Sneak Preview: Get the Right Rally Fit

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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9. When you're playing a big rally, make sure your stocks actually fit the bill. Don't be bamboozled by a fuzzy belief that a stock may be levered to a particular sector: know precisely what you own and why you own it.

When you think you have a rally in a big-picture sector like health care or technology, you have to be very careful about what you buy. A sectorwide rally, unless it's part of a sector rotation caused by the business cycle, rarely ever happens. But you'll still hear a lot of talk about a "tech rally" or a "health-care rally" or even a "transports rally." When you know there's a rally, but it's being defined nebulously in terms of sectors rather than the industries that compose those sectors, you can't blindly buy anything that you think might fit the bill. You have to be careful and go over your stocks with a fine-tooth comb. What, precisely, is the rally in?

Figure out why there is a rally and which companies are actually driving it, then stick with those companies. Don't generalize out to the broader sector, because there probably isn't a broader rally. You have to know what you own and why you own it in the most concrete possible terms, especially when you've got a bullish situation on your hands in which there's a lot of money to be made. You don't want to miss out on the rally, and the way you can make sure you don't is by looking at the actual composition of the rally, not the hype, and figuring out which stocks will participate in it based on their fundamentals.