Sneak Preview: LatAm's Always a Trade

Editor's note: This is a special excerpt from Jim Cramer's book, Jim Cramer's Mad Money: Watch TV, Get Rich. To order your copy and read all the rules, click here.

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4. Latin America is always a trade. There are some parts of the world that are too politically and economically unstable ever to invest in, or at least that's what the big institutional buyers and sellers who set prices believe. You can make a lot of money in these emerging markets, but you're always trading, never investing.

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The real reason Latin America is always a trade has nothing to do with Latin America and everything to do with hedge funds and mutual funds in North America. Every big money manager who buys Latin American stocks is buying them as a trade. ... The big institutional players actually hate to invest in Latin American stocks, and since these players set prices, you can't invest in Latin American stocks either. Sooner or later, the mutual fund and hedge fund money from America will pour out of these stocks and you'll be left holding significantly cheaper pieces of paper. If the institutions won't invest, you can't invest either. You have to get out before they do, or you'll give up all your gains.

I don't want you to confuse this with investing in Brazil, Russia, India, and China, or BRIC, which I generally consider a good thing. When I talk about buying stocks with Brazilian exposure, I mean you should buy American or European companies that sell things to Brazil. I do not mean you should invest in Brazilian stocks, because those stocks fall under this rule. No matter how hot these stocks might be at the moment, the big fund managers treat them as pure trades, and they'll eventually sell en masse and knock the stocks down.