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A version of this program last aired March 3, 2016.
Next week brings us into the thick of earnings season, Jim Cramer told his Mad Money viewers Friday. Historically, next week produces sub-par results for stocks, which is why Cramer urged caution and keeping cash on hand to snap up any bargains that get created.
The week starts with Danaher (DHR) on Monday, and Cramer said he'd be a buyer of this industrial on any weakness. He is also optimistic that Gilead Sciences (GILD) will put its huge cash hoard to some good use and that Texas Instruments (TXN) will offer investors a read on how Apple (AAPL) , an Action Alerts PLUS holding, might have in store when it reports on Tuesday.
Speaking of Tuesday, Cramer reiterated that investors should just own Apple for the long term. He is concerned McDonald's (MCD) is up against tough comparisons, while both 3M (MMM) and Verizon (VZ) may have run up too far to fast to support even the most glowing of earnings.
Wednesday brings earnings from Boeing (BA) and Cramer said he wouldn't own it. He would also take profits in Norfolk Southern (NSC) and Facebook (FB) , another AAP holding. He is bullish on Whole Foods Markets (WFM) , which should have positive things to say about its new smaller-format sores.
Then, on Thursday, it's earnings from Bristol-Myers Squibb (BMY) , Alphabet (GOOGL) and Amazon.com (AMZN) . Cramer said he likes Bristol, but Johnson & Johnson (JNJ) is even better. He was wary of both Alphabet, yet another AAP holding, and Amazon in the short term.
Being a Better Investor
What makes a good investor? Knowing to expect the unexpected, Cramer said as he opened his investing tool box to help viewers become better investors.
Diversification is still the only way to invest, said Cramer, admitting he occasionally gets it wrong. Sometimes his stock picks just simply don't work out. That's investing. Any investor putting together an investing portfolio needs to be prepared, said Cramer, because sooner or later something won't work out.
But how should investors prepare for the next market catastrophe or stock pick gone bad? Not by being bearish but by being smart, Cramer said. Being a bear means shorting stocks, hoping they go down. That's a valid investing strategy but it limits one's profit potential since the lowest a stock can go is zero.
However, Cramer said, compare that to bullish investing, betting that stocks go higher. Their potential profits are limitless, he said. Investors who invested in Apple in 2009, for example, realized a 580% gain over the next three years.
Beyond having a positive outlook, Cramer said the most important rule to managing your money is diversification. That means not having all your eggs in one sector basket. A portfolio with five stocks must have only one technology company, one health care name, one energy company, one industrial, etc. Two or three of a kind is a quick way to get caught off guard, so no more than 20% of a portfolio can be in a single sector.
Being diversified is more than just investing in different sectors, however. Cramer said the new rules of diversification also require owning some gold in your portfolio along with a high-yielding dividend stock, a growth stock, a speculative stock and one that's firmly rooted in a healthy geography.