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Jim Cramer's 7 Deadly Sins: Sin No. 2 - Taking Wall Street Research as Gospel

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Action Alerts PLUS portfolio manager Jim Cramer sees a fundamental shift in investment cash flows happening as investors rotate toward stocks with lower price-to-earnings multiples and away from stocks with higher ones.

As Cramer always says, good stock picking is all about avoiding mistakes, and the mistakes investors tend to make can be boiled down into Jim Cramer's 7 Deadly Sins. The second of those sins is relying too much on research analysts.

Investors can rely too heavily on the research notes from the large Wall Street firms without understanding that these notes are addressed to big clients to determine whether there is an upside surprise or not.

"Therefore, their thinking is inherently too short term. Plus, they have to have some buys, some holds and some sells. Often I prefer the sell to the buy because it is out of fashion and I want to anticipate what will come back into fashion," Cramer said. "I certainly would not buy because they say buy."

While Cramer tends to ignore the ratings, he does pay attention to price targets.

"When there is a decline in a stock even as price targets are raised, that's often a good chance to buy more stock. Lots of times shorts color the thinking of an opening or a pre-opening before they even hear the call. Multiple price-target increases almost always prevail," Cramer said. 

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