“Jim Cramer's 25 Rules for Investing”
“Jim Cramer’s 25 Rules for Investing”
“Jim Cramer’s Twenty-five Rules for Investing” teaches and suggests investors the effective ways and attitudes for investing. Some of the rules are practical experiences while some are psychological strategies that investors should have in mind. The following ten rules are the ones that I found best interested me:
Rule 2: It’s OK to Pay the Taxes. Investors are feared for the taxes they have to pay on short-term gains from their investments. Thus, they tend to hold on the investment for long-term and ended up with nothing. It certainly helps them avoid taxes on the short-term gains while they have the stocks for a long period of time. However, what they do not realize is that they got taxed on those gains because their investments brought them money. If they did not earn anything from the stocks they owned, or if they had losses on the stocks, they could avoid those taxes on the gains. I found it interesting when I first read this rule saying that it is OK to pay the taxes since most people are not in favor of such things. However, if we think about why we have to pay the taxes, it is because we have a gain on our investment, rather than losses. It also shows a successful investment that investors made. What investors should really worry about is the losses, rather than taxes.
Rule 5: Diversify to Control Risk. This rule simply refers to the idea that “ don’t put all the eggs in one basket.” Diversification is a good way to control risk. It prevents investors from potential losses in a single industry. When stock price in a particular industry drops all of a sudden, it is very likely that all the companies in the same industry will drop in its stock value. For example, buying Microsoft and Dell stocks are not diversifying the investor’s portfolio. Investors might think of diversification as buying stocks from different companies but neglect the fact that the stocks they prefer to buy are in the same industry.
“Jim Cramer’s Twenty-five Rules for Investing” teaches and suggests investors the effective ways and attitudes for investing. Some of the rules are practical experiences while some are psychological strategies that investors should have in mind. The following ten rules are the ones that I found best interested me:
Rule 2: It’s OK to Pay the Taxes. Investors are feared for the taxes they have to pay on short-term gains from their investments. Thus, they tend to hold on the investment for long-term and ended up with nothing. It certainly helps them avoid taxes on the short-term gains while they have the stocks for a long period of time. However, what they do not realize is that they got taxed on those gains because their investments brought them money. If they did not earn anything from the stocks they owned, or if they had losses on the stocks, they could avoid those taxes on the gains. I found it interesting when I first read this rule saying that it is OK to pay the taxes since most people are not in favor of such things. However, if we think about why we have to pay the taxes, it is because we have a gain on our investment, rather than losses. It also shows a successful investment that investors made. What investors should really worry about is the losses, rather than taxes.
Rule 5: Diversify to Control Risk. This rule simply refers to the idea that “ don’t put all the eggs in one basket.” Diversification is a good way to control risk. It prevents investors from potential losses in a single industry. When stock price in a particular industry drops all of a sudden, it is very likely that all the companies in the same industry will drop in its stock value. For example, buying Microsoft and Dell stocks are not diversifying the investor’s portfolio. Investors might think of diversification as buying stocks from different companies but neglect the fact that the stocks they prefer to buy are in the same industry.
Cited: “25 Rules for Investing | Investment Tips, Investment Rules & Tips | TheStreet.com.” Stock Market Today - Financial News, Quotes and Analysis - TheStreet. Web. 15 Feb. 2011. <http://www.thestreet.com/static/25-rules.html>.