Discipline trumps conviction, Cramer concluded. This is the mantra 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 and Investments
Never turn a trade into an investment. That was Cramer's second 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 driven by news, 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 upfront, 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 upfront, 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 waiting on the catalyst. Too often investors make the mistake of doubling down at this point, but Cramer said the odds are against you.