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RULE 1: Bulls, Bears Make Money, Pigs Get Slaughtered

So many times -- in my almost 40 years -- on Wall Street

I have seen moments where stocks went up

SO MUCH

that you were intoxicated with gains.


It is precisely at that point of intoxication though 'Äì

that you need to remind yourself that
bulls make money
bears make money,
but pigs get slaughtered.

You know I first heard this phrase on the old trading desk of the legendary Steinhardt Partners.

I would be having a big run in some stock --

or the market entirely,

and Michael Steinhardt would tell me that I had made a lot of money,
perhaps too much money
and maybe I was being a pig.

I had no idea what he was talking about.
I was so grateful that, unlike so many others,
I had stayed in and caught some very big gains.

Of course not long after that 'Äì
we got a vicious sell-off
and I gave back what I made and THEN SOME.

It's then that I learned that
the bulls make money
bears make money
pigs get slaughtered adage

and it is now so deeply ingrained in my head that now I have the sound buttons of bulls -- bears -- pigs -- even a guillotine
to tell the story for us on Mad Money with Jim Cramer.

Now 'Äì this same thesis applies to those who press their bets on the short side too.

We've had some major corrections of stocks over the years,

And other than in 2000 and then again in 2007-2009,

most stocks bounced back after their declines.

If you stayed short -- you were a pig and you got slaughtered.


So often -- when I bring this adage up -- people ask me

"How do you know when you are being a pig?"

Now granted -- there's not supposed to be any stupid questions out there 'Äì

But you don't need me to tell you.

If you weren't feeling piggish after we hit an all-time high on the Nasdaq in 2000,

after a three-thousand point jaunt in almost no time flat,

you needed a shrink, pronto.

Because we all know how that ended and how long it took to get back to that vaunted level.

And if you were walking around owning a huge amount of stock in 2008

as bank after bank failed in 2008,

you, too, were a pig.

Now remember, one of my chief goals is to stay in the game.

The people who got wiped out by the Nasdaq crash tended to be people
who never took anything off the table,
who never felt greedy;

they were SLAUGHTERED by their own piggishness.

Same with those who never came back from the 2007-2009 charnel house.

But it was my desire not to be a pig
that kept me in the game
both at the time of the Nasdaq crash
and the big downturn that bottomed in the spring of 2009.  

That's why I remind people every day:
Have you taken your profit?
Have you booked anything?
Or are you being a pig?

Because you never know when things you own are going to crash.

You never know when the market could be wiped out.

You can't have certainty. At those times, you have only human nature to guide you.

Sure there will be times when stocks just keep going and going and going.

When I coined the term FANG a few years back,
for Facebook, Amazon, Netflix and Google which became Alphabet,
I loved them all.

But I gave up on Amazon after an amazing run.

It continued to move up another fifty percent.  

I felt like a pig after that extremely profitable run
and I felt like a fool when it kept on galloping.  

It's just the price I have to pay for following my adage.  

I recognize that for every huge pile of cash left on the table in an Amazon,

There are gigantic losses that could have occurred if I stayed in the casino in 2000
and in 2008,
the two experiences that destroyed not one but TWO generations of investors.

I think you could say that my desire not to be too greedy saved me so I could live to play again.

So, never forget,
bulls make money,
bears make money
and pigs get slaughtered.

If you do forget I will be sure to remind you, soon, with my sound board, on Mad Money.

Over the course of his extensive trading career, Action Alerts Plus portfolio manager and TheStreet's founder Jim Cramer has made mistakes and learned from them. And so he created a list of 25 Rules for Investing that can help you avoid the novice pitfalls that even he fell into on occasion.

And each day we'll release a new rule for you to digest and integrate into your trading strategies.

Cramer's mission is to help you find your own bull market. And you'll find it faster if you follow his rules.

So let's get going!

 

Rule #1: Bulls Make Money, Bears Make Money and Pigs Get Slaughtered

Basically, don't be greedy.

Cramer says that pigs are greedy and then they get slaughtered.

So how do you know if you're being a pig? Are you "intoxicated" with gains? You need to watch the video above to find out.

Because Cramer shares a lesson where he gave up on Amazon (AMZN - Get Report) because he needed to follow this exact adage. And while the stock went higher, the loss of that extra profit is much better than getting slaughtered!

He passionately talks about how his desire not to be too greedy saved him so he could live to play again!

So be sure to watch Rule #1 now!

Sign up and watch Jim Cramer's 25 Rules For Investing here!

A few more of Jim's Rules: