Host of "Mad Money" and highly-animated stock market pundit Jim Cramer is known for being the guy who yells about Wall Street on TV. But these days, viewers will find him taking a more somber tone as he gives pep talks to investors who might be dismayed at the current condition of their portfolio. But if you choose the right stocks, Cramer says you can rest easy.
“The stock market isn't always a friendly place. It can be volatile, it can be painful, and just downright difficult. There are tons of big-picture problems that can derail any rally. You might not have any idea about it until they smack in the face,” Cramer said.
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“The truth is that I'm all about discipline,” he says simply. “You're going to make mistakes in this business. It's inevitable. But if you stick to your discipline, you stick to the rules, that should help you minimize your losses and maximize your gains.”
“I’m always telling you to buy best-of-breed companies,” he says, “even if you have to pay up for their stocks.”
“When you're shopping for a car you buy the best – or the best you can afford. We pay up for the highest quality brand because we know that a brand and a good brand signifies reliability.”
“Nobody would ever set out to buy a worst-of-breed car,” he continues. “I mean, there are simpler ways to put your life in danger. So why is it that so many people seem to feel differently about the stock market? Why are we drawn to the penny stocks?”
“Many of us simply can't resist what we perceive as a bargain. Emphasis on the word ‘perceive.' Here's the thing. If you're hunting for cheap stocks [of] low-quality companies, it's more likely to lead to losses than to gains.”
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For those unfamiliar with Cramer’s “best-of-breed” mentality, he explains exactly how he determines which companies to invest with.
“When I say best of breed. I'm talking about well-managed, high-quality companies with great balance sheets – like Procter Gamble (PG) -). If you can get Procter and Gamble on sale, that's fantastic. If you can't get [them] on sale, though, I'd still prefer you to pay up for something similarly great, rather than just try to pick up some penny stocks because they seem cheaper.”
When it comes to shelling out extra cash for premium stocks, Cramer knows it can be hard. But “in addition to usually being a better investment,” he says, “you're also buying peace of mind.”
“A great company like Nvidia (NVDA) -) for instance, almost always [looks] super expensive, doesn’t it?” he asks. “But the stock just keeps charging steadily higher, as it has for more than a decade.”
“So now once you find yourself a best-of-breed company[…] I got another important move for you. High-quality companies represent value and giving up on value is a sin.”
“Patience is a virtue in this business. If you have a reason to believe in a business, don't dump its stock just because it's not getting any traction for the moment.”
“When you own a stock that's going down, you're going to feel compelled to give up on it. But in many cases, if you've done your homework and you have conviction, the underlying business, that urges sell will be a mistake.”
Cramer also shares a story about buying Apple (AAPL) -) stocks when the price quickly dropped from $31 to $23. "What the heck is the point of selling the stock of a company that makes the greatest products and history?" he says he asked himself.
“Sure enough, telling you to buy Apple at $23 turned out to be a fabulous call.”
“Here's the bottom line. Don't be afraid to pay for best-of-breed stocks. They may have [a] higher price[…] but they're also much less likely to blow up in your face. The best-of-breed premium is worth it. Oh, and once you find a company is best-of-breed, don't let the bear scare you away.”
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