What's the key difference among bulls, bears and hogs?
"Bulls make money, bears make money and hogs get slaughtered," Jim Cramer says -- Rule No. 5 in his "5 Rules for Trimming Your Winning Stock Positions," which Cramer unveiled exclusively in his latest monthly video-conference call with members of his Action Alerts PLUS club for investors.
Cramer believes you can make money being either a bull or a bear on Wall Street, but you need to hold your greed in check and be sure to lock in some profits when your positions are doing well. "We [are] true believers in the idea that no one ever got hurt taking a profit," Cramer told club members.
He said holding on to your full position when it's way up can be a poor investment strategy, as can selling everything rather than keeping some shares of a winning stock that you like. Instead, he recommends trimming back part of your winning positions to lock in some profits while keeping some shares if you believe further gains seem likely.
But trimming your positions is an art more than a science, Cramer said. In fact, he conceded that his charitable trust made miscues recently with positions that it held in PayPal (PYPL - Get Report) and Amgen (AMGN - Get Report) .
In the case of PayPal, Cramer said his trust made the mistake of selling its entire position when the stock went up big time, but could have made even more if had hung on to some shares. "We had made so much money so fast that we ignored our trimming discipline for stocks we like [and] ended up leaving none on for what was then an almost 20-point run," the expert said.
On the other hand, Cramer's trust has trimmed but not completely closed out a money-losing stake in Amgen despite ample reasons to sell, such as the rise of "biosimilar" drugs -- competing medications very similar to Amgen's patented medicines.
"Even as we were worried about biosimilars, even as we got concerned about the anti-migraine drug's competition, all we did was trim [Amgen]," Cramer said. "Knowing when to trim and knowing when to sell should not be confused. We should have dumped Amgen, because there were real chinks in the armor. There was no reason whatsoever to sell all of PayPal once we made those first sales."
Check Out All of Cramer's '5 Rules for Trimming Your Winning Stock Positions'
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- A complete rundown of all of stocks that Jim himself holds in a trust that he runs for charity;
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(This item has been updated.)