Investing After the Crash

By: Tom Brennan
Web Editor, Mad Money

The line between trading and investing may have blurred, Cramer said Friday, especially after the crash of 2008.

He used to define investing as a long-term buying strategy, one where a stock was bought with an 18-month time horizon in mind. Trading, on the other hand, was a near-term approach used to capitalize on market fluctuations. But now Cramer is recommending some combination of both, because those short-term price moves could be the best way to recoup your losses from the crash and get back to even.

“I think we all need some trader in our DNA,” Cramer said.

Of course, plenty of financial advisers would rail against this. They still believe in “buy and hold,” the idea that the gains earned over the long term will compensate for any short-term losses. But after the credit crisis and the Dow’s near 5,000-point plunge that followed, Cramer decided the short-term fluctuations just can’t be ignored.

Price matters. Caterpillar [CAT 70.08 1.54 (+2.25%) ] may look attractive at $30 but not at $55. Google [GOOG 470.30 7.12 (+1.54%) ] could be buyable at $600 but not at $700. That’s because the risk profile changes as the price does. Certain stocks deserve to be sold when they soar too high, while others should be bought when they dip too low. And if you got CAT and GOOG at those lower prices, then certainly you’d want to lock in the gains and buy them back on a decline.

Cramer likened it to shopping at, say, Macy’s [M 20.87 0.16 (+0.77%) ]. You see a sweater you like for just $30, so you buy it. But you wouldn’t consider the purchase at all if the sweater was going for $55. Well, the market is like “Macy’s on steroids,” he said. Stocks are marked up and put on sale with alarming frequency, and investors watch these moves in order to get the desired merchandise at the best price possible.

Now, Cramer wasn’t trying to turn his viewers into day traders. But he firmly believes that any loss that can be avoided should be avoided, and you should buy good stocks when they go on sale. If fact, it couldn’t hurt to have a shopping list of companies you’ll snatch up when the price is right. And the same goes for selling. When a stock on the list has moved high enough, then take profits.

Cramer called this “the basis of intelligent long-term investing.”