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 "Ten Commandments of Trading." For more about the new book and to order it,
. To learn his "Twenty-Five Rules of Investing,"
. To read Cramer's first commandment,
. To read Cramer's second commandment,
. Today, we present Cramer's third commandment.
It's OK to take a loss when you already have one.
So many investors who call me on my
or television shows have big losses on stocks. They stay in, though, because they genuinely believe that they don't have a loss until they take it.
That, of course, is ridiculous. It's another flaw of human nature, another flaw that hurts long-term performance.
If we played with unlimited capital, it wouldn't matter that we're hanging on to
(AMAT - Get Report)
because it once traded at $30. We could keep our positions in
(JDSU - Get Report)
because, what the heck, they aren't that much capital.
But the investing process takes time, inclination and capital that most people don't have. You can't find the next
if you are stuck in
waiting for it to come back. You can't do the homework needed to learn
if you are keeping up with the
(VZ - Get Report)
spending plans that could revitalize or trash JDS Uniphase.
That's why I always tell people that it's OK to take the loss, especially if you already have it. The opportunity cost of staying with losers is always either misunderstood or chronically underestimated by investors.
Go through your portfolio. Kick out that
that's been hanging there all these years because you bought it much higher. Sell the
you picked up at $11 because you thought the asset too valuable to sell.
And start learning new stories. That's the way to make bigger money than you are now.