Trading Gains, Not Investment Losses
When you mark something as a trade, you should not expect to make as much money on it as you would as an investment. A trade, like buying something into a quarter, is not about trying to make money over a long period of time.
But if there isn't?
I would be gone either way. I am not going to buy the stock for the quarter and then, if it doesn't work out, switch it into the investment file because I like the Tiger operating system's prospects for next quarter, or because the iPod Shuffle's a really cool gizmo.
And, most important, if it works and the stock goes up the next day, I am not going to say "You know what, this Apple's one good long-term story. I am going to stick it out."
I can't do that, because I had earmarked Apple for a trade before I started it. I can't tell you how many times I have bought something for a trade, had it go up and then held on to it only to lose the trading gain and come up with an investment loss. Hence my commandment:
Never turn a trading gain into an investment loss.
This year, in particular, I am talking to a lot of people who bought stocks for a trade and then ended up carrying them as a loss into the investment column. I recently spoke to one investor who had bought Valero (VLO - news) for a trade on gasoline prices, quickly picked up 7 points, and then rode it all the way back to where he bought it because he decided he "liked" Valero.
What does that mean?
You don't like Valero; you like the profit Valero generated. Never confuse the two.
Or you most certainly will give back the profit.
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.
TheStreet.com has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from TheStreet.com.