Sneak Preview: Cramer's New Investing Rules

Editor's note: This is a special sneak preview of Jim Cramer's just-released book, Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer). Look for more sneak previews every day, and get your free copy with your annual subscription to Action Alerts Plus; click here for details. Catch Cramer in person at his last book signing event: Saturday, Jan. 12, at 1 p.m. in Westbury, Long Island's Costco.

Missed the first sneak previews? Read the book intro and the rules of getting and staying rich: Rule 1, Rule 2, Rule 3, Rule 4 and Rule 5. Know what pros do right and amateurs do wrong: Part 1, Part 2, Part 3, Part 4 and Part 5. Learn the five mini-bull markets that will stampede for years, starting with aerospace and defense, agriculture, oil and oil service, minerals and mining and infrastructure.

Twenty New Rules for Investing

For twenty years, I managed money professionally, taking the funds of rich people and trying to make them richer. I was in a performance business; I got to keep 20 percent of the gains, even if they were only on paper. There are two kinds of gains in the business: realized and unrealized. When you sell a stock for profit, that profit is a realized gain. When you own a stock that's up from where you bought it, that's an unrealized gain. At the fund I took 20 percent of both realized and unrealized gains. I also received 1 percent of the assets as a management fee. I initially reported to my investors once a quarter, but increasingly they asked for monthly, then weekly, and ultimately daily performance figures. As my assets grew and my performance fluctuated by the hour -- I needed to make $430,000 a day just to continue my yearly returns -- some clients asked for my numbers hourly.

With that kind of pressure, I began to focus entirely on short- term returns. If I could have a good day, I could satisfy the investors who checked in by 4 p.m. A good morning, and I didn't dread the hourly calls. In my last two years I installed software that flickered reds and greens along with down and up arrows every tenth of a second, all the better to see whether I was making or losing money at that very moment.

Needless to say, I felt like was on a daily treadmill from 4 a.m. until 4 p.m. as I traded early morning in Europe and then the U.S. markets right until the closing bell. Thank heaven my investors didn't demand nightly returns. I used to trade from 4 a.m. until 11 p.m., breaking only for a quick dinner before Tokyo opened. I was able to stop that insanity only after Tokyo peaked in 1989, and I never looked back.

I give you all of this information because I could not wait to retire from such an insurmountable minute-to-minute challenge. Although I have had a love of stocks my whole life, I do not have a love of report cards, and I was being graded with every tick of the symbols in my portfolio.

And I wanted to resume another passion I had, journalism -- this time not just print, but Internet and television journalism. I wanted to stay in the game, but I couldn't be a legitimate journalist and a serious investor of my own money at the same time. To be a journalist I had to agree to provisions in my contract that wouldn't let me profit from any securities. That led to a wholesale sell- off of every stock I had, a retreat from all hedge funds, and a charge into real estate and cash.