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Rule 9: Defend Some Stocks, Not All

When the markets are hard and unrelentingly negative, it's important to remember this adage
that's well-suited for a battlefield plan
but is just as valuable for a portfolio plan:

He who defends everything defends nothing.

When the market's flying and many stocks are in a bullish mode,
it really doesn't matter how much you have on,
or how many positions you have.

The more exposure the better.

But when things get tougher, you have to recognize that many stocks -- that you bought for better times -- may not be in good enough shape to rally.

You can't own everything you would like to own.

If you try to defend them all in a nastier time than when you bought them,

you simply will run out of capital
or go on margin near the bottom
and then be margined out,
sold out by the margin clerk,
when the stock market has finally finds its footing.  

You will lose your reserve and not be ready if the market doesn't turn in your direction.

That's why I rank all my stocks AT ALL TIMES
for my Action Alerts PLUS portfolio.

I need to know which stocks I will defend when things get tough

and which I will cut and use as sources of capital.

It's extremely important, lets say, if you think that the techs are going to start rallying here,

that you don't just keep the whole complex.

Pick the best stocks,
the ones you know you will want to buy if they go lower
and toss out the rest.

Let those new-found cash reserves buy you the stocks of better companies in the sector than you had before at better prices.

That's right, the nonessentials --
the ones that have no catalysts and that you are using just for exposure because you thought you liked the market --

they get the heave-ho immediately.

Karen Cramer, who worked with me for years at my old hedge fund used to call this "circling the wagons" around your best names.

The first few times you do it, you will curse yourself because you will be slaughtering stocks you might have had on for some time.

But you must go through this process a multitude of times before you realize how right it is

and before it can become second nature.

You will end up with great costs bases on the stocks you really like,

and you will have enough capital left to make a difference.

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.

And one of the mistakes he made was trying to support all of his stocks -- all of the time.

"He who defends everything defends nothing," he says.

Rule 9: Defend Some Stocks, Not All

"That's why I rank all my stocks AT ALL TIMES for my Action Alerts PLUS portfolio,"  says Cramer.

"I need to know which stocks I will defend when things get tough and which I will cut and use as sources of capital."

So watch Cramer talk about Rule #9 above -- and why you too should start to rank your holdings and know which ones to cut loose when the market gets hairy.


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

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