Diversify to Control Risk

Editor's note: As a special bonus to TheStreet.com readers, we will be running an updated version of Jim Cramer's "Twenty-Five Rules of Investing," from his latest book, Real Money: Sane Investing in an Insane World.. Here's Rule 5.

If you control the downside, the upside will take care of itself. I have always believed that to be the case. But controlling the downside means managing the risk.

The biggest risk out there is sector risk. I don't care how great a tech stock was in 2000 -- even eBay(EBAY Quote) and Yahoo!(YHOO Quote) -- if you had all your eggs in that sector, you got scrambled. Same with pharma in the last several years. Or oil in 1982, when I broke into the business. ...