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This episode last aired on Sept. 1, 2011
NEW YORK (
TheStreet) -- "The game may sometimes feel rigged, but you can protect yourself from being taken advantage of," Jim Cramer told the viewers of his
"Mad Money" TV show as he welcomed them to "Cramer's Stock Market Survival School" for investors and home gamers.
Cramer said despite the inherit conflicts of interest on Wall Street and the occasional bad apple, stocks still remain the best way to make money over the long term. He said since 1926, 40% of the
S&P 500's total return has come from dividends, which is why he continues to recommend high-yielding dividend stocks.
Beyond that, however, Cramer said there are simple rules investors can follow to help them avoid many of the rookie mistakes that cost individual investors tons of money.
Ignore the Hype
His first rule: Don't fall victim to the Wall Street promotional machine.
Cramer explained that despite Wall Street's barrage of marketing, investors really can manage their own portfolios, avoiding countless fees, commissions and other charges. "Avoid becoming one of those clients that gets abused by their brokers," he said. Doing a little homework on your own can go a long way.
"Never buy something that you don't understand," was Cramer's second rule to live by. He said every investor should be able to defend why they own a stock in two or three sentences. If they can't, then they shouldn't own it. Cramer said only by understanding what you're buying can you truly know whether your broker is putting your interests ahead of his or her own.
Cramer said owning high-quality dividend stocks, doing your own homework and knowing what you own won't guarantee you won't ever lose money, but if a stock does go down at least you'll know why and be able to cut your losses.
Don't Buy on Margin
Cramer's next lesson on investing: Never buy stocks on margin. Cramer said that unlike homes, which provide you a place to live while you pay the mortgage, stocks are nothing more than pieces of paper, and that makes borrowing money to own them just dangerous. He said that while the margin can allow you to make a little bit of money go a long way, it's also a great way to wipe yourself out in the blink of an eye.