Editor's note: Jim Cramer's new book,
Real Money: Sane Investing in an Insane World
, is available in selected bookstores now. As a special bonus to
readers, we will be running Cramer's "Twenty-Five Rules of Investing." For more about the new book and to order it,
. Today, we present Cramer's eleventh rule of investing. Read more about his rules:
Pigs Get Slaughtered
It's OK to Pay the Taxes
Don't Buy All at Once
Buy Damaged Stocks
Diversify to Control Risk
Do Your Homework
Defend Some Stocks
Don't Bet on Bad Stocks
In my years as a hedge fund manager, I spent three hours every day analyzing the mistakes of the day before. That was my major task, one that I completed before anyone else came into the office, generally between 4 a.m. and 7 a.m. I would analyze every losing trade -- you don't need to analyze the winners, they take care of themselves -- and try to figure out how I could have made more money or lost less money.
I was maniacal about it. And after a couple of years of this, I realized that good performance could be directly linked to having fewer positions. That's one of the reasons I insist on owning only 25 positions, no matter what, for my
Action Alerts PLUS
I never will buy a stock without first taking one off. That's a great discipline and one you should adopt, pronto. All the bad money managers I know have hundreds of positions. All the good ones have a few that they know inside out and like on the way down.
That's why I say:
Don't own too many stocks.
I know it can be constraining. For instance, right now I like
(DD - Get Report)
(DOW - Get Report)
because we are in a major upswing in chemicals. But my discipline leaves room for only one, so I own the one that I think is the cheapest and the best, Eastman.
I don't like tech so I am judicious about having tech positions, which is why I have only
(INTC - Get Report)
. I long for more Internet plays now that they have come down, but I don't have room for more than
(YHOO - Get Report)
or else I will violate my rules.
When I lost the most money, by the way, my "sheets," my position sheets, were as thick as a brick. When I made the most money, my sheets were, well, one sheet of paper, double-spaced. And I ran hundreds of millions of dollars.
Please remember that whether you are a pro or an amateur, you can
have too many positions.