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It's OK to Pay the Taxes

Jim Cramer

Editor's note: As a special bonus to TheStreet.com readers, we will be running an updated version of Jim Cramer's "Twenty-Five Rules of Investing," from his latest book, Real Money: Sane Investing in an Insane World.. Here's Rule 2.

No one has ever liked to pay taxes. As long as there have been taxes, people have hated paying them. But the aversion to paying taxes on stock gains borders on the pathological. That's why my second bedrock tenet for my 25 rules of investing is:

It's OK to pay the taxes.

When I went bearish in March 2000, I received a huge amount of angry email from people who felt aggrieved. They had bought, I don't know, Redback Networks(RBAK Quote) or InfoSpace(INSP Quote) because of me, because of something I wrote, and now they were being told to sell it.

Had I no regard for them? Had I no regard for how much in taxes they would have to pay because the gains were short-term? What was the point of making money in a compressed period of time when it meant you would have much less to show for it than if the stock were held long-term?

I had zero sympathy for these people. I had long ago made my peace with the tax man. I knew that some gains were and are simply unsustainable. Given, though, that so many people thought that if you bought and held, you always ended up with more than if you bought and sold, my discussion fell on deaf ears, an audience like the character in The Lord of the Rings, Gollum, who says, "I'm not listening, I'm not listening."

Anyone who held on to get the long-term gain then ended up with no gain at all. You obviated the need to pay taxes the hard way; no taxes are due when you sell at a loss.

It's important to remember that gains, any gains, can be ephemeral. It is better to stop worrying about the tax man and take the gains when those gains appear unsustainable than to ride things back to a loss. Stop fearing the tax man; start fearing the loss man. You won't regret it.

	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
	13.	No Regrets		14.	Expect Corrections
	15.	Know Bonds		16.	Don't Subsidize Losers
	17.	No Room for Hope		18.	Be Flexible
	19.	Quit When Execs Do		20.	Patience Is a Virtue
	21.	Be a TV Critic		22.	When to Wait 30 Days
	23.	Beware the Hype		24.	Explain Your Picks
	25.	Find the Bull Market
Check back for more of Cramer's Rules