Today as I watched CNBC I decided to tune into Mad Money after my favorite show, Fast Money, ended. Normally I turn off the TV once Fast Money ends but today was different - Cramer was doing a show on running money like a professional. His rules are bolded and the text after is my personal take on each rule.

1. Keep cash on the sideline.

Having money to invest when the opportunities arises is key to making money. This is something that, in reading investing books, I have constantly seen repeated. Warren Buffett is a perfect example of keeping cash on the side line to be able to take advantage of opportunities when they arise.

2. Instead of looking at the potential upside look at the downside.

When investing you should always understand what the possible downside of a stock is. Cramer recommended these keys to stocks that limit downside.

-Invest in stocks that have dividends. As the stock goes down the dividend increases and will draw in new money.

-Stock buybacks. Stock buybacks are a great way for a company to limit downside because it increases the percentage of the company that you own without having to buy any more shares. Also, unlike dividends that once announced are expected to be maintained, stock buyback plans are often viewed as a one-time thing meaning the company will not be negatively affected if they decide not to announce another buyback.

-High Growth rates with low price multiples. Buying into stocks that are trading at a huge discount given their expected growth can be a great way to limit the downside in a position.

3. If you cannot explain what the company does and how they make their money, then you should not own the company.

If you do not know and do not have enough time to learn about the company, then you should not invest. Buying stocks that you do not know is purely speculating and gambling. There are enough companies that if you do not understand one you can just move on to another.

4. Professionals are worried when they are making too much money too quickly because making too much money could be a sign of too much risk.

A perfect example of this situation is the tech rally of the late 1990s and early 2000. For this rule A Random Walk Down Wall Street describes market bubbles and being wary of market tops. If you are making a lot of money, then you should start taking profits.

5. Never buy a stock in anticipation of a quarterly report. Avoid trying to predict earnings.

Trying to predict earnings is just like gambling with your money. It is way too hard to predict the earnings and then also try to predicted the market’s response to earnings. It is better to try to avoid the earnings season and invest when you have the advantage of having time to properly analyze the companies.

Overall, I think Jim Cramer presents several great things to follow and I completely agree with what he said. From everything that I have read these five things are very sound advice to follow. Rule number four may sound strange but it is true that when markets are performing their best it is important to be wary of a correction.

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