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
readers, we will be running Cramer's "Twenty-Five Rules of Investing." For more about the new book and to order it,
. Today, we present Cramer's twenty-second rule of investing. Read more about his rules:
Pigs Get Slaughtered
It's OK to Pay the Taxes
Don't Buy All at Once
Buy Damaged Stocks
Diversify to Control Risk
Do Your Homework
Defend Some Stocks
Don't Bet on Bad Stocks
Don't Own Too Many Names
Cash Is for Winners
No Woulda, Shoulda, Couldas
Don't Subsidize Losers
Check Hope at the Door
Quit When Execs Do
Patience Is a Virtue
Be a TV Critic
Few rules have saved me more than the 30-day preannouncement rule.
preannounces a bad quarter, do you rush to buy it? Are you someone who put money to work in
(WAT - Get Report)
right after that
the other day?
If you are, this rule is for you:
Always wait 30 days after an earnings preannouncement before you buy.
I designed it because I recognize how compelling some of these price adjustments are, but they often are
not deep enough
to make the stocks ultimately attractive.
Here's why. When a company preannounces a bad quarter, it isn't just looking at the past. It is looking at its order book, its future. Believe me, if there were any hope that the company wouldn't have to preannounce -- hope in the form that maybe something could get
in the next 30 days -- the company would wait.
weakness. That's why I like to wait 30 days to see if anything has gotten better before I pull the trigger to buy.
Sure, I will miss some great opportunities. Most of the time, though, after 30 days, I find that there is more woe and another leg down! If there isn't, then I might miss a point or even 2, but I will be on terra firma. That's the only thing you want to be stepping on in any market, including this one.