A stock. No matter how enthralled you are with the underlying company, if the rules say sell it, sell, sell, sell, sell, you sell it. One thing ive learned in my investing career, no matter how much you might believe in something, you violate the rules of the road at your own peril. But where the heck do these rules come from . Its not like they were handed down from on high and carved into stone tablets theyre not like the laws of physics. No the rules come from experience and particularly my experience ive spent nearly 40 years in this business. And in that time, you Better Believe ive learned some powerful lessons in many cases i learned them the hard way and because i dont want you to repeat my mistakes, because i do want you to have the benefit of my whole career, tonight i want to lay out some of my most important rules for investing. The stuff i really live by some of the stuff may seem basic, but again, you forget the rules at your own peril. Back at my old hedge fund, i would occasionally convince myself that it was okay to make an exception, to have a cheap day, to ignore my discipline for just this once it seemed compelling at the time, and when i broke my rules, lets just say i got burned. Its like that old joke about the guy who goes to the doctor and says doctor, doctor, it hurts when i stretch out and shake my hand around and the doctor replies dont do that. Lets stick to my moist importat rules. Bears make money, bulls make money. And pigs they get slaughtered look, i say this all the type. So often in my career, ive seen stocks went up so much that people were intoxicated with their gains. They will swear theyre geniuses too. However, its this intoxication that you need to remind yourself not to act lake a pig. I first heard this phrase at the steinhart partners id be having a run on a stock and the legendary Michael Steinhart would tell me i had made a lot of money, perhaps too much money and perhaps i was being a pig. I had no idea what he was talking about. Not that long after, we had a vicious selloff and i gave back everything i made and then some. Bears make money, bulls make money and pigs get slaughtered so now its so deeply engrained that i have a barnyard of sound effects. Just to be clear, bulls dont have a monopoly on piggishness the exact same idea applies to investors who press their bets too aggressively on the short side other than a dotcom burst and the crisis is 2008, 2009, most did bounce back pretty quickly if you stayed short, if you were a pig, bet being against tting e market when it was going down, you got slaughtered. How do you know youre being a pig . You dont need me to tell you when youre being a pig. If you didnt feel greedy when we hit an alltime high on the nasdaq in 2000, after a 3,000point run in no time flat, you dont need an investment adviser, you need a psychiatrist if you let your winners ride you lost a fortune if youre Walking Around owning a huge amount of stock in 2008 as the banks started dropping like flies, you were beyond piggish. Why is this rule so important . Its simple. One of my chief goals is to help you stay in the game the hardest part of investing is holding onto difficult periods, taking shortterm pain so you can have longterm gains the people who got wiped out by the dotcom collapse tend to be the ones who never took anything off the table. Where did they live . House of pleasure they never felt guilty in their piggishness and it got them slaughtered same goes for those who never came back from the financial crisis being cautious in ringing the register near stops ended up keeping you in the game. Thats why i remind people every day, have you taken out your profit have you booked any gains at all . Or are you being a pig because you never know when stocks you own are going to really get crushed you never know when the market could be just enough, elevated you cant have certainty if you assume stocks will keep going up forever in a straight line, i think youre going to be in for a world of hurt sure, there will be times when stocks just keep going and going and going. When i termcoined the term fan loved them all i felt like a pig for the stocks with profitable move, but then i felt like a fool when it kept on galloping, but that is the price you have to pay for following these rules. You need to recognize that for every huge pile of cash that gets left on the table with a situation like amazon, youre sidestepping gigantic losses like the kind you would have had if you had it stuck with the market in 2000 and 2008. Experiences that turn two generations of investors against stocks, maybe forever. So never forget, bears make money, bulls make money and pigs get slaughtered. And ill keep repeating it forever with the sound effects, because it is just that important. Ra rule number two okay its okay to pay taxes no one has ever liked paying taxes, but like death, taxes are inevitable and unavoidable but the aversion on paying taxes on stock market winnings often borders on the pathological. So many times people have gigantic gains but refuse to take any profits because they dont want to incur taxes to cut into the winnings. Wall street is littered with broken hearts of investors who made this kind of mistake. A couple years ago i went to a presentation from a Prominent Hedge Fund manager who recommended buying the stock of macys because of the real estate value the stock had already run a great deal and it was ripe for profit taking, but i knew people who had owned it for years with hefty profits and didnt want to ring the register. Why . They would have had to write a check to uncle sam the next thing you know, the stock of macys is obliterated, cut in half and it wasnt a two for one split. The mall had hit a tipping point, courtesy of competition from amazon and the darn thing just got crushed those who didnt want to share the profit with uncle sam ended up with no profit at all what kind of gain is that . A profit on paper is not the same thing as a profit in your bank account gains can be ephemeral the last thing you need to do is be worrying about Capital Gains taxes. When its time to sell, you sell in short, stop fearing the tax man. Start fearing the loss man and im not saying blow out of everything im saying take some profits bottom line, remember my top two rules. Bulls make money, bears make money. But pigs and dont be greedy. And a variation, if you cant pay the taxes, dont be so worried about taking a taxable profit, because you may end up with no profit at all. Chris in ohio. Chris . Caller hi, jim, thanks so much for having me sure, chris good to have you caller so my question is, we have about 1,000 of disposebling income. And neither of us have a 401 k match with our jobs, so were trying to figure out, we have a mortgage, were trying to figure out what would be the best thing to do with that extra 1,000 of disposable income. Thats what an index fund is for. You can take 10 of that and use it for mad money, buying a share of something and thats ago, my first stock trades were one share, five shares, seven shares, but you need an index fund to get started until you build up wealth how about jock mow in illinois caller you talked about younger investors should stay away from riskier Asset Classes until they have 10,000 allocated in mutual funds or Exchange Funds yes caller now my question to you is seeing all this crazy bull market, seeing the market ramp up, cryptocurrencies go up. If i dont have 10,000 invested in mutual funds, what should i be doing should i let opportunities pass, wait it out . I totally understand, a young person, look, i want people to be able to save. That thats my principal goal if you want to put some mad money aside and do what is potentially gambling with it i understand but if youre saving that way with some risk, im okay with it, but i cannot back away from index funds as the fundamental of how you invest. Jeff in california jeff caller hi, jeim, this is jef at lake tahoe. Thanks to you and your staff for your Informative Program i have a twopart question pertaining to Interest Rates and yield curves can you explain to us home gamers how, what a flattening yield curve means and more importantly, why did the analyst say when theres an inverted yaeld curve that it portends a recession coming and the last part of my question is, what happens if the tenyear tbill goes to over 3 , how will that affect the stock market in 2018 . And grab your seat and come out and see us in tahoe. I love lake tahoe i used to play cards in nevada fed has raised rates too high, the rest of the curve goes down out five, ten, 20 years. That is a curve that has shown, in many cases to lead to recessions, but in other cases not. So im not hard and fast in that rule i do think that as rates go up, business does slow that thats undeniable. But we are at such a low rate and business is so strong that we can afford it mike in california mike caller good afternoon, mr. Cramer mike. Caller listen, two things, one first, thanks for taking my call, thanks for leading us ninetofivers down the road to extra money. My pleasure caller i now youre in a hurry here no, im fine. Caller its concerning dividends. Yeah. Caller just want to know, do you take the money and put it in your pocket or put it back in the stocks, and if you do, how do you make that work and how do you set it up . You do have to do dividend reinvest its a checkoff basically, but you have to. My trust will not allow it to. Its always hurt the performance, i always tell club members, reinvest. Take that money. Theres nothing like the compounding of the great compounding that you get, particularly with stocks that have good dividends. All right, remember my first two rooms, bulls make money, bears make money, and pigs get slaughtered. Please dont be greedy, please be disciplined and dont be afraid to pay the tax man on profits you earn. Its a lot better than riding things to losses take some off the table. Much more mad money ahead. Im putting my nearly four decades of experience to work tonight, counting down the most important rules for investing to help you navigate the market stick with cramer. Dont miss a second of mad money. Foll follow jimcramer on twitter. Tweet cramer, mad tweets. Send jim an email to mad money cnbc. Com or give us a call at 1800743cnbc miss something head to mad money. Cnbc. Com your friend just marea. You like her. Shes really good at social media. She buys stocks in companies that stand for something. You like her. Shes always up on the latest trends. She got in early on the whole goat yoga thing. And her sunsets are always nofilter. You like her. But youd like her better if you made more money than she does. Dont get mad at just marea. Get eatrade. News flash at the end of the day, were only human if you remember one thing about being an investor, thats it no ones perfect everyones infallible. And its inevitable that well make mistakes. Thats why if youre going to own individual stocks you need to set a follow of rules, rules that are designed to protect you from yourself. Rules that i learned the hard way, and that brings me to my next commandment this is a real important one never buy a stock all at once. I cant stress it enough do not under any circumstances buy all at once. No broker likes to fool around with partial orders like im telling you to do. The game is to get the trade on at one level in a big way. Make the statement buy get the position on the sheets or in the portfolio. But from where i stand, thats all wrong. 100 wrong you should never buy all at once, and you should never sell all at once. Instead, what i want you to do is stage your buys, stage your sells. Use this, the term we use on wall street is work your orders. Try to get the best price over time, and monot necessarily in e day, maybe multiple days when i first started out as a professional money manager i wanted to prove to everyone how clever i was if i felt like buying caterpillar, buy it all, buy it now, i was so sure i was right put me up on 50,000 cat id say. No one could be smarter than i am, do it big. When i think back about that young cramer with a mostly full head of hair, i was one arrogant son of a gun i was arrogant and wrong what was my mistake . If you want to buy 50,000 shares of caterpillar, you dont pick them all up at once. What happens if it goes down immediately . You feel like a dope never buy all at once. Instead, i should have been buying cat in increments of 5,000 shares i know it sounds measly if youre a professional, but believe me, im right. You can hope it goes down so you can buy more at lower levels and get a better cost bases. I know the institutional guys are saying, jim, 50,000s nothing. But you know what . I know longer trade in size as wed say, but i invest and whenever we have a new name to tell club members, we buy it in mall increments, say 500 shares at a time or smaller, over the course of multiple days when you buy all at once you are declaring that the stock wont go absolutely lower, dont you think thats crazy no one has that kind of insight. Judgment is infallible why dont investors if they want 500 shares in exxonmobil buy it in increments . They want it to be big too they dont want to waste the brokers time. The broker wants to get the trade done they would hedge when im placing incremental orders but its hubris to put stock all at once. Who knows . It may go into free fall right after. Thats why you need to resist making a statement when buying a shock. You know how often i got into the absolute bottom . How often the last price i paid was the lowest and then it was off to the races maybe one trade in 100 resist arrogance buy over days, humility beats hubris every time. Next rule, i want you to buy damaged stocks, not damaged companies. Lets is say the malls having a sale and pick up a piece of merchandise only to find out that its broken in the real world you can get your monday back aey back and. If you buy a stock and it turns out to belong to a defective company, you have to eat the losses thats why you need to be very careful to distinguish between broken stocks, names that are down for no particular reason, and broken companies which absolutely deserve to see their stocks trade lower without you sometimes damaged companies can be easy to discern when value started plummeting from the 2 hundreds with pharmacies it wasnt a good sale to rush toward valiant tumbled from 262 to the single digits. A lot of people thought it was worth buying at 150, it was like an Auction Going down. But the ongoing problems meant that the stock was down right toxic. On the other hand, sometimes stock will selloff that have nothing to do with the company, could be caused by etfs, washington or greece that doesnt mean theres anything wrong with the actual business how do we distinguish between a broken company and broken stock . Complicated question i like to develop a list of stocks i like very much. I call this my bull pen. When wall street holds a sale with the whole market coming down, i use that an opportunity to pick up the stocks on my list that was designed in a cool moment in a cooler head. But the bottom line is that you never really know. Thats why this rule works in tandem with the last one you never buy a position all at once what you think is a damaged stock might turn out to be a damaged company. If you take your time youre much less likely to end up with a large quantity of broken merchandise. Stick with cramer. And the wolf huffed and puffed. Like you do sometimes, grandpa . Well, when you have copd, it can be hard to breathe. It can be hard to get air out, which can make it hard to get air in. So i talked to my doctor. She said. Symbicort could help you breathe better, starting within 5 minutes. Symbicort doesnt replace a rescue inhaler for sudden symptoms. Symbicort helps provide significant improvement of your lung function. Symbicort is for copd, including chronic bronchitis and emphysema. It should not be taken more than twice a day. Symbicort contains formoterol. Medicines like formoterol increase the risk of death from asthma problems. Symbicort may increase your risk of lung infections, osteoporosis, and some eye problems. You should tell your doctor if you have a heart condition or high Blood Pressure before taking it. Symbicort could mean a day with better breathing. Watch out, piggies get symbicort free for up to one year. Visit saveonsymbicort. Com today to learn more. If you cant afford your medication, astrazeneca may be able to help. If you want to build a portfolio of individual stocks, a big if, since theres nothing wrong with getting it all from an index fund, heres the s p 500. Do the homework. Growing up, my kids hated doing homework they thought it was punishment sometimes when i looked at what they were studying, i found it pretty easy to sympathize with their point of view. Whats the reality of most things they teach you in high school how will it help you in life why even bother . I should take that back. But as a parent, ive always encouraged my kids to study, because you never know what youll turn out to be interested in later in life but i bring this up because many of you have the same attitude toward homework you need to do for stock. You suspect it might be just as irrelevant as homework seemed to be to my kids. When i told people to listen to the starbucks conference call, or netflix which is always about subscriber growth, if theyre going to own these stocks, they dont want to hear it. They just want to own it, they dont want to do anything. Doing homework means listening to conference calls, Reading Research reports they really want nothing to do with it they think im the teacher asking for way too much in this busy, 21st century world but thats plain wrong, people owning stocks without doing proper research, i regard it as just plain lunacy. You never want to do that. They know nothing but people still do it, and they do it for a couple different reasons. Theres the buy and hold school of thought you dont need to keep track of whats happening for the company because youre in it for the long haul. But on the on the other hand you have people who dont have the time to be that diligent for those of you who dont have the time i got the solution either get somebody else to manage your money or do the smart thing and invest in an s p portfolio. If you dont have time, you shouldnt be messing around with stocks back during the 1990s buy and hold became the end all, be all. Cngi, you got to look that one up the experts say if you holiday thin hold things for the long term isnt it supposed to work out . What is the homework before you buy a stock, listen to the conference calls. Go to the companys website, raid research, google the darn thing. Everythings available on the web. Everything theres so much more available now, that there is no excuse you arent up there begging at the gold man sachs library i can assure you that youll be soundly beaten by professional managers with good track records searching for highquality stocks all the time. More to the point im quite certain that any index fund can beat somebody who does no homework