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This program last aired on Oct. 4, 2013.
NEW YORK (TheStreet) -- If you're willing to put in the time and effort, anyone can make money in the stock market, Jim Cramer told his "Mad Money" TV show viewers as he dedicated the entire show to his principles of long-term investing.
Cramer said that much of the conventional wisdom about long-term investing is totally bogus, but that doesn't mean investors can't make money -- it just means they must do it the right way.
For many investors, the notion of "long-term investing" is an excuse for not paying attention and poor performance. Everyone must endure short-term pain in order to achieve long-term gain, right?
Well, Cramer said short-term losses don't magically turn into long-term gains just by waiting a little longer, which is why long-term investing has nothing to do with excuses and everything to do with making boatloads of money for years and decades and even lifetimes.
Long-term investing is not about owning stocks for a long time, Cramer continued, which is why he once again sounded off against the conventional notion of "buy and hold." Sometimes companies fall into secular decline and sometimes they screw up, he said, and in those cases, investors can't sit around and wait for a turnaround. Just ask the shareholders of BlackBerry (BBRY) and RadioShack (RSH) how the "buy and hold" strategy is working.
Saying that you're a long-term investor is not a license to be lazy. There are disciplines and rules that must be followed. Investors can't escape doing the homework and following the rules if they have any hopes of being successful.
Get the Right Price
Cramer's first lesson to investors: If you want to make money from stocks it's absolutely crucial that you buy them at the right price.
Cramer said this notion is true whether you're a long-term or a short-term investor. If you pay too much for a stock, it's vastly more difficult to make money. Even the greatest of investment ideas will turn bad if you pay too much for the stock.
So how will investors know when it's the right time to "pull the trigger" and buy? Cramer said there's never a perfect price for stocks, and those who claim to know when a stock has hit bottom are fooling themselve -- which is why he's always been an advocate of buying a stock in increments.
Investors with a long-term horizon can afford to be patient, said Cramer. So for an investment of 400 shares of a $90 stock, he'd start by buying just 100 shares. If the stock fell to $85, he'd buy 100 more, and again at $81 and below $80. By using wide scales, investors can take advantage of the many selloffs the market has to offer and build a position at a price well below their initial entry points.
What if the stock doesn't dip below $90? Cramer said that's a high-quality problem to have. Investors may not be able to get as many shares as they had hoped, but they're still making money on the ones they were able to buy at the good price.
Cramer said he's not a fan of using smaller, strict scales, which dictate buying more as a stock falls every $1 to $2 a share. In today's market, stocks tend to be more volatile, and it would be a shame to miss out on that $8 decline because you bought all your shares just $3 lower.
To use a baseball analogy, Cramer said that when it comes to buying stocks, investors need to keep the bat on their shoulder and wait for the right pitch.
Knowing When to Sell
Cramer's next lesson for long-term investing: Every stock comes with an expiration date. He said that knowing when to sell a stock is every bit as important as knowing when to buy it. Contrary to what the Hollywood movies may tell us, greed, is not good -- it's downright dangerous.
Cramer said when you've got a big winner in your portfolio, you must take some profits -- period. Lock in the gains while you have them because winners can become losers in the blink of an eye.
Selling one's big winners may seem counter-intuitive but you have to at least trim your gains, said Cramer, if for no other reason than diversification. If a stock was 15% of your portfolio and then it doubled, guess what, it's now 30% of your holdings, and that's far too much for any one stock. Cramer reiterated his rule that no stock should ever account for more than 20% of a portfolio.
Cramer also advocated his strategy of "playing with the house's money." He said by taking out your initial investment and leaving only the gains, investors can take more risks with what's left. That's the Holy Grail of investing, he concluded, because at that point you simply can't lose.
How to Invest for Retirement
A huge part of long-term investing is investing for retirement, said Cramer. But like all things, there's a right way and a wrong way to approach one's golden years.
Cramer said that conventional wisdom says to simply park all your money into a 401(k) or IRA. While these types of accounts do have many tax advantages, unfortunately most 401(k)s offer options that, well, stink. That's why Cramer suggested investing in 401(k)s only to max out the company match, if there is one, and then into an IRA until those limits are reached.
What should investors have in those IRAs? Cramer said he recommends five to 10 diversified stocks, including high-yielding names that are not master limited partnerships (MLPs) or real estate investment trusts (REITs). He said both MLPs and REITs are already tax-advantaged investments, thus putting them into IRAs invokes additional tax implications that can wipe out any gains.
Instead, Cramer said he's looking for regular companies with great yields and long track records of raising their payouts year after year.
Stocks for Every Portfolio
Some winners are more lasting than others. That was Cramer's next lesson for investors. He said while no stock lasts forever, there are a select few secular growth names that should be in every portfolio.
Cramer explained that most companies need a healthy economy in order to thrive, and that's called cyclical growth. But secular growers can deliver fantastic earnings even in a lousy economy and keep powering higher year after year.
How can investors find these elusive winners? Cramer said by sticking with long-term trends, like the move towards healthy eating. That trend has worked well for names such as Hain Celestial (HAIN), said Cramer, just as the smartphone revolution gave Apple (AAPL) years and years of unparalleled growth.
Cramer said that investors can hold onto secular growers for as long as the story remains intact. That can be a very long time, he added. But investors need to realize that even the hottest of trends, like Apple, will eventually come to an end and investors need to be prepared for it when it comes.
What's in a Name?
Cramer's final thought for investors: Don't get hung up on nomenclature. He said there's nothing virtuous about being a "long-term" investor.
In recent years, the notion of trading has become loaded with negativity, but in the end we're all here to make money. If that money happens to come in a hurry rather than taking the years you were expecting, take it!
When you go to the bank, they don't ask whether you made your money short term or long term, they take it either way. If you need to take action with your investments on a more frequent basis, do so.
Just always remember to stick with your discipline, do your homework and stay on top of your portfolio, he concluded.
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-- Written by Scott Rutt in Washington, D.C.
To email Scott about this article, click here: Scott Rutt