The fundamentals matter now more than ever. Best of all, the information about how a company is doing is readily available and perfectly legal. Being familiar with a company and how it's doing is not an all-or-nothing game, said Cramer. Even knowing a little bit can still give an investor a leg up on many others. If something changes, how will you know whether to cut your losses or double down? Only homework can answer that question. Homework is not always a guarantee of immediate gains but it is still one of the best weapons investors have in their arsenal.
Know Your IPO
Cramer's next lesson about what makes stocks move dealt with newly minted stocks and how to navigate the volatile IPO market. He said it's impossible to ignore the quick 20%, 30% or even 100% gains that can be had in days, or sometimes minutes, from investing in IPOs. But these stocks can also carry a lot of risk as well. The fact is, there's a lot of hype surrounding most IPOs, said Cramer, which is why many of them fizzle after their first day of trading. Facebook ( FB) is a clear example of a company that came nowhere near close to living up to its first-day hype. Don't let brokers tell you that every IPO is a great one, Cramer warned, because some issues are just not worth investing in. But sometimes the investment banks that bring stocks public have a secret agenda, bringing investors back to the market and rewarding their most loyal clients. IPOs are, after all, about supply and demand, said Cramer, which is often why banks will limit the number of shares being offered to help engineer that first-day pop to the upside. They want to make sure their clients are able to make money, he said, which is why IPOs such as those of LinkedIn ( LNKD) and Groupon ( GRPN) were priced lower than they probably could have been given the demand for shares. Investors who use a full-service broker and can get some shares of these under-priced deals should do so, said Cramer, but investors should never buy shares in the open market after the IPO because the inflated prices are rarely able to hold up for the long run.