Cramer's 'Mad Money' Recap: Investing Mistakes to Avoid

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Editor's note: This recap is from a show that aired in 2008

Jim Cramer devoted his "Mad Money Show" Friday to talk about several mistakes viewers should avoid when they invest.

First, he said, investors need to understand the difference between an investment and a trade. "A trade is when you buy a stock for some specific event, a catalyst," he said.

An investment, on the other hand, is based on a long-term thesis, "the idea that a stock has the potential to work over a long-time horizon."

Cramer said it would unwise to sell a stock you believe in for the long term just because it's "gone up a lot off some catalyst."

Doing so, he said, will lead you to get out before the best gains have arrived.

Cramer illustrated the point by talking about his youngest child's desire to buy a second Apple (AAPL Quote) iPod. At first he couldn't understand why she should want another one, but then he realized the significance of the iPod as a "fashion accessory" and presto, that insight turned into an investment thesis for the stock.

He bought Apple at $26 and enjoyed a huge run-up in the stock.

Bottom line: Don't turn a good investment into a trade before your thesis has a chance to take the stock much higher, he said.

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