defined risk and through put calendars. >> and on that word, it looks like our time has expire. i'm mandy drury. check out the daily segment inside "fast money" every day, see you next friday. have a great weekend. my mission is simple, to make you money. i'm here to level the playing field for all investors. there is 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." i'm trying to make you money. my job is not just to entertain you but to educate. why don't you call me? i think stocks have become the most hated commodity in existence. they are certainly hated anytime than i can remember in my career. i believe anyone can turn a

profit in the stock market as long as you are willing to take the time and effort. i wouldn't try to educate you if i think this is more than a possibility but feasible. you can succeed at managing your own money. so if that is the case then why is it so darn difficult? how come so many people struggle to make money in the market? how can i believe it is possible for you to beat when so many people fail to do so? you can do it. you got to do it the right way. one of the biggest obstacles is a lot of clarity about what is the right way to do it. what is investing supposed to mean? i have seen countless people try to follow conventional wisdom only to have investments wiped out because conventional wisdom is wrong. they thought they were being

responsible. in other words, to borrow a phrase from cool hand luke, failure to communicate and that is why tonight we are going to spend time de-mystifying the concept of long term investing. it has become more of a hindrance than a help. i'm going to set you straight tonight. here on "mad money" we are all about long-term investment. too often people let the term long term get in the way of successful investing. if you think long term is about making boat loads of money for decades. that is something i think i can teach you to do using disciplines that allow me to make partners. however, there is a darker side to this concept. all too often i have seen people

invoke long time investing is an excuse, an alibi for poor performance or not paying attention. you shouldn't worry about your losses or the profits you are missing in the present and it is okay to take short term pain because you will make back the money you are losing with long term gains. sometimes that is true. it is not just a big joke. most of the time losing money month after month isn't a good recipe for making money over the long term. most don't match and transform to long term gains if you wait long enough. money making over the long haul is the ultimate goal in the game but also the ultimate excuse. that kind of thinking will only make you a worst investor. before i can teach you how to invest for the long term i have to dispute the long-term alibis you have been fed. at what point do you need to

cover your ears. you won't listen to conventional wisdom and steer portfolio on to the shoals. long term investing is not the same as simply owning stocks for the long term. in other words, please don't confuse the good investor with the ideology of buy and hold or as i dub it buy and forget. buy and hold has been conventional wisdom and this idea lost more money for more people just because you have a long term horizon doesn't mean you can afford to take loss of a short term and just because losses are unrealized it doesn't make them into gains. losses are losses realized or otherwise. the notion of being in something for the long term does not justify owning damaged goods. come on, man, it has to come back if you hold it for the long

term. once you purchase your stocks you wait. me, i have never liked waiting. it happens to be a terrible strategy. that is why i am saying you have to keep track of your investments, doing the homework that i talk about on the show. you have to do it going over quarterly reports and reading transcripts. much of the research that used to be available can now be found on the web like on yahoo finance. it is your money. invest the time in it. it means you have a license not to pay attention and you don't have to worry, wrong! you always have to pay attention. the moment you stop is the moment you start losen money and you will never be able to recover until you get engaged with your portfolio again. sometimes stocks can go in decline and never recover. in that case you have to get out before the damage becomes too

horrific. ask people who road down nokia or radio shack. be a long term investor isn't a license to be a lazy investor. that just doesn't work. investing for the long term does not mean owning stocks forever. if there is one good thing the crash did is the notion that you can buy and hold stocks. go ahead. . magically they somehow make you money. i'll be back to 50 in no time. from the stories i read and some i hear the lessons are being forgotten. i can't have that happen. i have been one of the loudest opponents. many of the people who found this philosophy have tried to change their tune or have been so discredited. that doesn't mean you should

write off the idea of long-term investing. it doesn't mean stocks can't make you money. that is what many of you think if you have confused long-term investing with buy and hold. the truth is that stocks are still the best way to make money for your time and pay your kids for putting kids through college or to build savings so you can afford items like a house or a car especially stocks with consistently growing dividends. compound your wealth by investing. the dividend players that i highlight in many of my books. that said, you will never get any of those things if you use the concept of a long term horizon as an excuse or alibi for bad performance. and holding stocks that can't even afford to pay their debts let alone some of the dividends,

something you won't know about if you buy and forget. here is the bottom line. long-term investing has gotten mixed up with bad ideas over the years. that doesn't mean it is impossible or not worth trying. i can teach you the strategies as long as you remember on a long-term investor is no excuse for not doing the homework or following the rules i lay down. if anything being in stocks for the long term requires more diligence and patience than if you are in them for the short term. don't throw away the lessons i teach you. a loss is a loss is a loss unrealized or otherwise. don't you ever forget it. bill in pennsylvania, bill! >> caller: hey. >> speak up, bill, the floor is

yours. >> caller: hey, i thought i was a rock star and made a couple of great trades and made about seven points in a week on one stock and a couple points in another to have the stock continue to run up another 10, 12, 14 points. do you have advice on how to realize the full potential and become more of an investor rather than a trader? >> you have to label your stocks and say this is a core position. that means you can sell some but you must own the rest. that is what i do. if it is a core position i can sell some on the ramp. anoint your stocks. decide what should be core and then hold on to that core position. kim in california, kim. >> what is shaking? >> i want to give you and your staff major props for recommending u.s. airways. >> they are swell people there. sports fans, most of them.

>> caller: that stock is up over 10% for me. >> well done. >> caller: my question is what is the difference between buying on a dip and a pullback. can you give us an idea of the percentage that fits? >> i think three to five is a dip and pull back is five to eight. today down three, down five over a couple days. 5% to 8% is a classic bull market correction. in the correction i say you have to give it -- stocks at 12 put in a bid to buy some at 10. if it needs to be a correction it needs to be under 10. and then if it is real correction you have to give it some room. and if you get 10% down that's fine. 20% down then you have to leave room. correction can be that deep for some stocks. i don't know when long-term

investing became a bad thing. it's the right thing if done with homework and discipline but not just some label that says i don't have to worry about it. i labelled it long term. "mad money" will be right back. miss something head to madmoney.cnbc.com. i make a lot of purchases for my business.

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♪ let's talk price is right. the stock show. if you want to actually make money from your stocks which i know you do then it is absolutely critical that you buy them at the right price, not the wrong price. that is true whether making short-term trade or purchasing something that if everything goes right you expect to hold for years and years. when you pay too much for a stock at the beginning you make it more difficult to rack up big gains. a fantastic idea but if you get the price wrong you might not make money at all. i think price is a determinant of unsuccessful investing. it is incredible how unimportant people think the first buy is. how do you find the best price

to pull the trigger? when you are investing for the long haul you have one advantage. a resource that we don't have the luxury of exploiting. i'm talking about time. as long term investor you have all the time in the world. when there are no near term to drive up the price anytime soon you can afford to be patient. you don't have to pay the price at the moment. you can wait for the stock to come down to your price. what you can do is keep your paddle on your shoulder and wait for your pitch. of course, you are never going to get a more clear signal telling you it is time to buy. maybe a 3-0 pitch comes in. so how are you supposed to know how long you should wait before you pull that trigger? simple. you don't know. this is one of the areas where you have to embrace the fact of your ignorance.

loading up gently and over time. you buy at one level and the stock goes down you will feel like an idiot for losing money so quickly. most likely you will get frustrated. some people say i'm down $2. i want to sell. you might want to use the weakness to buy more. if you go in small increments and pick up more shares you can avoid paying the wrong price. a hedgefund for my charitable trust and run it for years and years i play with an open hand. i like to buy with wide scales. that is authentic wall street gibberish. allow me to translate. buying with wide scales. you want to get the right entry point for your long term investment and this is the way to do it. it is impossible to call perfect

bottom the stock. we don't try to time the bottom by buying all at once. the smart move and the way the pros do it is to buy incrementaly. consider it insurance. you want to be all in because you are so sure that you are getting in on the ground floor. in this game i have to presume that there is a basement, if not several subbasements. this notion of scaling into a position on the way down is a trick to help get away from the difficulty of timing. let's say you want to buy shares of caterpillar. if you buy all at once and cat tips down you will feel like a stooge, like shimp. you will have lost two grand. that's why we don't want to do.

you want shares start small and then wait for pullback. if cat comes down to 85 rather than contemplating suicide you are rooting against the stock so you can buy 100 shares at a lower price. if it drops to 81 put in the final 100. if it drops below 80 you have the price here. caterpillar goes higher than initial buy and makes more money that is a high quality problem where i am from. sold the stock at ten and it went to 15. what do i do? you know about buying incrementally. let's talk about scales. you can buy with the strict scales or wise. let's take a look. you would say buy 1,000 shares. every time it by loses a point you buy.

the strict scales you buy the same increments every time cat goes down. you purchase the same stock. some places it can hurt you. that is why i like to use wider scales. a volatile stock like caterpillar. you buy larger and larger positions as the stock goes slower. the first example at 90 was a strict scale. this was a strict scale. let's talk about a wider scale. i used to think about it like a pyramid. if it lost a point i would buy shares. then you double down. see what i mean about the pyramid structure. the larger the stock goes the larger it goes. the great thing sthai leave you with lots of room to maneuver. using wide scales allows you to buy the greatest number of shares at the lowest price. the best thing is you can afford to be patient and build a wide

pyramid. when you look for fundamentals you can look for sector wide selloff. just make sure the story is still in tact. the stock is never going to be no matter how far it falls. you need to abandon ship and find a better one. here is the bottom line. in this game few things are more important than price. you have the luxury of being able to wait for a good one, be patient. keep your bat on your shoulder, wait for the right pitch. remember, don't buy the low ones. be sure to buy with strict scales or wide scales and build that pyramid to get the best possible price. bill in connecticut. bill! >> caller: i own some stock and dividend reinvestments for over ten years. now i'm trying to determine how to get a cost basis.

>> you can get the average number of shares that you bought. then i think your broker will have to help you on the cost basis. i'm not sure when they awarded. it is a great question. my broker has -- it always had an average price whenever i wanted it. price matters. put on that poker face and be patient. you have the luxury.

♪ every stock you buy has an expiration date. knowing when to sell the stocks especially the winners is every bit as important as knowing when to buy, buy, buy. it is more critical. so many people make such a huge number of selling related mistakes either by panicking or getting greedy and not selling at all. if you pick the right stocks and get it at the right price there will be winners up big. the point is greed is not good. it is dangerous. remember pigs get slaughtered. when you have a serious winner

you have to pick some profits off it. you have to think some profits. i know you will be tempted to let winners run. otherwise your winners can become losers. it is best to lock in profits by selling incrementally. you haven't really won until you have taken something off the table. i know this is a totally anthetical position. after what we have lived through, the dotcom bust. letting them ride does seem foolish. if you can take something off the table and make sure you don't take a huge win into a loss. you don't need me to tell you to sell your losers. when you own a stock and the underlying company lets you down maybe the story isn't working

out or the economy is making a change to the worst. don't give them the benefit of the doubt. just sell. better to act quickly and take a small loss than give a broken company a chance to burn you and take a much larger loss -- >> the house of pain. >> lots of people hang on to losers because they were once big winners. that is the worst kind of amateur mistake. even then these people know the losers deserve to be sold. they want to sell. they are just waiting too long for an unrealistic price that is too high. it will get back. i know if i just wait it is like some plant like it will bloom. selling your losers seems to make perfect sense. you have to at least trim your biggest gainers. the first reason is simple, diversification. your positions can get so big. let's say you own a stock that doubled. apple that stock initially

represented 15%. then it goes up. it is now going to represent a larger piece of the pie. that point you have too much exposure to a single stock. that is why my charitable trust sold apple. totally because of discipline. we weren't clairevoyant. keeping your eggs in one basket. maybe we are better lucky than good but we did trim it by necessity. necessity was the mother of invention and the mother of profits. that is why you need to trim your winners so they don't become too large a piece of your portfolio. if you are investing for the long term you have a chance to go gradually.

scaling out slowly over time. never sell all at once just like we should never buy at once. try to get moments of strength. you don't want your portfolio to be heavily weighted. there is one more concept you should be aware of and that is the idea of playing with the house's money which i explained in one of my investing rules a couple of books ago. you want to trim your position to the money you invested in that stock comes from profits you have made. and not a penny comes from your original investment. once you pair back your winners so you are playing with the house's money you can afford to take far more risks with what is left. let that run forever. that is the holy grail of investing because you can't lose. you can ride it all you want and never let it go if that is what you would like. it is bought and paid for by the house's money. younger investors can afford to

let gains run for longer than older. those of us older cannot afford to risk pretty big investment gains. we are too late in the game. when it is young it is less important because you have your whole working life to make it up in your regular job. those of us in the older demographic even if you are well preserved like myself you got to be more careful. that means trimming winners more aggressively and ringing the register more regularly than any young investor. when you are investing for the long term you have to remember to take profits and trim back the winner so-that the portfoli stays diversified. play with the house's money. >> house of pleasure. skip in texas. >> caller: i notice whenever callers ask about advice for

buying gold preferences for gold coins. why do you favor coins the most? which coins are best or does it matter? >> it doesn't matter. i prefer coins because you can store them easily. the gold stocks have been horrendous. they are not correlating with gold at all. they are a huge mistake. let's go to samantha in new york. >> caller: hi, jim, i'm so excited to talk to you. love your show. so here is my question. i'm 22 but my job doesn't offer 401 k. i want to start investing with the little money i have. >> that sounds great. >> caller: do i start investing with risky stocks? >> you are only 22 which is a terrific time. i want you to mix it up. i want you for 20% of your capital. for 80% of your capital i want a

dividend, a foreign. i want bull names. if you got great specks i'm willing to take up to 30% because you have your whole life to make it back. congratulations for being 22 and wanting to invest. that is how you get really wealthy. we take lessons from wherever we can find them. when it comes to long term investing you have to know when to hold them, when to fold them and when to sell, sell, sell.

if you want to invest for the long term it means planning for retirement. in the long run you will retire. trying to put together enough money to become financially independent is what this game is really all about. i'm sure you have heard the basics of retirement planning. you have to contribute to your 401 k plan and contribute to your individual retirement account or ira. it is actually right. it is helpful. tonight instead of just telling you to park in your ira i will give you suggestions with stocks to buy. why everybody tells you to take advantage of your 401 k is because these are tax deals. the money in a 401 k or ira

comes from retax income. while the money stays in the account no taxes on the profits. for years tax free gives you much larger returns. you only pay taxes when the money is withdrawn and then regular income just once. that is a sweet deal especially worried with tax rates and dividends and a lot of people try to front run the change of tax law. many people were worried about it. as much as i like the tax status. most company plans, most company 401 k plans stink. they have high management fees and administrative costs and worst of all they typically offer you lousy choices for investments and not enough control over them. the 401 k business is a bracket for managers.

ideally when you are managing your own money you want to pick up the five to ten stocks. most 401 k plans don't let you do that. often they let you choose between a couple of dozen different mutual funds. i would like to have a little more variety. some stock funds and bond funds is all they offer. the best to do is find a decent low cost index fund and put 401 k money in there. you can do better by picking stocks and managing your portfolio on your own. that makes 401 k a poorly designed vehicle for mad money. sometimes it seems to be set up to benefit the financial services industry and not you. come on. nevertheless, as much as most 401 k plans stink you should still contribute if wrou have one in order to take advantage of the tax nature.

many employers will match. i'm a believer of never turning down free money. when saving for retirement put enough money to max out the company match if you have one and then stop. and then the rest of your retirement investment should happen in your ira. ira gives you freedom to invest however you want. you can do both. you are allowed to. what should you buy in ira. your best bet here is to own high yielding dividend stocks that provide protection and generate income. a couple of wrinkles make investing different. as much as we like high yielders you don't want to buy mass partnerships. think pipeline stocks. the reason tax advantage as distributions are considered return of capital which means you don't pay taxes until you sell the stock. if you buy too many you could

actually end up giving up the tax favored status and paying irs taxes you wouldn't have paid if you simply bought in a regular brokerage kaek. it is too hard. too many people said it is too hard. the same rule can hit you with certain real estate investments. in general reits have higher rates. that is all up to the individual. beyond that, you need to use same metrics to apply to any other dividend paying stocks. the company better have enough earnings to cover the payout. we like companies with consistent track records of raising dividends. even if they might seem sleepy versus go go stocks. a real hole in your long term investing plans. don't be afraid of using boring

utilities. they made a lot if you took dividends. a huge part of long term investing is retirement investing. the best way to prepare for retirement is by putting money in a tax favored vehicle. the goal too be able to reinvest dividends and let them compound without paying taxes until you withdraw your money until the end. i cannot believe people don't have an ira or 401 k. stick with cramer. are you sure we should take this billboard down?

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how do you buy something when that is not the way this game works most of the time? there are few stocks that you can keep riding higher and higher year after year. when you find them they are the holy grail of investing and almost never go out of vogue to stick with the fashion show analogy. there is no such thing as the stock you can own forever. that is the essence of the kind of buy and hold thinking that lost so many people so many huge sums over so long. >> the house of pain. >> some are lasting longer than others. they can be owned for much longer. i'm talking about secular growth stocks, a rare breed that you should always be on the lookout for. these companies are driven by powerful stories that transcend the strength or weakness. most need a healthy economy to

thrive. a true secular growth story can deliver fantastic numbers. numbers so good they can keep powering higher. how do you spot a growth? i like to look at growth themes. take the move towards healthy eating and natural and organic foods. this made whole foods the go-to supermarket and a powerhouse stock. it is for companies that harness the internet, netflix, amazon, google. of these i think google is the most staying power because it has the most earnings power. google has social, mobile and cloud. that is the holy trinity of secular growth. i don't see that diminishing anytime soon.

what you see is fewer and fewer plays. years ago back when smart phone was a recent invention i started talking about the power of the internet. there was a lot of money to be made all over the smart phone food chain. you could buy best and in the end not even the best of the best. apple can thrive when the theme runs out of gas. the fact that apple could go down hard is a reminder that nothing lasts forever. you have to monitor stocks for possible changes and the recognition that something that was once a secular growth could be more of a hostage. pcs used to be secular growers. in my former years as hedgefund manager nothing could compare to pfizer. they were capital gains machines. with innovation they have become almost like utilities in growth characteristics.

these stocks would be owned by those seeking income. they become bond market equivalents. a rising tide does not lift all ships. ones with holes still sink. here is the bottom line. most of the time you can't hold on for years and years. if you find a secular stock there is nothing wrong with holding for as long as the stock is in tact. just like life secular growth doesn't last forever. while you might want to go for the greatest suffer ride, even the biggest wave like the wave of apple ends up crashing on the shore. jason in maryland. >> caller: how are you? >> i'm fine. how about you? >> caller: hanging in there. i was just wondering about small, medium and large cap investments. what are the benefits and cons of each one? >> large cap includes a big

balance sheet and big dividend. mid cap means a little more hit and miss. large cap companies have great benefits over mid caps. small caps are speculative. they may hit the ball out of the park or may strikeout. diamonds may be forever but stocks are not. you must stay disciplined and do homework to survive. stay with cramer. your 16-year-old daughter

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i have been trying to walk you through what it does and doesn't mean to be a good long-term investor. i have one last point to make. there is nothing virtuous about being long term investor. trading has become a loaded and dirty word and shouldn't be. it is imoral to flip in and out of stocks. we are here to make money. i think picking long term winners is more lucrative and easy strategy to duplicate at home. if you find that your portfolio does better when you are managing your money more power to you. i'm not judging you. never forget you do not have the horses to compete with the high

frequency bandits or hedge funds. at the end of the day when you go to the bank they don't care you made your money long term trades. we see banks taking -- they will not draw line at money you made at trading stocks. you can find a human isn't going to say i'm sorry i can't accept this deposit. this money, no. it is dirty money from trading. that never happens. money is money. here is some of the buy and hold. the only money worth making is the kind that comes from investing. the only difference between trading and investing -- trades are positions you want to hold for weeks or months and maybe a day. investments you plan on being in for the longer. don't be fooled by the false dichotomy. you don't have to choose between

sitting on your holdings as an investor when you feel like you should be taking action. you can do both. you can do either or find a happy medium. no matter the path you choose be true to your disciplines, do your homework and i bet you will do better than just about any mutual fund. only those trying to manage money for themselves and their many minions would disagree. stick with cramer.

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no. it's not a way to be able to say i don't have to care. you should care. there is always a bull market somewhere i p to try to find it. find it. i'm jim >> narrator: bacardi rum. steeped in a time-honored tradition, combining science and technology. >> that bottle's going to spin a few times to get labeled. >> narrator: art and passion. >> you cannot imagine how much fun we have making rum. >> narrator: a multibillion-dollar industry owned by one family. and today, some family members reunite to create their best rum yet -- a new blend celebrating their 150-year history. now get an exclusive look behind the back door at bacardi's ultimate factory.