Get Rich. Cramer identifies the single worst and most common mistake as adopting a "buy and hold" strategy, which is disastrous because "it's just not true that your stock will necessarily bounce back." Just hanging onto a stock might have worked 30 or 40 years ago when "taxes were high and commissions were even higher," but in today's world, investors need to do homework on their stocks, and investors who don't have the time to research their investments on a weekly basis should go into mutual funds.
Don't Dwell on Regrets
Although Cramer says he is the worst offender when it comes to this vice, he urges investors not to waste precious time grieving over past mistakes, since one "cannot afford to get thrown off their game." Instead Cramer emphasizes the importance of going forward and not losing confidence.
Tips are for Waiters not for Traders
"You have to discipline yourself so that you never, ever take a tip seriously," Cramer said, and he discussed the non-existence of real stock tips. For instance, if someone would say that Nokia is about to buy Research in Motion, the only way he would know is if he were an insider, and taking a tip from an insider is illegal. Cramer emphasized the importance of avoiding temptation in such a case: "Having the Securities and Exchange Commission investigate you is pure hell even if you haven't done anything wrong," he said. "Imagine how bad it would be if you were actually guilty of something." However, A non-insider who would tell an investor about a potential, unpublicized merger would have no basis for knowing, and should also be ignored: "If you get a tip, it's either illegal, incorrect or straight-up manipulative."
"I like to think that I'm universally loved, but people really tend to hate me when one sector is en fuego and I tell them to take some money out of it and spread it around because you can't keep all your eggs in one basket," Cramer said. However, once the "hot" sector falls out of favor, people thank Cramer for telling them to stay diversified. Cramer warns investors not to have more than 20% of their money invested in a single sector. "You absolutely must stay diversified, and this rule can't be bent, broken or spindled."
Don't Buy an Entire Postion at Once
"The single most arrogant thing you can do as an investor is buy your whole position in a stock at once," Cramer said. Investors who buy incrementally make more money and do not have the regret of having jumped hastily into a stock. Cramer suggests looking for opportunities to buy gradually.
Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightening Round, Stop Trading and his Wall Street Confidential.
Get Cramer's Picks by email -- it's free and takes only a few seconds to sign up.
Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com