In his special introduction to the stock market 101
"RealMoney" radio show, Jim Cramer said he gets tons of email every week from people asking how to get into, and buy and sell in, the stock market.
Opening a stock account is very similar to opening a checking account, Cramer said. You have to fill out forms and decide what level of risk you are comfortable with.
Risk opens up a lot of venues, whereas if you are more conservative, you have limited opportunities.
"I say check the risk box," Cramer said.
Put as much money in your account as you want to put into stocks, but don't borrow money, he stressed.
Once people open an account, they must decide whether they are confident enough to manage their own money or if they need someone's help doing so, he said.
Here, Cramer said, people can play it either way.
Cramer said he likes to tell people that they should have three reasons to buy a stock and be able to articulate them.
"When a stock goes down, which it often does, you have to be ready," he said. If you don't know what the stocks does, you will flip out and end up buying high and selling low, he said.
"There are many things you can do with your money," Cramer said. You can put it under your mattress, put it in a bank or a bond, or invest it in real estate or gold. Or you can put it in stocks, he said.
But history is a good guide for the future, and there is no period is the last 20 years where stocks have been beaten. That's why Cramer says it's best to save money in stocks.
People should split their revenue streams into two: one for retirement, which perhaps could be put into a mutual fund; and the other as a discretionary stream, which people can manage themselves, he said
Put more in the retirement stream than the discretionary one, Cramer advised.
And as people get older, Cramer suggested shifting into a more conservative gear.
"Take as much risk as you can when you're younger," he said. "You can't start over as you get older."
Also, keep a manageable number of stocks, so you have the time to allot one hour of homework per stock every week, he said.
Cramer said he can't own more than 25 stocks for his charitable trust,
Action Alerts PLUS, even though he is a banshee for this business.
"I love it, so I have 25 hours a week to do my homework on my 25 stocks, but you may not," he said.
In addition, make sure to pick stocks of companies you know so that when your stocks go down you won't freak out, he said. And last, pick the stocks you know from different sectors, he said.
The building blocks of homework are not difficult, Cramer said.
All investors need is the inclination and time to do it, he said. Otherwise there is no disgrace in putting money into mutual funds.
There are no guarantees in this business -- stocks go up and down, Cramer said. But if you've done all your homework, you won't be paralyzed like a deer in headlights when your stock goes down.
"I need you to spend as much time on a stock as you might spend trying to figure out where to eat on a Friday night," he said. "It is the equivalent of a one-hour TV show."
Spend an hour per week on each stock and remember to stay diversified, he said.
"I believe in diversification because I accept the fallibility of my own judgment," Cramer said.
Diversification is not just the remedy for those who pick the wrong stock; it is the remedy for the company that goes the wrong direction, he said.
To have two or three of a kind is a loser this game, he said. Diversification keeps you from getting hurt.
Every publicly traded company has a Web site, which contains almost everything you need to know about a company, he said.
"Every quarter, companies give themselves a report card," Cramer said. "They don't give themselves all A's because management knows they have very smart people listening, and if they don't tell the truth, they will get sued."
Market players should want to know how the company's earnings came about and how its growth is, he said. Double-digit -- meaning 10% or higher -- growth is good, 20% growth is excellent and the growth that blows you away is 30% year over year, he said.
People should also look at the company's 10K -- what it does and how it made its money. Cramer understands that reading the 10K, listening to the company's conference call and reading articles about it might be too difficult for many people.
That's why Cramer focuses on a "know thyself" strategy.
"Do you have the time and inclination to do this?" he asked. "If not, you can go to a mutual fund or a broker who has time to do the research."
Hold or Fold
While discussing tips on when to buy and when to sell in the stock market, Cramer said that the common principal on Wall Street of buy and hold is "gibberish and brainwash."
"You have to buy and do homework -- that's the tactic," he said. "When you do homework, you'll get out before things get bad."
Buy weakness, sell strength, Cramer iterated.
When Cramer said that when he looks at a stock, he doesn't know how high or low it will go and that "no one should be that arrogant."
Remember not to buy all at once, but in stages, he said. Once a stock goes lower, buy a little more, and when it goes high, sell a little on strength.
People who fail to do their homework will ride stocks to zero, but Cramer said that when you buy and have a gain, it's OK to take something off the table. Similarly, "selling is important to your arsenal," he said.
"Your first loss is your best loss," he said. "When you find something wrong with a company, it's OK to sell."
Jim 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
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