Cramer Says Invest Rather Than Trading

On CNBC’s Mad Money, Jim Cramer assured viewers that it was his “job” to protect them from “conventional wisdom.” He said that the notion the “ordinary people” or “individual investors” should opt for mutual funds or index funds because the market for equities was too challenging is not correct. Cramer stated that with index funds investors would find it tough to even match the market, leave alone beating it. The same is the case with mutual funds. To gain a competitive edge, funds remain fully invested, which makes them prone to mistakes and losses, Jim explained. Jim said that the things that help investors to beat the market are being able to pick the right stocks and knowing when it is time to sell them. Cramer added that investors need discipline, adding, “We screw up when we just go with our convictions.” Rules are the foundation for discipline and these help investors make tough calls. Cramer said that one rule that he adheres to is “never turn an investment into a trade.” Jim said that investors tend to sell a stock for making a quick profit. He said this was a mistake. “Don't sell a stock you believe in for the long-term just because it's gone up a lot off of some catalyst,” he said. Some REITs and energy trusts, like BP Prudhoe Bay

and Permian Basin Royalty Trust

, pay out earnings as huge dividends, since they are are organized as master limited partnerships. The yield of such stocks is more than 10% to 15%. Cramer said that such stocks were good investments, as long as the balance sheets of these companies do not have a lot of debt. Read more on