Jim Cramer, the host of Mad Money, recently shared some investment guidelines based on his 40 years of experience. As we previously discussed in our article, Jim Cramer Talked About These 8 Stocks, Cramer emphasized that both bulls and bears can profit, but greed leads to losses, advising investors to take profits and avoid being overly greedy. His second rule is that paying taxes is acceptable. Finally, Cramer stressed the importance of not making large, all-at-once buys or sales, recommending gradual adjustments to positions instead.

In addition to these guidelines, Cramer’s next rule was to recognize the importance of distinguishing between damaged stocks and damaged companies. He explained that buying stocks from companies that are fundamentally flawed is a mistake with no chance of recovery, but stocks of companies that are simply experiencing temporary issues may present a buying opportunity. This distinction is critical because, as Cramer pointed out, there’s no “money-back guarantee” when buying into a company with long-term problems.

Investors should focus on finding stocks that are down for reasons that aren’t related to poor company fundamentals. Cramer then moved on to his next rule, which is to always do the relevant homework.

“If you want to build a portfolio of individual stocks, that’s a big if since there’s nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the S&P 500, well, you gotta be rigorous about it. Which brings me to my next rule: Do the homework.”

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Cramer said that doing the homework means more than just picking stocks based on a gut feeling; it involves actively researching companies by listening to earnings calls, reading research reports, and staying on top of the news. Cramer noted that some investors dismiss this kind of work, seeing it as unnecessary or outdated in today’s fast-paced world. However, he was clear in his belief that failing to do proper research before buying stocks is foolish and can lead to poor investment choices.

Cramer further emphasized that doing homework today is easier than ever. With so much information available on the internet, there’s no excuse for not gathering as much data as possible. For those who don’t have the time or inclination to dive deep into individual stocks, Cramer suggested that index funds are a great alternative. Another crucial rule that Cramer continually stresses is the importance of diversification.

“The next rule is another essential that I harp on constantly: Diversify, diversify, and diversify. Always be diversified, that controls risk, and managing risk is really the holy grail of this business. What’s the biggest risk out there? It’s called sector risk.”

Sector risk refers to the potential for a specific sector of the economy to lag, which can result in negative impacts on investments within that sector. Cramer explained that sector risk is one of the most significant dangers to an investment portfolio, and diversification is the only way to protect against it.

He frequently says that “diversification is the only free lunch in this business” because it’s the one investment principle that benefits everyone. As per Cramer, by mixing different sectors in a portfolio, at least five according to him, investors can prevent themselves from suffering catastrophic losses if one particular sector takes a hit.

“Here’s the bottom line: Whether you’re an amateur or professional, you always need to do your homework and keep your portfolio diversified. This is the kind of routine maintenance that protects you from monster losses down the line. Remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. But don’t try to rationalize those losses because stocks don’t always come back to even or anywhere near that.”

Our Methodology

For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episodes of Mad Money. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 900 hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

8. Rigetti Computing, Inc. (NASDAQ:RGTI)

Number of Hedge Fund Holders: 7

Cramer said quantum computing stocks like Rigetti Computing, Inc. (NASDAQ:RGTI) are all parabolic and explained:

“Okay, so that’s quantum computing. They are all the same. I mean, no, of course, the actual companies aren’t the same, but the stocks are. They’re all parabolic. If you come in, you have to understand, at this point, it is pure speculation. It can keep going up, but they’re all trading the same way. Anything that’s quantum computing and mostly it’s related to how it’s going to help healthcare. I am not a believer at this stage. I wish I’d caught them earlier.”

Rigetti Computing (NASDAQ:RGTI) designs and builds quantum computers and superconducting quantum processors, offering quantum computing as a service through cloud-based systems, along with quantum software and cloud integration support. Recently, quantum computing stocks have gained significant attention, driven by major developments in the field.

A notable highlight came from Google’s release of its Willow quantum chip, which is capable of performing complex calculations in just five minutes. This breakthrough has allowed shares of quantum computing companies, including Rigetti, to ride the wave and surge. Over the past year, Rigetti’s stock has risen by more than 1,550%.

However, it should be noted that there is a significant disparity between the skyrocketing market capitalization of the stock company, which is over $4.8 billion, and its actual performance. Rigetti Computing (NASDAQ:RGTI) third-quarter revenue was $2.4 million, down from $3.1 million in Q3 of 2023.

7. Altimmune, Inc. (NASDAQ:ALT)

Number of Hedge Fund Holders: 13

Cramer observed that healthcare stocks like Altimmune, Inc. (NASDAQ:ALT) are trading badly these days because they are “out of fashion”.

“Well, it’s trading with, it’s trading with Eli Lilly because a lot of people feel it’s got similar drugs for different issues like obesity. Eli Lilly trades like death. What can I tell you? I mean, these stocks all trade badly right now. It can come back, but you have to understand that right now, healthcare is so out of fashion. It doesn’t matter how good it is.”

Altimmune (NASDAQ:ALT) is a clinical-stage biopharmaceutical company focused on developing treatments for obesity and liver diseases. While the stock has been down recently, it recently was included in the Nasdaq Biotechnology Index (Nasdaq: NBI), marking an important recognition for the company after a year of significant progress.

Vipin K. Garg, Ph.D., President and CEO, commented that the company’s inclusion in the NBI highlights the advancements made and sets the stage for the upcoming developments in 2025. These include the release of topline data from the Phase 2b IMPACT trial of pemvidutide in MASH in the second quarter, which the company views as a key inflection point. Pemvidutide is a new experimental medication made from peptides, designed to target two specific receptors in the body.

It’s being developed to help treat obesity and a liver condition called MASH (which stands for Metabolic Associated SteatoHepatitis). Pemvidutide has shown promising results in clinical trials, positioning it as a potentially strong competitor in the obesity treatment market. Unlike some rival treatments, it appears to minimize muscle mass loss in patients, which could make it a significant player if approved by regulators.

In the third quarter, Altimmune (NASDAQ:ALT) successfully completed its End-of-Phase 2 meeting with the FDA regarding the pemvidutide Phase 3 obesity program. The company reached an agreement on the design of pivotal studies and the necessary measures for evaluating the drug’s efficacy and safety. This marks a significant step toward advancing the program and moving closer to regulatory approval.