i'm jim cramer and welcome to my world. you need to get in the game. going out of business and he's nuts! they're nuts! they know nothing! i always like to say there's a bull market somewhere. and i promise to try to -- "mad money", you can't afford to miss it. hey, i'm cramer, welcome to "mad money," welcome to cramerica. other people want to make friends, just trying to make you a little money. my job is not to entertain but to educate and coach. so call me at 1-800-743-cnbc. tonight's show is devoted to helping you cramericans avoid some of the most common and money-losing mistakes that investors continue to make. and recognizing misinformation when you see it.

the best way to do this is with discipline. and tonight i'm laying out these rules to help make money in what can be an incredibly bewildering, confusing, and infuriating market. if you follow my rules, you should be able to recognize an opportunity when you see it and to manage to avoid losing money when you don't have to. no matter what the circumstances. including a collapse in euro or a slowing in china. or even skyrocketing oil prices. let's get down to business. here's the first one. i don't want you digging in your heels anymore when you're wrong, or in the immortal words of the late great economist or equally accomplished investor, when the facts changed, i change my mind. what do you do, sir? one of the easiest mistakes to make. and i know this. why? because i've done it countless

times myself. i refuse to change my stripes after the facts are in, and i've been proven wrong. it's natural to refuse to change your mind when you think you're right, the market's going against you. it's also a quick and easy way to lose money. yet mad mailers and particularly twitter followers @jimcramer refuse to believe this principle. i have been blasted into reality over and over again. you are always angry when you get run over. and you're always willing to take it out on the people on the other side, the ones who got it right. the fact that i'm open about this whole process and that i actually read the angry e-mails, oh, boy, and those tweets and i engage with people, sometimes in a cranky way, has helped me to learn stories and learn how to invest better. but it has also been an exercise in pain. >> the house of pain. >> and when the e-mails and tweets are the most hurtful, that's when i know i'm the most right. for example, i've got incredibly

volume of hate mail after the market bottomed in march of 2009 and then rallied much higher. when the dow industrial average was down about 6,500, close to the bottom, i came out and said the downside was minimal. i thought you had to start buying. i didn't say the downside was done, i knew there couldn't be that much more downside because i put together the doomsday scenario where i thought the market would go in case the worst was at hand. not just a recession, but an honest to goodness depression. bottoms up, i tallied all the members of the dow jones average and presumed for my calculation that every single financial in the averages would go to zero including bank of america, general electric, yep, people consider this one a financial because of the big ge capital division even though it's shrunk, citigroup, and jpmorgan. and took into account the total elimination of dividends of caterpillar and 3m, and added in alcoa, for good measure, all pretty dire assumptions to say the least. and you know what?

even under these incredibly ghastly conditions, i still couldn't see a low that took us down significantly from where prices already were. from the moment i made that call, there were people who were telling me i was crazy. and i had no idea what i was talking about. >> boo! >> a month later with the dow 15 points higher, what were these people doing? still there. still sending me e-mails that are even more impassioned, claiming it was still too soon to tell. told me i lost my rigger that i lost -- i was no longer knew what i was doing. if you find yourself making that kind of argument, you know what you're doing there, you're digging in your heels and should be changing your mind. this is something that's hard for the most emotional investors and traders out there to come to terms with. believe me, i know. but it's also crucial if you want to be a better investor than you are. people do this all the time with stocks. we would never allow ourselves to make the same argument about sports.

let me use an analogy that can drive this point home. would you claim that your favorite basketball team still had a chance of coming back from behind to win an hour after the game ended? hey, what about a week? what about a month? of course not. if anyone did that, they'd think you are insane. i'm urging you to apply the same level of rigor to stocks that you would to sports. the facts are always changing in this business. and at some point you need to acknowledge that the game is over and you were wrong. i'm not trying to be glib about this. it's part of the emotional side of investing that while difficult to measure is just as important as the intellectual side. even if very few people in the financial media will talk about it. it's very tough to come out. most people are embarrassed by this stuff. swallowing your pride is never easy. but the more time you spend digging in your heels, the less you have to take advantage of the new situation and profit from it. how can you know for sure it's

time to say game over? if you find yourself feeling the need to come up with more and more excuses and reasons why things will go your way then it's probably a good time for you instead to start pondering why they haven't. you've got this huge edge on me. i've got this national tv show calling the market's direction five days a week. it's so much easier to say, just you wait and see, not to eat any crow than it is to admit defeat. you don't have to worry about publicly embarrassing yourself. focus on the potential profits and not your ego. and also, i'm not a politician either. see, they can't change their mind without ridicule. if i don't change my mind, i lose money. that's a far higher judgment to worry about. here's the bottom line, when the facts are in and you've been proven wrong, don't dig in your heels. simply change your mind. ray in georgia. ray? >> caller: yes, sir. >> what's up there, ray? >> caller: hey, i got a quick question on stocks. i think i heard you one time say that you didn't want to -- you didn't like to use stops. and i just trying to figure for us home gamers, how do you protect yourself if you don't use stops or stops with limits? >> okay. >> caller: what do you think? >> first think about the flash

crash, okay. you know you're stopped out at some horrible price, who knows what you got and then the market comes right back, you got hurt. more importantly, what are you doing here? come on, this is real money. you've got to stay close to your money. you're putting it in some machine's hand when you do that. i want you to be able to say hey, how the market's doing? i want to stay close to it. i don't want to go on auto pilot. putting the stop losses in is auto pilot. i don't like it. let's stick with the facts. figure out if it's a buy or a sell and stop just bailing out when the fundamentals may change. skip in new jersey? skip? >> caller: hey, jim, how are you doing, big boo-yah to ya. >> i'm around the block from you in the summer. what's going on? >> caller: hey, i'd like to know, jim, mlps, master limited partnerships, an appropriate investment for i.r.a. retirement accounts? >> there are -- here's why i hardly ever do this. you're going to have to forgive

me. but you have got to speak to your accountant for this. there is a penalty that can be paid if you have too much income coming from these in your i.r.a. you need to speak to your accounting professional because you do not want to run afoul of that penalty. let's go to anup in california. >> caller: hi, jim, how you doing? >> real good, man. how are you doing? >> caller: good. listen, you have mentioned in previous episodes that it's valuable to track a group of fundamentally good stocks and buy when prices are down. >> yeah. >> caller: much like you might scope out a fancy watch at macy's and buy during the after christmas sale. >> as long as it's working. >> caller: in the same fashion, i was wondering if charting the inflation adjusted price to earnings per share ratio for an equity would help to more appropriately time a purchase? secondly, tracking the inflation adjusted price to cash flow ratio be an even better metric due to -- >> you know what? we don't have a lot of inflation. i totally like that idea. that is really truly rigorous. however, in the end, what's going to tell you whether to buy

or not is if the market takes a stock down, not the company's fundamentals, but the fundamentals are intact. that's when i want you to strike. okay. mules fail in hard trials. don't be stubborn. when it comes to your money in this market. when the facts change, i'm urging you, don't dig in your heels, have some discipline. change your mind. "mad money" will be right back. [ male announcer ] this is genco services --

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1-800-743-cnbc. welcome back to this disciplinary edition of "mad money." i'm not talking discipline as in crime and punishment. i mean investing disciplines. rules that can help you sidestep losses and help you make money in the stock market like this one. the next thing i want to tell you about, one i developed based on 31 years of investing insights is among the most important. and that is that price matters. i know it seems obvious, but bear with me. i know it's anything but. price matters so much, it means you can buy the stocks of companies you don't like. that's right. ones you don't even like, provided they go low enough! in fact, for the right price, even inferior merchandise is worth buying. as long as it's not deteriorating. some of the best opportunities i've ever seen have come from holding your nose and buying the stocks of companies you never imagined wanting to own in the first place. just because they've become so darned cheap. i will never endorse a stock when i think the fundamentals of the underlying company are deteriorating. i won't go anywhere anything that could be headed toward bankruptcy because of a hard balance sheet. you need -- you need to always look at the balance sheet. but there's a whole lot of space between a best of breed company and one that's uninvestable. okay, this is really important.

in normal circumstances, the stocks of the companies that still pass the smell test sell for much more than i'd be willing to pay for them. usually because there's too many hopeful investors speculating unwisely and buying barely adequate merchandise because it appears cheap when, in fact, it's selling at the appropriate discount. however, if the price drops far enough, then it's perfectly okay to buy a stock when you merely have a low opinion of the underlying company. that's what i'm talking about. that's how much price matters. now, look, i get enormous volumes of hate mail and vicious tweets on this subject, normally from people who are upset i recommend selling a company that i previously said i like after a big increase in the share price. how can you not like it now? it's really hot. just as best of breed becomes too expensive, there are levels where worst of breed companies are cheap enough to be worth buying, even companies i've slammed at a high price in this show. worst of breed is different from plain worst. worst of breed business might

not look like much compared to the best of breed competition, but at least, at least it can get into the dog show. how do you know when the price is right on something you wouldn't otherwise buy? obviously there's a sliding scale here. the better the company, the more you should be willing to pay for it. if you're speculating, it's worth looking for companies left for dead. even though they still have a perfectly strong pulse on closer inspection. there's no price you should be willing to pay for a company that could potentially go under, though. never, never, never. if you're truly convinced bankruptcy isn't on the table and the street has it all wrong, then buying an unattractive company at an attractive price can make a whole lot of sense. at the end of -- the bottom of the barrel at the end of 2011, the regional banks, they began to break away from the international bank that were hostage to europe. i had disliked these banks. u.s. bancorp and wells fargo, but i had to warm up to them because the employment was coming back. housing market was getting better. i held my nose and told you to

buy. even though i said i don't like the bank group. right? it worked even though i was blasted for flip-flopping on the bank group. i'd leave the show and go to twitter @jimcramer and there it was. i thought you hated the banks. i mean, look, at certain prices, can't hate. when it comes to higher quality stocks, it's harder to find situations where something that doesn't interest you becomes worth buying because the price is right simply because there are times when it won't get hit that hard. but if you keep your eyes peeled for companies raising money through equity offerings, it doesn't take much effort in an environment where so many try to raise capital through secondaries. i'm finding this right now in some of the european situations. you can often find great deals on merchandise you never would've looked at once let alone twice. these deals happen all the time. and i try to get you attuned to them on the show you can pounce when they come up. just in terms of price on the same day. one day. may 13th of 2009. i will never forget this, one of

the great opportunity days i've ever seen. both ford and bb & t, a southern regional bank that had a lot of bad loans on its books but i thought it looked like a survivor if not a thriver. sold at affordable prices. ford secondary priced at a 5% discount to the previous day's close. and a 24% discount to the previous week's, and bbt sold 10% discount to the previous close and a 27% discount from the close the week before. before bb & t got the deal done, the market was softened. the price was able to spring back after the secondary. that plus the fact that the company's worth a heck of a lot more because the solvency was no longer in doubt made the secondary offering a steal! both deals immediately made you money. even if you had no prior interest in either ford or bb & t and thought they were mediocre at best. at discounts that steep, both stocks, well, the stock price

changed my mind. those were great buys. i want you to always keep your eye on the price. because even less than stellar companies can turn out to be big winners if you get a chance to buy them low enough. the ultimate example of this worst of breed buying opportunity came at the bottom of 2008 with amd. a stock that i have hated almost since the beginning of the show. actually i've hated it for more than 22 years, i hated it when jerry sanders ran it in the '80s and '90s, but when it hit $200 and the division began to take shares from two much better companies, the opportunity was too great. i called this one a hold your nose and buy situation. and if you listen to me, you could have cut a double in a matter of months. yes, had to trade out of it, it got too expensive, but the trade by the way, here's a little insight. they don't ask you how you made it when you deposit the winnings at the bank. here's the bottom line, price forces you to make new judgments about bad merchandise. just as fixer uppers have a price you wouldn't want to pay

in at another time, stocks get so cheap they become diamonds. rough diamonds, but diamonds nonetheless. stay with cramer. does the market have you stumped? no fear. cramer's here. just e-mail him, madmoney@cnbc.com. choose control.

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tonight's show is all about helping you better understand the new stock market environment and teach you how to analyze stocks so you know when they're telling the truth. and you know when you're being misled. how can stocks inanimate pieces of paper be misleading? they can't. but the companies behind them can, which brings us to the subject of my next rule. don't take your cue from an inferior company. when a worst of breed player says things are bad for the whole industry -- >> the house of pain.

>> i don't want you to take it on faith anymore. there are strong and weak players in every sector. and the weak players will almost always seem to pin the blame of their failures on the entire industry, it's what they do. when dell says things are bad and intel says things are bad, you shouldn't necessarily sell the semiconductor stocks based on that. because there are competitors and suppliers. you shouldn't sell apple and ibm which have little to do with dell and intel other than the fact they are all considered tech. this is typical worst of breed behavior and you can't generalize from it. let's be honest, you will never hear companies say we're doing poorly because our competitors have better execution, they're grabbing our market share and generally eating our lunch. no ceo in his right mind is going to come out on the quarterly conference call with the fault your shareholders is not in our stars but in ourselves style revelation. a guy would get fired in an instant because shareholders don't always respond well to that level of honesty.

you need to be able to recognize an excuse when you see it. bad news for hewlett-packard, for example, can sometimes only be bad news for hewlett-packard. if they tell you it's raining, the odds are pretty good that when you hear from apple or ibm, they'll likely tell you it must only be raining on hewlett-packard's side of the street because business is just fine where they're standing. kohl's versus macy's, just keeps happening. you can't assume that all companies in the same industry are equivalent. sometimes there just isn't any pin action, which is why i keep my pin sound -- you can't extrapolate from one company's results to the rest of the industry. and that most frequently indicates when that company is one of the losers. hey, happens in every industry, not just tech stocks that hide behind others in the sector when the ball drops. we saw with avon, right? avon when the business faltered even as direct sellers flourished, they were talking about the business model not being any good. that's great, hitting the ball

out of the park and avon stinking up the joint. we also saw proctor & gamble when colgate was running circles in every almost market. we saw this play out in fast food, wendy's saying a customer couldn't afford a hamburger today. safeway and super value complaining the consumer -- but whole foods was kicking butt and taking names. here's the bottom line, whatever the industry when a company with a bad track record blames its poor performance on a tough environment, i've got to tell you, it's probably making excuses, not telling you something that applies to its stronger competitors, which are likely running circles around it. don't believe the hype. patrick in arizona. patrick? let's go to della in california. >> caller: boo-yah, jim. >> boo-yah. >> caller: thank you for helping my husband and i with our

investing. and our question is would reinstating the uptick rule help stop the volatility of this market? >> okay. i think, della, the answer to that is quite simply yes. but the institutions that are involved with trading are far more powerful than the little guys. and the institutions want to see quick trading in part because the fees are good for the companies that trade and also because you know what? these guys want to be able to short with impuimpunity. i think the markets are created to be able to raise capital and places to invest for regular people. and they've been driven out by this and that makes it so the market can go up and down quickly because the little guy doesn't trade like that, only the hedge funds do, and they need to see that uptick rule be staying away from our market. they liked it abolished, i didn't. now let's go to patrick in arizona. patrick? >> caller: hi, jim. >> hey, hey, what's up? >> caller: let's talk about diversification. >> sure.

>> caller: there are basically, i understand, three factors. sectors, industries and classes. can you tell us about which are the most important? which ones are the least important that we should use in making a diversified portfolio? >> well, what i like to do -- i use the s&p groupings. for instance the fms financials are 16%, 17%, that takes care of that group. that's bank insurers, tech, 15%, that's hardware, software, industrials, companies that are cyclical in nature, that's another one. obviously the health care, drugs, foods. i like to use the s&p groups, those are the ones that make it so i can say point-blank this is diversified from that group. sweet little lies? a good craftsman never blames his tools. so when a company blames a tough environment, it's an excuse for you to not buy. stay away. let's stay with cramer. build your future -- >> happy boo-yah to ya. thank you not just for the money, jim, but what the money

translates into. in my case, a college education for my son. >> boo-yah, thanks a lot for your passion for stocks. "mad money" does work for the small investor like me. >> "mad money" making me money for college. boo-yah, i love you. >> how many other shows have kids calling in and saying boo-yah? >> one boo-yah at a time, "mad money" with jim cramer weeknights 6:00 and 11:00 p.m. eastern on cnbc. [ donovan ] i hit a wall. and i thought "i can't do this, it's just too hard." then there was a moment. when i decided to find a way to keep going.

go for olympic gold and go to college too. [ male announcer ] every day we help students earn their bachelor's or master's degree for tomorrow's careers. this is your moment. let nothing stand in your way. devry university, proud to support the education of our u.s. olympic team. the teacher that comes to mind for me is my high school math teacher, dr. gilmore. i mean he could teach. he was there for us, even if we needed him in college. you could call him, you had his phone number. he was just focused on making sure we were gonna be successful. he would never give up on any of us.

♪ don't believe the hype welcome back to this disciplinary edition of "mad money" where i'm doing everything i can to help beef up the disciplines that can make you a great investor. this is a market full of misdirection, just like what you see on the football field, right? they fake this way, go that way. and if you simply trust what the people on television are saying, you're going to get burned. this next rule to paraphrase public enemy is all about helping you to not believe the hype.

not all upside surprises are worth getting excited about. whenever a company reports quarterly results and the earnings per share are higher than what the analysts who research the company for a living had on average expected, then the headlines will describe as an upside surprise. very simple, put it in the headline. the stocks are supposed to go up when the companies deliver higher earnings than anyone expected. but what the headlines call an upside surprise and what truly impresses the professionals in the quarter are often two different things. this can get confusing because sometimes when a company reports for the wrong reasons, the stock will go down. for a regular investor, home gamer looking a the the coverage of a quarter, the market probably seems totally arbitrary and capricious. can't reliablely send a stock higher, what can? and i'm not talking about situations where management also lowers its guidance, what expects to earn in the future. at the same time, it's higher than expected earnings, we see

that now and again, the stock will go down then. that's not what's really baffling. when we buy shares in a company we care about and what it will earn in the future not what it's already earned in the past is what matters. no, i'm talking about a different kind of confusion. i'm talking about the confusion that results from the headline writers not drawing a serious distinction, they can't in the headline, serious distinction between a high-quality upside surprise, a real one, and a low-quality, losery almost slight of hand upside surprise. we like companies that can deliver the first kind. a low-quality, slight of hand doesn't attract much interest. how do you tell the difference? simple. remember this word. once organic. remember this word, the other is manufactured. a real better than expected quarter is generated by higher than expected sales. organic, which leads to better than expected earnings per share. stronger sales could mean a few different things, but they're all good. it could say the industry's improving, or it could mean that the company's taking market share from its competitors or it has growth coming from an entirely new business.

a real upside surprise tells you that the environment's improved or the company's improved. since both indicate, it should be able to grow sales and earnings at a faster clip in the future and that's a reason to buy as the big boys in wall street ultimately value stocks based on growth, revenue growth. it's very rare for stocks to go down off this kind of high-quality sales driven upside surprise. even when we were in the depths of our great depression -- great recession, these revenue upside surprise stories advanced. as you can see by looking back at apple's phenomenal run. which has produced upside after upside almost entirely on much better than expected sales of the iphone and the ipod and then the ipad. oh, and, of course, as we preach excessively on "mad money", a high quality earnings beat can often be accompanied by a dividend increase. particularly one of a great magnitude. that's a terrific tell of the future. perhaps the best of all because once a dividend has increased, it's not easily cut without embarrassment. much better than the buy back.

what about the low quality slight of hand kind? it's easy to tell the two apart even if the press rarely draws the distinction because it takes a lot of work. a low quality earnings feed is based purely on a better bottom line. the earnings per share, then the top line, the sales number which is what i'm looking for. here are the upside surprises generated not by improved business but because management cut costs. they cut the head count. maybe they manipulated the tax rate through aggressive, but legal accounting treatment, or maybe, again, they bought back stock. >> boo! >> the latter, the bought back stock earnings surprise are regarded as losery by the smart professionals. even though a lot of people are still fooled by it. this only indicates a smaller share count, and not the profits are better than anyone was looking for. almost all of the food and drug companies generate this kind of what i'm calling critically a

slight of hand style upside surprise. and that's why they can't manage the real thing. they don't have real growth. and this is the dirty little secret. the reason the big boys don't care about these so-called upside surprises even if the journalists think they matter, anyone with a large enough company with a half way competent management and cfo in a predictable line of business can almost always the earnings per share beat the expectations. food and drug names use buybacks to generate their earnings per share based on upside surprise or repatriate as much as possible. and that's something that beats the estimates. it doesn't take anything special. doesn't indicate things are in a way better. it tells you management is shrewd enough when it comes to making sure the earnings per share number doesn't disappoint anyone. if creating the upside is that routine, i've got to tell you something, believe me, it's not a surprise to the big boys. here's the bottom line. now you can tell what the big boys at the wall street fashion show want to see in a quarter. and you won't make the confused assumption as the press often

does that the headline earnings per share number is all that matters. the company's ability to deliver better than expected sales, which then turns into a better bottom line counts for a whole lot more. i need to start with ron in north carolina. ron? >> caller: ron. good evening, jim. thanks for taking my call. >> absolutely. what's on your mind? >> caller: boo-yah. >> boo-yah. >> caller: i have a question, sir. the multiple ipos that some companies are issuing, does that diminish the common stock price? >> the ipo sets the common stock price. you mean the secondary? >> caller: yeah. >> secondary tend to press because the stock will shoot up and then the brokers do is soften it. they announce could be a secondary, then the secondary, the stock trades down, down, down, and boom they slap it on and often times it's a buy of a lifetime. i like to buy secondaries after the market's been softened. think of it like omaha beach, they soften it up with gun

powder, the aircraft, and then send the soldiers in and that's a buy. vincent in colorado, please, vincent? >> caller: hi, jim. i'm wondering, i'm a business and economics student here at the university of denver in tebow land. i'm wondering if the yuan and rio go up because of the new middle class, there should be a way to take advantage of that. i think their firms will be pleasantly surprised if they switch from exports to the internal market. is that true? and if it is, what are the best picks? the firms flexible enough to take advantage? >> how about the utility? utility companies were typically growth companies when our country was growing. i think that makes sense. i would recommend a bank stock, but those are a little bit dicier.

i think a utility is probably better. joe in arizona, please, joe? >> caller: hi, jim, big desert boo-yah to ya. i'm philadelphia born and bred guy live in tucson, arizona. >> lucky for you, you got out. what's up? >> caller: hey, first of all, i want to thank you last year about recommending to all of us home gamers to switch into good, high-quality stocks paying big dividends. i followed your advice and did well by me and it's a lot better in this crazy time. >> especially when the market was down and we didn't get hit much at all with our strategy. so go ahead. >> no, they were great stocks. my question is in calculating the p.e.g. ratio, how do you calculate the growth rate? is it simply current year divided by prior year? >> well, i like future year estimates -- you know, i look at the step function. last year, this year, and next year, and it's between this year and next year i care most about. and what i do, frankly, i honestly do use the street estimates to try to calculate what the p.e.g. ratio is. with the exception of a couple of stocks like apple over the

last couple of years, i'm satisfied with using street estimates. an upside surprise can lead you to a major downside. don't believe the hype. check the sale before you check the earnings to be sure it's a real and not manufactured surprise. stay with cramer. how math and science kind of makes the world work. in high school, i had a physics teacher by the name of mr. davies. he made physics more than theoretical, he made it real for me. we built a guitar, we did things with electronics and mother boards. that's where the interest in engineering came from. so now, as an engineer, i have a career that speaks to that passion. thank you, mr. davies. i bathed it in miracles. director: [ sighs ] cut! sorry to interrupt. when's the show? well, if we don't find an audience, all we'll ever do is rehearse. maybe you should try every door direct mail. just select the zip codes where you want your message to be seen. print it yourself or find a local partner. and you find the customers that matter most.

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one of the most natural misleading mistakes most people make is to assume that the people on tv criticizing the market are not telling you to sell or avoid stocks have to be telling the truth. wrong. don't assume that commentators who dislike the market are any more honest or any less self-interested than those who talk up the market or who talk up individual stocks. whenever we hear someone touting a stock on television, we instantly accept the idea that they own it and treat everything they say with a healthy dose of skepticism, of suspicion. at least we have learned that much after the viciously volatile last decade in the market. but we hardly ever reserve that level of skepticism for people who bad mouth the market. more often than not, investors will assume that people who criticize the market either don't have an agenda or must not be pushing one. they've got to be the right

guys, right? they've got the ethic. to most people expressing a negative view on the market is a way to automatically bolstering your credibility. to me, as someone who brought in half of the profits at my old hedge fund by shorting stocks. that's right, betting against stocks, this attitude is totally surreal. people who criticize the market on television or in print or on the web are not necessarily trying to help you. when someone says they like a stock, they're immediately brand -- but when they say they hate the entire market, how often do you think, wait a second. this person might be shortening the market and hoping to knock stocks down in order to buy them at a lower price. it's easy to recognize that investors need stocks to go higher. but perhaps since this is less familiar to home gamers, it's less common to make the connection that some people need markets down. some people need markets to go lower in order to outperform

their averages. in fact, my professional opinion, there's probably more chicanery coming from the shorts than the longs. that's right. you have to remember that there are people who are out there who want to push prices down every bit as much as the touts who want to drive them up. remember, i'm a fan of the guys who want to drive them up. i'm not sanctify -- both of these sides can be misleading. sure, they can be doing rigorous work, the shorts. they can also be pressing their truths when it's most convenient. the other issue is that while the money managers on television have to disclose their positions in any stock they tell you about. they never have to tell you, hey, i'm underinvested so i'm getting left in the dust by my competitors, so it's vital i knock the market down in order to give myself a decent entry point. if they don't own anything or shorting anything, there's nothing to disclose, but they might very well have an interest in knocking stocks lower because of how they're positioned! you just -- you're just never

going to hear about it. and believe me, at any given time, there's plenty of people in the industry who would benefit from a decline and more than happy to go on television and make the case the decline is going to happen and encourage you to get out while you still can. >> sell, sell, sell -- >> as stocks become stronger and the bull market gets going, all the hedge funds who were short, betting on stocks to go down with more short positions than long ones or simply underinvested meaning they have much less in stock, and much more in cash, are now underperforming. and they are becoming more and more desperate. money managers left behind by the market and their competitors start to feel like cornered rats getting ready to be butchered by a feral feline. see a lot of hedge funds can't afford one year of underperformance. look, i know this stuff, i was in this business for 14 years. i know it. no one else was at this for 14

years comes on the show, it takes a lot to build up good will with your clients. you've got to have a pretty decent good record to explain to them how you barely made any money at a time stocks everywhere were soaring and we've got to tell you, and still have a business by the time you're through with that explanation. when stocks are the strongest, many of these hedge fund managers will happily plant negative stories in the press and try to take advantage of the media to spread as much negativity as possible to get stocks down so they can buy or because their shorts need to be able to work for them. i saw a lot of this in 2008 and 2009. i wish this wasn't the case. it'd be wonderful if we lived in a world where everyone was honest and no one ever tried to manipulate the market. since that's not the world we live in, the best way i know how to protect you from this kind of chicanery is by shining a light on it and making sure you know what to watch out for. the bottom line, remember to always be on your guard because the people bad mouthing the market aren't one bit more honest than the people who come

on tv shows and tout stocks also for their own benefit. "mad money's" back after the break. boo-yah. >> let me tell you how i see it. >> hey cramer, where is the bull market today? >> hey, look. it's jim cramer. >> hey, cramer, boo-yah. >> see the world through the eyes of jim cramer. "mad money" weeknights, only on cnbc. >> there's nothing like it. >> this is about made here, made in america and made great.

>> "mad money" with jim cramer, weeknights 6:00 and 11:00 p.m. eastern only on cnbc. how math and science kind of makes the world work. in high school, i had a physics teacher by the name of mr. davies. he made physics more than theoretical, he made it real for me. we built a guitar, we did things with electronics and mother boards. that's where the interest in engineering came from. so now, as an engineer, i have a career that speaks to that passion. thank you, mr. davies.

let's catch up with some "mad mail" and do "mad tweets." this is from beehive 15. you mentioned tracking the stocks with 52-week highs and buying them on pullbacks. i got this idea from research when i worked at goldman sachs. what he said was try to buy stocks at the time the ones 5% to 8% on pullback because the market going down not because of the fundamentals in the stock.

they're hard to come by, not a lot of facts on the new high list. as long as they're going down not because of fundamentals of the company, but because of the market. you might have a real good buy. some stocks pull back again because they've run up too much and those are interesting too. but remember, i really and truly want you to be sure the easy way is to be sure that it's the market that brought it down, not the stock itself with a press release or analyst downgrade. all right. here's one from txu99. are dividend stocks a crowded trade? all right. this drives me crazy. okay. jeremy siegel, one of the greatest investors ever. he has done multiple years of study, 20, 30, 40 years about dividends, and how they're responsible for 40% of the stock's price increase.

it's only people who trade and trade ridiculously and high frequency. these are the people that are worried about this kind of nonsense. they are the ones that are trying to game short-term trades. i don't want you doing that. i want you to buy the dividend and i want you to reinvest the dividend. take a look at the reforms on the dow in 2011. 5.5%, why? because the yields were much higher for the dow stocks than anybody else. and if you reinvested those dividends, an 8% return. how can that ever be considered crowded? how about smart? okay. here's the "mad mail." boo-yah, cramer, jerry from rhode island. i've always had trouble selling a stock, it's hard to sell winners. i now sell call options and if they go up past the strike price, it takes the decision out of my hand. i like the automatic nature of it. am i crazy? yes, you are, jerry. any strategy that cuts off your upside but does not limit the downside is what i call a stupid

strategy. i know a lot of people like to have the additional income, i say no. if something really great happens to your stock and you wouldn't have bought it unless you l thought something great was going to happen, you're not going to be able to participate. if something bad happens, that's terrific, you're short the call, you can't take action, you'll be afraid of a takeover. i mean, i got to tell you. i know very smart people who sell covered calls. it is a sucker's strategy to me. i buy stocks because they're going to go higher, i don't want to cap my upside when i do. here's one from schultz in arizona. hey, schultz. jim, how much gold should i hold in my portfolio? ever since i started the show, i felt between 10% and 20% should be your benchmark. when gold flew up to 1,800 in 2011, i felt, you know what? let it pull back and you can sell some, but you've got to keep that core position. why? because i don't regard gold as a stock, i regard it as a currency. it's an alternative currency to the printed currency that we have in the united states and they have in europe. i've got to tell you, i trust gold, i don't trust paper. that's why between 10% and 20%

makes so much sense. hello, mr. cramer, i've become very interested in investing. i'm a new investor and would love to get big gains, but i'm afraid i won't pick the right speculative stocks. we're only having one speculative stock out of every five, two out of every ten. speculation keeps us interested. makes us pay attention, but it can be dangerous. what i like to do, i like to speculate in biotech, that's my cheap one, biotech companies with more than one drug so that if they possibly have a failure, you're still in the game. those have been the most fruitful, all you've got to do is check some of the big winners like even a company like a regeneron which had a monster run all the way through since the show began. that's the kind of speculative biotech stock that i really look for. here's one from sharon in maryland. jim, thanks for a great show. following your strategies, i

have moved most of my holdings into high-yielding stocks and mlps. when is the time to sell the high yielders? if the stock prices weren't so high, i'd be inclined to reinvest dividends in the winners. sharon, this may sound glib, but i don't mean to. when the high-yielders are no longer high yielding, you want to sell them. you trim them back and then when the market brings them down, you buy them. that was the strategy we used in 2009, 2010, 2011, and it worked. and those are some of the roughest years ever. it's going to work in the future. thank you, sharon, thank you tweeters, thank you e-mailers. stick with cramer. let's go to kentucky! >> hillbilly boo-yah! >> a hillbilly boo-yah. holy cow. >> here's a big las vegas ding, ding, ding, bing, bing, boo-yah. >> a big staten island, new york, hey now, forget about it, boo-yah! >> boston, massachusetts -- >> michigan. >> california -- >> georgia. >> honolulu. >> boo-yahs come all across america, let cramer help you channel yours. "mad money" with jim cramer weeknights on cnbc.

>> you've got questions? >> investors don't seem to know what to do. i don't know what to do. >> good. i do. you came to the right guy. >> jim's got the answers, "mad money," de-mystifying the market. carfirmation. only hertz gives you a carfirmation. hey, this is challenger. i'll be waiting for you in stall 5. it confirms your reservation and the location your car is in, the moment you land. it's just another way you'll be traveling at the speed of hertz.

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