Not the End of the World
Continuing with his tips for investors, Cramer said not every big decline in the markets signals the end of the world. That's why no matter what the crisis of the day, it's never a good idea to sell everything because not all stocks are equally good or equally bad.
When bad news hits, Cramer told investors to look at the stocks in their portfolios and rate them on a simple scale. Stocks you rate No. 1, for example, could be the ones you believe in and are worth buying more as they head lower. Stocks in the No. 2 camp could be those that could be sold if you needed to raise cash. Meanwhile, the No. 3s could be those that are expendable and should be sold now.
Cramer said that, as a general rule, if investors have big gains they should give them back. Ring the register, he said. If the fundamentals of a company have changed, sell. If you think a stock is headed lower, sell some and buy it back lower. But no matter what happens, never sell it all and hide in low-yielding bond or bank CDs.
Cramer recounted how he learned his lesson about not selling everything. He said in the 1990s he held shares of American Stores, the old Acme supermarket chain, hoping the company would be taken over. After years of losses, he finally gave up and sold all his shares, all at once. Just two weeks later, American Stores was taken over. Cramer said his mistake was selling it all.
Know What You Own
Cramer's next tip for investors is to know what you own. He said in today's media-driven world, investors simply should not own a stock unless they know why they own that stock. Why? Because the media has never met a negative story it didn't like.
Whether it's the tsunami in Japan or the European financial crisis, Cramer said investors should just assume that every story they see on TV or read in the papers has been exaggerated in some way. So unless investors know why they own a stock in the first place, it will be far too easy for them to bail out on their stocks at the first sign of trouble.