to experience the precision handling of the lexus performance vehicles, including the gs and all-new is. ♪ this is the pursuit of perfection. my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to try help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money," welcome to cramerica. other people want to make friends. i'm just trying to make you a little money. my job is not just to entertain but i'm trying to teach and coach. so call me at 1-800-743-cnbc. every time you think you've seen it all, every time that we're -- we thought there can't be any more scandals as bad as the last one or chicanery that can top

the most recent travesty, well, wall street comes up with a new one that can if you're not protected make you feel like it's just not worth it to be involved in our beloved stock market. i can't tell you how many times i've come out here on days when there's bad news involving ipos or machine glitches or insider trading or flash crashes and say to myself how can people take this anymore? the abuse! the answer -- frankly, there's really no other choice. you simply can't make enough money in any other asset class, particularly bonds where the rates are so, so low. to be able to retire or take that trip you want, pay for tuition, bonds can't take pay that tuition. you've got to own stocks. you know what you need, though. you need a survival handbook. and that's what i'm giving you tonight. scandals not new to wall street, i looked through the insider trading scandals of the 1980s. stock markets mechanisms haven't always been smooth. the '87 market crash, you know i traded through that.

that reaction had much more to do with machines going wild than anyone remembers. it didn't have anything to do with the economy. it looked like the economy was going to get weak because of the crash. it didn't, it was strong. that said, we do seem to have really ratcheted up the unfairness in the last couple of years. and i don't just mean the economic fallout of the great recession. who could forget, for instance, the hideous event that was the long-awaited facebook fiasco? may of 2012. now this was a once in a lifetime opportunity to bring people back to the stock market who fled. a company that has a billion users is coming public. the company had a sterling reputation, a love product, the management quirky. but no more quirky than google where you could have made a ton of money over the years. everyone in it had gotten rich and the company had tons of money on hand. it wasn't like they needed to be greedy. it would have been an unbelievable moment to price the deal reasonably so everyone won. nope, they offered 421 million shares at $38 a piece. a price they knew was the top

end of the range especially given last-minute chatter that the company was being challenged by the move from desk top to mobile. by the way, something that turned out to be totally true. and the deal flops in an outstandingly horrible way. making matters worse, the nasdaq, the exchange of facebook became public on couldn't get the stock open. and when it did, the deal fell apart before our eyes. no one could even sell it. combination, total chaos, confusion and overvaluation. a classic opportunity to bring people back to the stock market was botched. and we had still one more event that drove people to the sidelines. it was just like the dot com bomb i lived through, 1999/2000. how about the flash crash in may of 2010 where the market lost $10 trillion because of a computer glitch? i know i was on television when it happened. i was on "street signs" one of the most embarrassing and least reassuring events i've seen. who can trust that mechanism with her life savings? stocks didn't seem like an asset class that day. seemed like smoke and mirrors.

how about the latest round of huge insider trading scandals? this time, the biggest one ensnared a hedge fund manager who ran billions. and that raj give upta. and the director of goldman sachs and procter & gamble. got 11 years in the slammer. not talking about the madoff scandal, true they can't protect you from the most flagged scam. many knew those returns were too outrageous to be real. including those who whistleblew to the s.e.c. to no avail. or all these little busts from satellite firms an allegedly connected to s.e.c. capital. so how do you vaccinate yourself from all of this? how do you protect yourself from the chicanery. if you're lucky, if you're able to avoid it, great, but you can't game fraud. you never know when it's going to strike. second, there'll always be down markets. i can't protect you from an economic crash and what it would do to the stock market. even diversification, which we always call the only free lunch

on wall street only caused you to lose less in that era. consolation maybe the great destruction of wealth, well, let's just say nothing can protect you if you own stocks. but what i can do is offer you some simple rules tonight that will let you have more confidence in the stock market even if you think portions of it are rigged or beyond your comprehension. and the first rule, know what you own. i know it sounds simple, of course, like everyone thinks they know what they own. how does this protect you from the myriad ways people and machines can abuse you? first, if you actually know what stock you own. okay. and the stock goes down, a la the flash crash, you'll be able to take advantage of the mechanical lunacy and buy more at lower prices than you ever thought you'd get. using limit orders not market orders. second, if you know what you own, you can handle a stock that plummets -- take facebook. it's a pretty good company. maybe you can buy it on the way down, get a better average. third, if you know that you own what you own, then who really cares about guys like the raj or

any of these other guys that are nabbed by the u.s. attorney? what does it mean? if you know what you own, you are in control of your own destiny. but how do you know if you know what you own? in other words, a lot of people think they know what they own. it's not a syllogism, it's a real issue. here's my answer, it's a practical way to look at it. first, say you stop me coming out of the "squawk on the street" post 9:00 one day down on wall street and this happens five or six times every single day. let's say you shout at me and say, hey, cramer, what do you think of that xyz corp.? you know what i do? i say, hey, listen, what do you think? tell me what it does. tell me why you bought it. do you know that the vast majority of the time people don't even know either answer. they don't know either answer. they usually got some tip they saw some chart, they heard from some uninformed source it was going to the moon. but they have no idea what business it's in or how it does or how it's doing. they don't even know in a lot of cases what it makes, how it

makes its money. they don't know if it pays a dividend. they don't know if it makes money or loses money. they have no idea. by the way, i see this all the time too. people say should i buy more? should i cut my losses? i say why did you buy it in the first place? and if you don't know, then, of course you should sell. here's what you need to do. ask yourself the same questions i put to the perfect strangers every day. can you answer them? do you know them? if not, you shouldn't be investing in that stock, you shouldn't be investing in any stock until you do. here's the bottom line, the first rule of protecting yourself is get some knowledge, please. know what you own. can you describe it to me if you see me at wall and broad? can you tell me what it does and why you bought it? and give me say a three-sentence pitch about why it's good? if you can't, don't bother me and don't bother buying. here's a promise and a prediction. you're just going to lose yourself some big-time money.

why don't we start with some questions. let's go to scott in colorado. scott? >> caller: hey, boo-yah, jim. hey, jim, i have a question about price targets. when an analyst sets a target price, how does that fit in my planning for evaluating stocks? and when does that price target expect to be fulfilled by the analyst? >> well, one of the reasons why i am neutral on price targets, we do some for actionsalertplus.com. as the stock goes down, the analysts keep making their price targets lower, and they make the price targets larger as the stock goes up. what i find valuable is what o so it really isn't all that valuable. they think the stock is going to earn. and then we try to apply a multiple to it. so the key thing is the earnings estimates in the future. that's why stocks trade where they do, profits and then we can figure it out on a case-by-case basis. don't use the price targets. steven in california, steven? >> caller: yes, jim, boo-yah to you. >> boo-yah back. >> caller: okay. i was wondering, i bought a stock before and it had a reverse stock split.

and it didn't do that good. i'm wondering when a company does a reverse stock split, are they trying to make it more interesting for other companies? or are they just trying to save money? >> no. no, steven. it's a great question. what they're trying to do is save embarrassment. citigroup did this. they really felt that a stock that was under $5 for instance, wouldn't attract institutions. they like to buy stocks over $5. it was a way to be able to gussy it up a little bit. it has nothing to do with the fundamentals of the company. don't ever be confused. doesn't help the fundamentals or hurt them but makes the stock more investable to institutions whether you think it should or not. everyone needs the stock market. everyone needs a survival guide to the stock market. and it's a jungle out there. so the way we're going to start is, if you know what you own and can explain it to me, then you can buy more if it goes down. "mad money" will be right back. 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. [ male announcer ] the day building a play set begins with a surprise twinge of back pain... and a choice. take up to 4 advil in a day or 2 aleve for all day relief. [ male announcer ] that's handy. ♪ time to have new experiences with a familiar keyboard. to update our status without opening an app. to have all our messages in one place. to browse... and share... faster than ever.

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jim cramer, leveling the playing field for all. >> i'm not walking away from this market and you shouldn't either. huddle up, cramerica. >> "mad money" kicks off weeknights. ♪ welcome back to cramer's stock market survival school. where i'm giving you your ged in trading during tough markets, your b.a. in investing when stocks are going, hey, your masters in what to do when the machines rise up kind of like

"terminator 2: judgment day." caused the markets to plunge for no reason. like what happened on may 6th of 2010. and if you listen and you listen well, maybe you'll even get your doctorate in making money when everyone else is losing it, there's the degree i want. we may not be able to control the amount of pain the market throws our way, but we absolutely can control the -- >> the house of pain -- >> -- how we deal with it. we can control whether we're prepared for the pain, whether we're positioned so we don't lose more money than we should because we've taken some proper precautions. later tonight i'm going to explain how the risks that come with owning stocks risks you need to watch out for in order to guard and expand your wealth. but right now, i'm talking to you about how you can deal with the risks that come from being a human being. from simply being human. there are many of them. and if you're not careful, you could end up doing more damage to your portfolio than any external force, any negative that takes down stocks. basic investing mistakes can still lead to enormous investing losses. i'm going to help you make your

portfolio safe, maybe safe from yourself to ensure you're in a position to make money not endlessly lose it no matter how broken or rigged the game may seem to you. you know i don't think it is. but i do not quibble with those who think it is. it's too hard. in a tough market, you can't afford to make the easily avoided mistakes that regular investors find themselves making all the time. you don't want to make it any harder on yourself than it has to be. so with that in mind, here are my rules for agony proofing your portfolio. immunizing yourself against huge losses. lesson number one is to know what you own. each one of your stocks requires time and homework. you've got to be able to explain it to me if you see me on the street what it does and why you bought it. lesson two, never buy stocks on margin. meaning, do not borrow money from your broker to purchase stocks. these are not homes that you can live in if they go down. so it's okay for you to take out a mortgage in that case but not in stocks. it's not home, it's a piece of paper. and that piece of paper can go down in value threatening your

nest egg. the practice is dangerous. the brokers want to make a lot of money on it. buying on margin might seem like a great method, but in reality it's a great way to potentially wipe yourself out. if you borrow, you can't take losses, can't sustain them, can't buy more as your stocks go lower. the margin calls come in and you once you get too deep in the red, the margin calls come in and you have to sell your whole position in order to cover what you owe. it's simply not safe. nobody needs that level of risk. nobody. i consider margin the equivalent of juicing in professional sports. starts off great, ends very badly. lesson number three, and this is also something i hit you over the head with all the time. but -- well, it's just so crucial i've got to explain it again. never use market orders. now, when you pick up the phone and call your broker and tell him to buy or sell stock but don't name a price, that's a market order. you may not realize it, but what you're doing is giving that broker permission to fill your order at any old price the market gives you. okay. so let's ask then, you go to the supermarket.

i'll buy this head of lettuce at any price. would you do that with a sweater at the mall? i'll take any price you give me. no, you would never do that and you shouldn't do it with much more expensive things that are called stocks either. market orders are how people ended up selling procter & gamble at $38 a share even though it was worth $30 more on thursday, may 6th of 2010 when the machines took over and we tumbled nearly 1,000 points. the flash crash. in the time it took me to walk out on the set and just sit there for "street signs" for a few minutes. with all the nasty stories of conflicts of interests, you may recognize your broker's interests aren't aligned with yours. his top priority isn't necessarily to give you the best possible price on your trades. no, his job is often to generate commissions that's how he's often paid and that's not what we do on "mad money." that's why i don't have any conflicts here. i don't want your commission. have i asked for any fees? no. and that's why you have to trust me on this. instead of placing market orders, i'm urging you to use limit orders.

it's the easiest thing in the world to do and doesn't cost a penny more, but could save you a small fortune. especially on the days when the market goes haywire. all you have to do is tell your broker the highest price you're willing to pay and the lowest price if you're willing to accept if you're selling. you'll either get your price or if the stock isn't there at that price, the trade won't happen. hey, that's okay, you've got to protect yourself. always use limit orders, not market orders. never forget the lesson of that awful bogus down 1,000-point day. first of all, it could happen again. and because it wasn't bogus for those who used market orders. those trades really happened, they got hosed. i don't want you to follow in their footsteps. i need you to make money on those down days. buy stocks at your price. here's the bottom line, if you don't buy stocks on margin and you use limit orders rather than market orders where you say buy or sell, you'll get hurt a lot less than others who don't know better. these are the first steps to making sure you survive a horrible market rather than getting panicked at the scale of your losses and then getting blown out.

after the break, i'll try to make you even more money. shark week may be ending but chart week is just flexing its fins. cramer's diving in to find you stocks you can sink your teeth into and spotting the dangerous predators you need to avoid. don't miss "mad money's" "chart week." it all starts monday. [ male announcer ] come to the lexus

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when wall street hits turbulence, turn to a pilot with 30 years of market experience. >> ladies and gentlemen, this is your captain speaking, please fasten your seat belts. >> "mad money" with jim cramer, cnbc weeknights. tonight we're going back to school. cramer's stock market survival school, that is. because when the market's in awful shape, broken, there are very real worries that the system just isn't working correctly. and we know what can happen even in outrageous bull markets. maybe then it's more important to know how to protect yourself. every investor knows stocks sometimes go down. there's nothing you can do about it. it's just the nature of the game. don't be in the game if you think your stocks will never go down. there are times, though, they go down harder than others. at times when they go down relentlessly and the agony's unbearable.

and the equick thatsy seems nowe to be found. that's why i've already gone over three important lessons tonight. always know what you own, never buy on margin, never use market orders. only limit orders to buy and sell stocks. these are basic rules, sure. but they're critically important. they're absolutely essential to building and maintaining your wealth. i've got four more lessons to help fight the pain. first, this is a corollary to the need to know what you own. you cannot own too many stocks. knowing what you own takes time. it takes homework. i always like to -- look, the maximum one hour per week per stock. i understand, if you can give it a 15-minute overview much less than that, you might as well be gambling. if you don't know what you own, then when your stocks go down, you have no idea what to do. should you sell, cut your loss, buy more? the only way to feel confident in either decision is doing the work and understanding the companies in your portfolio. and that means it's simply not safe for home gamers to own more than ten stocks at once. i know that many of you own far more than that.

and look, i at various times own 20, 30, i can understand that. but as soon as you get above ten, you run the risk of actually running your own mutual fund. you shouldn't feel compelled to try to mirror the s&p 500. there's no good reason to own 30 stocks when ten high-quality diversified names will do unless you're really full-time home gamer. you can't handle 30 stocks, even 20. it's like having a part-time job in addition to the one you already have. but ten is just right. more than ten and i think you'll start skimping on the homework and that's incredibly dangerous, especially at times when stocks seem to go down a lot. and periods when we're in a bear market, it's horrendous to have that many stocks. next lesson, don't own too many low-dollar stocks. first of all, i'm the only guy on tv that recommends speculating and i accept low dollar single digits. they help by making market investing interesting. they allow you to keep your head in the game and others to be blown out. and while it's still safe to have a speculative stock in a tough market, the emphasis there is on the singular, single speculative stock.

not more than that. because as tempting as the single digit names can be, they shouldn't make up your whole portfolio. they're risky and a bad market risk is something you want less of, not more of. you want the colgates and the cloroxes. nor ceo ever said, boy, oh, boy, i want my stock trading in the single digits. hence why i told the gentleman earlier in the show many companies like to make their stocks seem more investable. it may seem like under $10 names have less downside than other stocks, but that's a trick of the eye. single digit stocks can go to zero. and can wipe out your investment more than any others. own more than one and many of you do, you may be gambling. next lesson, and this one i beat over your head every wednesday on "am i diversified," but it's so critical to your investing success, i'm going to tell you again, you must be diversified. it's the only free lunch. it don't cost you nothing, but it saves you money. that's a point i make in "jim cramer's real money" which is

still in paperback and was the handbook to when i used to run my hedge fund. no matter how many times i say it, though, i know many of you keep too many of your stocks in the same sector. we play "am i diversified" and i keep getting them. why shouldn't you put all your money in one hot sector? why do you have to spread it around so that no more of your portfolio is in the same sector when the hot sector could possibly make you so much money? because the biggest risk out there is sector risk. ask the people that doubled down on tech stocks in 2000 and then lost it all. when some big event happens, one that can really damage an entire sector. only some of your stocks will go down if you're diversified. and maybe, just maybe, others will even go up. same thing with the bank stocks in the 2008/2009. people owned banks, they were very hot, the housing stocks were all very hot. finally when the market is getting killed day after day after day, it's important to have enough dividend-paying stocks in your portfolio. especially stocks i call ahys,

accidentally high yields. many people don't realize the importance of high dividends, they think they're boring, for senior citizens, retirees only, but you know what? going back to 1926, fully 40% of the return has come from reinvested dividends. you always have to reinvest them. when you forego dividends, you're giving up half the gains you can expect over time to make from stocks. and all the reasons that make dividend stocks worth owning becoming even more compelling in a down market. that's when they really, really give you that cushion. yes, they're even a trampoline, because as their share prices go lower, their yields go higher, making them more attractive to other investors who don't own them yet and give you a better re return for owning the darn things. you can buy the stocks on the way down. i can't emphasize enough how important that fact is. in a horrible market, there are so few stocks you can feel confident buying as they go lower. stocks with big dividends, especially the accidentally high yielders, meaning stocks that used to have small yields but because their share prices have

gone down, not because they cut the dividends, their yields have become notoriously big. and they're one of the groups you can feel comfortable with. accidental high yielders work better than any other kind of stock during the financial crisis. remember, the dow went down to 6,500 and they still worked. and they still work whenever the market gives you these dividend bargains. and by the way, those big dividends for companies who can afford them, well, they are bargains. mark in my home state of new jersey. mark? >> caller: yes, boo-yah, jim. >> boo-yah, mark. >> caller: do companies have to publish their x dividend dates? and how many days before that date do they have to publish it? >> well, you can get it -- everything's on -- all the different finance sites have it. but, remember, i care more about the price you buy the stock at, no the the price -- if you don't have the dividend, you're getting it without -- you buy it without the dividend. it's cheaper without it. these are just all -- i don't say they're slight of hands, but they're not something you should worry about.

what you should worry about is buying high-quality stocks. and if you -- the dividend stock adviser, which is actually a fantastic newsletter that thestreet.com has and explains all of this and is a great place to look. let's go to louis in california. >> caller: good afternoon, dr. cramer. >> thank you. what's up? >> caller: i have a question about diversification and risk. >> okay. >> caller: i watched your show for several years and i'm newly retired. i own eight positions. i've followed your advice and buy a good company in stages when it dips a little bit and sell a little when it shows a temporary top. every time i sell, i allocate the profit and dividends received as return on my capital leaving the profit allocated to the remaining shares of the position. so now i have four stocks that are 60% to 100% owned with house's money. and that's a profitable boo-yah! >> that is so perfect. you are just the total game playing. can i help you? >> caller: yeah. here's the question. the other four stocks at risk that i have, i own are

diversified and balanced and most have some profit. but some of them overlap the other stocks that are owned with house's money. so which is more important? diversification and balance of the whole portfolio or diversification and balance of those shares still owned by my capital? >> well, you know what -- if -- you know what i'm going to do. this is the first time i've ever had this question. and what i'm going to say is if you're playing with the house's money, i'm going to bless some lack of diversification. you're not going to give it back and diversification is about not giving it back, but you can't because you've already won. josh in louisiana, josh? >> caller: boo-yah, jim. >> what's up? >> caller: hey, i was just wondering how you use the futures market to judge how the market would do throughout the day. >> i hate it. i won't use it. i think people who use it are lazy. they are just simply looking at how europe was or asia was in making the termination. forget about it. we trade stocks, not futures. that's quite simple.

you've got more tools for your survival now. we have -- we don't own too many stocks, right? we know we should use -- limit the number of speculative stocks because they tend to trade together. we know that diversification is key. i call it the only free lunch and we know to focus on high-yielders particularly in times of trouble to reduce your risk. stay with cramer. sitting on the sidelines because of all the uncertainty in the market? >> thanks for turning my portfolio from mean to green. >> that's what i want to hear. >> with over 25 years of experience in bull and bear markets, let coach cramer show you how to play to win. >> thank you for you and your staff for keeping us in the game. >> "mad money" weeknights on cnbc. in a world that's changing faster than ever,

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jim cramer, you're one of my heroes. >> i look forward to your show every weeknight.

>> thank you so much for helping beginning investors like me. >> when you talk about the market, i just believe that you're spot on. >> oh, i love it. thank you so much. every night we watch you. i have learned and earned. ♪ all night i've been teaching you how to handle the inevitable corrections, part of cramer's stock market survival school. i've gone over many of the things you can do to minimize your downside, protect your portfolio against action that's downright nasty. the way it was at the time of the fiscal cliff or even the original sequester scares. hey, i want to go a step further. in order to deal with increased risk from a market that's gone up a great deal and many consider to be frothy, you need to understand what the risks are. you need to know what might cause the next selloff. you need to be familiar with forces that are causing your stocks to get hammered that you may not even know about. in other words, when the market corrects, and you know it's going to have to, you need to know why. you need to know what's really hurting your stocks. now we like to think when a stock goes up or down because it's what's happening with the underlying company. companies that do well get rewarded with a higher stock price, companies that do poorly get punished with a lower stock price. that's how things used to work. in a vicious decline, the

connection between a company and its stock can become gossamer thin and it can be severed. you'll see the stocks of good companies get taken down right with the bad ones, even when they report good news. that's the kind of action that can drive investors completely insane. it drives you batty. if a stock can't go up and it's reporting a blowout quarter, wow, then you're probably thinking, for heaven's sake, you can never make anything go higher. is there any point to distinguishing the good from the bad when the market is selling everything? why even bother to do the homework that cramer says you should do? well, yes, there is a reason. because eventually we're going to come out of the selloff and the fundamentals will start mattering again. it can take a while for that to happen. in the interim, it's crucial to make sense of why this is happening you might be able to make sense out of the chaos. you'll see stocks trading in lock step with the good, the bad and truly ugly all going lower. some of that is absolute pure panic. but there are also structural reasons why this happens and you

need to know them. see hedge funds have turned stocks into an asset class closer to baskets of corn or lumber. they've -- and this is a verb that's new, commoditized equities, that's the origin of much of this lock step action where they all trade together. how have they done this? well, because for many of the big institution money managers, individual stocks are too small to handle the amounts of money they're dealing with. so they turn to the s&p 500 or the big etfs that allow huge bets to be made in seconds. now, in a difficult market, rising tide of optimism takes over, okay, these hedge funds -- i'm sorry, pessimism. these hedge funds will just sell the futures. as soon as they get pessimistic, they'll sell the futures, bang them down, and sell the etfs and that brings down everything in the s&p. there's also an element of grouping. here most managers, they tend to act like herd animals.

think wildabeest on the discover channel. causing them to blow out of sectors all at the same time. wreaking havoc on individual stocks. we saw it in the bad old days. and this gives an issue you must be aware of, the ideas of stocks as a paper risk. all the things that could cause the stock to go down that have nothing, absolutely nothing to do with the underlying company and that mystifies you. and everything to do with the asset of the stock is traded. these are risks with nothing to do with earnings or fundament 14:12:02:l s of the company at all, especially in a pessimistic infused bear market or one of those incredibly quick declines that we always must be on the lookout. what kind of risks am i talking about? let's say we're in a prolonged down market. well, then you have to worry about the ability of short sellers to create fear and panic because it absolutely trumps the ability of buyers to instigate greed. that means the shorts can push down stocks relentlessly with endless selling firepower. now, this is new. it didn't always used to be like

this, certainly not when i got in the business. we used to have a securities and exchange commission that stopped this thing, one that reined in the shorts and helped you, helped the home gamer, helped the little guy. and then the bush era came along, the s.e.c., well, it lessened its commitment to the individual and increased the commitment to laissez-faire ideology over real. they appealed the uptick rule. arcane rule. this was a regulation created in the aftermath of the great crash of '29 and '32 in order of averting another disaster of the same scale which curbed the ability of shortsellers to bang down stocks endlessly. under the uptick rule, they had to be willing for someone to pay more and uptick a stock before they could sell a stock short. and for 70-odd years it worked, then the s.e.c. got rid of the old-fashioned uptick rule and the shorts were able to run wild. do you think it's a coincidence we had the great recession of stocks? the shorts were able to continue run wild whenever we got a particularly nasty selloff.

that kind of relentless, unstoppable short selling was instrumental in the fall of lehman brothers. one day people will write a book about this. we've also seen the same thing with bonds of troubled european countries ever since the problems with greece, portugal, spain and ireland began, or we see it in stocks in our market because of deficit funding or debt ceiling issues or, of course, the sequester. sure, when things are good, we forget about the pernicious impact. impact of aggressive shortsellers without limits, but they are bad, we feel them. shortsellers aren't the only risk. to make matters worse, we have the proliferation of eps of mass destruction. double, tripled levered, exchange traded funds that give you two or three times the short-selling bang for your buck. these are etfs that exist for day traders. that's not the point of our stork market, is it? they don't work for long-term or medium term investors because they rebalance every day. take the skf, the ultra short financials pro shares, an etf that lets investors short the

stocks with 100% leverage. you think this etf would've made people money during the financial crisis, right? all the bank stocks got pulverized. many got wiped out. wouldn't this be the instrument of choice? wrong! the skf actually lost you money if you owned it through 2008. well, one of the worst years in bank stock history and that's what happened? how is this possible? designed only to track it's because these super-leveraged etfs are designed only to track day-to-day changes. at the end of every day, they rebalance, and that means they're more of a play on volatility than any of the sectors they purportedly allow you to short or to own. you to short or own. if they have no value for long-term investors, what's the point of having them? frankly, it's hard for me to avoid the conclusion that their main function is to allow the shorts to get around the margin rules and manipulate the market with massive selling firepower at once. this gets at a larger power with an s.e.c. that no longer seems interested in protecting you, protecting regular investors. i'll deal with that after the break, though.

here's the bottom line, stocks are not cash, they don't act like cash, they can't be viewed as cash. remember, stocks go down for many reasons that have nothing to do with the companies or profits, including hedge funds going wild and the massive selling firepower of the leveraged etfs of mass destruction. stay with cramer! shark week may be ending but "chart week" is just flexing its fins. cramer's diving in to find you stocks you can sink your teeth into and spotting the dangerous predators you need to avoid. don't miss "mad money's" "chart week." it all starts monday. ♪ [ male announcer ] you wait all year for summer. ♪ this summer was definitely worth the wait. ♪ summer's best event from cadillac. let summer try and pass you by.

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all night i've been teaching you how to survive rough corrections to a bull market. i've told you about the mistakes you need to avoid making yourself. warned you about the powerful forces that big money managers use to push stocks around. like the futures and the ultra etfs of mass destruction. things that can cause the performance of stocks to become disconnected of the performance of the underlying companies much more commoditized. but there's one more risk you need to know about if you're going to invest in a dangerous chopping market or one that suddenly turns like that. it's that the life guard is off duty. and when you go swimming in this market, you better remember there's nobody out there making sure the water is safe. the s.e.c. which should be working to level the playing field in order to protect the little guy, they don't think it's their job anymore. at least that's my opinion. the regulators seem to favor, for instance, high-frequency traders, hft over the ordinary home gamer like you. these high-frequence guys now make about 80% of all trades. there you go, huh. this is the market you're really dealing with.

we need -- we need an s.e.c. that protects the unsophisticated from these rapacious capitalists. instead we've got one captured by the exchanges and abets the most sophisticated traders, i think, at the expense of you. this is no longer the s.e.c. of arthur leavitt who chaired the commission from '93 to 2001. leavitt was one of the greatest s.e.c. chairman ever because his mantra was to level the playing field, make the market safe for the individual investor. leavitt favored regular retail investors over home gamers like you over the big institutions, particularly the hedge funds because he knew the big boys didn't need protection. they got all kinds of money. but under the reckless laissez-faire anything goes bush s.e.c., that all changed. i think the obama administration has hardly done anything to roll back the damage. making the market less legitimate and less safe for you. all the changes that made the market faster, allowed the machines to ping each other for quick, tiny gains, allowing many managers to evade the margin

rules bring double or triple etfs selling power or buying power through appeal of the original uptick rule, which protected us from endless short selling. the s.e.c. either approved or enacted all of these things that made the market more dangerous and more difficult when things get bad and will do so again when we get that kind of quick, sharp decline. so if you expect the s.e.c. to have your back, think again. if you think the exchanges have any interest in maintaining legitimacy of our stock markets, not so much. you've got to understand the exchanges aren't on your side because their whole bias is to allow the big institutional hedge funds to make fast trades that generate maybe a fraction of penny in the profits. in the old days they were nonprofit organizations that could police themselves. now they're for profit public companies and the goal is to make money. nothing wrong with that. but we're living in a different investing world than we were a decade ago and the s.e.c. doesn't seem to notice.

until we get someone on the s.e.c. -- and let's look at this through the prism of your i.r.a. or 401(k) rather than the prism of giving market manipulators the right to have double or triple etfs without regard of how good or bad it can do. then you should not be surprised by any kind of outrage. this also means that you have to protect yourself. yourself from the madoffs of the world, for instance, who offered too-good-to-be-true performance 7 the s.e.c., we know now, isn't equipped to find or spot these people. or maybe it's in bed with the wrong people. maybe it's examining the minor players instead of the major ones. if you give your money to a money manager, demand reports exactly from where the manager keeps his master account. be sure you can deal directly with the money manager's account to get results, he won't like that, i don't care. don't give money to a money manager where he puts it to work in something it doesn't have and easily accessible price. you never want to be put in that mortgage back junk that burned so many investors. if you can't find the price on yahoo or cnbc.com, i want you to

take your money away from these people. listen to this, i know. here's the bottom line, flash crash, financial innovation, battlefield innovation circa world war i where it vastly outpaced the ability to deal with the newfound firepower. stocks that trade like commodities. moves that make no sense whatsoever. these are now the normal, because the obama s.e.c., like the bush s.e.c., isn't watching the store. hey, we don't have to like it, we better get used to it. stay with cramer. [ engine revving ]

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i've said it before. i have the smartest viewers around. so let's hear from you with some of the tweets you've been sending @jimcramer. i got that cool avatar. our first tweet is from @allenpal6. he writes, "why limit orders only? got to be a good story to go with it." yes, let's say you had a sell order in during the flash crash. and we know no flash crashes are no locker going to be isolated events. well, if you had a market order and it's entirely possible procter & gamble, went to 40, entirely possible you sold it at 40 with a market order. they can give you whatever price you want and it bounces right back to 60. but if you put a limit order, you're out -- sold at 59, you can always buy it back at 30. it's about flash crashes. that's why. it's about wild markets and

taming them with limit orders. our next tweet is fantastic. @fittedhatday writes, "it's true, @jimcramer called me out for yawning when #georgiatech hadn't yawned yet." that's true. i can't stand yawning or sighing. i used to make people leave my hedge fund if i caught them yawning. i said, just go home, take a nap. but i also approve of our staff's voracious hunting through the archives, nobody does it better. >> no more yawning, man. i used to fire people at my hedge fund when they yawned. i made them go walk around the building and if they come back again and yawn again, they're fired. >> yeah, i've become sweeter and kinder and gentler, and now when someone yawns i say, listen, go get me a soda or diet coke or something. i'm no longer trying to fire people. but i think i will. anyway. here's another -- i'm not kidding. that means sighing is even worse. here's another tweet from

@zander318. who asks me, "jim, does the volatility index belong in my portfolio?" it's about owning companies, shares of companies, don't complicate it with this risk on, risk off vix stuff. own stocks for heaven sake. this next tweet comes from @garc108 who writes, let me get this straight, on wall street, roll up the sleeves. when cooking and cleaning, leave them down? well, yeah, you know what, i like to dress up. that happened to be ellen haley's day off. it was our proprietor, it was mother's day. someone has to take up the slack on mother's day. it might as well be cramer. my eggs were good -- it was a good day. let's go to the next tweet from @sjeply who wrote the following. "i've got a year left of college. what would you recommend to do during the senior year, aside from hitting the books hard?" this is easy. have the gosh darn time of your life. i've got news for you, every day from then on is work.

a lot of kids think college is work. that's the best time of your life. everyone looks back as the best time of their life. don't waste it working. here's another tweet, this one kotching from come fro from @krausaz. watch you every night, great show. now, if you can tell me that the analysts watch me at the galapagos, then i know i got reach. let's keep them coming. oh, no, let's stop because we're out of time. you know what, on the yawning guy, i got your picture. i know where you live. i'm coming for you. stay with cramer. cramer, you are super, you are awesome. >> i'm a first-time investor. >> thank you for inspiring me to get in the game. >> this show is the best. i'm so glad you're on tv. >> i want you to know that you have transformed me. thank you, cramer. a-a-a.

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for around $369 per month or purchase for 0% apr for 60 months. come in now for the best offers of the model year. time to have new experiences with a familiar keyboard. to update our status without opening an app. to have all our messages in one place. to browse... and share... faster than ever. ♪ it's time to do everything better than before. the new blackberry q10. it's time. shark week may be ending, but chart week is just flexing its fins. cramer's diving in to find you stocks you can sink your teeth into. and spotting the dangerous predators you need to avoid.

don't miss "mad money's" chart week. it all starts monday. i like to say there's always a bull market somewhere and i promise to try to find it just for you right here on "mad money." i'm jim cramer. see you next time. >> tonight on the profit... >> marcus, nice to meet you. >> i go inside jacob maarse, a high-end florist and gift shop in pasadena, california that hasn't earned a profit since its founder died in 2010. how much money will this business lose this year? >> close to 200,000. >> sloppy business practices... do you have an inventory system? >> no. >> together with lax management has driven down sales and piled up debt. so are we going the right way? >> i believe so. >> we need to know where we're going. if they don't make changes, this 47-year-old family business will be forced to close its doors. this business is a total mess. i'm fighting against time to light a fire under these people... this is the thing that will help us go from the red to the black in one month. before this business crumbles and