According to CNBC’s Jim Cramer, adjustments are as inevitable as rain. Investors should always be ready for a correction, Cramer said.
“I expect it to rain, and I’m going to be ready. When it rains, I’m ready. I have an umbrella or a coat, or I just stay indoors,” he said. “That’s how you need to deal with the possibility of a pullback in the market. Sooner or later, we’re all going to get that situation, so better have some cash on the sidelines — just in case that’s the case right now.”
Cramer explained that the most important time to worry about corrections is when no one else is worried. He added that when everyone else was euphoric, there was usually a brutal, supposedly unexpected decline.
At his previous hedge fund, he said, he always pulled money if he felt his performance was “too much upward swing.” At times, he would sell shares quickly, bracing for a drop. Cramer admitted that if the downturn didn’t come, he’d probably be buying everything back in a few days, and he might feel a little stupid. Yet when things did go bad, his clients thought he was a “genius,” and his portfolio continued to do well, he said. According to Cramer, that’s not genius at all. It’s discipline and preparation.
Another key component of realistic investing is to never base decisions on emotions, especially hopes, Cramer said.
“Don’t get your hopes up. Hope is emotion, pure and simple,” he said. “It’s not an emotional game, or at least not your emotional game. Every stock you own because you want it to go up is another spot in your portfolio, and the stock you believe it’s going to go higher isn’t filling. This location.”
Cramer warned that hope in the stock industry is always a mistake because it supersedes reason. Investors should put money into stocks because they genuinely believe the company will succeed, not because they hope it will, he said.
“It pays to be realistic in this industry,” Cramer said. “So, get ready for a correction. Sharp pullbacks are like rain; they’re inevitable. Whatever you do, don’t make stock picking decisions based on hope. You need to invest in the real world, not the fantasy world. “
