Jim Cramer’s guide to investing: How to start picking individual stocks

CNBC’s Jim Cramer advised beginner investors on how to successfully begin picking individual stocks.

Stock picking is not simple and requires substantial research, he said, stressing that it’s essential not to shoot blindly. Instead, it’s wise to invest intentionally and put money into stocks and sectors you’re familiar with.  

“You want to get started? Go small, invest in what you know, research intensely,” Cramer said. “Back then, I got old data from the public library. Now? It’s as simple as a key stroke, and the information’s free — including up to the minute financials, analyst presentations, brokerage research and, of course, the conference calls that I tell you are musts if you want to actually know what you’re doing.”

Cramer recalled getting some of his first investing ideas from information he gleaned when working as a reporter covering mergers and acquisitions lawyers. He noticed heavy and continuous merger activity in the oil sector, with many smaller and midsize oil companies being bought up. So, he poured through stock research magazines, reading any information about oil stocks he could find. He then cross-referenced these findings with other sources to determine which companies might be candidates for a successful acquisition.

He compared individual stock picking to horse betting, saying investors shouldn’t bet “willy-nilly on every horse in each race,”but search for thoroughbreds and try to bet big on instances where a payoff seems likely. However, if you’re having a bad run, don’t be afraid to cut your losses, he added.

“You can take a huge swing when you know what you’re doing, particularly when others don’t on a less well-known stock,” Cramer said. “Don’t just gamble on stocks for the excitement of it — that is foolish. Most important? Be disciplined, don’t let your losses pile up.”

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