TheStreet.com Staff
On "Mad Money," Cramer said he takes inspiration from anywhere he can find it, even from "not-quite-classic '70s action films." Lesson No. 3 comes from Magnum Force, starring Clint Eastwood, he said. "In the immortal words of Clint, 'a man's got to know his own limitations.'"
Translating this to investing, Cramer explained that pros try not to invest in things they don't know or understand, while amateurs do this all the time. "If you can't explain what a company does and how it makes its money without quoting some jargon that only an information technology expert would understand, then you shouldn't buy it," he advised viewers. "If you listen to the conference call and come away more confused than enlightened, how on earth are you supposed to know if it was a good call or a bad one? "There will be plenty of businesses and plenty of stocks that you do understand. Buy them," Cramer said. Fourth, while amateurs worry that they aren't making enough money, pros worry that they're making too much money, he went on. "Any schmo can make a ton of money all at once," Cramer said. "All you have to do is take on way too much risk, and that's the heart of the problem." People need to worry about making too much money, not too little, because making too much money "is a sign that your portfolio is out of whack, that you're taking on way too much risk and that everything could fall apart for your investments at any moment," he said. When Cramer was running his hedge fund he was "never more afraid" than when he was making huge money, he said. Market players should look at what they own and if they're "killing the averages," if they're making more money than they ever dreamed of making, then they are doing something "very wrong." "You need to take profits immediately, start selling like there's no tomorrow, otherwise you're setting yourself up for a huge fall," Cramer said. Finally, "amateurs try to game quarterly earnings reports to catch a quick gain," whereas professionals "learn to start living and stop worrying about the quarterly report," he said.
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