Jim Cramer’s guide to investing: Be tough on your portfolio during a rally

CNBC's Jim Cramer said one of the best times to scrutinize your portfolio is during a rally.
"If the fundamentals aren't changed, if the company hasn't improved, then it might have gotten too expensive as a stock because of the rally," he said. "So, when the market's roaring, give your stocks a hard time, please, hold them to a higher standard. And ring the darned register on some of the stuff, both on the names you like the least and, of course, even the ones that are up the most."

It may seem counterintuitive, but to CNBC's Jim Cramer, one of the best times to scrutinize your portfolio is during a rally.

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"If the fundamentals aren't changed, if the company hasn't improved, then it might have gotten too expensive as a stock because of the rally," he said. "So, when the market's roaring, give your stocks a hard time, please, hold them to a higher standard. And ring the darned register on some of the stuff, both on the names you like the least and, of course, even the ones that are up the most."

He acknowledged that buying low and selling high can be hard to execute in the moment, but it's important to take profits before those gains disappear. Cramer said investors should give their positions the harshest possible evaluation — focus on stocks' worst qualities, emphasize downsides and make companies prove that they're worth holding onto.

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Cramer emphasized that selling is not a defeat when you're getting solid returns. And during a big rally, winning stocks become more expensive and less desirable because the risk and reward ratio becomes worse, he explained. He told investors they shouldn't get overly attached to a stock just because it's made them money. Just like blackjack, he said, "the cards have no memory."

"During a big up day and after, don't get swept away by euphoria, Cramer said. "Because the whole point of owning stocks is that you're supposed to sell them when they go higher to make money."