Sneak Preview: Cramer's New Investing Rules

That's one of many habits that cost people so much in 2000. And when I went over my trades from ActionAlertsPlus.com I found that so many of my gains were truncated and much smaller than they could have been because I wanted to show good numbers, quarterly numbers, as if I were under pressure to continue to perform the old way. We are inundated with stocks and tables each month that show who is doing better or worse than someone else. I am sure you fall prey to wondering, "How am I doing?" Take it from someone who has suffered the lumps of being too competitive: It's a big mistake, especially when it's all in your head.

Foster Wheeler(FWLT Quote) was one of the best picks that I've had in many years, an infrastructure play, meaning it's a company that engineers and constructs giant projects like petrochemical refineries and power plants, both of which are in incredible demand. Soon after I bought it the stock went down about 10 points, from $50 to $40. (One of the great things about keeping a contemporaneous document is that you can see where you made all of these trades. If the stock went down after you got out, congratulate yourself, but if it went up, you'd better be prepared to explain how you left the gains on the table.) At $40 I bought more. It then dropped to $30 and I bought more still. Slowly it went back to where I bought it and then above to the mid- $50s. As the quarter came, I wanted to record that terrific gain. It didn't matter that I liked the stock as much as ever. I wanted to be sure I booked a winner.

Though I had sworn that I would run ActionAlertsPlus.com as if no one was looking over my shoulder, I booted it. Subsequently the stock doubled over the next year as my thesis about the stock's potential played out.

I had fallen victim to hedge-funditis. Had I not cared about the short term so much, I would have held on to a huge gain for at least some of my holdings. While you may not feel as if you are running a hedge fund, the focus on short- term performance has infected pretty much every investor I know. You don't need to show good days, good months, good quarters, or even good years. You just need to show great wealth over many years. Invest for the long term. Lose the hedge fund mentality.

Editor's note: This is a special sneak preview of Jim Cramer's just-released book, Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer). Look for more sneak previews every day, and get your free copy with your annual subscription to Action Alerts Plus; click here for details. Catch Cramer in person to get it signed: Wednesday, Dec. 5, at 7 p.m. EST in New York City's Union Square Barnes & Noble; Wednesday, Dec. 12, at 7 p.m. in Bridgewater, N.J.'s Borders; and Saturday, Jan. 12, at 1 p.m. in Westbury, Long Island's Costco.

Missed the first sneak previews? Read the book intro and the rules of getting and staying rich: Rule 1 and Rule 2.