Watching from the sidelines will not make you a great investor. Being willing to get in the game and stay in it is the only way to become that investor. It can be hard to keep your head in the game, but there are three “forces” Jim stated that keep people out of stocks, they were: “boredom, bummers and brokers.” Boredom was called a big problem. A recipe for disaster is when the market players are not interested in the stocks they own, and when attention is not being payed unexpected losses will come. If people invest and stay interested they can make a fortune. Speculation was called a cure for boredom as it makes them feel like they are good investors when successful. Speculation can be considered “foolhardy and more immoral than gambling” but Jim has made some of his biggest gains speculating and he called it “good for investors.” He told us that it is “OK and necessary to speculate.” When talking diversification, Jim is referring to it across sectors, and unless you own some high risk stocks you are not really diversified. A few ground rules of speculating were laid out. The first was “never invest retirement money in speculation.” Second “do not ever have more than 20% of non retirement portfolio in speculative stocks.” A tiny bit of money should be put in speculative stocks, “make 1% to 2% of the portfolio if you are that conservative” he said. Speculation is small cap stocks with a market cap of between $250 million to $2 billion. These are usually less expensive per share, selling from $2 to $10 per share. A catalyst should be lurking and often speculative stocks are unprofitable. You should never buy a stock with no revenue or sales, but a stock with accelerated revenue growth. Two ways to go about speculating is to either pick an individual stock with which to speculate or they can speculate on a sector trend buy putting together a basket of stocks. With the whole industry, people should not miss out by buying the one stock from that group that gets left behind. Cast a wide net and spread the risk around. An industry that has been knocked around and beaten up should be sought. Speculating means always trading too. These small stocks will generally move up or down a great deal. You should have an exit strategy too as to not endanger all of your gains. A good investor should be “excited, interested and careful” Jim says. Worse than boredom is losing a lot of money. If Jim were to quit every time he lost money he would have never gotten anywhere. A magic formula against losing money he does not have, but giving up is not the answer. Two rules for damage control were: expect corrections and do not fear them. The S&P was used as an example as a correction when it had a decent run and then fell in May through June of last year. After bottoming the first half of June it came roaring back all the way through December. People who lost money would have been tempted to give up on stocks due to where the market had climbed and giving up would have been a bad idea. Investors need to understand that sometimes stocks go down and keep going down. They need to be psychologically prepared for big corrections like the one that started in May so they’ll develop a “superior attitude” and stay in the game, he said. The next rule is about preventing losses, Cramer continued. One of the best ways to try to avoid losses is to “watch out for multiple contraction,” which means that the market will start paying a lot less for the same amount of earnings, he said. If players see a “marketwide nosedive” or a “big, ugly downturn,” especially one that’s caused by interest rate hikes, they should identify and sell their high-multiple stocks, as they are the only certain types of stocks that are “truly vulnerable” to multiple contraction, Cramer said. As severe multiple contractions usually won’t occur a stock until the company reports earnings, people should sell their high-multiple stocks before the companies report, unless they want “a world of pain,” he advised. Lastly, Cramer urged his viewers to place limit orders instead of market orders. “Limit orders keep you in the driver’s seat, they keep you from being totally ripped off, and they’re really easy to execute, he said. “Please, if you listen to nothing else I say, use limit orders instead of market orders.”