they're operating on all slenders. >> east like i'm going to retail, better than you. >> there. >> i respect it. >> thanks for watching. see you tomorrow at 5:00. 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. call me at 1-800-743-cnbc or tweet me @jimcramer. when is a loss a good loss? when is it a bad loss? what makes for a strong investment versus a weak one?

and what happens when the facts change? tonight i'm going to show you in real terms what can go right and what can go wrong. because i want to teach you from both my wins and my mistakes so you can replicate the wins at home ♪ hallelujah but avoid the losses. that's are all taken from real-life investments from my charitable trust, where we document everything in real time so we know contemporaneously, what we would do before we pull any trigger. so often we're restricted. because if i mentioned one of the trusts on air, the trust is frozen and the trust can't take action. but we can tell what the trust would have done. the trust can't do as well as you might be able to do from the bullet groups from action alerts.com.

but these encompass all the moves that we could have made and did make. i'll spare you the actual gritty details. i wanted to fill you in on the misjudgments that lead to losses and the correct thinking that leads to gains. [cheers and applause] first let he descrime describe process by which the trust works. i set it up as a way to keep my hand in the stock market. i can do the show without any conflicts. it's designed so that any profits whether from capital gains or dividends go to charity and enable me to give away $2.5 million since we started, since we started the fund. decisions are made when both the research director and portfolio manager, kraft, a huge money

manager. and at all times we try to run a diversified portfolio, seeking out the best ideas for value, income and growth. we divide the portfolio into these segments and rank the stocks within them. so members who subscribe to the newsletter can pick from these. i didn't give up the lucrative world of hedge funds where i had been for 14 years before that, where i managed to gain 24% for a less remune rative world of the pain and suffering. i wanted to show you how real portfolio managers think. so you can see how the sauce is actually made, so to speak. i like the way these money managers present themselves on television. when i see portfolio managers on tv, they never seem to make any mistakes, they never seem to do any wrong, and i've seen

thousands and thousands of interviews. that's plain unrealistic, people. to go a step further, i think they're mock perfection. it's very discouraging. you're led to believe that there's no way you at home could ever do things right, so you might as well difficugive your o a row bow adviser. i'm so in favor of diversification. that's what an index fund gives you, but i'm always a firm believer that if people want to own individual stocks, and though they still do, they should have the tools he need to help them. and they need to understand what makes for a good stock pick versus a bad one. why would you ever want to own an individual stock? because if you own a fund that nears an index, you're accepting the mediocre portion of the

index plus the good portion. and it can lead to excellent decisions. this thing didn't used to be such a radical idea. the notion that individuals shouldn't own individual stocks has really only come into prom thence nens in the last decade and a half. they come armed with statistics. but they never seem to be able to put a nail in the coffin of the individual investor's right to pick stocks. to choose when you want to pay your taxes by selling or not. something that hurts longer-term decision making. that's why i said that the industry of money management does you such a disservice on television, because the combination of their seeming

perfection, coupled with your own abilities is a toxic brew for do-it-yourselfers. reas recently, we've taken more of a club approach, kind of a membership, where we can have foru forums. do we have any empirical evidence that it works beyond my own record as a professional? is it all arrogance to think you can do it yourself and you shouldn't check some boxes and send your money to someone else. all i know is that when i worked at goldman sachs, advising wealthy people with their stock portfolios, i was astonished at how often they crushed the market, simply by looking at companies and making decisions based on how their managements

might do. these with my clients. and that was a time when there was far, far less information than we have now. sure, information's more perfect these days, meaning that everyone seems to have equal access to it, not only the people roaming around the goldman sachs library, but i watched people clobber the market regularly, and i've always therefore resented those who tell you that you can't do it yourself. i saw it with my own eyes. doesn't it bother you to be basd idiot if you rye to manary to m your on money? it's like going to home depot and being told by one of the orange-aproned people, sorry, this is only for the experts. the only real difference is the home depot people aren't trying to get your money from you. whereas all the people who hype their own prowess or denigrate

those who would like to rye tryo it themselves are trying to get you to get your money. they might be after your best interests, depending on the type, temperament and ability to make sound judgment about stocks and bonds, but here's the bottom line. let's say you have the time, the inclination, the desire to do it yourself. let's say you want to pay money, not pay a percentage of your assets to someone who may not be better than you are when that percentage can add up to big numbers over time. then you know what? tonight's show is for you. beth in connecticut. >> caller: for my ira, i have a 15-year time horizon. is it okay to be all in a diversified stock portfolio like

the s&p 500 index? >> yes! absolutely. that's exactly, beth, what i would recommend. i think that's a great way to handle it, and i think that's exactly lly what you should do. nick in arizona. >> caller: nick, boo-yah. >> boo-yah. >> caller: so i just had a question about with all the recent mergers and acquisitions going on. how does one hook for the next acquisition or how do you position yourself to maybe make money on that? >> you look at the sector, like the food groups, look at the ones that don't have enough bandwidth to be bigger and someone else can gobble them up and raise their numbers. that's the pattern that i've used over multiple years. ben in florida. >> caller: thank you very much for everything you do. i listen to your pod cast every morning on the way to work. i just have a quick question.

i've called before, and you blessed my diversified portfolio. now i need a little help on how to adjust my cost basis in trading around a position. >> well, look, i usually don't like, unless the stock's going up 25%, i don't want to take any off. stock goes down, say, 20%, i buyback the stock that i took off, it's in a bunch of my books, you know, these days, i'm actually discouraging a lot of trading. i don't want to have too much trading, because the trust doesn't want to incur the fees, but it certainly makes sense, to take a little bit off the table. all right, ready to take your own financial future in your own hands? tonight's show is for you. i've got the lessons you know to get ready to do it. plenty of "mad money" ahead. there's four rules you need to know before you ever buy one. make sure you've got them. and then it's the worst possible actions you can take when it

comes to your money. i've done it myself and i want to help you avoid it. find out if you're at risk. and my cautionary comments when it comes to investing in commodities. so stay with cramer. don't miss a second of "mad money." follow @jim cramer on twitter. have a question? tweet cramer, #madtweets. s send jim an e-mail, or give us a call at 1-800-743-cnbc misz somethi -- miss something? head to mad money.cnbc.com. they may want the latest products and services, but they demand the best shopping experiences. they're your customers. and by blending physical with digital, cognizant is helping 8 of the 10 largest u.s. retailers

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this show fotonight is all about learning from my mistakes, and from what i got right, from my charitable trust. we're starting from the proposition that you do want to do it yourself, and what i would hope that you do with this show is help yourself figure out if you can actually do it on your own or if it's too difficult to send it to someone else.

that's okay. no sin. lesson one has to do with investing in drug stocks, and it's a sobering one from anyone trying to profit from pharmaceutical innovation. find companies that are doing break through medicine that have something special in the pipeline, which could move the needle in an important way. the kind of idea mibehind this investing came from something that happened to me. merck, because of its reputation of new drugs had pioneered work with the harvard medical school. they were studying heart attacks and cholesterol. wall street was skeptical of the ly linkage and category. little did they know that statins would become the

biggest-selling class of drugs in history, led by lipitor. i can recall merck doubling. and ever since, i've been looking for the next meb core. what you want to avoid is a company that has only one or two drugs in the pipeline that one day might or might not be approved for use by the fda, anything like that could be too risky for you. from the biotechs that we know that never got approval and just limped along forever until they were put out of their misery. whether it be bristol-myers, or regeneron to help keep back door regeneration in effect. you should always be on the look out for the breakout. in the last few years, my

research director, jack warren awarren, and i have looked at alzheimer's, millions upon millions of people suffer and will suffer from it. second, there is no serious treatment that will hold it off or maintain it. there are many that have tried and failed to find a cure. but fourth, and most important, if you have a medicine that can reduce brain plaque, it would be the biggest drug in the history of all time. billions of dollars at stake. the company that's had the best success so far in early trials is ely lily. and we've gone to hear them several times over the years as they've reported on the progress of the drug. we selected for the charitable trust, a good balance sheet and nice-sized dividend. when we purchased the stock in

the high 70s, we had hopes that it would show some success in the battle against alzheimer's. but we've detected a prolonged set of obstacles. we witnesseren't alone. the stock dropped below the 70s after a presentation. the trust sold e-li lily. first, we were dead right to have the upside of the drugs. it allowed the bottom, we contained our loss. if you're going to speculate, make sure there's something to fall back on. the stock bounced back as others decided that lily's prospects were better than we thought, and there were other drugs in there, and they didn't discontinue

their work on the alzheimer's drug. it meant the stock bounced, and bounced hard after we sold. to keep the earnings up, basically, you didn't need to sell the stock when the one drug didn't pan out. at the very least you could have waited for more of a bounce and sold it at a higher level. really surprised that we did this, big mistake by me. the third thing is after people have given up on it but before the trials are discontinued. that's when expectations are at the lowest. we took a swing at excited. maybe it works, maybe it doesn't. the one that really intrigued us was very well attended.

we were far from alone when we bought the stock, so therefore we paid too much. the trust overpaid. it was far better to wait until it wasn't top of mind for any investors, that would have been a few weeks after the meeting. when you're investing in a drug company that's going after an especially intractable disease like alzheimer's, be more skeptical than you'd be than with a disease that's easier to treat. so many drug companies have failed trying to fight alzheimer's that it's way too arrogant to bet that you're on the cutting edge of one company. when you're going to invest in a company researching for an intractab ablable illness, make they have plenty of drugs away from it. the drug doesn't initially work but hasn't been written off, expect a bounce, a better time to sell.

third, don't buy the stock when there's tillstill a ton of hoop. and finally, when you have a drug company up against a difficult disease that many others have failed to cure, please be more skeptical. there is a reason others have failed. it's an incredibly difficult problem to solve. the company you like might fail too. investing and buying can be a challenge, but now you have the rules to help you invest. still more "mad money" ahead. i hope you avoid a rookie mistake that plagues many investor, including me. and it's time for me to take on my biggest challenge of all, your tweets. i'm answering the questions you've been sendin sending @jimcramer, #madtweets. stay with cramer.

will your business be ready when growth presents itself? our new cocktail bitters were doing well, but after one tradeshow, we took off. all i could think about was our deadlines racing towards us. a loan would take too long. we needed money, now. my amex card helped me buy the ingredients to fill the orders. opportunities don't wait around, so you have to be ready for them. find out how american express cards and services can help prepare you for growth at open.com.

tonight i'm teaching you the difference between right and wrong. sounds like a tall order. but when i say right versus wrong, i mean what's smart versus what's dumb! >> boo! >> in the context of investing. right is whatever makes you money without breaking the law. while wrong is whatever loses you money! as an investor, telling the world the difference after the fact, it's much harder to get things when you're in the moment and you're trying your best to predict how things will play out in the future. you can follow along by s subscribing and telling you what

we'd like to do in an ideal world if the trust weren't subject to so many restrictions because of the show. fortunately, these bulletins give us a look at how we doing at the time, we, meaning my research director and i. it helps us make judgments based on what we doing at that moment that was so darn wrong! you can afford to be patient with a well-researched idea that you personally like. you don't have to punt or dump the stock if it doesn't work out immediately. you don't have clients breathing down your neck if you're not making them money quarter after quarter, month after month or day after day. unlike a hedge fund manager, you can take your time waiting for it to play out. you don't have to be so hard on yourself. but it's a big mistake to forget

that. back when tyson foods was in the $40 range. it was in the process of transforming itself, becoming less of a commodity purveyor of chicken. you might recognize it as the maker of ballpark franks and jimmy dean sausage. we wanted to be early, to get in before everyone else realized the transformation that would make a rerating of tyson. it would have a stronger, less erratic earning streak. now it would trade as a full-line food company, with lots of proprietary branding, it would allow it to charge fmore for its merchandise. meaning that what the analysts who followed the company were

expecting that the company would earn when it reported. there was just one problem. a whole share came in more slowly. the streak was disappointing. instead of raising the numbers, the numbers were cut. i didn't see us as being early. i saw us as being wrong. and we told subscribers that we had screwed up. so we had the charitable trust cut its losses in tyson. they were small, however, we did give up too soon. we saw the very gains and synergies predicted when tyson never looked back on the way to a 50% gain from where we sold it! >> the house of pain! >> we'd done all the homework. we had faith that the situation would totally work out in the end, but we didn't have faith in ourselves and our on homework. we didn't have patience. we were too skeptical.

in reality, the thing was to buy more and not cut and run. there was no reason to take the action other than our own disgust that we did. that's never enough to justify disevaluating. yeah, we were just angry and bummed, and we took action and it was wrong. how about this one? oh, this was a dootzy, tar wod d wood -- starwood hotels. what we didn't know is that they had a shareholder base that was unhappy with the progress. when the company dismissed him, anyone would find fault with his track record. they had a takeover rumor involving a chinese chain.

then starwood dropped back to the mid 4-60s. it kept going lower. starwood's one of the most painful positions the trust had in a long time. and we weren't sure what the heck to do. so we held onto it. first, whenever we get a bid, i hi like to be able to ring the register. i thought the stock had to go higher, not lower. that was a bad judgment. we totally ruled out the possibility that another buyer who liked starwood in the 70s would still like it now that it was in the 60s. so when it was in the 60s, we booted it, big loss. not long after, a chinese hote

hotelier came in and offer add premium bid. we left $15 on the table. should we have seen the bidding war coming? we had to stop caring that we missed out on higher prices. we had several options. first, we could have bought more starwood, if we truly believed in it, it would have been a terrific idea, we failed to do so. or we could have bailed after we first got the takeover news after the holding period. that would have been made sense. after all, but we didn't do it. we could have held starwood and been patient, we would have been rewarded. wei we didn't do any of those things. we got disgusted and took our bat and ball and went home. don't go against your homework. if you think a stock needs to go

higher because of a re-rating or a takeover, wait, no one's looking. you can afford to be patient. don't give up on your ideas before they have time to pan out. and don't give up on yourself. eric in texas. >> caller: a big san antonio boo-yah to you. >> what's happening. >> caller: they yield abou about 2.25%. can you tell me what metric i can use to ensure my dividends are safe? >> we have a cash flow analysis, the book is available and is an in-depth analysis of how to motivate the cash flow than earnings per share. tom in new jersey. >> caller: thanks, jim for taking my call. >> sure. >> caller: a week or so ago, you had mentioned that you got a portfolio of about $10,000, you

have a basket of stocks of about five stocks. >> right. >> caller: if that portfolio grows with the help of "mad money" to like $100,000 or even $1 million, what would be the number of stock that you would suggest to be comfortable with? >> i'll tell you, to really follow a lot of stocks, we follow a lot of stocks for action alerts. there's two of us, we do a lot of people work. most people have a hard time following more than ten stocks. that's what i think you can handle. right or wrong, when you avoid making emotional decisions and rely on the homework, the homework that you've done, i bet you'll have positive results. there's still much more "mad money" ahead, chincluding what u must know before investing in energy stocks. then you know i always tell you to lock in profits, but there are times when selling can be

just plain wrong. your mad tweets are coming up, so stay with cramer!

welcome back!

tonight we're learning lessons from my charitable trust, both the good and the bad, so you can be a better do it yourself investor. let's go back to a series of mistakes that i made when oil peaked in 2014. first, when you're investing in commodity stocks, you must immediately recognize that it doesn't matter which one you hide in. better, worse, high growth, better balance sheet. when the underlying commodity gets hit, they're all going lower. i tried to buck this principle by adopting a high growth deep value strategy. the charitable trust bought the highest-quality company, which in this case was eog, and the one i thought had the most takeover hopes, marathon oil. i was wrong on both counts. >> the house of pain!

>> ones that actually made money when oil's in the 30s, nobody cared. oil stocks traded like they were all parts of an etf. and nobody cared that eog might have been better or worse, everyone with the exception of exxon mobil had spent too much. marathon was worse. here's a company that decided to split-offi its marketing and refining businesses. at amounted to the top of the cycle in crude. >> boo! >> without that refining cushion, marathon was as vulnerable as any of the cash-strapped of. we booted it. and it got to $7 where the company had to issue more shares just to stay afloat. unfortunately, the trust took a major hit. we had had some foresight when

it came to the combination of kinder morgan, deciding not to ring the religigister after a b run. and even though they had insisted that the company was a toll road than a play on oil and gas pricing, it was the first ceo to slash distribution, which revealed how kinder morgan had more than just toll road exposure. that should have been a sign that it had become unstable, even though they had changed the k company to a c corp. it was rapidly expanding its foot print with the acquisition of williams. not long after the stock spike, and i was ailing to offload a considerable position. it plunged and partners plunged with it.

and while we only battled buying low and selling a little higher, it was not one of the trust's finer moments. the moral? don't think you can outrun a commodity grim reaper. and there's no such thing as a toll road that you don't have to worry about, even though i thought there were, regardless of the price of oil. you see, if oil goes down, something does happen. companies don't pump enough, and if they don't pump, they can't pay the pipeline companies, or they don't need them. and those very high yields can be elusry. one of the things i've learned since i started working with jack moore, there are times when one of our stocks rally that we have to take action. and that was the case of the 50% gain in starbucks stock. it shot up to the 60s where it was selling more than 30 times

earnings. at the same time, its earnings growth was about 17%. you can pay up to twice the growth rate before you get severely overvalued. but we thought this run had happened too far, too fast. so we decided to ring the register in this long-term core position. sure enough, the stock fell, and it fell hard. losing more than 10 points, almost instantly. at those levels, it was no long are suspense. so we started to rebuild the position. still, selling starbucks near the top was a smart move, because it's a rare stock that can equal the height with a 30 point. and we bought it for the charity able trust in the ll low 80s.

walgreen's announced the acquisition of rite aid. its stock went plyiflying to $9. so we sold as much as we could before the stock started coming down, oh, man, did it come down. its wi it was a huge win. were we ever able to replenish the position? i only wish we had had the same foresight with regard to allergan. they were able to pay much lower tax rates than it had in the u.s., was being bought by pfizer at roughly $360 a share. the government had issued regulations regarding these tax inversion deals. regulations that they followed relatively closely. they crafted the deal to meet

the terms laid out by treasury for approval. but then the government changed the rules. making it so this specific deal was spiked. and none others. i didn't see it coming. and all elergan shed 100 points. what did i do wrong? i trusted the government to keep its word. in an era when deals have been killed left and right, and the most activist anti-trust department in 50 years, i don't think there's necessarily a reason to believe that any deal is going to be a given going through, especially one that is now politically unpopular. yeah, i trusted the government to keep its word, meanwhile, allergan and pfizer were acting as rogues, that's not true, the government changed the goal post. why didn't i know it would be too dangerous to hold out for

the allergan/pfizer merger? simple answer -- i was dpreedy. greed is just plain bad.

♪ for most of tonight's show, i'm talking about what you can learn from the mistakes i've made running my charitable trust. now let's talk about what you can take away from some very specific wins that did defy the odds of investing. it's hard to remember when facebook was this company that was failing to live up to its potential, but this stock was viewed as a real loser for the first year or so after it became

public. i was confused how such a smart group of people could be baffled. i watched the stock get pumme d pummeled. but i'm a huge reader, so when facebook was trading in the ththe 20s, you could tell how advertisers were flocking to it. they were in no mood to listen to the positive story. we didn't feel scorned. we weren't down, we weren't upset, we bought facebook for the charitable trust in the mid20s. how were we able to hang on? simple. each quarter showed an improvement, that it wasn't expabe expandi expanding. we were paying the same amount for earnings growth. then there's panera bread.

the ceo has come under fire repeatedly. we had father's day lunch there. but they said the lines were too long and you were basically standing in a mosh pit as you waited for your order. when a restaurant chain decides to do a makeover, it starts things out by doing a test. if the rollout is success if one part of the country, you can bet it will be successful in other parts too. we rate constantly, so we can find out the ones we really lielike versus the ones weigh think w to higher. next lesson, when everyone writes off a tech company with one of the best balance sheets and a new manager at the helm. i say wait a second. aren't you running from something that could be a perfect transition? when chuck robbins took the

reins at sisco, he knew the routing business wasn't growing or at least not as fast as it should. and they had basic customers to handle all the data merging from the internet of things, making it more of a software company, not a hardware company. he's done all of these things. and it can go higher, we're still in the early stages of a multi-year term. finally, there's apple. i know there have been billions of blog entries about how apple's doing and since the death of steve jobs, whether it's deteriorated. so many people seem to me that the best days are behind it. i see apple reinventing itself with a service revenue stream that we can only put a price on it, not yet. i see the iphone franchises not being nearly as global as it

could be. and i see tim cook spending a tremendous amount in research and development that will pan out. there seems to be an inherent bias against the stock that stems from apple's own success. the iphone has spoiled us, pause -- because it never seems like it could be better. i mean, who cares how apple not there. the truth is, the service revenue stream is going to transform apple into something much bigger, that's why i've been saying apple stocks should be owned, not traded. when apple gets stalled, wall street gets frustrated. you can't afford to take a longview if they bolster the service stream. the bottom line, solid growth stories are hard to come by, and when you find them, you need to hang onto them for the ride.

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time to take some questions from the smartest viewers in television. if you've not one for me, step over,@jimcramer, #mad tweets. matt boughman asks, what advice would you give to someone wanting to day trade? my advice is if you want to quit your day job and stare at your screen, don't do it. the market's too thin to really do well, and the al fwa rhythms

are too wild. i want you to read "one up on wall street", it's available on amazon and will get you involved in how what you see can come into what money you can make. coming up, we have a tweet who's asking he about my garden. do you start your plants from seeds? on my way out now to get stuff out for a garden, and i have never gardened before. i do a mixture. i buy some seeds, particularly for radishes and carrots, also for some tomatoes and definitely for beans. look at that, nice-looking guy. when it comes to the tomatoes i get at home depot, i've had

freight su great success. i want to thank my camera people, that's frack. he fagave me sides thaeeds that well. if you want to take your picture with me, i'm happy to do it. people say, wow, what a nice guy, am i supposed to be a mean guy? take a picture with george clooney in some movie about money? anybody see that what? if i were lewis ck, it would have worked. @randall clayton asks, thoughts on trends of restaurants charging more, banning tips. i got to say, my small plate mexican restaurant, if you ban

the tips, you ban the good people from working there, and that's not the w to maintain an establishment. so why don't you stick with cramer! lwhat's better than "mad money"? how about more "mad money." follow on facebook, twitter and instagram to go one on one with cramer. >> what other questions do we have? ah, i all the tell people you've goat to start wi got to start with an index fund. >> get more from guests and go behind the scenes with the most interactive show on television. >> if you can't explain if three bullets why you're buying a certain stock, don't buy! >> follow "mad money" today.

i like to say there's always a bull market somewhere. i'm jim cramer, i'll see you

next time. >> tonight on "jay leno's garage"... whoa! oh, sure, we're all used to four wheels... [engine roars] but what happens when you take some away... officer, i'm sorry. it's not what it looks like. [horn honks] or add a few? i love how you bounce up and down on these seats. we're gonna look at vehicles with anything but four wheels. [laughs] some were made to save money... insurance was cheaper. some to save space... it seats four people in the front. some to save the planet... >> all electric, no emissions. >> actually, you can go pretty quickly in this thing. or just for the hell of it. most people i see can't drive on four wheels. why two? >> why not, jay? >> "why not?" but all these vehicles have one thing in common. [metal scraping] they're out to get me! [engine roars] along the way, i