Cramer Gives Tips on Un-learning Conventional Wisdom

On CNBC’s Mad Money, Jim Cramer told viewers that to be a good investor, sometimes it was necessary to “un-learn conventional wisdom.” He advised investors to be in touch with short-term market fluctuations with the aim of spotting opportunities to buy good stocks at low prices as well as to sell stocks that are at unreasonably high prices.

Cramer stressed on the importance of being aware of what was going on at the company. He said that investors should read a company's reports and listen to their calls. While equity prices may be volatile, a company’s fundamentals play a very important role. Doing the homework helps in making decisions regarding whether to buy or take profits, he explained.

Cramer’s third tip to investors is that every IPO is not a great deal. He gave the example of the IPO of Visa (NYSE: V) in 2008. The offering was priced low, as the market was terrible. V shares jumped from their initial price of $44 to $69, before settling down at $56.40 on the first day of trading. Cramer said that for investing in an IPO, one must know who the executives and investors of the company are and who the underwriters of the deal are. If major firms, like Goldman Sachs (NYSE: GS) or Morgan Stanley (NYSE: MS) are the underwriters, their reputations are at stake.

Cramer also stressed the importance of seeing what the company is doing, whether it is profitable, what its market size is and what the strength of its competitors is. He explained with the example of Under Armour (NYSE: UA). While the athletic apparel maker initially experienced robust growth, it decided to challenge Nike (NYSE: NKE), resulting in UA fizzling.

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