Rule No. 22: Wait 30 Days After Warnings
Editor's note: Jim Cramer's new book,
Real Money: Sane Investing in an Insane World
, is available in selected bookstores now. As a special bonus to
RealMoney
readers, we will be running Cramer's "Twenty-Five Rules of Investing." For more about the new book and to order it, click here. Today, we present Cramer's twenty-second rule of investing. Read more about his rules:
-
Pigs Get Slaughtered
It's OK to Pay the Taxes
Don't Buy All at Once
Buy Damaged Stocks
Diversify to Control Risk
Do Your Homework
Don't Panic
Buy Best-of-Breed
Defend Some Stocks
Don't Bet on Bad Stocks
Don't Own Too Many Names
Cash Is for Winners
No Woulda, Shoulda, Couldas
Expect Corrections
Watch Bonds
Don't Subsidize Losers
Check Hope at the Door
Be Flexible
Quit When Execs Do
Patience Is a Virtue
Be a TV Critic
Few rules have saved me more than the 30-day preannouncement rule.
When
Tibco Software
(TIBX)
preannounces a bad quarter, do you rush to buy it? Are you someone who put money to work in
Waters
(WAT) - Get Report
right after that
vicious preannouncement the other day?
If you are, this rule is for you:
Always wait 30 days after an earnings preannouncement before you buy.
I designed it because I recognize how compelling some of these price adjustments are, but they often are
not deep enough
to make the stocks ultimately attractive.
Here's why. When a company preannounces a bad quarter, it isn't just looking at the past. It is looking at its order book, its future. Believe me, if there were any hope that the company wouldn't have to preannounce -- hope in the form that maybe something could get
better
, not
worse
in the next 30 days -- the company would wait.
Preannouncements signal
ongoing
weakness. That's why I like to wait 30 days to see if anything has gotten better before I pull the trigger to buy.
Sure, I will miss some great opportunities. Most of the time, though, after 30 days, I find that there is more woe and another leg down! If there isn't, then I might miss a point or even 2, but I will be on terra firma. That's the only thing you want to be stepping on in any market, including this one.
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by
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