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Rule No. 6: Do Your Stock Homework

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 sixth rule of investing. To read about his first rule, click here ; for his second, click here ; for his third, click here ; for his fourth, click here ; for his fifth, click here .


My kids hate homework. They think it is punishment. Sometimes when I look at what they are studying, I have to admit that I find it easy to sympathize with them. What's the relevance of most of the things they study? How will it help them in later life? Why bother?

Of course, that's a terrible attitude, and, as a parent, I encourage them to study because I want them to do well, and because you never know what they eventually will be interested in.

I think many of you believe that the homework you do on stocks might be just as irrelevant to your own portfolios as schoolwork seems to my kids.

When I tell people that they have to listen to the Starbucks (SBUX - Get Report) conference call or know what the analysts are looking for from Urban Outfitters (URBN) if they are going to own those high-multiple stocks, they don't want to hear it. They can't understand what a scold I am.

When I remind people that doing the homework could take as much as an hour per week per position, they look at me as if I am some sort of old-fashioned teacher who is asking for way too much in this busy world in which we live.

That's just plain wrong.

Where does the desire to own stocks with no research into the companies come from? It comes from two different views:

  1. If I buy it and hold it long enough, it will come back.
  2. I don't have the time -- no one has the time -- to be that diligent.

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