This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Rule No. 12: Cash Is for Winners

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 RealMoney readers, we will be running Cramer's "Twenty-Five Rules of Investing." For more about the new book and to order it, click here . Today, we present Cramer's twelfth rule of investing. Read more about his rules:
  1. Pigs Get Slaughtered
  2. It's OK to Pay the Taxes
  3. Don't Buy All at Once
  4. Buy Damaged Stocks
  5. Diversify to Control Risk
  6. Do Your Homework
  7. Don't Panic
  8. Buy Best-of-Breed
  9. Defend Some Stocks
  10. Don't Bet on Bad Stocks
  11. Don't Own Too Many Names


The aversion to cash in this business breaks my heart. Sometimes cash is such a perfect investment that it drives me crazy how few people ever recommend it. Nah, they hate the market so they are only 95% long instead of 100%. Or, they think the market stinks, so they decide to short a few highfliers against their longs.

No, No, No!

You don't like any sectors? Sell everything and go into cash, don't short Advanced Micro Devices (AMD - Get Report) vs. Intel (INTC - Get Report) or Nortel (NT) vs. Lucent (LU).

You don't think the market's going to do anything? Don't try paired trades, like General Motors (GM - Get Report) vs. Ford (F), and don't buy defensive stocks like Anheuser-Busch (BUD) or General Mills (GIS). Just get out.

So many people never want to get out and go to cash, which is literally short-term Treasuries of the less-than-a-year variety. People start talking about how little cash earns -- although it sure earned more than a year ago. Or they say, "Can't be in cash, that's for losers."

But I say:

Cash is for winners.

A lot of this cash aversion stems from something that occurred a decade ago, when (FMAGX) underperformed because it had too much cash. As a result of the weak performance, the manager was fired! But no one ever seems to get fired for bad stock-picking. The takeaway in this game ever since that high-profile firing was: Don't dare get caught with too much cash. That's why you see and hear all of these fund managers who have lukewarm views walking around with massively long-biased portfolios.

I grew up in a different time. I only shorted when I had an edge -- I can't short at all right now by contract, but back when I could, I didn't short just for the sake of having some shorts on against longs. I don't care about not having enough exposure; I care about losing money!

If I were you and I didn't like the market or didn't have anything that compelling to buy -- as defined by a willingness to buy it down if the stock keeps going lower -- I would go with cash. It's never wrong when you don't like the tape or when you can't find anything that truly makes sense for you.

1. Pigs Get Slaughtered 2. It's OK to Pay the Taxes
3. Don't Buy All at Once 4. Buy Damaged Stocks
5. Diversify to Control Risk 6. Do Your Homework
7. Don't Panic 8. Buy Best-of-Breed
9. Defend Some Stocks 10. Don't Bet on Bad Stocks
11. Own Fewer Names 12. Cash Is for Winners
Check back for more of Cramer's Rules
At the time of publication, Cramer was long Intel and Lucent.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS . While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to jjcletters@thestreet.com. Listen to Cramer's RealMoney Radio show on your computer; just click here . Watch Cramer on "Mad Money" at 6 p.m. EST weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict."

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AMD $2.53 4.55%
GM $33.23 0.58%
INTC $30.56 1.24%
AAPL $126.44 -0.13%
FB $87.28 0.43%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs