As you put together your portfolio, Jim Cramer says include these 5 things; they should increase your chances of success.
"You need a dividend-paying stock with a high yield, you need a growth stock, you need something speculative, you need something foreign and you need some gold," he said.
Here's the breakdown:
Growth Stock
Cramer is a big fan of growth and he's hardly alone. Therefore these stocks can trade at rather high multiples or premiums.
"As a general rule of thumb, when it comes to a high-octane secular grower, the stock can trade up to a multiple that's as high as twice the long-term growth rate before it gets too expensive for the vast majority of growth oriented money managers. So if the company's growing its earnings per share at a 20 percent clip, its stock could potentially fly as high as 40 times earnings," said Cramer.
With growth stocks, there are many metrics to consider, however Cramer said little is more important that the rate of growth.
As long as that rate increases the market should reward the stock with a bigger premium. However, when the growth rates slows, the market will also punish the stock.
Therefore, "You have to be very careful when you're playing with a fast-grower, especially after it's been rising for a while," said Cramer, "because as soon the company misses a step that stock will start getting pounded. And the pain can last for years as it goes through what is known as multiple shrinkage."
Amazon, and Netflix are often cited on the Street as potential growth stocks.