Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.
NEW YORK (TheStreet) -- Always remember, don't let your skepticism get the best of you, Jim Cramer told his Mad Money viewers Wednesday in a special episode dedicated to getting rich carefully by avoiding some of Cramer's biggest mistakes.
Being too much of a naysayer can hurt you, Cramer continued, especially with companies that have fabulous CEOs. That was certainly the case with Walgreen (WAG) back in 2012, Cramer recalled. He said Walgreen, once a Cramer fave, seemed to lose its way, causing its share price to plummet from $40 to the low $30s by June of that year. The company had picked a fight with pharmacy benefit manager Express Scripts (ESRX) , he explained, and customers were fleeing to rival chains in droves.
Then Walgreen got even worse, buying the European drugstore chain Alliance Boots, sending shares down another quick 6%.
Cramer said he thought for sure Walgreen's CEO, Greg Wasson, had bitten off more than he could chew and recommended selling the stock. The only problem was that Cramer told viewers to sell at the exact bottom for Walgreen's shares. The stock has been heading higher ever since.
Cramer said he knew Wasson was a great CEO and should've given him the benefit of the doubt. He let skepticism get the best of him, an error that individuals make all the time. Not every bad thing is the end of the world, Cramer concluded. Currently, Walgreen is a holding in Cramer's charitable trust, Action Alerts PLUS.
Trust Your Homework
Cramer's next lesson for investors: Never sell a stock just because it's going down. If you've done the homework, and nothing's changed, trust your homework and have conviction.
This was the exact opposite of what Cramer did in 2012 with Bed Bath & Beyond (BBBY) . Cramer said he liked this regional to national home goods retailer but thought shares were too expensive, so he waited for a pullback. When shares fell from $75 to $59 on lackluster earnings, he hesitated and missed the rebound back to $71.
Cramer was ready for the next quarter, however, and bought in on the after-earnings weakness. When shares fell from $63 to $59, he stuck with it, buying more. But by November, when shares had fallen to $55 and analysts were rumbling the company was getting beat by Amazon.com (AMZN) , Cramer lost faith and sold.
On Bed Bath's next quarter, which was also weak, shares didn't go down -- a classic sign of a bottom. They later rallied to $80 a share.
Cramer said his mistake was not trusting his homework and getting rattled after a decline of just a few points.
Big Picture Themes
When the market sees its next big selloff, that's the time to buy into "big picture themes," Cramer told viewers. What are big picture themes? Solid, long-term trends like America's oil and gas renaissance, he explained, but also a trend he calls "stealth technology," or non-technology companies that are innovating as though they are technology companies.
Innovation allows companies to dominate markets and enjoy higher gross margins, Cramer continued. That's why when Colgate-Palmolive (CL) introduced its Optic White toothpaste, which includes the same ingredients as tooth-whitening strips, the company was able to garner 69% of the Brazilian toothpaste market almost overnight.
Then there are stealth tech companies like Under Armour (UA) , which has become the go-to name for moisture-wicking, compression sports apparel.
You might not think of restaurants as tech companies, but Starbucks (SBUX) has become the gold standard for mobile payments and loyalty programs, Cramer explained, while Dominos Pizza (DPZ) has the leader mobile and social ordering system.
Finally, Cramer highlighted Snap-on Tools (SNA) , a company that is constantly innovating with new tools and technology to make auto technicians even better at their jobs.
Don't Pay Up for a Stock
Cramer's next rule for investors came from his old hedge fund days, and that is to never buy a stock above your cost basis, or the average price you've already paid to build your position, unless something transformative has happened.
Cramer said paying up for a stock is called chasing, and doing it will only get you hurt. When shares roar higher it's only natural to want to buy more, but buying more will often yield the worst results.
The better strategy, one that Cramer outlines in many of his books, is to never buy all your stock at once but in increments as shares tick lower, not higher. Buying high-quality names at great prices is the way to make money in the markets, Cramer concluded, not buying great names at higher and higher prices.
Know When to Sell
Cramer's final rule for investors is simple: If you own a stock and it refuses to go higher when the market rallies, you should probably sell it.
When the market rallies more than 1%, it's always a good idea to review your portfolio and determine the leaders and the laggards. If your portfolio is rallying too much, that could be a sign you're taking on too much risk, Cramer said. But if your stocks aren't moving at all then there's a good chance you're invested in the wrong stocks.
Cramer said he saw this pattern over and over again when he examined the trades from his charitable trust, Action Alerts PLUS. Whether they were stocks connected to personal computers or the steel, mineral and fertilizer stocks in 2007 and 2008, once the laggards were identified they seemingly never recovered.
In many cases, investors may be reluctant to sell stocks where they've seen prior gains, Cramer said, but not keeping pace with the averages is a sign your stocks are moving backwards. Getting sloppy and being too late will cause your portfolio to suffer, Cramer concluded.
To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.
To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.
-- Written by Scott Rutt in Washington, D.C.
To email Scott about this article, click here: Scott RuttFollow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC