Investors with a long-term horizon can afford to be patient, said Cramer. So for an investment of 400 shares of a $90 stock, he'd start by buying just 100 shares. If the stock fell to $85, he'd buy 100 more, and again at $81 and below $80. By using wide scales, investors can take advantage of the many selloffs the market has to offer and build a position at a price well below their initial entry points.
What if the stock doesn't dip below $90? Cramer said that's a high-quality problem to have. Investors may not be able to get as many shares as they had hoped, but they're still making money on the ones they were able to buy at the good price.
Cramer said he's not a fan of using smaller, strict scales, which dictate buying more as a stock falls every $1 to $2 a share. In today's market, stocks tend to be more volatile, and it would be a shame to miss out on that $8 decline because you bought all your shares just $3 lower.
To use a baseball analogy, Cramer said that when it comes to buying stocks, investors need to keep the bat on their shoulder and wait for the right pitch.
Knowing When to SellCramer's next lesson for long-term investing: Every stock comes with an expiration date. He said that knowing when to sell a stock is every bit as important as knowing when to buy it. Contrary to what the Hollywood movies may tell us, greed, is not good -- it's downright dangerous. Cramer said when you've got a big winner in your portfolio, you must take some profits -- period. Lock in the gains while you have them because winners can become losers in the blink of an eye. Selling one's big winners may seem counter-intuitive but you have to at least trim your gains, said Cramer, if for no other reason than diversification. If a stock was 15% of your portfolio and then it doubled, guess what, it's now 30% of your holdings, and that's far too much for any one stock. Cramer reiterated his rule that no stock should ever account for more than 20% of a portfolio.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts