Jim Cramer, former hedge fund manager and the host of CNBC’s Mad Money show, outlined on the his last-aired TV show several defensive rules that will help investors avoid big losses and keep their money safe in these tough times that the capital markets are experiencing, according to Seeking Alpha website.
2. Buy and sell slowly. “Never buy or sell a position all at once” he said
3. Your first loss is your best loss. “If your thesis on a stock changes, take the loss and sell,” Cramer told viewers.
4. Dividends limit losses. Look for stocks that consistently grow their dividends year after year.
5. It’s always good to have some cash. Professional investors always have cash on hand.
6. Don't own too many volatile stocks. More than one volatile stock in a portfolio is not being diversified.
7. Know what you own. Knowing what a company does will help distinguish between a broken stock and a broken company and prevents panic selling.
8. Don't own low-dollar stocks. Stocks don't go to 2 dollars and 3 dollars a share because they're doing well.
9. Accounting irregularities equals sell. Stocks with accounting problems should be sold immediately and are off-limits until the issues are fully resolved.
10. Stay away for two good quarters following an earnings shortfall. It takes at least six months for a company to turn itself around after a big earnings miss.
11. When your broker stops talking about a stock, it's time to sell.
12. If a company has a new CEO, stay away. New CEOs need time to settle in and develop a plan, and that's not the time to own the stock.
13. Never buy a stock at its all-time high. Be prepared to miss a stock rather than reaching to buy it at the high.
14. Keep your head clear. When times get tough, it's OK to consider selling.
15. Mutual funds should be diversified, too. If you have money in multiple funds, make sure they don't all invest in the same kind of stocks.
16. Playing defense is crucial in volatile markets. Don't wait for down stocks to recover. Bad stocks are likely to go even lower.
17. Invest in stocks with buyback programs. Companies that buy back their own stock offer a cushion to investors, helping to limit the downside risk.
18. Don't stop looking at your monthly statement. If you don't look at your monthly statements, you won't know how bad things really are.
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