Jim Cramer is an American television personality, former hedge fund manager, and best-selling author. He is the host of CNBC’s Mad Money and a co-founder of TheStreet, Inc.

Of his published 25 rules for investing, I think these five are among the best.

1. Bulls and bears make money. Pigs are slaughtered.

This rule advocates top slicing a winning position as it goes up so that reversals don’t take all the gains away. That seems a useful approach in today’s volatile markets.

Jim Cramer says that he reminds people every day:

“Have you taken your profit? Have you booked anything? Or are you being a pig? Because you never know when things you own are going to crash. You never know when the market could be wiped out. You can’t have certainty.”

Taking profits and allowing a reduced position to run in order to capture further upside is like running an insurance policy that protects our gains. We can always reinvest our winnings, perhaps even into the same company if a setback produces a better value buying opportunity.

2. Don’t buy all at once.

I like this rule because it chimes with Jesse Livermore’s approach where smaller positions (or ‘probes’ as he called them) test the validity of an investing decision before committing too much capital. If a small position goes well, we can add to the position. If it goes badly, losses are relatively small.

Cramer says:

You must resist feeling like you are making a statement. I have bought and sold billions of shares of stock. Do you know how often I got it in at the right price? Do you know how often the last price I paid was the lowest and it was off to the races? Probably one in one hundred. And I’m pretty good at this game.

3. Buy damaged shares not damaged companies.

Look for fallen share prices representing strong businesses. Don’t make the mistake of searching through the dustbin of struggling enterprises.

Jim Cramer reckons he keeps a watch list of great companies and buys during general market sell-offs or when sentiment drives a share price down when the fundamentals of a business remain sound. He says:

“I particularly like to be ready when we have multiple sell-offs in the stock market because of events unrelated to the stocks I want to buy, a major shortfall of an important bellwether stock, or perhaps some macro event that doesn’t affect my micro-driven story.”

4. Buy best-of-breed companies.

This chimes with Jesse Livermore again, who advised us to go with the strongest player in any given sector. We do this with things like cars, Jim Cramer reckons, so why not in the stock market? It often pays to spend a little more to get ‘better’.

Cramer says:

“There are very few bargains out there in the world of secondary and tertiary players. I believe that when it comes to price-to-earnings multiple, investing in the more expensive stock is invariably worth it because you get peace of mind.”

5. Don’t own too many names.

Cramer advocates diversification, but the temptation is often to buy too many firms in the same sector, maybe because we just can’t decide.  So, he advises keeping a portfolio as small as possible whilst maintaining diversity. If he buys a share, he sells one to make room for it and that discipline keeps numbers down and enhances his performance.

Jim says:

“When I lost the most money as a hedge fund manager, my position sheets were as thick as a brick. When I made the most money, my sheets were, well, one sheet of paper, double-spaced. And I ran hundreds of millions of dollars.”

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