electronic arts, ea. >> thank you for sharing your thanksgiving eve with us. we'll see you back here at 5:00 on monday. for more "fast money," everybody have a safe and happy thanksgiving. "mad money" 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. others want to make friends i'm trying to make money. call me at 1-800-74 3-cnbc or tweet me. in the face of declines, rallies and even just plain jane garden vare variety days in the market we just always guard against our own human emotions. but you often get the better of

us when everything is going well in the stock market and when things are going badly they seem to grip us totally. when things are too good we take too much risk. and when things are going terribly -- we despair and leave the stock market entirely. it's a fact of life and over the years, even as stocks have climbed and climbed, there have been swoons, i mean real swoons, go down swoons. >> sell sell sell. >> that drove people out. they went to securities that give you little or no return. then they watched the big gains from the sidelines. now i totally understand the aversion to stocks many have these days. we have reasons to be disench t disenchanted. the huge downturns of 2000 and 2001, the blight on stocks when cut in half from 2007 to 2009. debackcals like the flash crash or facebook ipo. >> house of pain. >> insider trading cases an the obvious situations where stocks went down and down and down more. it's clear someone knew

something and you didn't. i validate these feelings right now right here. stocks remain the only game in town. maybe one day when the economy gets strong enough, interest rates will go back to more normal levels, and we can earn a smattering of stocks and gift certificates or bonds in whatever might be attractive. that's not occurred yet and until it does we need to have our money work for us. we are like the avis ad on "mad money." we have to work harder to make our money grow. that's what tonight's special show is about. how to make your money work harder in a responsible way. and we're using different types of stocks to demonstrate how we can do that responsibly and carefully. that's like get rich carefully. because, you know, look, what subfuses this show for years and years is the notion of prudent personal investing. we call the shows episodes here. why? because each one is actually written and thought about as a different entity on its own. i recognize that because it is something we, meaning me, are

fabulous staff at "mad money" are proud about, this is an episode about better investing for you. now this show is about managing your own money. or being a bert client if you have a full service broker helping you. if you don't want to manage your own money, over the years, i've come around to this view. i have become perfectly happy with you buying an index fund. you can be in one. or a couple of index funds. one that respects the s&p 500, or the total returning fund of the smattering of all stocks of i've become jaundice about mutual funds, they're about raising money rather than doing well for you, so few have beaten the stock market i'm at the juncture what's the point. if you don't have the time or inclination, i bless throwing your hands up and buying a fund of the index variety. at the same time, though, i know that many of you tune in because you want to own individual stocks and i'm not going to talk you out of that. i'm going to make you better at

it. it's something you've decided is good for you. maybe it's a companion to an index fund. maybe as a way to grow wealth because you think you can do better than an index fund. something that you know i believe in because in the many years we've beening to the show, thousands, i mean thousands of people have told me or called me or e-mailed me that they've done better than the market using the show and their own knowledge. they nailed the two. the rise of twitter is validated this principle daily. we aren't going to debate it anymore. what we are doing tonight is giving you directions about how you can pick your own stocks and still not take one too much risk. normally we just say hey the way it to do that is be diversified. when we play am i diversified we start to see many portfolios where everything would trade together in unison and usually in a way that could easily be derailed in a downturn. >> sell sell sell. >> now you know that i can't control the stocks in the world. i mean sometimes i think people think i try but i can't.

that's why often you shorthand to tell the story. do i want you to own only five stocks like i play on am i diversified. no a minimum of 10, no more than 15, because you can't keep track of them and do the homework. we have done shows about what homework entails but you know it means knowing what the company does, what you're looking for what the analysts are looking for, how it's doing and why it's doing it. homework is time consuming. that's not the purpose of tonight's show. what i want to do this evening is give you ideas to help you explain it to our classes of stocks within the stock market that aren't just by sector. in other words, i am offering tonight a new kind of diversification that can help you guide you to our what kinds of stocks i want you to have if you're going to manage your money yourself like so many are. youens would be tuning in. first, though, let's go over your mindset. if you're going to manage your own money you have to recognize the value of humility. please repeat after me. sometimes i'm going to be wrong. come on, say it. sometimes i'm going to be surprised.

and not in a positive way. and one more, sometimes my stock picks won't work out despite my disciplines. look, i of all people understand that humility doesn't come naturally to everyone but staying humble is important. why? because other than greed nothing has cost people more money than arrogance. >> boo! >> if you own stocks you have to accept that you're going to be wrong, perhaps even off. as the past few years have taught you, painfully, your portfolio will get hit with things you never saw coming, never imagined let alone felt possible. that's where i am coming from when i talk about this new diversification. diversifying among sectors isn't enough anymore. you need to work harder than basic diversification than a drug stock or financial or techie. my new diversification recognizes to be a little new age we are at one with the world. stocks are on the globe and yet trade together these days in good and bad times and that's impacting our stocks in different ways. plus, electronic traded funds, etfs link sectors together the

way i never dreamed of when we started "mad money." you need a portfolio that works in all markets veen ones that import the errors and pitfalls of political and geopolitical evenses to our shores. ♪ because these matter much more than they used to. again, i've had to change to adjust this. i never used to care about the mack nations of washington. they were a side show. the great recession we've had elections that brought leaders that directly intervene in the markets and with the worldwide linkage it's not is just our politicians we care about. think about it, i started the show, who would have thought that we needed to know what the european central bank was. what it was going to do. let alone the person's name who runs it. i didn't used to know that stuff. who would have thought we would have to gauge the strength or weakness of the chinese economy on a week to week basis or sometimes daily. it's been all strength for three decades for heavens sakes. suddenly, who would have thought a cold war would be back on the

agenda or always be a hot war in the middle east. we need to protect ourselves with things we didn't concern ourselves with when we started the show. tonight's show is an homage to a changed world. the new diversifications about earning the right kind of stocks, exploring tonight five areas you need to have covered for maximum protection and upside. you need gold, i know it can be a complete dog. i've been there. we will talk about that too. that's all right. this i diversification. it can function as insurance if the world ghost bonkers an inflation comes back roaring as the smart hedge funds say it will. you need a dividend paying stock, growth stock, something speculative and something from a healthy geography. cover all five basis and you have a portfolio that can win in any market which is why i'm going to explain what makes all five areas so essential. teach you how to analyze stocks at each one so that you can fill every position with the best possible names. the bottom line, a good investor in this new world knows to always expect the unexpected.

that means keeping your portfolio diversified with only 20% of your holdings in any one sector and following the new diversification for maximum protection. you need gold, high yielder, growth stock, speculative stock, geographically safe stock. stick with cramer and i tell you how to bic pick the best in each crucial categories. start the calls with shawn in florida. >> thanks for having me on the show. >> thrilled you're on. how can i help. >> caller: thank you for inspiring young investors including myself. i'm a 21-year-old finance major at the florida state university. [ applause ] >> caller: and i want to get your opinion on investment strat fwis for your 20s. >> first of all go nols. my first job out of school was to discover florida state and florida a&m their football programs and i loved tallahas e tallahassee. the people who are in their 20s, must take risk. i say that because everyone is so darn risk averse these days in life that they don't understand. you need to own speculative stocks, high growth stocks, and you need to own some stocks that are just growth stocks. that would be the mix of

diversification. if i were back in my 20s. and by the way, let me just say, in my 20s when i spend all my money it wasn't at big daddy's in tallahassee, called beat the clock, i should have put the money in the oil stocks. how about helen in illinois, please. >> caller: hi. this is helen and i'm a retired lady and i wanted to know, when you make money in the stock market, is it better to take -- to take some out and put it somewhere else, or lose it? >> okay. i think that's a great question. my mother-in-law when i used to go gambling let's take the winnings off the table and buy a sweater. you should take some of the winnings off the table if you had big moves. our goal in life is to play it well. our goals in the financial life to play with the house's money. that should be your absolute goal at a minimum if you can do it. it would be fantastic. diversification, the spice of life. you need gold, high yield,

growth stock, spec stock and geographically safe stock. i will help you find the best of each on tonight's special show. stay with cramer. don't miss a second of "mad money." follow @jim cramer on twitter and have a question, tweet cramer #madtweets, send jim an e-mail to madmoney @cnbc.com. give us a call at 1-800-743-cnbc. miss something? head to madmun.cnbc.com.

♪ tonight i'm teaching you a novel, a novel way to fill those five slots in your portfolio that i always talk about. the five types of stocks that represent what i call the new diversification, not just by sector. but also by style and strategy. so that if executed correctly, you'll always own something that works and holds your interest keeping you in the game when it feels so excruciating. that you don't want to continue playing. at the same time making sure you have some positions which can go much higher when times are good.

what's the most important category? i've got no question about this. in a world where even when central bankers raise rates from such low levels, cans get enough income from bonds or certificates of deposit to live on you need a stock that gives you a good yield. this isn't a fudsy way to approach thingsp in you need to known a stock, at least one, possibly more, with a big high yielding dividend. unlike when we diversify by sector owning two or three high yielders but no more than that can be a good thing. they're not the same. i wouldn't own five high dividend stocks because you would be vulnerable if the return on long-term treasury bonds ever spiked in a big way. you could get hurt. on "mad money" we respect the boem and the power it holds to influence stocks. if we don't we are being imprudent investors and when interest rates rise fast your dividend related stocks will get smashed no matter what the industry they might be in. we've seen this time and again.

the a new dyiew diversification verizon can trade with like frock tore and high yielding oil like conoco phillips because they have high dividends. it's important to consider that after a period of time, of tame interest rates, volatile ones could royal all three stocks at the same time. we must be concerned that the favorable tax rate on dividends, well that it could go away, and therefore it would make the most competitive bonds and give these fixed income equivalents as we call them a real walking. as it did by the way, in the spring of 2013. but if you own one stock with a really large yield, and then one or two of the other names in your portfolio, also happens to support decent dividend that's not a bad thing. dividend paying stocks may not be what most people consider sexy but you know what, dividends make you money for heavens sake and it to me, well, to me, that's the definition of sex appeal. admittedly i have a warped social life so my perspective might be skewed but the fact

remains buy high yielders and reinvesting your dividends into the stocks is one of the greatest most reliable ways to make money out there plain and simple because it allows your investment to compound, that's the keyword, over time. in other words, over time, the money from your past dividends pays dividends giving you these compounding returns. provided you keep reinvesting. now there's a huge misconception out there about dividends because they're like 2%, 3%, how can they add up? people think high yielders are only about safety or generated income in your retirement. but let's do a little history here. if you go back to january of 1926, do that about 40% of the return from the s&p 500 has come from these reinvested dividends i'm talking about. 40%. the last decade the percentage is higher. that's how essential dividends are to capital appreciation. wall street gibberish for growing your money. i run a charitable trust as part of a teaching, action orders.com where i have to give my dividends away at the end of the year and the inability to compound them in a way has hurt

me over time. hurt the fund. okay. i don't get the money. charity does. dividend stocks aren't merely a place to hide when the market gets rough. although they do represent a fabulous safe haven in difficult times. they're not just for retirees who only care about capital preservation, although they do a terrific job on that front. investing in high yielders is one of the strategies for making money period. it's also one of the safest since dividend stocks have a cue shun called it yield support that helps hang in there when everything is getting annihil e annihilated. it gets to a level where it's too attractive for most investors to ignore. that cushion is the reason why i like to talk about accidental high yielders. ahys. whenever you can find them. these are stocks that yield north of 4% not because of dividend boosts but their share prices fall so fast causing the yield to sky rocket. we've seen stocks bottom at the 4% level even in tougherer

times. happened during the financial crisis and industrial stocks hammered by european woes, emerging markets downturns and a debilitated china relatively speaking because it still grows faster than most of the yorlds. once the yield hits 4%, these stocks it tend to have a magical way of stopping their downturn and they often turn out to be fabulous long-term term bargains. i like the stocks of companies that have recently raised their dividends as a dividend hike one of the clearest signals that management can send about the strength of the business. a company that can raise its dividend that has steady reliable growth and equally important, it's a company that you can be pretty darn sure won't be cutting that dividend any time soon. you cut it after you raise it. that's too embarrassing. it can cost a ceo his neck. so dividend increases are serious business. not easily repealed. even better are the outfits put through dividend increases for 20, 30, more consecutive years. that's stability. i emphasize my love for the

dividend arrow stow crates like 3m, procter & gamble, johnson & johnson, long history of dividend raises. over accidental high yield and dividend boosts how do you analyze a stock. it's not that easy. just like when learning to drive think safety first. high yields are attractive but a very high yield can be a signal that dividend is unsustainable and will have to be cut. you'll see me throw the red flag around here. and that's, you know, that takes away -- let's put it this way, you need a rigorous safety inspection if it -- if the dividend is sound. maybe the company can raise it too. if it seems endangered, no, it ain't worth it, people. you have to stay away. consider the cautionary tales of what we call the bond ash traj funds, the munster yielders, 10, 11, 12% based on strategies that involved buying gigantic amounts

of bonds with borrowed money. >> boo! >> when rates jumped these variable yields were crushed. that's why i warn you against them. don't take the bait. there was nothing accidental about these high yielders in each case the yield was a huge red flag sending a signal that the payout would be reduced in a short period of time. one not worth risk -- not worth risking. don't risk holding on that to capture a juicy dividend. hey, by the way we saw that happen a couple years ago both with the lamented radio shack and less supermarket chain super value. they had huge dividends. super value able to bounce back but not until it cut its dividend. by management. when i interviewed him. given i am biased against what seems to be too good to be true high yielders what do you look for to tell if the dividend is secure. first, above and beyond everything else, we look at the earnings per share. the eps. my rule of thumb is that if a company has earnings greater than twice its dividend payout, we know it can sustain a dividend even?

lean times when you think the earnings are going to shrink and that case i see you're home free, dividend secure. if not go to step two look at the cash flow. especially important when dealing with companies that have a lot of machinery or other heavy capital equipment investments which cause them to report what's known as high depreciation and amortization costs. think a place like verizon at&t communication networks don't come cheaply. the stocks always -- jim, they can't afford that yield. wait a second. these depreciation and amortization costs don't come out of a company's actual cash but skew the earnings why the cash flow can give you a better idea about the health of the dividend. i know jim cramer on twitter people ask how i can recommend the stocks. aren't i being reckless when the earnings barely cover the dividends because of the cash flow of the telcos i like them. if you can't understand the concept of cash flow getting back to even go over the drill of how to find out what a company's cash flow is. i maybe want to stick to

earnings per share if you don't understand. look at the balance sheet to make sure there isn't a lot of debt coming do you, the 2018, 2019 bond. if money is coming due in the near future and the company can't raise it with a bank or public it may necessitate a dividend cut. last but not least you need to know how to collect the dividend. forget all the jargon like the declaration date, x date, on "mad money" we care about only one date with dividends. i call it the must own date. the last date you have to buy a stock to claim the next dividend payout. the must own is the day before the x date and that's all you need to know. bottom line if you want to embrace the new diversification on top of the mandatory old fashioned sector kind we still breach, want to be prepared for every kind of market out there you must own at least one high yielding stock. dividends protect your stocks and they're also a terrific way to make money. what's not to like. ralph in missouri, ralph. >> caller: hello, mr. cramer. >> yeah. >> caller: i thank you very much for all you do in your

charitable trust. >> you're kind. couple mill given away. thank you. >> caller: i know that. i have a son, 35 years old, he has a roth ira with the s&p 500. my question is, do you think it might be a good time to sell it and go to a cash position, buy it back, on a dip, or go to a fund with a dividends and if so what category would you suggest? >> no. his age, i want him to stay in. i don't want going in and out. what happens if that is the one month where the market takes off. peter lynch taught us the great fidelity manager, one up on wall street, describes if you get in and get out like that when a younger person you may miss the window where the growth happens that year. stay the course. dividend and conquer. if you want to be prepared for every kind of market out there make sure you own at least one high yielding stock an, of course, stick with cramer.

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diversified portfolio always, always trumps your convictions where stocks are headed. by never having all your stock eggs in one basket you never have to suffer through the agony of watching everything you known get crushed when the basket gets

run over by a truck. next you need a good old-fashioned growth name, a secular growth stock. on wall street it has nothing to do with public versus per roque yal schools. the establishment clause in the first amendment you know i can live without. on wall street when a company hasek cuellar growth it means unlike sick cuellar smoke stack growers, one that needs a strong economy so critical to stocks going higher the earnings for secular growth stocks aren't hostage to the health of the economy. and they'll keep on expanding even during a slowdown. when you get your hands on a strong secular grower that stock can keep lifting higher and higher, allah jackie wilson going on the new high after new high. think about stocks like apple, google, facebook. some of the high growth organic natural food stocks, white wave, hain, or biotech names like regeneron, gilead, celgene, the four horsemen of the big pharma,

companies growing like the drug companies of old when big pharma was synonymous with growth. so how do you analyze growth? how do you judge it and find out what's growing well. when we buy a stock we're paying for a company's expected future earnings per share. first we have to learn the basic valuation algebra that controls all professional investing the way we arrive at the cost of a stock not just the dollar cost of pit. we know we need to understand this because we need to compare stocks on an apple to apple basis. not just a pepsico worth 90 bucks or coca-cola worth 40 so therefore pepsico is $50 worth more than coca-cola, not. apple not worth less after seven for one split is it? >> so let's go over what a stock price really means. here's the simple algebra. the share price known as the p, as in the pe ratio, shorthand for how we value stocks, the "p" equals the "e" times what's known as the multiple or "m." "e" times "m" equals "p." like in algebra trying to solve

for "m" what we're going to pay for the earnings stream. what's the multiple we're going to pay. the price to earnings multiple is keyes tells us what investors are willing to fork over for a company's future earnings and the most important determinant of that is the vital ingredient that has the most effective on the size of the valuation special sauce is -- the company's growth rate which is why i'm constantly talking about growth of sales and earnings. we'll pay a bigger price to earnings multiple for businesses with faster growth because that growth means the earnings will get larger and larger in the years ahead. often you hear a guest say this stock is cheap. and what they mean by that typically is it is cheaper than the average stock in the s&p 500. the benchmark for all stocks. and yet it grows faster than the average stock or somehow more special than the average stock because of a catalyst about to occur. it's cheap versus the s&p. we use this p/e ratio as the backbone for what we do about thinking about a stock being a

bargain on "mad money." as a rule of thumb when it comes to a high octane secular grower that doesn't need the economy to get strong the stock can get to a multiple as high as twice the long-term growth rate. the percentage gain of a year over year earnings growth before it gets too expensive for the vast majority of growth oriented money managers who determine the pricing basically. if the company is growing its earnings per share say at a 20% clip, you know what, these guys would pay as high as 40 times earnings. that's right. and typically a growth stock won't trade down to a multiple of less than 1 times it growth, 20 times earnings, unless something wrong with the fundamentals we don't know about or won't find out about until later. maybe we're in a nasty market that soured on growth for the moment, even secular growth because of a sudden spike in interest rates which make the multiples on all growth stocks shrink as they're larger earnings in the future become less attractive relative to the increased yields people get from cash or treasuries. lower rates make growth stocks

more attractive and cause multiples to expand. we pay more for that "m." in the spring of 2014 when so much supply hit the stock market. in terms of new offerings and secondaries particularly for growth stocks and biotechs, big gobs of stocks sold at once by insiders, that the buyers were overwhelmed and what happened is the cloud internet and biotech stocks almost all faltered. even more important when you're on a high growth stock you need to be sensitive to which direction the earnings estimates are going. and whether those estimates are increasing at a faster or slower pace. these stocks can soar to new high after new high but remain cheap as long as the analysts who cover them keep raising their earnings per share estimates and do it quick. when the estimates have momentum a stock can double over the course of 12 months. we saw that. the price to earnings multiple would be lower than where it started because the earnings estimates increased even faster than the share prices did go higher. this kind of momentum allows the

stock to resist the downward gravitational pull of an ugly economy. be very, very careful. because you're playing with earnings momentum. so therefore you're playing with fire. the truly high octane growth stocks out there, if the time comes where the estimates have to come down or it looks like the growth is decelerating, i have to tell you it looks like what's at the bottom of this. it's like driving a fast car right into a retaining wall. the moment one of these companies stumbles the stock could fall faster than you could imagine. witness the great chipotle dropping more than 100 points in a day losing a quarter of its value. actually a couple days but at one point down 100 when in july of 2012 reported a disappointing quarter that suggested the company might be more vulnerable to economic weakness than anyone thought. we thought it was a great grower no matter what. if you had been riding chipotle for years you had massive gains and bought it when it cratered you made out when the growth of the earnings returned and then some. but after a growth name likep chipotle loses its mojo you have

to be cautious because unlike chipotle, the pain can last for years as the stock goes through a painful process that we joke about of george costanza shrinkage. i like to refer to seinfeld because it seems like a universal language given the endless reruns. it can take years as momentum and growth seeking investors gradually pay less and less for progress livesy slower earnings growth and all the growth munk managers get shaken out and sinks to levels where value oriented become interested and bottom fish. that's been what the long ride down has been for old line pharmaceuticals like merck. when you see multiple compression don't hang on for the full ride down. just sell sell sell. >> sell sell sell. >> the bottom line build a portfolio that can work in every market you need a fast grower, preferably a secular growth stock with runway ahead of it for years to come and remember when you're dealing with growth it's worth it to pay up for a company that is still

accelerating and selling a decell rated quickly. dump it. once the momentum stock starts to slow down the multiple can shrink for ages before it bottoms and most people's patience can't hold out that long. mohammed in texas. >> caller: hello, how is it going. >> how about you? >> caller: i'm a huge fan. >> what's up? >> caller: i am -- my question is, i am a near college graduate, graduated for a college for a year now and in the work force and i invest on my 401(k) and outside brokerage account and was wondering how should i partition my investments in each account and how -- what my investments partitioning should be in bonds and stocks? >> okay. no bonds. all right. in 20s first congratulations, graduating. when you're in that age, here's what you do. you pay down your loans obviously if they have a high interest rate. you need to be in growth growth growth. because you have your whole life ahead of you if it doesn't work out you can make the money back with your paycheck.

discipline of new diversified portfolio trumps wherever you believe the market could be headed. to build a portfolio if any market you need a fast grower. preferably a secular growth stock. stay with cramer. it's time for the your business entrepreneur. kelly is an optometrist who owns table mountain vision in beautiful golden colorado. she's a leader of golden's shop local movement. she and the town have big plans for small business saturday including a 5k race and an elf parade. for more watch your business sunday morning at 7:30 on msnbc. get your business ready for small business saturday november 28th. brought to you by founding partner american express. and small business saturday... is more than just a day.

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tonight i'm focusing on different types of stocks. showing you how to put together a portfolio diversified by strategy, a toolbox with something that can work in any and every market no matter how tough. so far i've talked about dividends and growth. what else is essential for a truly balanced portfolio. how about something to keep you focussed. something to keep you interested. in my view you always want to own something spec crative, even speculation is considered to be the dirtiest word in the business. except here in cramerica. ♪ it's part of investing orthodoxy. not only is it okay for you to own these tempting, risky, broken seaming stocks that trade in the single digits it's a necessity as long as you follow ply rules and speculate wisely. you need something speculative as a tonic against bore dom. with a huge amount of upside if

things break your way. high risk high reward stocks are thawing. undeniable mystic to opening something that trades in the single digits. they allow you to stay engaged and make it easier to keep your head in the game. you always hear the speculation the height of irresponsibility but i say a portfolio without speculation without a long shot, is a portfolio that won't capture your fancy, one that will have you bored with your money and anxious to surrender to people who only care about taking your fees or making you so frankly you're just not focused enough to do what's right with the rest of your stocks. now speculation doesn't just keep you interested when you do it wisely, with the right rules and disciplines, these stocks can generate gains, truly massive returns almost unheard of in the stocks of larger well liked and, of course, well known companies that are often deemed safe. did you know at one point in the 1980s solid stocks like home depot and comcast parent of this company were considered to be ultraspeculative stocks. home depot.

dow stock. actually failed the first time around. and the idea paying for television when you get it with rabbit ears seemed lick idiocy. these were brilliant specs. some of the biggest wins came from speculation. you can see some of them i detail them in "real money" the equivalent of my teachings to old researchers who came on to my hedge fund in the old days. a fund i retired from more than a dozen years ago. of course the corollary is true too. when done wrong swimming in under $10 water can also lead to truly gut wrenching losses. understand i am not glossing over the risks. how do you identify the winners and avoid losers. two kinds of stock, the hated broken stocks of troubled companies abandoned and left for dead by the big institutional money managers and relatively unknown stocks of uncovered companies. in both cases you get an enormous edge, the kind virtually impossible to have in the heavily received intensely followed stocks of household names because so many of the big boys won't touch any stock that trades under $5. your benefiting from classic

mispricing created by overly pessimistic worry wart money managers. see the large institutions the big mutual funds, they don't want to own single digit stocks. they think these are too dangerous. they're afraid they will be questioned by their clients about why they own this junk. about why they risk money foolishly when so many safer stocks out there. these money managers fear the downside of stocks that look broken. i'm talking about stocks like sprint which we identified at $2, re aid, panned out were shoed by any of the big mutual funds throughout. the ramifications of opening single digit stocks that go as so many do. no such overlords looking over your shoulders put pressure on you not to buy these stocks. how do we find them? we examine the bonds of sprint which stopped going down when the stock at $2. often an important part of the equation because sprint had so much debt. the bond buyers considered these instruments investable and worthy and we bet what the bond holders saw would trickle down to the common stock and that's what happened.

for rite aid the changing in merchandise. remodeled stores doing better than older ones an how well rad was doing with private label merchandise through parrygo. came together in a successful spek. so when the fundamentals at one of the companies starts to turn buy their stocks the at terrific price since so many of the big boys won't go near them since they start climbing at higher levels. don't like it at 4, wake me at 8. deals like these don't come around every day. more often we speculate in stocks of tiny companies people have never heard of and with them we're not trying to catch a turnaround, we're looking for sectors that seem like they can capture the imagination of the crowd. it's called fad. wear allowed to look at fads too and then sweep through the wall street fashion show. sometimes but not always the fad will be backed up by genuine earnings power which what is we saw with all the little companies that make cell phone components in 2009. 2010. to name some of the biggest winners of the period we had we saw it again in some of the tiny oil companies that turned out to be sitting on huge oil and gas

holdings. or with some small biotechs we like that gotted byes from big pharma companies or fda approvals for important new drugs. these speculative situations do often however have the life cycle of a may fly though. so the trick to first -- is first always remember to lock in your profits when you them. don't get burned when interest rates -- when interest wanes. cut some of it down. second, your losses those you got to cut before they become too large when a spec you thought would work wasn't panning out just leave it. when you speculate you're not trying to find a stock that you can hold forever. you want something that's going higher. and as long as you're disciplined and ring the register doesn't matter if the stock comes back down later. don't take that as a license to own the companies with bad fundamentals, though. we said, for example, we liked highmention and celldeck a tech and biotech for trades. when we did them on speculation

fridays. when lightning struck we said take the gains please. sell sell sell. they subsequently cratered and we never looked back although callers tell me you loved it. we said we loved it for trades. the bottom line you need to own something speculative a key part of the new diversification, will help you stave off bore dom and rack up huge gains, lots of fantastic stocks start as speculation and because the stock trades at $3 doesn't mean it's a three card monte. it could be a triple waiting to happen. "mad money" is back after the break.

all night i've been teaching trying to show you how to build a portfolio for stocks that can work in any market from a nasty picnic for the bears to a euphoric pamplona style running of the bulls. you will own something right for the moment following what i've been calling the new diversification. when i originally came up with the idea of the new diversification, i said that you should always have foreign exposure in your portfolio but given how the relentless mess in europe, the kind of like ongoing slowdown in china and emerging

markets get crushed repeatedly and frequently, well, i think we got got to do refining of the concept. what you need is a stock in a safe geography. at times when the united states is growing more slowly than the rest of the world you need something international and not just something that does a lot of business overseas. a an it actual company based in a foreign country. other times when the rest of the world seems to be falling apart and the united states looks good by comparison you need a stock that gives you domestic security, something that's confined within the borders of our country because at those moments being exposed to the rest of the world can be dangerous. what do i mean by the concept domestic security in anything that's usa all the way. you can own a phone company like at&t or verizon, electric utility like coned or duke. pick a regional or national restaurant chain popeye's or louisiana kitchen. little overseas exposure not much. dollar store, dollar general, dollar tree. macy's, home depot pulled back. it's here. how about a real estate investment trust like a federal

real estate. a factory outlet. own the real estate etf. and in times of domestic turmoil where the rest of the world is in much better shape where we were after the financial crisis, for example, then you do want to own a foreign company. s here the bottom line. always own a stock that's from a safe geography sometimes that means a foreign company, sometimes a domestic security, all american, depending on the outlook. i think you're going to want to go domestic at least for the foreseeable future. "mad money" it's back after the break. we live in a pick and choose world.

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all night i've been talking about the new diversification, a way to diversify by strategy not by stock so you can thrive in any market. last but absolutely not least you need some gold.

gold has a special property. one that makes this metal precious to any diversified portfolio. i don't want this to be 20% of your portfolio. that won't work. it's way too much. i think the 10% is the upper limit because i consider gold as an insurance policy and no worth while policy should be 20% of the money you've invested. why do i like gold? gold tends to go up when everything else goes down, insurance against economic or geopolitical chaos, uncertainty and inflation that could cause most stocks to decline but also cause the provides gold to rise. before you curse me because gold has done nothing a couple years you wouldn't own a home without homeowners insurance, car without car insurance. it's also been the best performing asset year after year for the last decade racking up gains consistently over a period where at some point every other asset class has disappointed you. winner for a long time lately. it's cooled. opening gold is not about the upside, though. it can be considerable. minimizing your risk to the downside. at any given moment there will probably be a whole host of

factors that are, you know, they will be sectors from international minerals that will outperform gold. but none of them work like in the insurance policy. how should you own gold. . etf. spider gold shares. mostly people note it as the gld which owns the metal itself and does a terrific job of tracking its price. some of the metal dealers i deal with say it doesn't always track it. won't always will. i have faith. you can call your broker and buy bowlen. the physical bars of gold as opposed to the cubes in my soup. that only make sense for investors that can afford to buy it in bulk and pay it to store it in a depository bank. what ain't the gold minors, then it can outperform the commodity for a period of time. it's not going to trade in lock step with the commodity and the same things that make gold valuable here scarcity the fact it's hard to get out of the ground cheaply and aren't a lot of new mines makes the business

per lus. they can screw things up in ways, debts, mining costs, management teams that can and often do make mistakes. virtually every single time i've gotten behind a gold stock i've been burned thp. shutdowns at mines, start up issues, and every time things seem to go wrong and then the stock gets hammered even if gold goes up in value. i finally gave up on the entire group and decided to simply stick with the gld or the physical commodity. the bottom line, if you want exposure to gold and you not only want it you need it, it's your portfolio insurance policy, and everybody should have some, then you should just dot easy thing and own gold through the gld. not some gold miner that's only loosely connected to the price of the underlying commodity. stick with cramer. >> cramer, you super, you are awesome. >> i'm a first time investor. >> thank you for inspiring me to

get in the game. >> your show is the best. i am glad you're on tv. >> you have transformed me. thank you, cramer. ♪ the lexus december to remember sales event is here. lease the 2015 gs350 with complimentary navigation system for these terms. see your lexus dealer. it's time for the your bus business entrepreneur. she owns table mountain vision in colorado. leader of the shop local moment. she and the town have big plans for small business saturday including a 5k race and elf parade. watch your business sundays at 7:30 on msnbc. >> get your business ready for small business saturday. november 28th. brought to you by founding partner american express. is more than just a day. it's our day... to shop small at the places we love...

with the people we love. for stuff we can't get anywhere else. and food that tastes like home. because the money we spend here... can help keep our town growing. this saturday is small business saturday, let's all shop small. for the neighborhood, the town, the home we love. shop small this saturday. ho, ho, hello... can you help santa with a new data plan? sure thing... uh right now you can get 15 gigs of data for the price of 10.

that's five extra gigs for the same price. looks like someone just made it to the top of the nice list. in that case, i want a new bicycle, a bike helmet, a basketball, a stuffed animal that talks when you squeeze it. and... yes, yes. i got your letter. we're good. oh. okay i was just making sure. get 15 gigs for the price of 10 now at at&t. and then santa's workers zapped it right to our house. and that's how they got it here. cool. the magic of the season is here at the lexus december to remember sales event. this is the pursuit of perfection. there you have it the new diversification. there's always a bull market somewhere and i promise to find it for you here on "mad money." i'm jim cramer. see you next time.

[tires squealing] >> crank her up! [screams] hi, i'm jay leno... >> all: hi, jay! >> hi, everybody, how you doing? and this is a show about cars... it's fun to drive cars that are really different. >> this one's a death trap. >> oh, i see, because... >> because it's dangerous to ride. >> and motorcycles... [engine revs] [cheering] >> and, well, anything that rolls... it's like driving a two-story building. explodes... i love the smell of napalm in the morning. >> yeah! >> or makes noise. >> you ever run a dragster? >> no, i haven't. this is "jay leno's garage." >> start your engine! [engine revs] [tires squealing] [siren wails] >> get out of the car, sir! >> [bleep]. tonight... i am being set up.