Jim Cramer's Real Money by James J. Cramer

Author:James J. Cramer
Language: eng
Format: epub
Publisher: Simon & Schuster

The Ten Commandments of Trading

1. Never turn a trade into an investment. If there is one concept you must take away from this book, it’s that you must never, ever turn a trade into an investment. First, let’s talk about the process of buying a stock. When I decide I am going to buy Kmart, the reconstituted real estate and retail play, I have to declare right up front whether I am buying it for a trade or an investment. A trade means that I am buying it because of a specific catalyst, a reason that will drive it higher. That catalyst is a data point, a recommendation, a belief that things are better than expected when the earnings come out, some news about a restructuring, or something material that could occur. There is a moment to buy and a moment to sell. But you must declare first before you buy. Here’s why. The vast majority of you will buy a stock for a reason and then either the reason occurs and nothing happens, so you then decide, darn, I’ll just call it an investment and I will buy more as it goes down, or else the reason doesn’t occur—the reason may never occur—and you decide to hold on to it because, well, what’s the worst thing that can happen? The answer of course is plenty, and almost all of it bad. The answer is that you would never have bought it in the first place if you didn’t think the reason was going to occur, so there is no reason for you to own it now. I have seen myriad investors turn trades into investments, developing a rationale or an alibi to fool themselves that they are doing the right thing. That’s because they don’t make the distinction between a trade and an investment. When I want to “invest” in a company I buy a small amount of it to start and then hope the market will knock the stock down so I can buy more. When I want to trade, I put the maximum on at the beginning because I believe the data point is about to occur. I never buy anything for a trade without that catalyst. I never buy anything for a trade just hoping it will go higher; there can be no hope in the equation. I buy down when I am investing. I cut my losses immediately when I am trading if the reason I am trading the stock doesn’t pan out.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.