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. other 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, wackiest, most random, 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 making money than watching my traipsing around like the crazy man people say i am particularly on twitter @jimcramer, you can do everything i do, specifically actively investing in stocks, running your own 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 anyone can do, as long as you spend five hours a week doing the homework. i'm condoning a couple of hours a week these days because the research is so readily available on cnbc.com or from the websites of 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, which proved the uselessness of index funds. 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 actively managing your own portfolio for your own tax consequences. but how do you start? that's what we're talking about tonight. like i said this show is all about the method or methods to break through strictly quoting the method 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 pick 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 to be successful. i follow a lot of stocks which is something that was recently tested by compatriots at the debarry 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 the market works and 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 with me teaching 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 at my hedge fund. this refreshes the show. and it guides me as i 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 easiest potential ways to identify cramer names that won't always end up on the show is by watching all -- i can't believe they produce this every day, the new high list. stocks on that list, 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, many stocks keep going higher

from the bottom of 2009, any market that more than doubles from the bottom has to be considered 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 the bears 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 and continue to work. i'm not saying that you can chase stocks that are hitting the highs because they'll keep going higher. . that would be the ultimate in foolishness. i'm not doing that. i'm saying that 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 gigantic 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 market, it's not always that hard to play once you understand that there's often more continuity than change. things pretty much keep going the way they were going until something major shifts. then you got 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 you should never dig in your heels when the facts change. two incredibly important disciplines that i stress in my book "getting back to even" because it's not only about methodology, but 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 you're 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 has been, 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 @jimcramer, i apply the same standards of rigor that i used to use at the hedge fund. i rarely 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 pullbacks. the pullback preferably at least 5% down gives you a good lower price entry point in a stock that has a lot of positives going 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 these caveats because i don't want you to look at the new high list as your shopping list. but it's a great jumping off point. it's an important one.

it's a fabulous way to identify potential. i stress that word -- potential stocks to buy. you only buy stocks that have pulled 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 absolutely 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 really do do that. i'm telling you i know these guys. they do do that. the biggest caveat of all when shopping for stocks that have pulled back from their 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 that's down if the interest rates flew up, because that could hurt the next quarter. it would have nothing to do with 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, profit taking, or some panic in the market in general. those are the two main reasons. now, more than ever thanks to the fact that stocks are traded like commodities by ultra leverage hedge funds 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, if whatever made that stock attractive goes away, then that stock is no longer a candidate. 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 maybe something is indeed 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 of my best picks have come out in this process and hopefully some of yours can too. i 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 that 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 eog 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 link. 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 physically. buy some of those high quality stocks. let's go to joe in ohio. >> caller: a big brownsburg 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, you just let it run. that's always been 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 pullbacks and as billy joel said, you may be right, but i may be crazy. "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.

booyah, cramerica. "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 mad money for the insight jim offers. >> show me, send me a vine, make a video, tweet it. share it on facebook. use the hash tag, #mmwhy2k and we might use it on the air. >> can i get a booyah? ♪

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♪ 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 just 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. truly timeless investing wisdom,

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 a physique that's more like teller than penn. i want to pull back the curtains to show you how a professional looks for stocks to buy and knows what stocks to sell. there's no magic. there's no hidden talent. just a bunch of discipline. disciplines that can make you mad money if you master them. don't have to be a genius. you don't have to be that smart to be completely honest. you just 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 fool from king lear, 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 talking about 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 are few occasions 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 find them, 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 that happens it goes higher and you grab a quick 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 it. >> 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, as 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 sign of their 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'll catch insiders buying the stock because they want to give the impression of confidence, to create the illusion they're doing better than they really are. if they're seen buying their own stocks then the market will smile upon them. they play the system. 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, you might want to 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 buying that declares the sincerity. but we're only focusing on one sort of insider buy, buying at the high. there's nothing more arrogant

and yet telling than when an insider backs up the truck for his own stock sitting at the 52-week high list. they're saying, we know we rock. our stock has been en fuego and we'll buy the stocks hand over fist. we're buying at the high. i checked this out nine ways to sunday. corporate insiders aren't fools. with some notable exceptions occupying the wall of shame. not everyone deserves the benefit of the doubt in this business. after the financial crisis and 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 of you who got burned owning fannie mae and lehman brothers. healthy skepticism is one thing. a total unwillingness to believe anything positive is 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 purchase. most investors aren't smart enough 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 really need to raise cash, that's a good idea. otherwise, i want to own or buy to be honest. let's go to russell in florida. russell? >> caller: hi, jim, i was wondering could you tell me the advantages and disadvantages of stocks versus mutual funds and which one you'd recommend for someone who is nearing retirement for a steady stream of income? >> for a 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 destiny, my basis destiny. mutual funds i'm along for the ride. i don't know what they own or what price they buy at which is why 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's going on when you see that. after the break i'll try to make you even more money.

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 floor scotch of choice. it's actually pretty good stuff. but no, i'm in a manic mood. well, let's just say i'm pretty darn productive under pressure when i'm in high gear. so i'm revealing many of the secrets, 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 and trade like 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 secrets, two i use at the hedge fund at the charitable trust. unlike lady gaga i play with an open hand, not a poker face. allowing the subscribers to see

all my trades before they happen. better than pink, although i'd never mind raising a glass other than when i'm stock picking. the new high list is 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 thnk the stock has legs, not 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 hedge fund. signals that the stock might be worth owning 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 might be attractive are methods worth having. that's what tonight's show is. we talked about insider buying at the high.

i don't use insider buying 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 an incredibly bullish tell. that's when the stock has a heavy short 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 later. you can think of shorting as a regular investor, only in reverse. shorts turn that around, they want to sell high and later 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 this stock is indeed going lower. usually much lower. >> sell sell sell. >> in fact, as i always try to tell people it takes much more conviction 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 is that if there'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 at the same time in a panic, the stock will surge, because what you really have is 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 always look that up in all the different websites. then some of the people running the company start buying shares. >> buy buy buy buy. it's almost like drawing a line in the sand and saying our stock

goes this low and no lower. this is an explosive combination, one that often leads to a short squeeze. shorts are smart. in fact a lot of the time 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 in true jackie wilson style as the shorts panic and 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 multiple times each day on the charitable

trust, a buyback in the face of 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 are nervous and the market's in bad shape. they can wreck the stock. even if the 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 accounting issues and management 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. rules like waiting for an uptick or a higher price before you can short.

abolished 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 human nature has changed. 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 beforehand. 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 march 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 a heavily shorted stock in an etf like 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 pay 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.

"lightning round" is sponsored by t.d. ameritrade. welcome back to this methods to my madness episode of the craziest, most enlightening show on television, if i'm an egomaniacal person to say myself

and of course i am. we talked about tricks and when to pick stocks and know when to sell sell sell, all methods that helped me become a good money manager 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's called trading around a core position. i have used this term, people constantly ask me what does it mean, here we go. i'm all about trading, i don't have any advice for regular investors. i don't know, maybe they turned it on for the first time, but that's entirely untrue. the show is about longer term investing. 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 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 just a result of a topsy-turvy market driven by etfs, flash crashes 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 the spring of 2013. what does it mean to trade around a core position? so why don't we do this step by step. let's just 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 will be going higher over the longer term. what you're looking for here is great company with a stock that can get tossed around by market volatility 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 pitfalls 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 it 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 remember how 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, like a professional. when commissions were higher, that wasn't true. the commissions 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 had real prospect damage, that shouldn't be unreasonable given the fact that we're in a world where a stock can get crushed by all kinds of factors. as a stock comes down, 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 even take your winnings this way and help buy 25 more if it keeps going lower. you only got to sell 25 before the swoon. it may be small potatoes, 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 a core position is all about. a lot of people think that trading is incredibly 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. contra the image of trading as 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 in case it gets swatted

down or take advantage of any upside that comes your way. it's basic trading strategy that anyone 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 that some of the material is too sophisticated for tv. 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 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 very high

dollar stock it is worth it. it's a cheaper and less risky way to what i call creating a google at a more reasonable dollar amount price than it currently sells at. 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 around a 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. [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.

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>> crazy? crazy for you. that's right. i'm crazy for you the home gamer. for you cramericans. because the market is a crazy place. you may just need a mad man like me to get you through it. here's one more method to my madness. 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 somehow verboten. how do you know when to sell a hot stock? that's my focus. how do you get out 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 made by owning hot stocks 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 intuitive surgical, the latter 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's too late. people don't know where they'll top out. i'd be afraid to buy them too if i didn't have a discipline that will let me know, that tells me when you should get out. lucky for you i've got it. first, when talking about hot stocks i mean the hot, speculative stocks. low market capitalizations when they start.

they begin with little coverage 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 piqued 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 are, 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 a 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 of 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. when that happens, 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 the first half of 2006. it went 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 its monster energy drink was a fad and it had to dry out and crash. well, it did do that ultimately, 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 these stocks were. it peaked in july of 2006.

this was in part due 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 its fourth analyst. a very visible one, on 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 that we sell once the stock had all these analysts covering it. then they cut out with the earnings and hanson pretty much all other small hot stocks started to cool off once it hit the critical mass of 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 just 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 again like nothing ever happened. it was an amazing renaissance 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 often worth owning but you must know when to sell. that moment comes when you see too many analysts out the big name firms jumping on the bandwagon. letting you know when you have to start scaling out. stick with cramer.

are you ready, let's take some tweets. first one, this one comes from bison boy underscore 51. jim, are stock splits 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 cap, 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 individual investors, major ceos, split your stock. if you want them. maybe you don't want individual i investors. our next tweet is from @misssonta, can you explain why a large institution upgrades it it goes down in price? that's too cynical. it's not the case. often the stock gaps up when it's gapped. a lot of times they're taking out their friends. you can get in trouble if you leak your buy recommendations. it's not worth it for someone to be able to lose their job. often if the stock 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 yihaok . 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. when i get e-mails and tweets like this, it does make it worthwhile. 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 create a bear market and change everything. the fed may have no control over it whatsoever. brad, let's take our next tweet from brad vertrees, 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 were the head of the s.e.c. i'd call town halls and i'd say what makes you not want to be in? what they'll get is high frequency trading which i think should be re-examined and in many cases stopped because i believe it's actually trading on inside information. stick with cramer.

see, there are methods to my madness. i like to tell you there's a bull market somewhere, i promise to find it for you. see you next time! perry griggs shouldn't be a threat anymore. >> eight years in prison is a long time. i didn't think that we'd hear from him again. >> narrator: but this is no ordinary con man. this prisoner is prospering with a new scheme. >> from inside the prison walls, he was able to convince people he was a millionaire commodities trader and have them invest their money with a man in jail. >> narrator: and before anyone is onto his scam, griggs gets released... >> perry had left in a hurry. so this became an active fugitive investigation. >> narrator: ...leaving his victims with nothing. >> our property is taken