Cramer's Golden Rules For Stock Picking

There are four golden rules every investor should keep in mind, regardless of income or investment knowledge, CNBC's Jim Cramer explained during his daily "Mad Money" show Wednesday.


1. Don't Buy On A Tip

Cramer recalled a time when his father bought stock of a company called National Video after Cramer's uncle recommended the stock — based on a tip he heard from a guy named Jack.

Cramer's father knew nothing of the company and when it filed for bankruptcy, he had lost his entire investment. Thankfully, though, "stocks blessedly stop at $0 on the way down."

2. Do Your Homework

Investors who want to own individual stocks need to do their proper homework, unlike what Cramer's father did with his investment in National Video. Without the proper research, investors are at the mercy of the movement of the stock.

3. Own An Index Fund

Investors who can't or won't do the necessary homework in individual stocks should consider instead buying actively managed index funds. After all, professional money managers put in their homework to present investment opportunities for investors.

See also: High Return Investments

4. Avoid Stocks Altogether

Finally, a simple but underappreciated rule: Investors who fear losing money shouldn't buy stocks at all.

Related Links:

Cramer: The Best Investors Are ... Disinterested Teens

Investing In The Future Means Investing In Robotics Software And Services

Posted In: index fundsInvestingJim CramerMad MoneyEducationMarketsMediaGeneral

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.