>> foot locker. >> discover financial. they play that bull down there in florida by the way. >> i'm melissa lee. thanks for watching. good to have you j.c. tonight. 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 help you find it. "mad money" starts now. hey, i'm cramer! welcome to "mad money." welcome to cramerica. a lot of people want to make friends. my job is not to entertain you but to educate and teach you. so call me at 1-800-743-cnbc. tonight, i'm letting you in on something big. the method to my madness. i know this show is the craziest, whackiest, frankly

bizarre thing on television. but i know you won't find investing advice this good anywhere else. you know that too or else you wouldn't be watching. unless you're one of the people who tunes in to see if tonight is the night the show really does go off the rails. which after multiple years of airing is always a possibility on any given night. sorry, guys. there's a tape delay. but keep watching. for those of you more interested in interested in making money than watching my traipsing around like the crazy man people say i am particularly on twitter @jim cramer, you can do everything i do, specifically actively investing in stocks, running your open portfolio rather than dumping your money with some buy and forget index fund or worse, fleeing for the false safety of bond funds. particularly when we had record low interest rates, remember those days? it's something that anyone can

do, as long as you spend five hours a week during the -- doing the homework. i'm condoning a couple of hour a week these days but a the research is so readily available on cnbc.com or from the companies you're thinking of buying or keeping up on. in fact, i think actively managing your own portfolio is essential especially after the crash of 2008. mimicking the market returns is not enough. especially if you're not trying to get back to even. you have to do better. the only way the do that is by picking your own stocks and active think managing your own portfolio for your own tax consequences. but how do you start? that's what we're talking about tonight? like said this show is all about the method or methods to break through strictly quoting the bard to my madness. how do i pick stocks? tonight you get a piece of that answer. the truth that i have got far too many methods. far too many ways of picking out

great stocks to cover them in one single show. but i want to give you some of the tools of my trade enough so that you can start to fix stocks like yours truly on your own or do better than i am. you don't have to follow as many stocks and i do follow a lot of stocks which is something that was recently tested by patriots at the barry inn which i co-own and i do the eggs on sunday and the dishes there. at the bottom of the show it's about educating you and giving you the ultimate insider perspective on how it can make you money. i'm not here to dole out stock picks, like if you're too lazy to get the fish, shop for them at whole foods. i want to empower you and that starts to teach you the many tricks i use to pick the great stocks and trade them like a pro. methods that served me for more than 30 years of investing and allowed me to get a 20% rate of

return after fees. this refreshes the show. and it guide me as my manage my own charitable trust which you can follow along, and another ten year labor of love where i gave away more than $1.75 million in winnings. the product is really difficult to put out every day as we do. now let's get rolling. one of the potential ways to identify cramer names that won't always end up on the the show is by watching all -- i can't believe they produce this every day, the new high list. stocks on that the highest of the high obviously have something going for them. and that's especially true when the market is in bad shape as only the best of the best can hit new highs when the market is falling apart. so what's it tell you when a stock is on the new high list? either that it's part of a genuine bull market or that the company itself has some serious momentum. no matter how they get there, they keep going higher from the bottom of the 2009, any market that more than doubles from the

bottom has to consider a great bull market even as we resist such labels. we saw that over and over again. the new stocks would hit new high after new high. even after they said that the bull market couldn't be trusted. i missed out on one of the greatest rallies of history. and generally speaking things have worked out when we continue to work. i'm not saying that you can chase stock that are hitting the highs because they'll keep going high. . that would be the ultimate in foolishness. i'm not doing that. i'm saying if you want to identify stocks where do you start? you identify them with what will be winners in the future with winners already. unless there's been a big sea change in the market caused by a big political shift. looking at the biggest winners of the present is a terrific way to start looking at what could be the winners of the future.

that's the thing about the markets, it's not always that hard to play once you understand that there's often more continuity than change. things pretty much going the way they were going until something major shifts. then you have to alter your course. those tectonic course changes can be pretty radical though. that's why you have to be re-evaluating your ideas and never dig in your heels when the facts change. two incredibly important disciplines that i stress in my book "getting back to eden" because it's not only about individual stocks that work at the time, but i regard it as indispensable. even as we did get back to even and then some. but when you're looking for stocks to invest and when hunting for the bull market like i do at 6:00 p.m. and 11:00 p.m. eastern, you have to start somewhere. looking at the new high list from when i started a terrific way to begin. now, don't just pluck names off the new high list because hey, those stocks will keep going up. why don't i just recommend them on the show?

well, it would be lazy and irresponsible. i have many things, but lazy and irresponsible i ain't. anyone who sees my insane 4:15 a.m. tweets @jim cramer, i apply the same rigor that i used to apply at the hedge funds. i rarely thai trade them off the high list, unless there's an exception. what you should do is wait for something to pull back from the new high list. see, that's the best place to start. i like new high list pull backs. the pull back preferably at least 5% down gives you a good lower price entry point in a stock that has a lot of positives for it. you should be conscious of price and therefore try to buy on weakness, like you want to sell into strength. i'm throwing in the caveats because i don't want you to look at the new high list as a shopping list. but it's a great jumping off point. an important one. it's fabulous why to identify potential. i stress that word -- potential

stocks to buy. you only buy stocks that will pull back if you're confident they'll make a comeback for substantive reasons. you have to do all of the same homework you do before buying a stock. you must have conviction. even if it's a cynical conviction that the stock is going higher than it deserves to go higher. you know the growth funds can't resist stocks of high growth companies and they always come in and support their stocks after a few down days. they do do that. i'm telling you i know the guys. they do do that. the biggest caveat of all when shopping for stocks that have pulled back from the highs, make sure they haven't pulled back for a good reason. make sure that the sell-off is extraneous to the business. don't buy a home builder if the interest rates flew up, because that could hurt the next quarter. bristol-myers, be certain you're dealing with a momentary troubled stock and not a company that's going down. the stock hasn't fallen from grace, it's pulled back for

mechanical reasons or some panic in the market in general. those are the two main reasons. now, more than ever thanks to the stocks are traded by ultra leverage hedge fund and they make no sense in anything and the etfs that are more powerful, you will see them pull back for reasons that have nothing to do with the strength of their underlying businesses. and those are the ones i want you to buy buy buy. but if the fundamental picture changes, whatever made that stock attractive goes away, then that stock is no longer a sell sell sell. buy buy buy buy. no. don't buy. don't buy. the story has to be intact or this method will not help you one bit. well it isn't a hard and fast rule, i like the stocks that have pulled back 5 to 8% from the high. less than that you're probably too early. more than that and something is indeed is wrong with the stock and you don't know it. here's the bottom line. as billy joel said you may be right, i may be crazy. but at least there's a method to

cramer's madness. watch for stocks that have pulled back from the new high list especially because of a broad market sell-off. some the best picks have come out in the process and hopefully some of yours can too. need to go to robin in new york. robin? >> caller: hi, jim. >> hi, robin. >> caller: i'm a blonde who said on your family show that if you're single, i'm interested and i want you to know i still am. >> well, hey, you know, you never know. you kind of like put it out there. you never know. >> caller: i'm putting it out there and now i'm going to put out my question. >> okay. >> caller: my question is about purchasing more shares of stock. i have a number of stocks that i purchased at low prices like eod resources at 30, lions gate at 11 and i would like more shares of these excellent companies. given that the prices are now exponentially higher than what i originally paid, but i want more shares and the larger positions in these companies, do i buy more or do i wait for another

bargain to come around? >> robin this is really difficult. i talk about this all the time with stephanie, do we -- it's called violating your basis. i don't like to violate your basis, but let's overlay it with the stock is down 5 to 8%, you can start a new position mentally even though it's part of an old position. let's go to joe in ohio. >> caller: a big browns burg bulldog booyah to you, jim. >> of course. >> caller: a question for you here. i have some older friends that were given proctor & gamble stock when they were very young. they have kept that stock for 60, 70 years and it's split many times. and they have become quite wealthy. my question is, how do you pick a company with the idea that you're going to hold the stock and watch it grow as it increases in value and splits?

>> well, i mean, the main thing obviously, we're interested in the fundamentals. as long as the stock has good fundamentals and you're not too greedy, meaning you have -- once you sold off enough to be able to recoup your initial house's money, let it run. that's always my philosophy because that's how you really, really win big as your friends have. methods to the madness of the market, number one. i want you to check the new high list for pull backs and as billy joel said, you may be right, but i may be crazy. "mad money" is right back. don't miss a second of "mad money." follow @jim cramer on twitter. have a question? tweet cramer #mad tweets. 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. booyah, "mad money" is approaching the 2,000th show.

why do i come in here every night? to level the playing field. to fight for you. to remind you that the american dream is alive and well. and you have a fighting chance against the big guys. to celebrate our 2,000th show i want to know why you the citizens of cramerica watch. so i ask, why2k? why is "mad money" important to you? >> booyah, jim. thanks for what you do for us little guys. >> i love what jim offers. >> show me, make a video, tweet it. share it on facebook. use the hash tag, mm why2 k and we might use it on the air. >> can i get a booyah? hero: if you had a chance to go anywhere in the world,

but you had to leave right now, would you go? man: 'oh i can't go tonight' woman: 'i can't.' hero : that's what expedia asked me. host: book the flight but you have to go right now. hero: (laughs) and i just go? this is for real right? this is for real? i always said one day i'd go to china, just never thought it'd be today. anncr: we're giving away a trip every day. download the expedia app and your next trip could be on us. expedia, find yours.

♪ ♪ i go crazy, crazy a wise man once said in a mad world, only the mad are sane. and nothing is more mad than the market. and yours truly is crazy enough to know the landscape like the back of my hand. so tonight i'll reveal some of the best tricks for buying and selling the stocks. methods if you will to the madness. that's right.

think of me maybe as the -- how about the penn and teller of the stock market. if that resonates with the physique that's more like teller than penn. i want to pull back the curtains to show you how professional looks for stocks to buy and knows what stocks to sell. there's no magic. there's no hidden talent. a bunch of disciplines. disciplines that can make you mad money if you master. don't have to be a genius. you don't have to be that smart to be completely honest. you need to know what you're doing and put in the homework that's where cramer comes in. maybe less of a sad clown and more of the king leader, something to think about. nothing of that. let's move on to more important things like how to find stock that are great buys. earlier i was talk ago picking off stocks that have pulled back from the new high list because you get a cheaper entry point in a stock that's a proven winner. you don't want to buy names off the new high list because you're paying too much for them. you can get a better deal if you're patient and wait for some weakness. given how volatile and crazy the

market has become, there's times when it is at all justified. but sometimes the stock is so hot, so sizzling that you just got to buy it. wherever you can. as soon as you can. because it's not going lower any time soon. you won't find these often, but when you do, you have to buy not all at once. if you think the stock has so much mojo you won't get a pull back from the high, i bless it, buy 25. worst thing it happens it goes higher and you grab a pick profit on the 25 and find another stock. believe me, there's always another stock to find. there's always another train coming into the station and leaving i. >> all aboard! >> i have one exception where it's indeed okay to buy a stock on the new high list. all right. only time. if you see insiders buying the stock when it is at a 52-week high that's a clear sign you do want in. it's a rare thing to see happen. but in my experience, rare still this method of picking stocks doesn't work it. i love it when i say insiders

buying at the high. it's a great confidence in the business and who knows if the business is doing well than the people running it, right? normally insider buying ranges from meaningless to small, in its own insufficient reason to buy a stock. a lot of times you catch the insiders buying the stock because they want to give the impression of confidence, to create the illusion they're doing better than they rail -- really are. if they're seen buying the own stocks then the market will smile on them. that's fair. but it means we ignore insider buying because it can be flim-flam and window dressing and that kind of thing. that said, when you get truly colossal insider buying -- buy buy buy buy even if it's not at the high, take another look at the stock in question. it's a powerful endorsement when they buy a whole lot of stock. oh, yeah. it's really the volume of the insider buy that declares the sincerity. but we're only focusing on one insider buy, buying at the high. there's nothing telling than when he backs up the truck for

the own stock sitting at the 52-wyche high list. they're saying, we know we rock. our stock has been in flay go and we'll buy the stocks hand over fist. we're buying at the high. i checked this out nine ways to sundays. corporate insiders aren't fools. with notable exceptions occupying the wall of shame. not everyone it was the benefit of the doubt in this business. after the financial crisis in the market melt down at the end of 2008 i know a lot of people think all ceos are a bunch of crooks. especially those who got burned owning fannie mae and lehman brothers. a total unwillingness to believe in something. now getting the stock to a 52-week high list and buying a

bunch of shares is a good reason to give the ceo the benefit of the doubt. they're not going to buy at the high unless they have an unshakable conviction of the company or perhaps they have been contacted about a potential buy. most aren't smart 234u6 to wait for the pull back. they don't think there will be a pull back and nothing more bullish than that. sure i want to wait for a pull back but that's the best of all possible worlds. it doesn't happen that often. here's the bottom line. one more method in cramer's madness, you might want to be buying too. let's go to karen in ohio. >> caller: hey, jim, my husband and i got a letter from a company that we have stock with that wants to purchase back $350 million in shares. they said they were going to pay a minimum of $22.50 a share up to $25.50 which is approximately

14% of the stock that -- they own. when is a good idea to do this? >> if you need to raise cash, that's good. oh otherwise, i want to own or buy to be honest. let's go to russell in florida. russell? >> caller: hi, jim, i was wondering can you tell me the advantages and disadvantages of stocks versus mutual funds and which you'd recommend for someone who is nearing retirement for steady stream of income? >> for steady stream of income, there are a number of mutual funds that actually are income oriented funds. you have to look at them and look at the three and five-year records that's what i like to do. individual stocks i like because i can control my tax duestiny. mutual funds i'm along for the ride. i don't know what they own or what price they buy at which is i'm so hesitant to recommend mutual funds. how do you find stocks that are great buys? one step is to follow me and the next -- the next is mad method

number two. i want you to look for insider buying at 52-week highs. something going on when you see that. after the break i'll try to make you even more money. ready to run your lines?

okay, who helps you focus on your recovery? yo, yo, yo. aflac. wow. [ under his breath ] that was horrible. pays you cash when you're sick or hurt? [ japanese accent ] aflac. love it. [ under his breath ] hate it. helps you focus on getting back to normal? [ as a southern belle ] aflac. [ as a cowboy ] aflac. [ sassily ] aflac. uh huh. [ under his breath ] i am so fired. you're on in 5, duck. [ male announcer ] when you're sick or hurt, aflac pays you cash. find out more at aflac.com. [ male announcer ] when you're sick or hurt, aflac pays you cash. (announcer) at scottrade, our cexactly how they want.t with scottrade's online banking, i get one view of my bank and brokerage accounts with one login... to easily move my money when i need to. plus, when i call my local scottrade office, i can talk to someone who knows how i trade. because i don't trade like everybody. i trade like me. i'm with scottrade.

(announcer) scottrade. awarded five-stars from smartmoney magazine. ♪ ♪ read my poker face you caught cramer on a good night. i'm not going home to sip that cheap scotch on my dirty linoleum floor. by the way i apologize to

dewars, which i once suggested was the linoleum scotch of choice. but no, i'm in a manic mood. well, let's just say i'm pretty darn pressure when i'm in high gear. so i'm revealing many of the secret, the methods to the madness. pull out your pencil and paper. start jotting things down. because what i'm about to tell you could be incredibly useful. better than giving you stock picks i'm giving you the best ways to pick stocks. i'm teaching you to invest in cramer, if not to be like me because i have some emotional issues frankly. you'd prefer not to emulate. like really. off track. so far i have been giving away two of the precious secret, two i use at the hedge fund at at the charitable trust. unlike lady gaga i play with an open hand, not a poker face. allowing the subscribers to see the trades before they happen. better than pink, although i'd never mind raising a glass other than when i'm stock picking.

it's a great place to start. it's a launching pad and i like to buy stocks that are around the new highs and have some substantial insider buying because that's a verification. the people running the company have legs, nice at a fluke. and again, this alone, not enough to recommend an individual stock. these are cues, places to start. you still need to do the homework to check the fundamentals and make sure you like the story behind the company before you dive in and buy. what i'm teaching tonight are really tells. that's the term i used for my head funds. signals that the stock might be worth earning and reading through the conference calls, the transcripts and the quarterly filings. there are thousands of stocks out there and any method we can use to narrow down the ones that are attractive are methods worth having. that's what tonight's show is. we talk about insider buying at the high. i don't use it as a way to determine whether or not a stock is going or not.

but there's one place where it makes me let's say -- makes for a bullish tell. that's when the stock has a heavy sure position. sold those shares and are now waiting for the stock to go lower before they buy them back. return them to the bank they borrowed them from and the price they bought the stock back at laterment you can think of it as a regular investor, only in reverse. shorts turn that around, they want to sell high and buy low. when a stock has a lot of shorts in it that means there are a lot of people who have serious conviction, conviction that the stock is indeed going lower. usually much lower. >> sell sell sell. >> in fact, as i try to tell people it takes much more convict then to short a stock than go long. that's wall street speak for buying it. when you short the potential down side it's infinite. when you're long, a stock stops losing you money when it hits zero. shorts lose money when the stocks go higher and there's no little net. the other important note about

short sellers if that's a lot of them and the stock all of a sudden gets great news we get what's called a short squeeze. it sounds like what it is. in order to bail or close out the positions the shorts have to buy. this is called covering. when a lot of shorts cover it at the same time in a panic, the stock will surge. because what you really have a lot of people desperate to buy the stock. a lot of demand. they have to buy unless they want the years wiped out. remember they get paid again in a year. and so many short sellers have in the last few swoons, well, they didn't cover. they didn't know when to quit and they got hurt. so where does insider buying fit into the short selling equation? okay you have a short with a high -- you have a stock with a high short interest. you can look that up in all the different websites. then some of the people running the company start to buy shares. >> buy buy buy buy. it's almost like drawing a line in the sand and say our stock goes this low and no lower. this is an explosive combination one that leads to the short squeeze.

shorts are smart. in fact a lot of the time they tend to be smarter than regular -- but they tend to be smarter than regular long side investors doing more homework. but they don't know more about the business than the insiders who are running it. and if they're buying it in sizable amounts, real -- maybe even million dollars worth, you should start doing some homework. you'll want to side with management. then you can ride it higher and higher true jackie wilson style as the panics push it higher in the desperation to cover their positions or close out their shorts. similarly with a heavily shorted -- a buy back another line in the sand situation. management is contradicting the shorts. companies often repurchase their own shares and while not all are bullish, some can be an outright waste of money. and then i issue it multipal times each day on the charitable trust, the shorts is a good reason to take a closer look at a stock. now a note of caution here.

you have to be very careful in dealing with a company in the crosshairs of the shorts especially when people arer nervous. they can wreck the stock. even if fundamentals are fantastic. these days the shorts have much more firepower than ever. i talk about this all the time on the floor of the stock exchange. the guys, the old brokers, they believe that's because in part because of the s.e.c., the democrats and republicans look the other way with bogus stories about blunders, they put them on the web, unedited, people read them. plus it's easy to do. stock owners no longer have the benefit of rules that slow short selling down. and they make it -- used to make it really hard to create bear raids. like waiting for an uptick or a higher price to -- and in order to make trading quicker, and more fair for the shorts, really more fair for the brokers. a lot of good that did for us, right? it's a leading reason why so many home gamers have left the building. we establish these rules in

order to stop the fomenting of panic. something that happened during the great depression, but the government seems to think that panics are no longer possible. that's human nature. so we have to be more careful than ever not to succumb to panic that's orchestrated by short sellers who need prices to go lower and plant stories on websites that people do not check before hand. they just read it and say, oh, it's on a website. without those predictions, without those protections the shorts were able to run wild and practically assassinate the stocks of many companies during the crash of 2008. until the generational bottom of 2009 and that put the bulls back in control. they haven't relinquished that. but the shorts came back in 2011 and at the end of the year in 2012 this time using weapons of mass destruction like double and triple etfs. when you're dealing with that in the financials you have to tread carefully. you can find great opportunities in the stocks but before going into one of the situations i ought to warn you the balance of power has shifted in recent

years in favor of the shorts and against you the regular individual investor. that means even if the short sellers are wrong about a company's prospects that i can demolish the stock. don't underestimate the amount of damages that the short can do by spreading things. the best protection is offered from stocks that may good solid dividends. short sellers have to borrow stock to short and that means they have to pay the dividends to the real owners. that's for those who are pernicious in the way they go about the trading. it can equal raging buy as long as you avoid situations where the shorts are determined to crush the stock at any cost. stay with cramer. ♪ [ male announcer ] what?! investors could lose tens of thousands of dollars in hidden fees on their 401(k)s?! go to e-trade and roll over your old 401(k)s to a new e-trade retirement account.

none of them charge annual fees and all of them offer low cost investments. e-trade. less for us. more for you. people find out state farm does car loans as well as they do insurance, our bank is through. good point. grab an edge. look there's two guys on the state farm borrow better banking sign.

nope for real there's two dudes on the state farm borrow better banking sign. [ reporter ] breaking news from the state farm borrow better banking sign... we're seeing two men that have climbed the borrow better banking sign gentlemen please get down from the state farm borrow better banking sign. phil get the hose. okay he's getting the hose. alright, let's go. [ male announcer ] talk to a state farm agent about car loans that can save you hundreds. that's borrowing better. humans. we are beautifully imperfect creatures living in an imperfect world. that's why liberty mutual insurance has your back, offering exclusive products like optional better car replacement, where if your car is totaled, we give you the money to buy one a model year newer. call... and ask an insurance expert about all our benefits today, like our 24/7 support and service, because at liberty mutual insurance, we believe our customers do their best

out there in the world, so we do everything we can to be there for them when they need us. plus, you could save hundreds when you switch, up to $423. call... today. liberty mutual insurance -- responsibility. what's your policy? "lightning round" is sponsored by t.d. ameritrade. ♪ ♪ i think you're crazy i think you're crazy ♪ welcome back to this methods to my madness episode. the craziest, most enlightening show on television if i'm an ego maniacal person to say myself and i am. and when to pick stocks and know when to sell sell sell, all methods that helped me become a

good money manager and and i want to teach you how to do it for yourself. i want to teach you a way to trade them. this is a discipline that's incredibly useful, incredibly difficult. but is terrific in volatile, crazy markets. it is called trading around a core position. i have used this term, people constantly ask me what does it mean, here we go. it's i'm all about trading, i don't have advice for regular investors. i don't know, maybe they turned it on for the first time, but that's entirely untrue. it's about not trading at all. how, to put aside whatever humility i have left, i will admit i was a darn good trader and i can only trade for the charitable trust and there i am -- i am a much, much longer term investor and i'm not allowed to short sell or use options, two things to use when you think you're right.

it pays to put trading disciplines into practice. that way you can buy more shares of the stocks you like at lower prices and sell more shares when they're flying high. that's the essence of trading around a core position. trading is about profiting from short term fluctuations in the stock's price. sometimes these moves are caused by a catalyst. sometimes they're a result of a topsy-turvy market driven by etfs and macro data. knowing how to trade makes you a better investor. trading out of a core position is one of the most useful out there. especially in 2011, 2012 because of the european banks, the fiscal cliff and even in the bond swoon in 2013. what does it mean to trade around a core position? so why don't we do this step by step. let's go through it. okay, first you need a stock. pick one that you really like. one you have an opinion on. one where you have a bias. find a stock that you believe is going higher over the longer term. what you're looking for here is great company that can get tossed around by market volatile by but should go higher if

you're patient. in other words you have to have conviction. even with trading you have to have conviction. if you're just investing and set up stock buying in increments because we know that buying all at once is arrogance. let's use google as an example because i like that stock very much. only over the long term for investing. because it's very volatile and given to quick pit falls and declines. if you want to own 100 shares of google over time, then the way to set that up in the position to buy 25 shares four times over a period of weeks or even months and that would be your core position as investor. obviously you like to buy at a discount each time. i don't want you to buy it all at once. i know many of you want to, but you feel discouraged because you know ten amateur traders got blown out when the tech bubble burst. the key word is amateur. you can make money trading if you do it right when commissioners were higher, that wasn't true. the commissioners would eat into your profits and it wasn't worthwhile to trade. but that's not been the case for ages so i'm in favor of people

who are disciplined traders. let's come back to the core position. we had a hundred shares of google, let's say it's trading at $1,000 and you shave a little off to bring in some profits. once it reaches $1,550 you keep scaling up and wait until something happens to knock it down to where you bought it and as long as the reason why it's down isn't because the company has real prospect damage, that shouldn't be unreasonable given the fact that we're in a world where a stock can get crushed. you buy it back in the same increments. since we started with 100 shares, let's keep using the increments of 25 to buy it back. if google comes back to 1,000, say from 1,000, $1,111 buy another 25 shares. so on. you can take your winnings this way and help buy 25 more if it keeps going lower. you have to only sell 25 before the swoon. it may be small potato, 25 here

or there, but no, this is all about adding up gains. up 5% sell 25%. buy 25, repeat the process on the way up. over time, your profits do add up. that's what's trading around the core position is all about. a lot of people think that trading is exciting, it can be. if you're good at trading out of a core position it's not exciting. quite boring. very methodical. you're trimming and adding and you increase or decrease. the image of trading is something reckless and irresponsible. trading around the core position, particularly in a stock went up big for nothing to do with the stock. trim some and be ready when it comes back down. you can scale in or out of the positions in whatever size makes you comfortable. the basic idea is to avoid putting yourself in the spot where you have too much on the table when it gets swatted down or take advantage of an outside that comes your way. it's basic trading strategy that earn can use, even those of you

who find trading to investing as abhorrent. if you want to take it to the next level, i did it and i -- i did two chapters on this very hard i have to admit. it's in getting back to even. and this is how i used options as a strategy to trade on the position. i used to think before options action. some of the material is too risque for me. on that show, the strategies that i'm using they're not child's play, but they're very easy. i know you think that -- that i can't share these with you. and that you have to be willing to put in some extra homework to do them. but if you have the time and inclination it's worth it to look at in the book. what i do is i do what's known as stock replacement. okay, i use calls to replace the stock and with a high dollar stock it is worth it. it's a cheaper and less risky way to what i call creating a google and a more reasonable dollar amount price. again, if you look -- if you

have watched options action you'll have no problem understanding my theory of creating common stock with options. here's the bottom line. now you know the basics on how to trade on the core position. one that allows you to generate lots of small gains and i can tell you from my old hedge fund they sure do add up over time. stick with cramer. which would be fine if bob were a vampire. but he's not. ♪ he's an architect with two kids and a mortgage. luckily, he found someone who gave him a fresh perspective on his portfolio. and with some planning and effort, hopefully bob can retire at a more appropriate age. it's not rocket science. it's just common sense. from td ameritrade. ♪ [ male announcer ] some things are designed to draw crowds. ♪

♪ others are designed to leave them behind. ♪ the all-new 2014 lexus is. it's your move. but you had to leave rightce to now, would you go? world, man: 'oh i can't go tonight' woman: 'i can't.' hero : that's what expedia asked me. host: book the flight but you have to go right now. hero: (laughs) and i just go? this is for real right? this is for real? i always said one day i'd go to china, just never thought it'd be today. anncr: we're giving away a trip every day. download the expedia app and your next trip could be on us. expedia, find yours. anbe a name and not a number?tor scottrade. ron: i'm never alone with scottrade. i can always call or stop by my local office. they're nearby and ready to help. so when i have questions,

i can talk to someone who knows exactly how i trade. because i don't trade like everybody. i trade like me. that's why i'm with scottrade. announcer: scottrade- proud to be ranked "best overall client experience."

♪ i'm crazy for you, touch me once and you'll know it's true ♪ >> crazy? crazy for you. that's right. i'm crazy for you the home gamer. for you cramericas. because the market is a crazy place. you may need a mad man like me to get you through it. this time, i want to talk about selling. when to sell. sub rosa reasons to sell. along with when you buy. it may be the most important and undervalued tool in your home arsenal. because talking about selling is verboten. how do you know when to sell a hot stock? that's my focus. how do you get in before the party ends so you're not one of the last people around cleaning up the mess. this needs to be answered because there's a lot of money

to be owned by be but when you play the momentum game you have to know when it's time to leave the table. the naysayers are proven right as sooner or later, all steaming hot stocks that get very overvalued do implode. this happened big in recent years with stocks like chipotle and those being a complete, wow, i mean, just yeah. you had to get out. okay. it can happen sooner rather than later. all the negative talking heads who kept you out of the stock with the recklessness disguised as prudence cost you an opportunity to make money and it too late. people don't know where they'll top out. i'd be afraid the buy them too if i didn't have a discipline that will let me know, that tells me when to get out. lucky for you i've got i. first, when talking about hot stocks i mean the hot, speculative stocks. low market capitalizations when they start. they're from major wall street

brokerage houses, sub rosa. they can catch fire and then stay on fire for years. the key to figure out when interest is peaked and knowing when it's time to sell is by watching, yes, i have learned this, the analyst coverage. you have to use your own judgment here. but a good rule of thumb is once one of the hot relatively obscure stocks and they usually have at least a half dozen watching it it's too big and well known. it's the rare stock that doesn't behave this way. most do. you can find out how many guys are on -- own the stock by looking it up on the internet. this isn't hard information to find. this formula has worked for me as long as i can remember, frankly. as far as i can tell it works because the number of analysts on the stock is a good gauge of how much awareness there is and how much interest there is in the name and whether the stock is saturated with buyers or no hot stocks get tapped out when there's nobody left to be attracted to them. when all the people who would be interested in buying that particular stock have already bought it. that's why i gauge it through the interest through analysts. they come out of nowhere,

attracting more and more backers and then eventually everyone wants a piece of the stock. well, they have a piece of the stock. then indeed the run is over. time to go home. one of my best examples of how this process plays out is still monster beverage. that was formerly known as hanson natural which was the hottest stock in 2004. then the hottest stock in 2005 and the hottest stock for first half of 2006. it swept from $18 and change at the beginning of 2005 to $200 when it peaked in july of 2006. the whole way up there were people telling you that hanson, a beverage company that really got its momentum from the monster energy drink was a fad and it had to dry out and crash. well, it did do that, but it took years for it to run out. that's often the case. how did i know to tell you to get out of hanson? well, i called the top in hanson because back then, because i know how the stocks were. it peaked in 2006. this was in part deux to the fact that the company did a five to one split and this encouraged people who had been in hanson for a long time to take something off the table.

that's clue one. but there was another reason i believed it would peak and it picked up the fourth analyst. a very visible one, in may 10th of 2006, when goldman sachs started to cover the stock. hey, you know what that means it's an institutional name when goldman covers it. you had two months to sell. there was still some good upside left, but prudence then dictated we sell once the stock had all the analysts covering it. then they cut out with the earnings and hanson pretty much all other maul hot stocks started to cool off once it hit the analyst coverage, especially a big-time analyst like goldman sachs. once they're following something, believe me, it is no longer undiscovered. incredibly after hanson fell off the radar screen it had gotten on to, people stopped talking about it. active analyst coverage really dwindled. people forgot about it again. you know what happened? after it was forgotten people stopped writing about it, the stock recharged and powered higher like nothing ever

happened. it was an amazing -- and again a testament when analysts stop following a company or do so on a desultory basis, they can come back and powered back to the all-time high in 2012 when it was once again no longer the focus. the bottom line, small speculative steaming hot momentum stocks are worth owning but you must know when to sell. that moment comes -- i see too many analysts pick out the big name firm, jumping on the bandwagon. letting you know when you have to start scaling out. stick with cramer. [ male announcer ] i've seen incredible things.

otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪

are you ready, let's take some tweets. first one, this one comes from bison boy underscore 51. jim, are stocks splits are a thing of the past? never seen such big stock prices. these are tricky. after a stock split, you often get a lot of selling but i have to tell you, i wish a lot of companies would split. because we have a lot of people who want to own stocks and as soon as they hear about that big dollar amount, even though it's not in the market yet, they don't want to be in it. and i can't keep trying to do missionary work in saying, listen, it doesn't matter if the stock is at $300. if you want major ceos, split your stock. if you want them. maybe you don't want individual i investors.

our next tweet is from @misson that, can you explain why a large institution upgrades it it goes down in price? that's too cynical. it's not the case. the stock gaps up a lot of times when it's gapped. a lot of times they're taking out their frerniends. you can get in trouble if you leak your buy recommendations. it's not worth it for someone to lose their job. often if the job doesn't go up, maybe they have no power. okay? they have no power. meaning people don't respect them enough. here's another tweet. this one is from yahoo k. words cannot describe my love and respect for you. you pick me up with your knowledge. when i read some of the e-mails it does matter. i leave for the office a lot and i say, man, that show was hard. the producer has to bear the

brunt of it when i say, man, that show was hard. thank you very much. here is one from credit coach, has the bull market ended without the fed raising the interest rates? yeah, a national calamity can change everything. the fed may have no control over it whatsoever. brad, let's take our next tweet from brad which says, what's your opinion on computerized high frequency trading? let me say point blank not only does it hurt the average investor but if i was the head of the s.e.c. i'd call town halls and say what makes you not want to be in? what they'll get is high frequency trading which should be re-examined and in many cases stopped because i believe it's actually trading on inside information. stick with cramer. ready to run your lines?

okay, who helps you focus on your recovery? yo, yo, yo. aflac. wow. [ under his breath ] that was horrible. pays you cash when you're sick or hurt? [ japanese accent ] aflac. love it. [ under his breath ] hate it. helps you focus on getting back to normal? [ as a southern belle ] aflac. [ as a cowboy ] aflac. [ sassily ] aflac. uh huh. [ under his breath ] i am so fired. you're on in 5, duck. [ male announcer ] when you're sick or hurt, aflac pays you cash. find out more at aflac.com.

see, there are methods to my madness. i like to tell you that's a bull market somewhere, i promise to find it for you. see you next time! >> a diplomatic cold shoulder. russian president and president obama initially met face-to-face at the sum mit for 15 seconds. now, with their disagreements oaf syria bombing since the end of the cold war have u.s. russian relations ever been this bad. then, a near 3% 10-year bond rate looks like a sign of data growth releases. decent jobs tomorrow likely paipave the way for fed tampering. anyway, we'll have famed economist