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NEW YORK (TheStreet) -- These are confusing times for the stock market, Jim Cramer told his "Mad Money" audience. There's always somebody telling you to do exactly the opposite of what you should really be doing.
But Cramer said it's not about sounding smart, it's about getting it right -- what to buy, what to sell, what direction the market's headed. "You get those things right, and it's a heck of a lot easier to make money in this or any market," Cramer said.
By doing your homework, "you just might learn something that will make you a better investor," he said, and a better investor is one who makes more money, "because that's the goal here."
Cramer said he and Stephanie Link, the research director of Cramer's charitable portfolio, Action Alerts PLUS, recently went back over every trade AAP made over the last five years.
Here's what Cramer has learned.
Caterpillar (CAT) had been going down for weeks on end as analysts raced to cut their estimates ahead of what looked to be a particularly bad quarter, Cramer said. The analysts had turned bearish after CAT's business globally took huge hits because customers were struggling to get credit for new machines. This was at the depth of the Great Recession.
When Caterpillar finally reported, the quarter turned out to be even uglier than the analysts had predicted. But CAT's stock barely reacted to the bad news. "That's a classic sign that you're looking at a bottom," Cramer said. "The worst is over!" CAT roared and then rose.
It may seem counter-intuitive to buy a stock right after the estimates have been slashed, but when you think about it, it actually makes a lot of sense. JPMorgan Chase (JPM) is another example of this, Cramer said.
It seemed done for after its "London Whale" trading fiasco of 2012. However, just like Caterpillar in March of 2009, JPMorgan's stock didn't get hit after analysts cut estimates. Instead, it flat-lined and then actually inched up slightly. Once we learned JPMorgan's losses were contained at $6 billion, that was the moment we had to buy, Cramer said. If you did, you rode a huge rally.
Coming Back for Secondaries
Everybody makes a mistake sometimes, Cramer said. But if you want to become a great investor you don't just need to learn from your mistakes, you need to learn how to recognize what your mistakes actually are and notice what works.
"We're full of all sorts of unconscious biases, and that can make it incredibly difficult to learn from experience," Cramer said. Think empirically, he said.