>> well, forget about general motors. >> i like 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 you friend, i want to make you money. my job is not just to educate you, but to entertain you. so call me at 800-743-cnbc. every time you think you've seen it all. every time that we thought there can't be anymore scandals as best as the last one or that can top the most recent travisty.

wall street comes up with a new twist that can if you're not protected. make you feel like it's not worth it to be involved in our stock market. i can't tell you when there's bad news involving ipo's and say how can people take this anymore? the abuse? the answer, frankly no other choice. you 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 the trip you want. pay for tuition. bonds can't pay that tuition. you got to own stocks. you need a survival handbook. that's what i'm giving you tonight. the insider trading scandaling of the 1980s. i traded through that. that had to do with machines

gone wild. didn't have anything to do with the economy. it looked like it was going to get weak because of the crash. we do seem to have ratcheted up the unfairness in the last couple years. i don't mean the economic fallout. who can forget the event that was the long awaited facebook fiasco? may of 2012. now this was a one in a lifetime opportunity to bring people back to the stock market who fled. a company that is coming public and had a sterling reputation. a loved product. quirky. but no more than google. the company had tons of money on hand. >> they didn't need to be greedy. it was have been an unbelievable moment to price the deal reasonably so everyone won. no. they offered a price that was

the top end of the range. maybe the company was being moved by desk top to mobile. something that turned out to be true. and the deal flops in a horrible way. making matters worse, the nasdaq became public on. and couldn't get the stock open. the deal fell apart. no one could sell the machines. total chaos. confusion and overvaluation. a close classic opportunity to people back to the stock market was botched and we had an event that drove people to the sidelines. just like in 1999/2000. how about where the market briefly lost 10 trillion bucks because of a computer glitch. i was on tell vacation when it happened. it was one of the most embarrassing events i have seen. who can trust that mechanism with her life savings? it seemed like a smoke and mirrors.

how about the latest round of trading scandals. this time the biggest one snared a hedge fund manager who ran billions. and that raja gupta the director of goldman sachs. got two years in the slammer. the travtty the government overlooked. many people who knew that those returns were too outrageous to be real including people who whistle blew to the sec or the firms connected to sec capital. how do you protect yourself from this? first, it can't be stopped. there will always be fraud lens. you can't get fraud and never know when it's going to strike. there'll always be down markets. even devirsfy occasion which we call the only free lunch caused you to lose less in the year.

the great destruction of wealth. let's say nothing can protect you if you own stocks. but what i can do is offer some simple rules that will let you have more confidence in the stock market even if you think portions are rigged or beyond your comp hengs and the first rule, know what you own. i know it sounds simple. how does this protect you from the myriad ways? you'll be able to take advantage of the mechanical lunacy and buy more at lower prices. if i was using limit orders not market orders. second, if you know what you own, you can handle a stock. take facebook. pretty good company. maybe you can buy it on the way down if you actually knew it. third, if you know you own what you own, then who really cares about guys like the raj or the

gupta? what does it mean? if you know what you own, you are in control. 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 a real issue. here's my answer. it's a practical way to look at it. first say you stocked me coming out of the stock exchange down at wall street and this happens five or six times every day. let's say you shot at and say what duke about that x, y, z, corp. tell me what it does. do you know the majority of the time people don't know answer. they don't know either answer. they got some tip they saw some chart or heard from an uninformed source. but they have no idea what business it is in or how it's even 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 or makes money or pays you know, losing money. they have no idea. i see this all the time. people say should i buy more or cut my losses. i come back and say why dud you buy it and if you don't know, of course, you should sell. ask yourself those same questions. can you answer them? do you know them? if not, you shouldn't be investing in that stock. or shouldn't be investing in any stock until you do. there's always good mutual funds. can you tell me what it does and why you bought it. and give me say a three sentence pitch about what it's good. if you can't, don't bother me and don't bother buying. yourself going to lose yourselves big time money. let's go to scott in colorado.

>> caller: hey, jim, i have a question about price tar gets. when an analyst sets a target price how does that fit in my planning for evaluating stocks and when does that target expect to be fulfilled by the analysts? >> one of the reasons why i'm neutral is because these analysts as the stock goes down, they keep making their price targets lower and as it goes up they make them larger. it isn't that valuable. what i find valuable is what 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. >> caller: hey, booya to you. >> booya back. >> caller: i had a stock with a

reverse stock split. are they trying to make it more interesting for other companies or are they just trying to save money? >> no. it's a great question. what they're trying to do is save embarrass. citigroup did this. they felt a stock that was under $5 wouldn't attract institutions. they like to buy stocks over $5. it was a way to gusty it up a little. it doesn't help or hurt. but makes a 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. bulldog: oooh!

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welcome back to cramer's stock market survival school. i'm giving you your ged in trading and ba in investing. and your master's in what to do when the machines rise up. kind of like "terminator 2, judgment day." look what happened in may of 2010. maybe you'll get your doctor rat in making money when everyone is losing it. we may not be able to control the amount of pain the market throws away but we can control -- >> the house of pain. >> how we deal with it. we can deal whether we're prepared or positioned for the pain. so we don't lose more money than we should. i'm going to explain the risks

that you need to watch out for in order to guard and expand. i'm talking about how you can deal with the risks that come from being a human being. simply being human. there are many of them. if you're not careful, you could do more damage to your portfolio than any external force, any negative that takes down stocks. basic investing mistakes can lead to losses. i want to make your portfolio safe to ensure you're in a position the make money. not lose it no matter how broke or rigged the game may seem to you. 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 regular investors find themselves making all the time. here are my rules. immu niezing yourself against huge losses. lesson number one is know what

you own. each stock requires time and home work. got to be able to explain to me what it does and why you bought it. never, ever buy stocks on margin, do not borrow money from your broker to purchase stocks. these are not homes you can live in if they go done. it's okay to take out a mortgage in that case. it's a piece of paper. and that can go down in value threatening your nest egg. the brokers always wanted to make a lot of money. in reality it's a great way to wipe yourself out. you cannot take losses. once you get deep in the red, the calls come in and cover what you owe. it's not safe. nobody needs that level of risk. nobody. i consider margin the equivalent of using in professional sports. starts off great, et cetends ba.

lesson number three, well, it's just so crucial i got to explain again. never use market orders. now when you pick up the phone and call your broker and tell him the buyer sells stock but don't name a price, that's a market order. what you're doing is giving that broker permission to fill your order at any old price the market gives you. so let's ask that. u i don't go to the market and buy this head of lettuce at any price. would you do that? i'll take any price you give me. no, you would never do that. and you shouldn't do it with the much more expensive things called stocks either. market orders are how people ended up selling proctor and gamble for $38 a share. when the machines took over and tumbled and nearly 1,000 points the flash crash in the time it took me to walk out on the set and sit there for a few minutes. with all the stories about

investment banks, you recognize the broker may be a great and helpful person. his top priority isn't to get you the best possible price. he works for a broker's house. his job is commission. and that's how he's often paid. that's why i don't have any conflicts here. i don't want your commission. have i asked for fees? no. that's why you have to trust me. you use limit orders. it's the easiest thing to do. over time can save you a small for chul. tell your broker the highest price and lower price. that way you will get your price or if the stock isn't there. then the trade won't happen. that's okay. you got to protect yourself. always use limit orders. not market. never forget the lesson of the down 1,000 point debt. it can happen again and it wasn't bogus for those who used market orders. those trades happened.

they got hosed. i need you to make money on those down days. buy stocks at your price. if you use limit orders rather than market orders, buy or sell, you will 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 blown out. after the break i'll try to make you even more money.

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tonight we're going back to

school. stock market survival school. when the market is in awful shape and broken, there are worries that the system isn't working correctly. we know it can happen even in outrageous bull markets. every investor knows stocks sometimes go down. nature of the game. don't be in the game if you don't think that. there are times they go harder than others. at times when they go down relentlessly and the agony is unbearable. i am going over three lessons. always know what you own, never use market orders, these are basic rules but basic because critically important. essential to building and maintaining your wealth. i got four more lessons to help. from losing more money. first this is to the need to know what you own.

it takes time, it takes home work. i understand. if you can give it a 15 minute overview. much less, you might as well be g gambling. the only way you can feel confident is by doing the work and understanding the companies in your portfolio. that means it's not safe for many homeowners to own more than 10 stocks at once. many of you own far more than that. i did at various times. i can understand that. when you get above ten you run the risk of running your own mutual fund. there's no good reason to own 30 stocks when 10 high quality diversified names will due unless you're a full time home gamer. it's like having a part time job in addition to the one you have. ten is just right. more than ten, you'll start skimping on the home work and

that's dangerous when stocks seem to go down a lot. when we're in a bear market, it's horrendous to have that many stocks. don't own too many dollar stocks. i accept lower dollar digits. i mention them all the time. they help by making the market investing interesting. they allow you to keep your head in the game. while it's safe, the emphasis is on the singular. not more than that. as tempting, they shouldn't make up your whole portfolio. they're risky. you want to coal gates. know company stock falls below 10 bucks for doing well. hence, why i told that gentleman earlier why many companies like to do 10 for 1 reverse splits. it may seem like under $10 names

have less down-side than other stocks. single digit stocks can go to zero, or more than one, you may just be gambling. next lesson, this is one i beat over your head every wednesday but it is so critical. i'm going to tell it to you again. you must be diversified. it don't cost you nothing but saves you money. i make that point in jim cramer's real money. no matter how many times i say it though, i know many of you still too many of your stocks in the same sector. i can't believe after all these years why shouldn't you put all your must be in one hot sector? why do you have to spread it around? when the hot sector could make you money? because the biggest risk out there is sector risk.

when some big bad event happens, one that can damage an entire sector, only some of your stocks will go down if you're diversified and others will go up. same with the bank stocks in 2008/2009. when the market is getting killed day after day it's important to have dividend stocks. what i call ahy's accidentally high yields. most people don't realize the importance. you know what, like i told you earlier, going back to 1926, 40% of the return from the s&p 500 is coming from reinvested dividends. when you forego dividends you're giving up the gains over time to make from stocks. all the reasons becoming more compelling in a down market. that's when they really give you

that cushion. yes, they're even a trampoline. as the prices go lower, their yields go higher making them attractive to other investors and giving you a better return for owning the things. you can buy stocks safely 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, especially the accidentally high yielders, used to have small yields, but because share prices have gone down, the yields have become big and they're one of the few groups you can feel comfortable with. accidental high yielders worked better during the financial crisis. they still work. whenever the market gives you these dif debit bargains. those big dividends for company that is can afford them, well, they are bargains. mark in my home stay of new

jersey, mark. >> booya, jim. >> booya, mark. >> caller: do companies have to publish their dividend rates? >> remember, what i care more about the price that you buy the stock at, not the price -- you do it with the dividend you do it with it. it's cheaper without it. they're not something you should worry about. what you should worry about is buying high quality stocks. a fantastic newsletter that is all this. let's go to louis in california. >> caller: good, dr. cramer. >> thank you. >> caller: i have a question of diversification and risk. i watched your show for several years and newly retired. i followed your advice to buy a good company. it dips a bit.

every time i sell. i allocate the profit in dividends received as a return on my capital leaving the profit allocated remaining shares of the position. so now i have four stocks 60% to 100% owned with money and that's a profitable booya! >> that is perfect. can i help you? >> caller: here's the question. the other four stocks at risk that i have are diversified and balanced and most have some profit but some overlap the other stocks. which is more important, diversification and balance of the whole portfolio or diversification and balance of those shares still owned by my capital? >> you know what i'm going to do, this is the first time i ever had this question. i'm going to say that if you're playing with the house's money, i'm going to bless the

diversification because you're not going to give it back. you can because you have already won. how about josh. >> caller: i was wondering the future's market? >> i hate it. i won't use it. i think people that use it are lazy and looking at how europe was and asia was. we trade stocks, not futures. quite simple. you've got more tools for your survival now. we noted too many stocks. we know limit the number of speculative stocks. because they tend to trade together. diversification is key and we know to focus on high yielders particularly in times of trouble to reduce your risk.

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to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because the future belongs to those who challenge the present.

all night i have been teaching you part of cramer's stock market survival school. going over things you can do to minimize your down side. read the original sequester scares. i want to go further. in order to deal with increased risk from a market going up a great deal, you need to understand what those risks are and what might cause the next selloff and be familiar with forces causing your stocks to get hammered that you may not

even know about. when the market corrects and you know it's going to have to, you need to know why. you need to know what's hurting your stocks. now we like to think when a stock goes up or down it's because what's happening at the company. companies that do well get well and companies that don't. if this is decline, the connection between the company and stock can be thin and you'll see the good companies get taken down right with the bad ones even when they report good news. that's the action that can drive investors insane. it drives you batty. you're probably thinking you can never make anything go higher. is there any point distinguishing the good from the bad? why bother doing the home work cramer says you should do?

eventually we're going to come out of the selloff. in the interim it's crucial you recognize why this is happening. you might be able to make some sense out of the chaos. you will see stocks trading with the good, bad and ugly all going lower. some is absolute pure panic. but there are also structural reasons why this happens and you need to know them. hedge funds turned stocks into an asset class. close to corn or lumber. many of the big institution money managers, money stock managers are too small. so they turn to the btf's. when optimism takes over -- i'm

sorry. pessimism takes over. they'll sell the futures and bang them down and sell the etf's. there's also an element of group thing. most managers tend to act like herd animals. think like on the discovery channel. causing them to blow out all at the same time. we saw it over and over again. this gets at an issue you must be aware of. the ideas of stocks as paper risks. all the things that can cause the stock to go down that have nothing to do with the you should lying company and everything to do with the way the asset class of stocks is traded. these have nothing to do with earnings or the fundamentals but have an enormous amount of control over where the stocks go. especially over those quick declines that we must be on the

lookout. what kind of risks? let's say we're in a down-market. then you have to worry about the ability of short sellers to create fear and panic. it trumps the ability to instigate greed. with endless selling fire power, now this is new. it didn't always use to be like this. we used to have a securities and exchange commission that stopped things. one that helped you. helped the little guy. and then the bush era came along. the sec, it lessened its commitment to the individual and increased to the uptick rule. it was created if the aftermath. great crash of '29 to '32.

curved the ability to bang down stocks. they had to be willing to pay more before they could sell a stock short. for 79 years it worked. then the sec got rid of the rule. you think these a coincidence they got rid of it and we had the great recession of stocks? yeah. you know the stocks were able to continue to run wild when we got a particularly nasty selloff. that short-selling was instrumental in the fall of laman brothers. or we have seen it in stocks in our market because of deficit funding or debt ceiling issues. sure when things are good, we forget about the impact of aggressive short-selling. when they're bad, we feel them plenty. they just aren't fair. i hate it. to make matters worse, now the mass destruction.

double, triple, short etf's. giving you two or three times the short selling bang for your buck. only existing for day traders. that's not the point of our stock market. they don't work for long term or medium term investors. take the skf, 100% leverage. you think this made people money during the financial crisis? all the bank stocks got wiped out. wouldn't this be the instrument of choice? wrong. the skf actually lost you money. one of the worst years in bank stock history. that's what happened. why is this possible? because because at the end of every day they rebalance. and more on plain with volatility. here's an interesting issue. if they have no value for long

term investors, what's the point of having them? fraf frankly it's hard for me to conclude to allow the shorts to get around the margin rules and manipulate the market at once. this gets to a problem that -- here's the bottom line. stocks are not cash. they can't be viewed as cash. they go down for many reasons including hedge funds gone wild. and the selling fire power of the lefnlg etf's, a mass destruction. stay with cramer.

all night i have been teaching you how to survive rough corrections to the bull market. pushing stocks around like the futures of mass destruction and things that can cause the performance of stock to be disconnected. there's one more risk you need to know about if you're going to invest in a dangerous chopping market or one that turns like that. it's that the life guard is off duty. when you go swimming in this market you better remember there's nobody out there making sure the water is safe. in order to protect the little guy, the sec doesn't think it's their job anymore. that's my opinion. high frequency traders who turn

over to you. these high frequency guys make 80% of all trading. this is the market you're dealing with. we need an sec that protects the unsophisticated. and abets the most sophisticated traders at the expense of you. this is no longer the sec of arthur levett. he was one of the greatest chairmen ever. to make the market safe for the individual investor. he favored regular retail invest tors over you particularly over the hedge funds. they got all kinds of money. but under anything goes, bush, sec, that all changed. the obama administration has hardly done anything to roll back the damage. making the market less

legitimate and less safe for you. allowing these machines to pin each other. the mass destruction allowed selling power or buying power. a great depression of irregular lags which protected us from endless short selling. the sec improved or enacted all of these things to make the market difficult when things get back. and will do so again when we get that sharp decline. so if you expect the sec to have your back, think again. if you think maintaining the legitimacy of our stock markets, not so much. their whole bias is to make lots and lots of fast trades that generate a fraction of profits. now, the for-profit public companies and their goal is to

make money. we're living in a different investing world. until we get someone on the sec, let's look at this through the prism of your 401(k) or ira. 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. the sec isn't quipped to find or spot these people. maybe it's examining the minor players instead of the major ones. 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 manager where he puts it to work in

something that doesn't have an accessible price. if you can't find the price on yahoo or cnbc.com, listen to me on this, i know. here's the bottom line. the flash crash is more like a battle field, world war i, stocks that trade like commodities. moves that make no sense whatsoever. these are now the normal. because the obama sec like the bush sec isn't watching the store. we don't have to like it. we better get used to it. stay with cramer. time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box.

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i have said it before. i have the smartest viewers around. >> so let's hear from you from some of the tweets you have been sending at jim cramerme. our first tweet is from alan. he writes why limit orders only? got to be a good story with it. let's say you had a sell order in during the flash crashes. we know they're no longer going to be isolated events. let's use proctor and gamble. stock went to 40. they can give you whatever price they want. and then it bounces back to 60. if you sell it at 59, boom, you're out. sold at 59.

you can always buy it back at 30. it's about flash crashes and wild markets and taming them with limit orders. our next tweet is fantastic. at fitted hat day writes it's true, at jim cramer called me out for yawning when at #gatech haven't yawned since. that's true. i used to make people leave my hedge fund if i caught them yawning. i said just go home. take a nap. i also approve of our staff's hunting through the archives. nobody does it better. >> no more yawning, man. i used to fire people. i made them go walk around the building and they're fired. >> yeah. i mean like i have become sweeter and kinder and someone on the staff yawns on "mad money," i said listen go get me a soda. i no longer try to fire people. but i think i will. anyway, here's another tweet --

i'm not kidding. that means sighing is even worse. another tweet from zander, does a voe la tillty index belong in any portfolio? own stocks for heaven sake. next tweet,@garc 108. when cooking and cleaning leave them down, yeah, i like to dress up, that happened to be ellen's day off. it was mother's day. someone has to take up the slack on mother's day. it might as well be cramer. my eggs are good. everybody was -- it was a good day. let's go to the next tweet from who wrote the following. i got a year left of college, what would you recommend to do during the senior year? this is easy.

have the gosh darn time of your life. i got news for you. every day from then on is work. a lot of these kids think college is work. that is the best time in your life. everyone looks back like don't waste it working. this one comes from booya, from ecuad ecuador, watch offeve eveyou ev. great show. i know i got reach. let's keep them coming. 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. the cadillac summer collection is here. ♪

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in a we believe outshining the competition tomorrow quires challenging your business inside and out today. at cognizant, we help forward-looking companies run better and run different - to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because the future belongs to those who challenge the present.

. i like to say there's always a bull market somewhere and i promise to find it just for you >> the following is a cnbc original production. [ music ] >> marijuana is the most profitable illegal narcotic. >> this is a huge business. uh, in california alone, it is the number one crop. >> and there's at least 13 gardens within a mile radius of our home. >> thirteen gardens right around your house? >> mmm-hmm. >> yes. >> wow! >> thousands of growers, millions of users, and a market in the billions. >> how much money was coming in to your marijuana smuggling operations every year? >> about 50 million. >> it's a multi-billion dollar business rife with guns, gangs, and plenty of money. i'm trish regan. join me for an unprecedented look inside america's marijuana industry. [ music ]