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Rule No. 3: Don't Buy All at Once

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 "Twenty-Five Rules of Investing." For more about the new book and to order it, click here . Today, we present Cramer's third rule of investing.


No broker likes to fool around with partial orders. No financial adviser has the time to buy stocks methodically over time. The game is to get the trade on, at one level, in a big way. Make the statement buy. Get the position on the sheets or in the portfolio.

And from where I sit, that's all wrong. 100% wrong. Never buy all at once. Never sell all at once. Stage your buys. Work your orders. Try to get the best price over time.

When I first started out as a professional trader, I wanted to prove to everyone how big I was and how right I would be. If I wanted to buy Caterpillar (CAT - Get Report), by golly, I wanted to buy it now, big, at one price, because I was so sure of how right I was. "Put me up on 50,000 CAT!" I would scream, as if I were the smartest guy in the universe.

What an arrogant son of a gun I was. Arrogant and wrong.

What should I have been doing? Following my rule that you don't buy all at once. If I wanted to get 50,000 CAT in, I would buy it in units of 5,000 over time, trying to get the best price. I would put some on to start and then hope to work my way down to get a better basis.

I no longer trade institutionally. I no longer trade "in size." But I still invest for my Action Alerts PLUS portfolio, and when I have a new name, as I did recently in Halliburton (HAL - Get Report), I buy in 500-share increments over a day to get my several thousand share position on. I did it in a way that gave me a terrific price.

Why don't more people do it my way? Why don't people, if they want 500 shares of ExxonMobil (XOM - Get Report), buy it in 100-share increments? I think it is because they want to be big, too. They don't want to waste their broker's time. The broker wants to get the trade done. I know my brokers hated it when my wife, who came in to run my trading desk, took orders like mine for CAT and then broke it into small increments and worked in over a day's time.

You must resist feeling like you are making a statement. I have bought and sold billions of shares of stock. Do you know how often I got it in at the right price? Do you know how often the last price I paid was the lowest and it was off to the races? Probably one in one hundred. And I'm pretty good at this game.

Resist the arrogance, buy slowly, even buy over a couple of days as I did recently with Encana (ECA - Get Report) and Kerr-McGee (KMG - Get Report) through my Action Alerts PLUS portfolio. It's humbling and it's right.

1. Pigs Get Slaughtered 2. It's OK to Pay the Taxes
3. Don't Buy All at Once
Check back for more of Cramer's Rules

At the time of publication, Cramer was long Encana and Halliburton.

James J. 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. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to jjcletters@thestreet.com. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. EST weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict."

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SYM TRADE IT LAST %CHG
CAT $88.63 0.00%
ECA $13.33 0.00%
HAL $45.91 0.00%
KMG $29.54 0.00%
XOM $86.52 0.00%

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