Investing Lessons From the Past Week

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Dear Action Alerts PLUS Subscriber,

Give me a minute to talk to you about what I did this week. First, I grudgingly recognized that I hadn't taken enough off the table. When you have 15%-20% gains in this market, you don't sneer at them. When you have 300% gains, as I did in

Conexant Systems

(CNXT) - Get Report

, the positions shouldn't just be cut in half; they should be cut by two-thirds. But I didn't act swiftly enough and I gave up a whole point by waiting. Bothersome.

Second, I recognized, belatedly, that stocks that are stalled are sending us negative signals.

Newell Rubbermaid

(NWL) - Get Report

was stalled when it should have been going up, as was

Commerce Bancorp

(CBH) - Get Report

during the great BKX bank run, as was

Hewlett-Packard

(HPQ) - Get Report

during the tech run. Those signaled problems that I should have addressed.

Finally, I was too eager in buying the single-digit midgets

Charter Communications

(CHTR) - Get Report

,

E*Trade

(ET) - Get Report

,

JDS Uniphase

(JDSU)

and

ValueClick

(VCLK)

. I have room to double down on them but I don't know if you do. I can do only what I have to in order to make money, and I most assuredly will get much bigger in these stocks.

However, I am cognizant that many of you think, given how well we have done this year, that the moment I buy, you ought to put a huge amount of money on the stocks I buy because they are headed higher.

In every case, I buy a nominal amount of the single-digit companies and then get more aggressive as they go down. I didn't telegraph that kind of buying well with any of these stocks, so keep it in mind for the future: When I add a new low-dollar name I simply will buy less at the start and tell you so, and I'll add that I'm going to get bigger, pyramid-style, on the way down. Could I end up with 50,000 shares of Charter and 50,000 shares of E*Trade?

I hope so.

That's what I did with Conexant, and it ultimately was very successful. That's what I worked toward with the down-and-out telco basket that was so successful.

As always, this is a live-and-learn service. When I look at the great destroyers of capital, the

Januses

, the

AIMs

and alas, the

Putnams

, I wonder if they ever do soul-searching and remonstrations?

Or do they actually think they are doing a good job? Frightening. For me, it is a process of endless self-examination, made more difficult, frankly, by the fact that I can

buy

only after you buy and can't sell when I would like.

Which brings me to the final point: When I tell you that I would sell if I could -- a la

UnitedHealth Group

(UNH) - Get Report

at $55 -- that's not idle. Believe me, I would be selling. That's your ticket to outperforming me. Once in a while I will get a benefit because I am frozen. But assuredly, the odds have spoken: It's a handicap, one you don't want or need.

It's been three years since I started a public portfolio. I am getting better at it by the quarter, I feel, but I still make plenty of mistakes. I apologize for them and I admit them but that doesn't make any of us

like

them.

At least I know I have this one thing going for me: Unlike the mutual fund cowboys out there, I feel the mistakes. This is my personal money. I have thousands of people staring at my every move.

You know what? I like it that way. It makes me a better investor.

Once again, sorry for all of this week's trading, but I truly had to take action to preserve gains, and in retrospect, almost every single move was the right one. That's all you can ask for.

Stay tuned for a much easier to read weekend roundup now that the positions have been cut to a much more manageable 25 units.

One other thing -- every time I take the portfolio to more than 30 stocks, I get sloppy. That won't happen again, I promise. New rule:

no more than

25 positions, and something has to come off to come on.

If you don't learn from mistakes, you are doomed to repeat them.

Regards,

James J. Cramer

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. At the time of publication, Cramer was long Conexant, Newell Rubbermaid, Commerce Bancorp, Hewlett-Packard, Charter Communications, E*Trade, JDS Uniphase, ValueClick and UnitedHealth Group.

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