The 25 Rules of Investing

Editor's note: This is the first of Jim Cramer's "Twenty-Five Rules of Investing" from his latest book, Real Money: Sane Investing in an Insane World. Check out the other 24 rules at the end of this story!

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What would you do if I told you the Nasdaq were to go up 1,000 points between now and November? What would you do if I told you the Nasdaq was going to double by December? How about if I told you that after it doubled, you would then catch another 1,000 points up by March?

First, I think you would tell me that I was nuts, and not worth listening to. But what if I were so persuasive that you believed me. Wouldn't you want every penny you had in the Nasdaq right now?

Or would you say, "Nope, not for me, this one's not worth catching. I don't want the 1,000 points, I don't want the double and I certainly don't want that last 1,000 points. Way too dangerous for me."

From the way people talk these days, with sober intonations about the market, total sobriety, you would believe the latter. You would think that people would avoid that 3,000-point move like the plague. Because we know how that 3,000-point up move turned out, we know that we simply climbed the stairs to jump off the tower.

Yet, that's what happened six years ago, that exact same sequence. Knowing what we know now about how hard it is to make money in the market, I think we would regard ourselves as utter fools if we avoided that incredible move simply because we didn't have to jump off the tower of Nasdaq 5000. It wasn't inevitable.

It wasn't inevitable unless we are pigs.

Which leads to one of my absolute favorite adages:

Bulls make money, bears make money, pigs get slaughtered.

Rules like that one -- simple, nonquant and yes, nonfinancial rules -- saved me in 2000.

These days there's plenty of revisionist history on the part of financial commentators, editors and occasionally even brokerage house personnel -- if they let themselves wax philosophical -- about what happened when the Nasdaq bubble burst. Those who tried to capitalize on it are now ridiculed. Those who avoided it are now held up as some sort of paragon worthy of Diogenes.