NEW YORK ( TheStreet) -- "Being a long-term investor is no excuse for not following the rules," Jim Cramer told the viewers of his "Mad Money" TV show, as a he took a break from the daily market action to dispel the myths of the so-called "buy and hold" investment strategy. Cramer said, of course, making money long term is the ultimate goal, but sadly it's also become the ultimate excuse for short-term losses. He said that far too often investors ignore short-term pain under the delusion that they're "in it for the long term." "Losses are losses, realized or otherwise," Cramer told viewers. Being a "long term" investor doesn't justify owning damaged goods, he said, just ask those who owned shares in the former General Motors. Being a long-term investor does not mean buy and forget. So what is long-term investing all about? Cramer said in a word, homework. He said investors need to read the quarterly reports, read the SEC filings and listen to a company's conference calls. Investing for the long term, he said, is not a license to not pay attention. Investors also need to stick with high-paying dividend stocks, he said, because those companies, compounded over time, yield the highest results. If the financial panic has taught us anything, said Cramer, it's that the buy and hold philosophy is dead. The banks will take your money, he said, even if it was made from a short-term trade. > > Bull or Bear? Vote in Our Poll
Theme Play"Never plan on owning a stock forever," Cramer told viewers. He said as sectors come in and out of fashion, investors need to be looking for overarching themes, multi-year secular growth trends that rise above the daily market action. One of those themes, he said, is the mobile Internet tsunami, or smart phone revolution. Cramer said the mobile Internet revolution will be bigger than the PC revolution in the '80s and bigger than the Internet revolution in the '90s. He said investors must own mobile Internet stocks, because trends like these only come about two or three times a generation.
So what is the Internet tsunami all about? Cramer said it's all about mobile devices like Apple's ( AAPL) iPhone and Amazon.com's ( AMZN) Kindle. He said it's about how these mobile devices are changing the way the world uses technology. This is especially important in the developing world, where entire countries are skipping landlines altogether, and are moving right into wireless communications. Cramer said the obvious way to play the revolution is with Apple, a stock which he owns for his charitable trust,
Action Alerts PLUS . But he noted that the revolution will extend to many other companies, including the parts makers and vendors, the wireless carriers and even the retailers who sell these devices. Cramer said stocks like Cisco ( CSCO), Ciena ( CIEN), Qualcomm ( QCOM) and Sandisk ( SNDK) are all great choices.
Know the Right PriceLearning how to buy a stock at the right price was Cramer's next lesson for investors. He said it's critical to buy in at the right price, and fortunately, long-term investors can afford to be patient, and wait for their stocks to come to them. "Price is often underrated," Cramer said, but loading up on a stock gently over time, buying more if it drifts lower, is a winning strategy. Calling a perfect bottom is impossible, he said, which makes buying incrementally all that much more useful. Cramer explained that investors can use a strict scale, i.e., buying 100 shares every time their stock slips a point, but this strategy is not the most effective. Cramer said he likes using sliding scales, buying larger and larger amounts the further a stock slides. This way, he said, investors are pouring money in at the bottom, guaranteeing the maximum return. While no investor likes seeing their stocks head lower, Cramer said for longer-term investors, those who have done their homework and have a solid long-term thesis in place, seeing their stock go lower just means they get to buy it for less.