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Jim Cramer's top four rules for owning stock
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Loading...Jim Cramer wants investors to know that it's possible to get ahead, but it requires doing homework before picking stocks.
"I think this show can play a role in your financial education and get you to the point where you make fewer errors and have more of a chance to make money longer term".
When Cramer was growing up, he had to learn how to invest the hard way. His father worked very hard selling boxes and bags to retailers, and it was tough to save money back then.
One day he announced that he was going to take that money and buy the stock of National Video because his brother heard from a guy named Jack that it was the next big thing. At first the stock went up dramatically, and Pop was so happy he kept buying more.
In fact, that was all he knew about the stock. He did not follow it intraday and had not researched the company. Eventually the stock started to plummet, and he father lost everything on the investment.
Cramer learned a very valuable lesson from watching his father go through this experience. He learned that investors will want to own stocks to augment their paycheck, but they must know how to invest in a stock if they are going to do so.
That is why he created the following four rules for owning stocks:
1. Tips are for waiters.
2. You must do the homework if you are going to own an individual stock.
3. If you can't do the homework, then own an index fund.
4. If you fear losing money, don't own stocks at all because they will go down as well as up.
Cramer's father went wrong by not researching the company and relying on someone else for information on how it was doing. He only knew how to buy, but not how to cut his losses.
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