i'm jim cramer. welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "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. i'm just trying to save you a little money. my job isn't just to entertain but also to explain. call me at 1-800-743-cnbc. all right. another day in the books. we survived another weekend of a crazy earnings period market. what are we doing on friday here? we look ahead. game plan. we get earnings reports that drown out everything including fortunately europe.

that's what happens right now and next week will be no different. we saw it this week when a handful of strong industrial and tech quarters turned the tide against a hard economic backdrop. one that was insurmountable until we read the transcripts. who can keep europe off the front pages and trump the nasty uncompromising moments next week. here's your game plan. off the get-go, monday morning we will hear how sandy cutler, ceo of eaton, is following last night's andy dufresne dictum of getting busy living as he gives his first snapshot of the monster merger with cooper. everyone expects the worst. the stock is down yielding 4%. the magical level that keeps the bears a at bay. it's a rough ride. a stock that's plummeted even as eaton as delivered. let's hear if that moves an overreaction. i bet it is. earlier this week at cnbc's

terrific delivering alpha conference we heard from leon cooper that it's time to buy haliburton. it's been horrendous since nat gas became glutted. i think lee is early in his term. his track record makes me wonder if i'm too bearish on this terrific outfit. tuesday is a huge day. look. i don't do any of that. dupont reports in the morning. does dupont need to do something to keep up with companies like ppg bringing out value? are there faster growing parts of the business with the slow growth parts broken off, returning a hefty dividend a la abbott labs and craft? i like dupont. charitable trust owns it. the stock price is saying they have to get busy living or they're getting busy dieing. we are big biotech fans. one of the big ones is biogen idec.

it's more in control of its destiny than most of the drug companies. we'll hear about results that could send the stock flying still higher if you can believe it. we get results from domino's in the morning. we heard that the charter is signalling a bottom but the bears won't let up on this one. that's shortsighted. perhaps they don't realize the costs they are worried about like cheese because of the spike in grain could be hurting franchisees more than the parent. i say domino's might be ready to run again. speaking of fast food and grain we are going to get the word from panera bread and buffalo wild wings about commodity costs and the impact on the bottom line. i think it's overstated. the worries are overdone. i have to wonder if chicken feed and increased bread costs could impact the bottom lines enough to cause the stocks to sell off. let's say a tweak to the forecast. after the hit chipotle took i'm more cautious on the growth

multiples of the stocks. i have been with them a long time. finally, best of all, apple. now, i have said it before and i will say it again. this is not an important quarter for apple. it's transitional. we know from qualcomm, skyworks they are building iphones. you've got to hope the stock goes down in a transitional quarter. i need you in the stock on any pull back. hey, don't trade it. own it. wednesday morning we hear from caterpillar. will it be the next cummins, which is bad or can it tell of growth anywhere including countries we have never heard of. stocks been hammered so mercilessly maybe anything can be respite from the gloom but the essence are too high. if cat cut its forecast it won't be bottoms. next up is a company that doesn't get the respect it deserves. wyndham worldwide. it's going to report and i bet they will blow away the numbers.

30 brands of hotels doing well. timeshare exchange business. fantastic dividend boost and bountiful buy backs giving shareholders a nice return. they get one more run at the 52 week high after they report. what a fabulous stock. is the defense cycle dieing? is aerospace peaking? these fears are being heaped on boeing but honeywell's ceo says don't be so quick. plus the defense wind-down it's baked into the price, not a reason to sell. more of a reason to buy as my charitable trust has been doing. can whole foods keep it up? the great growth stocks have been rocked with starbucks, lululemon taking lumps but whole foods is the last man standing. super value and safeway have been permanent denisons of the 52-week high list. let's hope the stock drops a bit

on one of these days to make it so the post quarter pop is worth being in on and tradeable. want consistency? i will call this consistency thursday. three of the most consistent companies report that day. kimberly, dunkin brands and hersheys. i can see kimberly-clarke being clipped because of the strong dollar. something you don't worry about with dunkin or hershey. it is slouching toward the 4% yield mark. consistency is hard with a cyclical company. if anybody has a shot at the upside it will be i.p., international paper. box prices are going higher. the acquisition is kicking in. i think it's a guide up, not down. and i would buy it ahead of the quarter. could be the trade of the week. we hear from one of the most

consistent companies i follow until recently. celgene. we want a fuller explanation of the set-back. we want the big numbers they talk about in the ad years. stock has been on the mend. i bet we'll be rewarded for staying with it. i'm worried about 3m. reports thursday. i normally wouldn't have trepidation. such a fabulous company. the stock's been on a tear. i fear it's gotten too much risk versus the strong dollar which i fear will play havoc with the quarter. be careful. there could be giveback. normally fridays are sleepy in the summer. nothing sleepy about chevron and merck. harvard is buying timber. you could do that. i own a couple of trees. my trust is buying weyerhauser. the stock isn't done yet. i'm a fan of dividends, but not merck. this attracts me even with slow

growth. chevron gave us a rosy update that made my charitable trust a buy. no one else seemed to care. that's a mistake. it's cheap, steady with better growth than any major oil company including exxon. bottom line. another big one. another week with the u.s. in charge because there are so many report cards given out. we can't focus on the spanish ten-year or angela merkel driving the world into recession. i'm calling her austerity merkel from now on. i'm glad we can't hear her sirens because we are lashed to the mast of earnings. a far more lucrative affair. ben in illinois, please. ben. >> caller: hey, jim. windy city boo-yah to you. >> sweet. we have a lot of windy city boo-yahs this week. i like it. what's going on? >> caller: i was just speculating in corn and the prices are at almost all-time highs due to the drought. i want to know if you see a tap in sight.

when should i buy puts to protect myself? >> i don't see a top in sight. i think because this shows in the east and a lot of easterners don't recognize it, corn is going higher. everyone's off potash, agrium, stick with it. i include mosaic. ray in pennsylvania. ray. >> caller: boo-yah, jim. i have a question regarding bank earnings. jpmorgan recently reported earnings of 1.21 per share, well above the 70 cents analysts expected. >> right. >> at the same time, jpmorgan reduced loan lost reserves by $2.1 billion. my question is what's your opinion of the somewhat deceptive policy where large banks report increased earnings while they carry large loan losses on the books and boost earnings by reducing loan loss reserve. >> it's a great question. the reason why is it makes the earnings for all banks seem phony.

they took big losses. they are reversing the reserve. i'm looking at revenue growth. june was terrific for jpmorgan. am i saying all is forgiven? no. the last season was a loser. the new season has begun and we are going to look through the loan loss revision and recognize genuine revenue growth. jpmorgan is back. eric in virginia, please. eric. >> caller: on wednesday you stressed management execution and homework. how do you do research on the level of experience of a company's board of directors and how much weight should i apply to the research? >> there are so many boards of directors that look great on paper and aren't great that i underemphasized it because it doesn't play off. there was nothing that tells me a good board of directors means a good stock. next week is jam-packed with solid companies reporting. we've got a refreshing mid-summer week not focused on earnings not on europe. look, you can trade anything you

want. let's hope this one right here goes down so you can own it. "mad money" will be back. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

♪ time is on my side you can have the best stock picks in the world. it won't mean a thing for your portfolio if you don't also have a good sense of timing. i'm a big believer in the notion that ordinary people, nonprofessionals can manage their money just as well as the pros or even better. that's why i come out every night to coach and teach you. despite what you may have heard from the nay sayers it's possible for a regular person with no wall street background to beat the market and outperform the benchmarks as long as you know what you're doing. as long as you think like a

disciplined investor rather than a gambler. a huge part of knowing what you are doing is having decent timing or at least knowing enough not to make bone-headed mistakes about timing and about when to buy and when to sell. i'm going over some of the most recent errors investors made. the ones i made so i can steer you to the right track. easy not to make mistakes when things are going your way. when the market turns south, when the pressure is on, people tend to screw up. for example, let's say your portfolio is caught with its pants down meaning you're caught owning too much stock and you have what's called too much exposure. i have been there. what a nightmare. it's horrible. the worst part is not knowing whether you should blow out of the stocks or hold tight. i explained why selling into the teeth of brutal declines is almost always the wrong move. do you know what else is dangerous in an ugly market, the propensity to take sweeping,

drastic action. when it seems everything is going wrong. when you know the economy and market are getting worse, when you are dead certain nothing bad can happen, take a breath. hold it. don't do anything crazy. what's crazy? i'll tell you. what's crazy is selling everything. [ sell, sell, sell ] even if you own too much stock and you want to lighten up in the midst of a bearish moment you have to resist the urge to sell everything. that's bad timing. [ buzzer ] i tell you never to buy or sell at once. it's arrogance to think you can time your trades that well. buy and sell by increments so if a stock goes down you buy more at a lower price. if it goes higher after you sold some you can sell more to take advantage of the higher price rather than feeling like a chump. the rule applies to your whole portfolio. no matter how bad it looks never

sell all at once. what's the right move then? here's your crisis play book for dealing with awful moments in the market where the fundamentals are deteriorating and you feel like it's the last train out of the bad station. first, you can't sell everything. you have to sell something. not everything you own is equally good and some of it might be bad. here is my rubric for what can be sold during a nasty pull back. if you have some big profits, don't give them back. that's a cardinal sin. ring the register. you have something where the fundamentals changed and the story is going against you, blow it out. you have something you think is going lower, even short term [ sell, sell, sell ] some of it. just do it. get your head clear. you can buy it back lower when the risk-reward is more in your favor. do not sell it all. that's just plain stupid. don't blow out of everything. don't give up on stocks entirely that you like and hide in treasury bonds or certificates of deposit.

when things like dour get ready to get into stocks selling off though they don't deserve to. use the money to buy something you really like. this is why not in the heat of battle but in the calm in the end of the week i raid the stocks in my charitable trust from one to four. the ones that are the best meaning i want more and the fours are the worst. time to get rid of them. the top flight stocks are names you buy more of. right in the moments of pure chaos. you have already decided they are ones, i like them. the fours are expendable. threes, stocks you wish were higher before you sell them. they can be sacrificed if you need cash for the ones. don't wait for them to get back to even if you can sell something else that will go up more over the same period of time. some company is doing better, you should switch. why not sell it all when the market is turning against you? why not? american stores.

don't know it, don't remember it? it's the old acme, my favorite supermarket where my mom was friendly with the checkers. i owned american stores through the 1990s in my old hedge fund betting they would be taken over, that it was worth more and time would be on my side. then we got a brutal sell-off and i couldn't stand the pain. i was so at this address it was driving me crazy. [ house of pain ] i got goldman sachs to buy the book. they took my positions. stop down 2% from where they were. you could offer every stock you had and they would buy it online. i was only running $400 million at the time. >> that was easy. >> yeah. included in the package was american stores. it was so ugly i didn't want to own anything. two weeks later, albertsons bought american stores at a big premium. huge. would have made my year. i couldn't believe it.

i held onto them for all these years and like a chump i sold it because i couldn't take pain. if i added to the position i could have made my year. i always remember the moment because it caused me to rethink blowing out of the whole portfolio. the terrific bid goldman sachs gave me took me out down 2%. stock market bottomed down 2%. i didn't have the guts to go back in at the time. i was adamant we were going down 5, 6, 10%. what did i do wrong? selling something wasn't a bad idea. the pain does become unbearable when you're all in meaning little to no cash on the sidelines. selling everything was a massive mistake. it's good to use a topnotch s&p 500 futures led sell-off to pick at, not load up on your ones like i do for action alerts my charitable trust.

your favorite stocks after the selloff end. they always end at some point. not all your stocks bottom at the same time. if you rank them you probably won't care when they bottom. the best ones are put on sale along with other merchandise. the good with the bad. selling everything, getting out at one time doesn't leave room for the possibility things will get better. doesn't leave room for the next american stores. takes you out of the best stocks out there. awful timing. here's the bottom line. not every big decline is the end of the world. never trade like it's the apocalypse. never sell all at once. go to the supermarket of stocks. find what you want to buy on weakness and always remember i checked out of the most important stock i liked in my zeal to get into the ten items or less line. because of my overwhelming bearishness i missed the huge american stores buyout and a magnificent stock market rally that followed soon after i left the store. please do not repeat my mistake. after the break i will try to save you more money.

♪ it's too late, baby ♪ now it's too late you cannot time your moves correctly unless you know what to own. that's what i'm always telling you to do the homework one hour per week per stock if you can. only by being familiar with the companies in your portfolio can you know when it makes sense to buy or sell their stocks. although again i accept that you might not be able to keep up like that. if that's the case you could still be good to go if you follow along on this show and check your stocks on a regular basis. knowing what you own is more important than ever now. we live in a world where the media never met a disaster it didn't like. if there is a negative story, a bear case then you can absolutely bet that the press will go into total hurricane mode day after day after day.

the more sensational and frightening, the better. this is a fact of investing life, ladies and gentlemen. every weather issue, every story of crime and punishment and they fan the flames of panic. portraying them as huge catastrophes and even genuine catastrophes are treated like the end of the world like apocalypse now. take it as a given. every negative story will be exaggerated to make it seem like we are on the eve of destruction. we have to accept that the over reaction is part of the sea change. sea change in the way the business media and the market work. a sea change that can shake you out of just about everything you own or might want to buy. at times we seem unable to steer ourselves against the media's glue machine. me, too, included. unable to think opportunistically and imbue our

thoughts with unlimited pessismism mimpl over all outcomes. how many times have we seen it happen? think about it. the market has sold off -- [ sell, sell, sell ] -- based on the earthquake in japan and the latest sovereign debt crisis in europe. what should you do during these scares? what's the right way to react to this kind of crisis? we are far from a solution in europe. these moments make terrific buying opportunities if it's in the right stocks. not all stocks. sometimes it's not a buying opportunity. how? let's figure this out the mad money way using the method i would employ at my hedge funds using events that drove down all stocks because of stock futures. we know that. first we have to put the event in perspective. we have to ask ourselves, okay, the news is potentially tragic, dangerous, terrifying. what effect does it have on the earnings per share, the numbers? let me give you an example.

in the 20 years i have invested other people's money there were a slew of exogenous events that hit the stock market. i use what i called the bristol-myers theory used after the company i felt had the most consistent earnings imaginable. here's how it would play out. at the hedge fund we used to have morning meetings. i thought if you came at 6:01 what was the point? might as well go home since the opportunity to make money had passed. so i dismissed you if you were a minute late. they were lucky. i didn't throw water bottles at you or electrical appliances at their backs. well, once. i saved it for when people lost you money. every time we get a nasty events, at the morning meeting someone would say, ooh, ooh, what are we going to do? this nuclear power plant melted down, iraq invaded kuwait. what do we do? i would scream back, dripping with sarcasm, what the heck does

that have to do with the earnings of bristol-myers? the answer is nothing. the first thing i did when i saw or heard big scary events was to make a list of the equivalence of bristol-myers. the companies that wouldn't be hurt by the event even if it was worse than expected. given that the 24-hour news cycle blows things out of proportion and we get a new crisis every week you have to develop our own list of names. maybe it's a high yielding pipeline operator. kindermorgan. maybe verizon, another steady eddie. utilities give you a good one. southern company. just be ready for a sell off that won't hurt the earnings. then step two, ask yourself is this event bad for all of the earnings? when the egyptians were demonstrating in the streets of early 2011 trying to kick out the dictator there was a moment when even the oil stocks which benefitted from high oil prices got knocked down along with everything else.

curious, right? what a tremendous buying opportunity. if you bought the oil down. oh, man, you made a killing. remember when there is a scary crisis that threatens remember the bristol-myers theory. ask what this has to do with the earnings of my stocks before selling. put it in perspective. maybe you might feel like -- [ buy, buy, buy ] -- buying. bottom line. there will never be a shortage of terrifying events around the world to bring down the market. especially after they are amplified by the media. next time it happens, don't run away. there might be an opportunity for you to make a big profit. randall in california. randall. >> caller: hi, jim. frequently i heard you make reference to buying deep in the option calls. >> right. >> caller: i'm trying to get a definition put around what is meant when you say go deep in the money.

>> first, in the getting back to even book, i have a hundred page description of it. deep in the money call out a couple months means what's called a stock replacement theory. you have a $600 stock. that's a lot of money. you go buy $550 call, it's less money. you're cut off from the down side. the call is $40. say it's got a $40 premium. it could even work. that's the one i describe in the book. you've got to get the book. it's about stock replacement. not having the big risk of the common stock. ted in florida. >> caller: how you doing, jim? >> real good. what's up? >> caller: i have a question with two or three small parts. if i had a portfolio of $100,000 and i wanted to invest in precious metals what percentage would you recommend as the portion to invest and would you go gold or silver and if you go silver would you go with the smaller commodities rather than larger bullion? >> look.

take silver off the equation. it's speculation. no one believes me. it's junk metal. it's junk. we are buying gold. up to 20%. we do not buy at once. we buy on the way down. if you put on 20 or 30% of the position we missed it. that's what you want. 20% gold. you can use the gld. that does just fine as a proxy. not the gold stocks. they don't work. when the next terrifying event shakes you out of your proverbial investing bed i promise there will be more. take a deep breath, make a list and do some buying. stay with cramer.

♪ no time to kill

welcome back to my timing is everything show on "mad money" where i'm teaching you that timing your buys and sells can and should be done. those who say it's impossible want to keep you in chains. consider me a bolt cutter, setting you free. i want to talk now about a particular kind of chain that you need to be unshackled from. it's called the ipo chain. first, i like ipos. we do our best to try to analyze them for you all the time on "mad money." they are not easy to do. so often you will call me and say, jim, will xyz ipo be a good one. i say, how should i know? it depends where they bring the deal say there will be 50 million shares after they go public. the banker is talking about 20. value it is company at $1 billion. $20 price times 50 million shares.

but the bankers can do a lot of things. there are more variables than you realize. first they don't offer all the stock there is. venture capitalists may own a a lot. whoever seeded the company will have shares left over. secondly the $20 ipo price may be what's called the price talk. what the initial price they are thinking of. not the last price, the way the deal comes at you. if demand accelerates the price will move up. maybe up to $25 or $30. think about it. i may like the ipo at 20 but not 30. that's not much different from if i tell you i like it at 20 and it's a sale at 30. it's gotten too expensive. layer on a third variable. if the bankers want the stock to pop, want to generate a hot deal, one that immediately goes to a premium from where it opened after it opens, from where it's priced after it opens, they can hold back stock. this is crucial, ladies and gentlemen. say xyz has 50 million outstanding.

after canvassing the buyers through road shows, talking to clients, getting indications of interest they may sense while the company has 50 million shares there is only demand on the ipo for 10 million shares to be sold if it is priced at $20 million per share. the stock may wallow. but the opposite is true, too. if they cut back the number of shares offered. remember the bankers are experienced. syndicate managers can figure out how to make a pop and how much they want. simply by cutting back the number of shares they offer. of course it is all done give and take with the issuer. say the bankers say, hmm, we've got demand for ten million shares at $20. that's where it is oversubscribed, what demand means. they may not be hot enough for a real hot deal though. maybe instead of offering ten million shares they cut it back to 5 million shares. only one-tenth of the shares outstanding. half the demand.

they believe that would generate excitement. that's what makes for a hot deal. if the bankers have demand for ten million shares and they issue only 5 million shares, everyone who wants in will be cut back who wants the stock. the deal will be oversubscribed and the allocations will be well below what you were hoping for. that's how hot deals are made. then you have to scramble to buy the rest of it in the after market. that's what drives it up. i call these offerings sliver offerings. they create a wild pop because the bankers chose to make the deal hot. perhaps reward customers. perhaps to create excitement for the company stock. obviously if they offered more stock on the deal there would be a risk that the price of the deal wouldn't hold. nothing is worse than a broken deal that immediately goes below the offering price. it hurts shareholders who bought. it hurts the company. better to offer a sliver and get people excited. and six months down the road

when what's known as the lock-up expires hopefully the stock will be well above where the ipo is priced. they will still get a good profit. i don't care about the insiders though. i care about you. i want you in on the sliver deals. any deal where a new company offers less than 10% on the ipo is one i want you in on, even if i don't like the company. take groupon. i'm not a fan of the company in general. and this one in particular. i'm not sure they have staying power. they have done great things for retailers but i have tired of my daily groupon offering i get. i don't want to go ten miles out of my way to save money on a slice of pizza or a brazilian waxing -- whatever that is. groupon let me in, let me in. there are 640 million shares but the bankers offered only 40 million. that sliver of an offering almost assured demand would exceed supply. sure enough, the bankers priced

it at 20. it opened at 28 and traded to 30. company raised $700 million, received a giant valuation and the buyers made out like bandits if you got in at the 20. how about the buyers with the price of the stock once it starts trading. if you bought at 28 you didn't have much room for error. you could have made two bucks. then it was a long, ugly slog down. take the money and run. take stock in the offering and ring the register when it opens. not buy more and not hold on. the brokers don't encourage flipping which is putting in for a hot deal and banging out when it opens for trading i'm not your broker. they may not condone the practice, i say why not? i'm working for you. you do commission business, fee business. you put in for a sliver deal designed to pop, why can't you take advantage of the pop? the bottom line, sometimes only two decisions to be made here. put in for a sliver deal and sell into the pop. time that sale to the open of

the hot deal and you don't stick around for a red hot minute longer. never, never, never buy in the after market. the vast majority of the time buying in the after market on a sliver deal is for suckers. be smart. take the money and run. >> announcer: jim cramer, looking out for you. >> thank you, sir, for helping average joes on the road to financial freedom. >> thanks for all you do for small investors. >> thanks for helping the home gamers. >> thank you for sharing your knowledge with the every man. >> i love doing it for you. any time anyone says it i say thank you. it's great. >> announcer: anywhere, any time, any place. answering the call of cramerica, weeknights at 6:00 and 11:00 eastern on cnbc.

♪ pressure not every stock can be owned forever. there are very few stocks that you should own all the time, year after year, decade after decade. the fact is if you don't know what would make you sell a stock then it's not okay for you to buy that stock. lots of people end up selling at the wrong time because they never anticipated selling at all. they only thought about when they wanted to buy. they didn't have an exit strategy.

[ buzzer ] as your investing coach i need you to make sure you don't make that same mistake. how do you time yourselves? there are many stocks that when you buy them you need to understand some day soon you'll have to -- [ sell, sell, sell ] for example with high flying tech stocks it's not safe to own them unless you know they can't be owned forever. ring the register when you have profits before they slip away. same thing with companies that only make money when the market is healthy. cyclical stocks. you have to sell them at the first real sign of a slow down. a lot of this comes down to understanding what you own and a being willing to change your mind. a tech stock like skyworks solutions is not the same as a staple like pepsico. nvidia is not hershey. sandisk is not general mills and arm holdings.

the tech names like skyworks and omicron they are trading vehicles that can fly and then crash. [ screaming ] >> the pepsicos and altrias plod along step by step, inch by inch. a trading vehicle can make you a lot of money in not a lot of time. you have to take money off the table because if you let it ride that vehicle will eventually crash. potentially dropping 10 to 30% or more in days or hours. >> all aboard! [ train wreck ] >> a staple like altria can be owned long term. management can mess up. tobacco can go high. they have to cut it. business can under perform. it is unlikely the stock will fall off a cliff. you have to be willing to change your mind. got to be ready to sell when it's time. tech stocks, like smartphones,

tablets, pcs are losers when the cycle is weak. a stock like skyworks solutions which makes components in smartphones can make you money when times are good but it can get annihilated when business isn't so hot. the only exception is if there is no cycle. think about it. there is no cheerios cycle. no hershey bar cycle. we don't talk about using more heinz ketchup in the fall than the spring. not the case with tech stocks. take the dot com run from 1998 to 2000. it was so fantastic you had to catch it. if you bought into the last two months of the rally and sold when you had to then you made money. perhaps a lot of money. back then you had to buy the parts in equipment makers because the dot coms and telco big and small were buying equipment like mad until buying was cancelled. if you didn't sell by march 2000 you were blown out. if you bought between 1998 and january 2000 you made more money

than ever. i try to teach you that you have to change your view when the facts change. don't end up like victims of the dot com bomb. the people that got wiped out. sometimes it means selling even though you bought at a higher price. the facts have changed. often the shooting stars get hammered after the first sign that things are deteriorating. don't tell yourself it's too late to sell. it's not. they can go much, much lower than you believe. use the intraday to lighten up. the first loss is the best loss like i tell you in "real money." this is where discipline makes a difference. i am tireless in telling you not to be greedy saying you have to take something off the table and play with the house's money. i tell you it doesn't matter where a stock has been. only where it's going to. you don't want to own a high flying tech stock that lost momentum. it's going down. when that happens, sell the darn thing.

you can always buy it later and lower when business is improving. not deteriorating. the bottom line, don't treat risky trading vehicles like shooting star tech stocks like they are staples that can be owned for ages. handle them with care, with caution and you can do well for yourself. take profits on the way up and get out on the way down. you don't have to call the top to make money. you just have to be willing to jump ship when it's clear the stock has peaked and it's ready to head down for the count. [ punching bag ] let's take a call from dale in iowa. dale? >> caller: hawkeye boo-yah to you, jim. >> oh, man. done your way with the hawkeyes. >> caller: i'm a retired investor. learned the hard way things you are telling the listeners. listen to cramer and read his books. i have done all that. >> thank you, buddy. >> caller: i have two questions. >> sure.

>> caller: i'm using preferred stocks as income. how much of the portfolio should be in preferred stock at my age and how do you evaluate preferred stock as to the ratings? >> okay. this is a great question. you know, i have been trying to figure out the worth of the different bank preferreds where you get really good profits. i am nervous. i don't like to have my income being from situations where i'm reaching for income. that's a lot of the preferreds in the banking business away from the banking business. a lot of preferreds are good. it's actually an issuer issue. i wouldn't put more than 20% of your money in one issuer and i wouldn't put more than 20% of your money in preferreds. there's not enough good preferreds to get that much in. selling for profit doesn't make you a sell out. it makes you a smart investor. timing is everything. choosing the right time to buy and the right time to sell is

the only way to make profits forever. profits forever? leave that to the diamonds. "mad money" is back after the break.

catch up with some mad mail. here's one from brian. dear jim. i'm new to trading stocks and i'm curious why the chart of the eur/usd seems to move in lock step with the chart of the spy. what's the connection?

this is the most important question of the era. look at the etf that measures the strength of the dollar versus the euro. the euro is a universal crisis. it goes around the world and creates havoc. if we know the euro is busting apart this whole brilliant hope to make it so there is one world in europe is falling apart and it's every man for himself. this one is from karen in indianapolis. professor cramer, thanks for your insight and guidance. it's telling you have no peers after your years of doing "mad money." how does seeing a high level of shortage affect your view of a stock. can you give a general step by step to evaluating a stock with high short interest? i have made it my business not to make that decision. i like to look to see if there is short selling and the reason i do it is because i respect short sellers. they have been wrong as much as they have been right. it's a perception that there is

smart money. what's smart is a big argument against the stock or chicanery at the stock. i have to tell you i have seen a lot of short interest positions in my lifetime that turned out to be great places to buy and not just to bust the shorts but because the shorts have been wrong. that happens frequently. let's discount it as a tool in our arsenal. brandon. hi, mr. cramer, as a 24-year-old young professional who was fortunate to get a full-time job in my major three months after graduating college and brought bougt a home within ten months i feel it would be a good time to get into the stock market. i know there is a notion about having a diverse portfolio. but for a beginner how do you put it together? the first $10,000 is an index fund. then start picking stocks. honestly, if you have $2,500 you can start buying $500 in five different positions. that's the amount of leeway i will give you. first put the money in the index

fund. we need ultimate diversification. with "mad money" we'll start investing. stick with cramer.