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NEW YORK ( TheStreet) -- After almost a decade of telling viewers "there's always a bull market somewhere," Jim Cramer told his Mad Money viewers it's time to revisit the most important investing rules he's learned over these many years. Many of these rules Cramer said he's learned the hard way -- fortunately, you can benefit from his many mistakes.
Rule number one is something you've likely heard Cramer say on every show: Bulls make money, bears make money but hogs get slaughtered. What does that mean? It means taking a profit is a good thing.
Cramer said it doesn't matter if you make money when the market goes up or by shorting it and making money on the way down. The only true way to get hurt is to think you know it all and never take any of your winnings off the table.
For every stock in your portfolio there should be a price you're willing to pay and a price you're willing to sell. That's just common sense, Cramer added. The markets take stocks up and down for all sorts of irrational reasons. When you have solid gains, take them.
You don't have to sell everything, Cramer added. But when things get crazy expensive and you have a lot of gains, don't let those gains turn into losses.
Pay the Tax Man
Cramer's second rule for investors: It's okay to pay taxes. Cramer explained there have only ever been two times when he's encouraged investors to take large chunks of money out of the markets. Those times were right before the dot-com bust of 2000 and the Great Recession of 2008.
Yet, after both of those warnings, Cramer said, he heard the same objection from investors. They didn't want to pay short-term capital gains taxes and wanted to let their newfound winnings ride until they hit the long-term threshold. The only problem? Stocks tanks a lot further and a lot faster than any marginal taxes changes.
Never let the fear of having to pay taxes be a reason to hold a stock, Cramer said. If a stock goes up too far too fast, trim a little and take some profits.
Not wanting to pay the tax man is perhaps the single biggest investment mistake people have made in our generation, according to Cramer. Taxes never trump the fundamentals. Stocks can be dangerous whether they are owned for the short term or long term.
Don't Be Impulsive
The next investment rule Cramer wanted investors to know: Don't buy all at once. Arrogance is a sin, Cramer said, so buying in increments is a far better strategy that helps remove the emotion and impulsiveness from investing.
For example, instead of investing in your 401(k) all at once, why not break things up through the year? If the markets are down 7% to 10% one month, invest more to take advantage of the sale. If the markets fall 15%, invest a full quarter's worth of contributions. Conversely, if the markets are up big in the next quarter, invest less. Take advantage of prices when they're in your favor.
The same applies for buying an individual stock. Instead of buying 100 shares all at once, buy 10 or 25. Then, if shares fall a day or a week later, buy more.
How do you know the market won't take a tumble the day after you commit to buying a stock? You don't. That's why Cramer said accepting the fact he's fallible and embracing it has served him well over his career.
On the flip side, Cramer said he also sells in increments. If a stock has a big up day, Cramer trims a little. When a stock is going up your instinct will always be to chase it and want to buy more. In fact, what you should be doing is the exact opposite, he pointed out: Buy low, sell high.
Avoid Broken Companies
Another important rule investors must master: Look for broken stocks, not broken companies.
Cramer said most people closely affiliate the stock of a company with the company itself but that isn't always the case. In a market dominated by exchange traded funds, or ETFs, that lump stocks into big baskets, stocks can be completely divorced from their underlying fundamentals, making for some lucrative opportunities.
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The markets are full of bad companies with bad stocks, Cramer said, but there are also lots of good companies with bad stocks. The key is to identify those with solid fundamentals, preferably those that have recently reported and told you their fundamentals are strong yet have seen their stocks sell off with the broader markets.
Don't buy damaged goods, Cramer told viewers. No company's stock falls below $10 a share because things are going well. Companies with bad balance sheets, outmoded technology or failed Phase III drug trials are not bargains. You never want luck or hope to be part of your investing equation. Always stick with the fundamentals.
Cramer's next rule for investors is another oldie but goodie: "Diversification is the only free lunch."
Diversification plays out in many ways, Cramer continued. Investors usually know it's bad to have all their money in one stock. But the same rule applies for having too much invested in one sector or, worse, your employer. Far too many former employees of Enron and Nortel put their faith in their employers and lost everything.
So while you will undoubtedly hate yourself for being stuck with defensive stocks when you see the biotech stocks or the cloud computing names roaring to new heights day after after, Cramer said when the markets get clobbered later on you'll realize the wisdom of diversifying.
Don't Go It Alone
Cramer's final rule for investors was simply this: Be able to explain your stock picks to someone else.
One of the worst things to happen to stock picking, in Cramer's eyes, has been the Internet. Why? Because it removed one of the most important brakes in the process -- talking to someone. Buying stocks has become a solitary affair, he said.
One way to cut down on investing mistakes is to force yourself to articulate why you would like to buy something. Can you explain what the company does? What are its main products? What makes them unique? These are all questions investors should be able to answer to a friend, colleague or family member.
There are also questions of timing. Is there a reason you want to buy now? Is now the best time to buy? Should you wait until the stock comes down a little more? More good questions.
Finally, Cramer said investors need to consider their "edge." What do they know about this stock that others don't? Do you like this stock more than others you already own? Is this investment worth selling something else to replace it?
This last question is of particular importance, Cramer said. Investors are not mutual funds. It's impossible to have dozens of good ideas all at once. You should always subtract a stock before adding one to your portfolio.
"Don't short-circuit the process," Cramer concluded. Look for the reasons not to own a stock before you buy it because after you buy it those reasons will certainly come to your attention.
To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.
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-- Written by Scott Rutt in Washington, D.C.
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