view transcript

Rule 12: Cash Is for Winners

The aversion to cash in this business breaks my heart.

Sometimes cash is such a perfect investment that it drives me crazy how few people ever recommend it.

Nah, they hate the market, so they are only 95% long instead of 100%.

Or, they think the market stinks, so they decide to short a few highfliers against their longs.

No, No, No!

You don't like any sectors?

Sell stock and raise cash!

Don't buy puts on your stocks or find other stocks to short against your current positions.

I am telling you that the odds do not favor you winning on both stocks, the short and the long.

But if you can raise some cash and put it to work lower, that's the best way to protect yourself.

I was one of the biggest options traders on Wall Street for a time and I can tell you that when I bought puts to hedge my positions I almost always lost money.

When did I make money?

When I bought puts to profit from companies with shortfalls or companies that I deemed SEVERELY overvalued versus the fundamentals.

So many people never want to get out and go to cash,
which is literally short-term Treasuries of the less-than-a-year variety.

People start talking about how little cash earns -- although it sure earned more than a year ago.

Or they say, "Can't be in cash, that's for losers."

But I say: Cash is for WINNERS if you think there's a major disaster ahead.

I grew up in a different time.
I only shorted when I had an edge --
I can't short at all right now by contract,

but back when I could -- I didn't short just for the sake of having some shorts on against longs.

I don't care about not having enough exposure;

I care about losing money!

If I were you and I didn't like the market or didn't have anything that compelling to buy -- as defined by a willingness to buy it down if the stock keeps going lower --

I would raise that cash.

Go to the sidelines.

It's never wrong when you don't like the tape or when you can't find anything that truly makes sense for you.

Action Alerts Plus portfolio manager and TheStreet's founder Jim Cramer has learned a lot over his 30+ years of investing. 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.

Like the aversion to cash. "In this business, it breaks my heart," says Cramer.

"Sometimes cash is such a perfect investment that it drives me crazy how few people ever recommend it."

Rule 12: Cash Is for Winners

"Especially if you were in the market and didn't have anything that compelling to buy...I would raise that cash."

So watch Rule #12 as he talks more about why cash is still king.

And don't forget, we are rolling out one-rule-a-day for the next 25 days! So stay tuned!

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


And for more Investing Rules, watch these: