Cramer's 'Mad Money' Recap: How to Gain From the Long-Term Game
This program was last aired on Dec. 26, 2012. NEW YORK ( TheStreet) -- Anyone can turn a profit in the stock market, Jim Cramer told "Mad Money" viewers, if they're willing to put in the time and effort. Anyone can do it, but only if done the right way, he added.
That's why Cramer dedicated his entire show to the notion of long-term investing, a term that's gotten somewhat confusing over the years -- so much so that it has become one of the biggest obstacles for new investors.
Cramer said that too often the term "long-term investing" is used as an alibi or excuse for poor performance resulting from simply not paying attention. The term "buy and hold" often means "buy and forget," which is a terrible investing strategy.
Being in the game for the long term does not mean investors can afford to take short-term losses. Nor does it justify owning damaged goods, hoping they'll recover "someday." Investors must always keep track of their investments, said Cramer, and fortunately it's never been easier to do.
Whether it's looking over Securities and Exchange Commission filings or searching the Web for the latest news and analysis, finding out what's happening at the companies you own is a necessity. There's no excuse for laziness, said Cramer, especially in an age where quarterly conference calls are only a click away.
"Stocks are still the best way to make money," Cramer concluded, but the notion of "buy and hold" needs to become a thing of the past.
Cramer's next lesson for investors? Few things are more important than price.
Whether you're a short-term investor or planning on owning a stock for years and years, the right price matters. Put simply, when you pay too much, it's that much harder to rack up big gains. Fortunately, if your time horizon is a long one, you can afford to wait and be patient for that perfect price to arrive.
In the real world, though, the notion of the "right" price is a farce, said Cramer. There will never be an "all clear" signal that now is the right time to buy. So how should investors approach this problem? Buy in increments.
Cramer said it's practically impossible to call a bottom in a stock, so if investors are looking to buy 400 shares of an $90 stock they should buy 100 shares right now at the $90 price. Then, if shares slip to $85 a share, buy another 100 shares. Buy 100 more if the price hits $81, then the rest if it falls below $80.
Cramer said he prefers to use wide scales because it affords investors more flexibility. The worst-case scenario in this example would be the stock going higher than $90 a share, in which can you've just made money, albeit less than you were expecting. But in the long run, buying more as a stock goes lower is the right way to buy.