Cramer's 'Mad Money' Recap: Day of Atonement

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NEW YORK ( TheStreet) -- You better believe you'll make some mistakes in the market, Jim Cramer told "Mad Money" viewers Wednesday as he kicked off his yearly "Day of Atonement" show to review his biggest mistakes over the past year.

Cramer said investors need to learn from their mistakes, which begins by first acknowledging what they were.

There were a lot of things going wrong with the markets this year, Cramer noted. Everything from turmoil in Europe to a slowing China to Washington gridlock and a Federal Reserve that couldn't seem to do anything right to jump-start the U.S. economy.

Yet, despite these many negatives, the stock market never quit, which is why Cramer continued all year long to recommend a diversified portfolio of high-yielding dividend stocks with a little gold for good measure.

In the end, Cramer sees the glass as half-full. Europe, he said, will eventually fix its problems and China's economy will eventually regain its momentum. With the Fed keeping bond rates low, dividend stocks remain the only game in town, which is why Cramer said he comes to work every morning.

Dog Days

Cramer's first lesson to investors? Every dog has its day. That was surely the case with First Solar ( FSLR), a company he first advised selling at $138 a share and reiterated selling in the $60s, $50s, $40s, $30s and again in the $20s as the stock continued to decline.

So why then did Cramer not declare victory and move on? Why did he make one final sell recommendation at just $13 a share? Cramer said he simply got greedy and complacent, and the dog finally rose up and bit him. Shortly after his sell recommendation, First Solar caught a big break in the way of stiffer U.S. tariffs, sending its shares higher.

Cramer also explained how he gave up on Darden Restaurants ( DRI) on Sept. 6, after the company pre-announced yet another earnings disappointment. He said that he had waited for ages for the company to turn itself around but it never did. So in a fit of non-discipline, he told viewers to swap into Yum Brands ( YUM) instead.

Cramer said the mistake was giving up when everyone else did, a move that almost always yields a better time to sell later. He said that Darden paid a bountiful dividend, paying him to wait, which made his rush call to sell at the bottom a big mistake. There's always a better time to sell than when everyone else is selling, he concluded.

Don't Fall in Love

Cramer's next lesson for investors was to never fall in love with a stock, as he did with Chipotle Mexican Grill ( CMG.).

Cramer said with two vegetarian kids who already turned him on to the likes of Apple ( AAPL), a stock he owns for his charitable trust, Action Alerts PLUS , and Panera Bread ( PNRA), a stock that rose from $40 to $160, it was easy for him to jump on the Chipotle bandwagon.

Chipotle had been a restaurant that only barely got dinged during the Great Recession. The company was in the right place at the right time, promoting healthy, organic foods. Unlike just about every other restaurant chain that was getting slammed by international woes, Chipotle remained a great U.S.-only regional to national growth story.

That's why Cramer suspended his own rules and recommended the stock even when it began trading at multiples more than twice its growth rate. Chipotle, he thought, could never be stopped. That was, of course, until the day the stock tumbled more than 100 points.

Cramer said he knew the stock was too dicey above his "two times growth rate" rule, but he let his enthusiasm get in the way. Ironically, he said, using the same analysis allowed him to call the bottom in Chipotle at $280 a share, or one time its growth rate, a fact that only added salt to his wounds.

In a similar situation, Cramer said he overstayed his welcome in Deckers Outdoor ( DECK), makers of Uggs boots, for almost exactly the same reason.

Management Matters

Next in Cramer's list of sins from this year: ignoring his rule that management matters. He said sometimes he's too harsh on CEOs, while other times not harsh enough. This year, he had one example of both.

Cramer said he slammed Procter & Gamble ( PG) CEO Bob McDonald for a string of disappointments, even going as far as adding him to his "Wall of Shame" list of the worst corporate CEOs.

But that was before Cramer did his homework and learned of McDonald's $10 billion cost-cutting initiatives, a renewed sense of innovation with dozens of new products and a huge bet on the Olympics that paid off big. Shares of P&G are unstoppable now, said Cramer, which is why he owes McDonald an apology.

However, when it comes to Energy Transfer Partners ( ETP) CEO Kelcy Warren, Cramer said he gave this Action Alerts PLUS holding way too much of the benefit of the doubt. He said that even this stock's 8% yield can't save it from Warren's lack of discipline, which has led the company to countless acquisitions that have buried existing shareholders and piled on the debt.

Cramer said he's not willing to throw in the towel quite yet on Energy Transfer, as the company has yet to close its big acquisition of Sunoco ( SUN). He said the stock will likely pop once that deal closes. If it doesn't, Warren will find his face replacing McDonald's on the Wall of Shame.

Be Patient

Cramer's next lesson for investors: Don't be impatient and give up just because your thesis hasn't happened yet. He said that when oil prices bottomed, he flagged offshore driller Ensco ( ESV) as being the biggest beneficiary. He even bought some for Action Alerts PLUS. That call proved initially to be right as shares rose 10 points over the following weeks.

But then oil prices sank, enough for investors to get worried. That sent shares back to the low $40s, a full round trip up and back, much to Cramer's dismay. So when shares returned to his breakeven, Cramer said he couldn't take it and sold.

In the days that followed, Ensco got added to the S&P 500 index, sending shares up $3, after which they only continued to rise, eventually ending up a full $10 higher than where Cramer sold.

Cramer's lesson? Don't let a stock's actions dictate yours, especially if your thesis remains intact. You can't be greedy, but you also can't afford to be impatient at small market fluctuations.

Other Mistakes

Among his final sins, Cramer said he was wrong to think that JPMorgan Chase ( JPM) CEO Jamie Dimon was powerful enough to override his entire company. He said that not only was Dimon mortal, he was also incredible arrogant when a rogue trader in the company's London office made a huge mistake that cost it billions.

Cramer said he was also wrong for saying that Cypress Semiconductor ( CY) was a buy because it DIDN'T make chips for the iPhone and by not saying that Cirrus Logic ( CRUS) was a buy because it DID make chips for the iPhone.

Cramer admitted believing Scott's Miracle-Gro's ( SMG) CEO when he said things were going great, only to have the company report horrid earnings just weeks later. Also, Cramer thought Devon Energy ( DVN) was morphing into an oil company, but clearly it was just an ailing natural gas company like all the others.

Finally, Cramer said he got the call wrong on supermarket chain Roundy's ( RNDY), a call for which he asked for forgiveness.

--Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.
At the time of publication, Cramer's Action Alerts PLUS had a position in AAPL, DVN, ETP and JPM.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC Universal or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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