Rule No. 7: No One Made a Dime by Panicking
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 seventh 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; for his sixth, click here.
You see it over and over again. A stock gets hammered. People flee after the hammering. The market gets crushed on a huge down day. People leave at the end of the day. A sector gets annihilated. Quickly. People can't take the pain; they bolt after the annihilation.
Panic is the operating instinct in all of these cases. There's something basic and instinctive about panic, about the desire to flee. It might work when it comes to individuals and things that might threaten us physically. But it can't make you a dime. That's why I say:
No one ever made a dime panicking.There will always be a better time to go, a better time to leave the table than the one brought on by panic. Let's take the latest panic, the run out of Biogen Idec (BIIB). As soon as I saw the panic in that stock, I wanted to run the other direction; I wanted to buy. If you bought the heart of that panic, the $36 price, you could have made a quick 5 points already. If you flipped it then, you could have gotten back in and already would be up a couple for the investible side of the ledger. I think that stock ultimately will go back to the $40s and maybe even the $50s, making a mockery of those who fled. We get mini-panics all the time in the market. We had a mini-panic in Starbucks (SBUX) off a weak monthly comp number. We had a mini-panics in Panera (PNRA) and Whole Foods (WFMI) off a couple of not-so-great months. These down-5 and down-10 situations don't need to be chased or participated in. A better time to sell will come.
|1.||Pigs Get Slaughtered||2.||It's OK to Pay the Taxes|
|3.||Don't Buy All at Once||4.||Buy Damaged Stocks|
|5.||Diversify to Control Risk||6.||Do Your Homework|
|Check back for more of Cramer's Rules|
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