Trim The Fat

Saturday, March 26, 2005

The Rules

Trader Mike turned me on to Jim Cramer's Rules of Investing, which I found to be quite interesting and applicable to my current portfolio. These are my favorites:
  • Pigs get slaughtered - The key point here (I think) is not to get too greedy and to know when its time to pull out. The greedy pig keeps the same position long after it tops off and ends up with a big fat loss. This happened to me with both STEM and SIRI. Both stocks soared right after I bought them. Instead of selling when they hit the high, I kept them expecting more. I also didn't sell because I didn't apply rule #2.
  • It's ok to pay taxes - Would you rather pay 25% on a $100 gain or nothing on a loss? This one is pretty simple.
  • Do your homework - Until recently, I had no idea what this meant. My entire portfolio consists of whimsical purchases based on my own brand preferences or speculation. In fact, my first purchase of SIRI was based entirely on the fact that I've listened to Howard Stern for the last 10 years.
  • Buy Best-of-Breed Companies - Basically, if you have to choose Yugo and a BMW, buy the beemer.
  • Don't own too many names - His rule of thumb is this: If you buy a new stock, sell an old one.
  • Cash is for winners - There is nothing wrong with pulling out completely until things turn around. This is good advice.

Moves based on the Rules:

  • Quiksilver and Whole Foods are intriguing, so I'll need to do some homework on them. I especially like the latter because it follows a business model similar to my favorite non-public company, REI.
  • I also think its time to clean house. I might sell the shares of Microsoft at this point since it's been so flat for so long.
  • Should I walk away from Apple? This is the only stock that has made any money for me. It's possible that I'm being Piggish with this one and should just walk away with the gain.

Any suggestions?

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