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This piece has been updated and revised from its original publication. NEW YORK ( TheStreet) -- Expect another big week for earnings, Jim Cramer told "Mad Money" Friday as he laid out his game plan for next week's trading. Cramer said that with so many corporate report cards coming in, the markets might not even have time to notice Europe's woes for a while. On Monday, Cramer said he'll be watching Eaton ( ETN), a stock he owns for his charitable trust
Not the End of the WorldNot every big decline in the markets signals the end of the world. That's why no matter what the crisis of the day, it's never a good idea to sell everything, as not all stocks are equally good or equally bad, Cramer said. When bad news hits, Cramer told investors to look at the stocks in their portfolios and rate them on a simple scale. Stocks you rate No. 1, for example, could be the ones you believe in and buy more of as they head lower. Stocks in the No. 2 camp could be those that could be sold if you needed to raise cash. Meanwhile, the No. 3 stocks could be those that are expendable and should be sold now.
Cramer said that as a general rule, if investors have big gains they should give them back. Ring the register, he said. If the fundamentals of a company have changed, sell. If you think a stock is headed lower, sell some and buy it back lower. But no matter what happens, never sell it all and hide in low-yielding bond or bank CDs. Cramer recounted how he learned his lesson about not selling everything. He said in the 1990s he held shares of American Stores, the old Acme supermarket chain, hoping the company would be taken over. After years of losses, he finally gave up and sold all his shares, all at once. Just two weeks later, American Stores was taken over. Cramer said his mistake was selling it all.
Know What You OwnCramer's next tip for investors: Know what you own. He said in today's media-driven world, investors simply should not own a stock unless they know why they own that stock. Why? Because the media has never met a negative story it didn't like. From the Japanese tsunami to the problems in Europe, Cramer said that investors should just assume that every story they see on TV or read in the papers has been exaggerated in some way. So unless investors know why they own a stock in the first place, it will be far too easy for them to bail out on their stocks at the first sign of trouble. Cramer recounted what he used to call his "Bristol-Myers Theorem," derived from Bristol-Myers Squibb ( BMY), a drug company with the most consistent earnings imaginable. He explained that back at his hedge fund, any time an associate would run in, panicking about a negative story, he would always ask, "How does that affect the earnings of Bristol-Myers?" In just about every case, it didn't. That's why Cramer often recommends reliable, consistent earning stocks with great dividends, stocks like Kinder Morgan Energy Partners ( KMP) or Verizon ( VZ) or utilities such as Southern Company ( SO). Cramer said no matter what the negativity of the day, companies like these will allow investors to put those stories into perspective.
The Dangers of IPOsNext up on Cramer's tips for investors: the dangers of initial public offerings. Cramer said he's often asked about the next hot IPO coming down the pike. His answer is always the same -- "What price are they offering and how many shares are there?" When it comes to IPOs it's all about valuation, how many shares are being offered and at what price. He said what starts out as a great offer at $20 a share, can easily get hyped up to $25 a share right before it comes public. The IPO business also has a habit of limiting the number of shares offered to ensure a big first-day pop in the share price, a pop that will only hurt investors later on. Cramer said his usual advice: If you can get in on one of these "sliver" offerings, do so, but never buy them in the aftermarket. Case in point, the recent IPO of Groupon ( GRPN). Cramer said he never liked Groupon the company, but Groupon the IPO was a buy, buy, buy. Why? He explained that while Groupon had 640 million shares of stock outstanding, the IPO only offered a scant 40 million of them to the public. The result was huge demand, which sent shares of the $20 IPO to $28 and then $30 a share on its first day. This was a great return for those in on the IPO at $20, but those who bought at $28 and $30 were crushed as shares slid to under $15 a share in the days that followed.
Few Are ForeverCramer's final tip for investors was that only a few stocks should be held forever. He said that it's not OK to own a stock unless investors know exactly what would make them sell it in the future. Too often investors end up selling a stock at the wrong time because they never anticipated selling it in the first place, Cramer explained. Similar to the "Bristol-Myers theorem," if investors don't know what they own and why they own it, it's easy to panic at the first sign of trouble.
In particular, Cramer said high-flying tech stocks in particular cannot be owned forever. Technology changes too rapidly and what's red hot this year likely won't be next year. Likewise with cyclical stocks, said Cramer -- just because the economy is great today doesn't mean it will stay that way tomorrow. "Tech stocks are not the same as staple stocks," Cramer explained. There are tech cycles and there are economic cycles but there aren't cycles for Cheerios or Hershey bars. Learn from the dot.com bust of 2001, Cramer reminded viewers. Investors need to be ready to sell when the time comes. When it comes to high-flying stocks, Cramer concluded, "take profits on the way up, get out on the way down and be ready to jump ship when the time comes." --Written by Scott Rutt in Washington, D.C. To contact the writer of this article, click here: Scott Rutt. To follow the writer on Twitter, go to http://twitter.com/scottrutt. To submit a news tip, send an email to: firstname.lastname@example.org. To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.