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 Own
Cramer'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.