In many ways, individual investors are often their own worst enemies, as CNBC’s Jim Cramer has learned over the years.
“If you want to invest wisely, you constantly need to be fighting off your own worst impulses,” the “Mad Money” host said. “We’re not robots, we have emotions, and those emotions can really throw you off your game.”
That’s why Cramer is always drilling down on one of his most important rules: “Nobody ever made a dime panicking.”
Yet no matter how much he repeats it, Cramer constantly sees sellers come out of the woodwork anytime an individual stock, or the overall market takes a hit.
Now, if you were an ancient hunter-gatherer and came across a grizzly bear, the instinct to panic and flee would come in handy, the “Mad Money” host said.
“But it’s not a useful emotion when it comes to analyzing the stock market, where you’re running away when maybe you should be running toward” stocks, he said.
“The truth is, there will almost always be a better time to sell than in a panic, a better time to leave the table, than whatever moment inspired you to panic in the first place,” he added.
Cramer put this strategy to work in 2010 during the market’s flash crash, when the Dow Jones Industrial Average fell almost 1,000 points in less than half an hour.
Naturally, investors panicked, dumping their stocks as part of a mass selling frenzy. As Cramer watched the ticker tape while he was on live TV, he couldn’t believe what he was seeing. It looked like people were selling for no reason other than to sell.
“I urged viewers right there on the set to pick a stock they loved and buy it using limit orders, so you wouldn’t have to accept a price you didn’t like,” Cramer said.
“The result? To this day, people still come up to me and thank me for that advice during the flash crash,” he added. “But I simply put my rule into practice, realizing that nobody ever made a dime panicking and then I tried to help you profit from it.”