Cramer's 'Mad Money' Recap: Spot Moves Before Herd Does

Another way to spot a top in a stock is overexpansion. Wall Street loves acquisitions and rapid expansion. But overexpansion, Cramer said, puts a strain on management. When management talks about "integration issues," investors should run to the "sell, sell, sell!" button.

When retailers put up too many stores near each other, beware, Cramer said. The time to own retailers is when they are regional stores, not when they are national players with a store in every state.

Another reason to sell: "Accounting irregularities," Cramer says, "equals sell." When accounting is shaky, he said, shoot first and ask questions later.

Another way to spot a top is to scan the front pages of mainstream newspapers. When you see business stories on the front page, it's time to sell.

Cramer later outlined his game plan for building an active stock portfolio. Before he got started, he made this point: Use discretionary funds for an active stock portfolio. Do not play with money that you need. And do not play with retirement money. Here are his 10 rules for building a portfolio, as he delivered them.

No. 10: Buy a stock that is a stock for the future. Call it your nontech hope stock, he said.

No. 9: Pick a retailer, preferably a regional retailer that still has plenty of growth ahead.

No. 8: You need some technology to have a diversified portfolio. Intel(INTC) would be a good start.

No. 7: You need a cyclical name. Dow Chemical(DOW), Deere(DE), Caterpillar(CAT) and Boeing(BA) are examples.

No. 6: Own a secular stock -- a soft-goods stock such as Procter & Gamble(PG), a Kellogg(K) or a Johnson & Johnson(JNJ).

No. 5: Own one speculative stock. Something you think is a winner, though. You have to do your homework on this one.

No. 4: Hold one financial. Own your local bank. Cramer owns Commerce Bancorp(CBH), a regional bank near his home.

No. 3: Own a brand-name blue chip.

No. 2: Oils. A must-have. They're consistent performers. And they have high yields.

And the No. 1 tenet in Cramer's tool kit: Pick a company that you know. You want to have an edge. Perhaps one of your pals works there. Local knowledge gives an investor an edge.

Cramer gave one more tip at the end of the show. He said that at economic bottoms, it's time to buy beaten-up cyclicals. When cyclical stocks start to bottom, Cramer said, earnings estimates get slashed. That, he said, makes stocks look expensive -- and that is precisely when you have to buy. You'll be buying the stocks just as the earnings start to pick up.

---

Interested in more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here. It's a series of articles from Cramer on how to become a better investor. The following table lists some of the rules that Cramer dissects.

	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
	7.	Don't Panic		8.	Buy Best-of-Breed
	9.	Defend Some Stocks		10.	Don't Bet on Bad Stocks
	11.	Own Fewer Names		12.	Cash Is for Winners
	13.	No Regrets		14.	Expect Corrections
	15.	Know Bonds		16.	Don't Subsidize Losers
	17.	No Room for Hope		18.	Be Flexible
	19.	Quit When Execs Do		20.	Patience Is a Virtue
	21.	Be a TV Critic		22.	When to Wait 30 Days
	23.	Beware the Hype		24.	Explain Your Picks
	25.	Find the Bull Market
Check back for more of Cramer's Rules

>To order reprints of this article, click here: Reprints