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NEW YORK ( TheStreet) -- Next week's game plan will be more about listening than trading, Jim Cramer told his Mad Money viewers Friday. Next week will likely be too dangerous to trade on the latest earnings news, Cramer continued, which is why he'll be mostly listening and learning all he can.
On Monday, Cramer said investors will be focused on Apple (AAPL - Get Report), a stock Cramer owns for his charitable trust, Action Alerts PLUS. Cramer said regardless of what new goodies Apple unveils Monday, the stock should just be owned for the long term.
Also on Monday, earnings from Urban Outfitters (URBN - Get Report) and United Natural Foods (UNFI - Get Report). Cramer said he's expecting good earnings from Urban, but still wants to use United Foods for a read on how Hain Celestial (HAIN - Get Report) and WhiteWave Foods (WWAV) are likely doing.
Wednesday brings Shake Shack's (SHAK - Get Report) earnings. While Cramer is a big fan of the restaurant and its founder, Danny Meyer, he said the stock is simply too expensive to own at current levels.
Then, on Thursday, it's El Pollo Loco (LOCO - Get Report) reporting. Cramer said he prefers Fiesta Restaurant Group (FRGI - Get Report) over Pollo Loco, along with Chipotle Mexican Grill (CMG - Get Report) and Jack In The Box (JACK - Get Report). Also on Thursday, Dollar General (DG - Get Report) and Ulta Salon (ULTA - Get Report). Cramer said he's been selling some Dollar General for Action Alerts PLUS, but the stock can still head higher. He is also bullish on Ulta, saying this stock can be bought ahead of its earnings.
What Makes Winners
What makes for a winning stock? When should investors say, "Whoops, I missed the move?" These are both important questions, Cramer told viewers, especially after the market has had such a stellar big higher.
Cramer said that if a company's product cycle has run out, or a competitor has built a better mousetrap, then obviously it's time to move on. But if the company continues to innovate and outpace the competition, maybe the stock's big move is just the beginning.
That's certainly the case with Honeywell (HON - Get Report), Cramer continued. He said after interviewing Honeywell's CEO, Dave Cote on Wednesday, it's clear that this is one company that's not standing still.
Honeywell has tons of divisions, from aerospace to climate control, health and safety to turbochargers, but unlike many conglomerates that are better off splitting up into pieces, Honeywell is a diversified industrial that works, as every division borrows technology from the others and is better off for it.
Innovation is so strong at Honeywell that most of the products the company introduces weren't even invented just a few years ago. That's why Cramer said Cote, who also happens to be Cramer's next door neighbor, remains a winner in his book.
Nobody likes to play by the rules, but with investing rules can protect you from your own bad judgment.
Cramer said people are always asking him whether he worries about the stocks he owns. The answer is, of course, absolutely. He said that everyone worries about their investments, especially when your investments are heading lower in an up market.
But that's why Cramer said he believes in active money management, saying nimble and flexible to always keep your money working for you and not against you. The first step in that process is finding out why your stocks aren't performing as you expected. Cramer said you need to do your homework because you can't be informed if you don't inform yourself.
Once you know what's gone awry with your favorite stock, what do you do next? Cramer said investors typically make two mistakes at this point. First, they end up owning too much stock so they don't have any cash left to buy into the decline. Or they like all of their stocks equally so have no inclination to sell.
Cramer said investors should always have cash on hand to buy more if that's what they deem necessary and they should always rank their stocks from best to worst. That way if your best stock is going down you automatically know to buy more, but if the worst one is dropping you can cut your losses early.
Discipline trumps conviction, Cramer concluded. This is the manta all investors should follow. Accept the fact that something may happen that you didn't foresee and have a plan to deal with it when it does.
Trades vs. Investments
Never turn a trade into an investment. That was Cramer's next rule for investors. What does it mean? Cramer explained.
Cramer said when you invest for a trade, you're expecting an event, a catalyst, to take that stock higher over the short term. An investment, on the other hand, is not news driven, it's something you want to own over the long haul.
How are these two different? Cramer said with a trade he wants to buy all up front, taking maximum advantage of the event when it occurs, so he can then take his winnings and run.
Investors, however, are different. With an investment, Cramer said he buys only a portion up front, buying more on weakness and market pullbacks. Why? Because the ultimate goal is to build a position at the best possible price, and unlike a trade, there's no hurry.
Cramer said investors should never turn a trade into an investment because if the catalyst they were waiting for doesn't happen, there's a good chance that stock is heading lower. The reason is simple: You're probably not the only one who is waiting on the catalyst. Too often investors make the mistake of doubling down at this point, but Cramer said the odds are against you.
Cramer's last lessons for investors dealt with market corrections. He said that all too often investors are lulled into the markets during the good times and then panic during the bad times. Corrections are to be expected and are a normal part of a healthy market.
Corrections are actually great opportunities, but only if investors are prepared. Investors that are always fully invested, that is, they don't have any cash on hand, will never be able to buy more of their winners when the markets put them on sale.
Cramer said that cash is the most under-rated of investments, but when the market is tanking there's nothing better. That's why he invests by "trading around a position," that is, selling a percentage into strength only to buy it back into weakness. By selling into strength, Cramer said investors will always have cash on hand to take advantage of the corrections.
Trading around a position does come with one caveat, however: Don't subsidize your losers with the gains from your winners. Cramer said all too often investors will take gains from their winners to shore up their positions in their losing stocks. But that's a bad idea, he said. The losers are likely falling for a reason while your winners were likely gaining for a reason. Better to stick with the winners.
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