Editor's note: This is a special excerpt from Jim Cramer's book, Jim Cramer's Mad Money: Watch TV, Get Rich. To order your copy and read all the rules, click here.
Sneak Preview: Do the Right Homework
3. It's not enough to do the homework; you have to do the right homework. Different kinds of trades and investments call for different kinds of homework. I always tell you to do the homework, but what that means can depend on what you're trying to accomplish. There's nothing more dangerous than thinking you've done all the right homework only to find out later that you've been researching the wrong aspects of a company.
If you're investing in a stock for eighteen months, you want to look at the company's fundamentals and make sure it's going to perform over that long period. If you're only going to be in the stock for a month, you're probably looking for a specific catalyst to drive the stock higher; in that case, you need to research everything about that catalyst and the company's relationship to it. If you're trying to make money overnight, it's not with my help, because Mad Money can't make you money overnight, and I don't try to do that on the show. But if you are trying to make that overnight money, then you're definitely betting on a single, specific catalyst, and you need to know everything you can about that catalyst. ... Learning about each of these things requires different kinds of homework. When you confuse them, you won't be making truly informed trading or investment decisions. That means you won't be making any money.
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At the time of publication of this excerpt, Cramer had no positions in any of the stocks mentioned in this excerpt.
Jim 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. Watch Cramer on Mad Money at 6 p.m. & 11p.m. ET weeknights on CNBC. Click here to order any of Jim Cramer’s books including his latest endeavor Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.
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