"I want to talk about selling, which, along with when you buy, may be the most important and undervalued tool in your home arsenal," said the "Mad Money" host.
Investors can make a lot of money by owning a hot stock with a lot of momentum. The trick to making the most money is knowing when to get out.
In Cramer's experience, there will always be naysayers for a stock. Those naysayers will usually be proven right, and that means hot stocks can implode.
When Cramer refers to a hot stock, he means hot speculative stocks. Those are shares of companies with low market capitalizations and very little coverage from major Wall Street research houses. Sometimes, those stocks can catch fire and stay hot for years.
"The key to figuring out when interest has peaked and it is time to sell is by watching the analyst coverage," Cramer added.
Once a hot stock has at least six analysts covering it, then the love for it may die down because it means it has gotten too popular, Cramer said. Stocks tend to cool off when everyone who was interested in buying it has already done so.
"This formula has worked for me as long as I can remember. As far as I can tell, it works because the number of analysts on a stock is a good gauge of how much awareness and interest there is in a name," Cramer said.
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.