responsibility, and i'm looking forward to being ceo of this company. we have an amazing -- 164-year history. and we are not going to to allow the last five weeks to define the success -- the future success of a very well regarded and well known 164-year-old company. >> mr. sloan, thank you very much for your time. we really appreciate the call. congratulations on the appointment albeit in those sad circumstances you mentioned. mr. sloan, ceo of wells fargo joining us. melissa, i'll send it back to you. >> thank you. >> tim sloan, the new ceo of wells fargo and of course our own wilfred frost for bringing that exclusive to "fast money." what do we make of mr. sloan's performance here? >> i thought he was very diplomatic, and i thought he did a nice job, frankly, of not selling people down the river. i think it's a very difficult time, and i think the next question also -- i'm not sure

how he answers this, but this is is kind of what was addressed down in front of folks in washington, is this something that's endemic in the entire industry? i think this is something people want to get to the bottom of. >> i would just say nailed it. did carrie tolstedt, the woman who ran the phony account unit, was she a direct report to sloan? he said yes. i believe it's not enough. these guys are probably really good bankers, but there was a scandal here, you know? and in some ways there was probably some relatively criminal activity. so i'm not sure him as a replacement is the proper replacement. >> you got to think if he goes up on capitol hill, the tone and tenor of those questions are going to be just as -- >> aggressive. >> -- fierce and aggressive as they were the first time around. if we're asking questions within an hour after the news breaks, these senators, these congresspeople have days, weeks to prepare they're line of questioning.

you got to think they're going to be ten times harder. >> doesn't go away. i mean i don't think any of us said it's going away. what i think a lot of us said is it's one step closer to being resolved, albeit we're still a long way away. but it's an important first step, i believe. to pete's point earlier, you can't blow everybody out and bring in a whole new management team because i don't think that works either. i think dan makes a fair point. you're replacing a person that's been there for decades with another person that's been there for three decades. does that solve anything? no. i do think they're working to get their arms around it and the guy within a half hour, 45 minutes, this man is willing to come on and do an interview with wilfred and you. >> although he did a pretty nice job of sort of side stepping around what you were talking about. and i think that was the right question to ask him right out of the gate. who did she report to? it was him. so you kind of got to wonder why over time that didn't get addressed much quicker than it has now finally. and i think that is something that's going to be an overhang.

but when you look at the very stop, the top man who was in front of everybody, in front of jim cramer said he was going to stick it out, and now he's retiring, somewhat of a forced retirement i would think at this point in the game. at least there's something, and we finally get somebody to step down who's been in charge. >> show of hands. >> uh-oh, i like this game. >> who thinks wells fargo at today's price, just above $46 a share, is a flyer for the next three months and to year end. >> it depends what happens on friday. let's see what they say friday. >> i think 40 before 50. >> 40 before 50. >> i'll take the other side of that. i'll say 50 before 40. >> if you gave me 12 months, i'd own it, but not in the next three. >> wilfred frost is with us on the fast line. what did you make of tim sloan's debut of ceo if you will? >> melissa, i think the first thing i'd note was that final answer, the emotional side of this for him. he said it was both a sad day and a proud day for him.

the circumstances in which he's taking over ceo of one of the biggest banks of the country, very sad for him, but clearly for his own career and sense of getting that role is a proud moment for him. and then the other factor which you guys have been discussing just now is that he felt this was a necessary condition in the eyes of mr. stumpf for the company to be able to move forward although he didn't say it was necessary in his eyes. i wonder, though, underlying was it necessary in the eyes of the board, and i wonder how much pressure there was on mr. stumpf to leave albeit this, of course, is being framed as a retirement. and he was very clear that it was not a sufficient condition as you guys rightly said. there will be many more questions to be asked of him, perhaps in front of congress as he admitted might be the case, and many more actions that need to be done and taken before this is wrapped up. >> yeah. >> but i would say this was not expected today. it was not expected over the last week. so this is a big move by the

bank as it was when we saw claw backs of pay a few weeks ago, and one would have to commend them on taking a big, significant step that otherwise hadn't been expected. and i suppose all eyes now turn to the earnings, they report 8:00 a.m. eastern on friday. >> is it a foregone conclusion amongst analysts that cover wells fargo that there will be large legal reserves, charges taken in this quarter, money set aside for litigation? >> that's a big aspect that analysts will be looking at, of course. i'd rehighlight the point that the $185 million fine so far was taken as a hit in the q2 earnings already, but you're absolutely right. further legal reserves might be included, and we wait to hear from mr. sloan on that on friday. of course he was rightfully totally closed in terms of any details of earnings on the call we just had because the numbers aren't due for a couple of days. i think we can expect that, but i think more importantly is the headline numbers and getting some clear metrics from them in

terms of client retention, because this is a brand issue. the question is are customers 11i leaving in droves or are they satisfied? any legal fees are likely to be much smaller to the potential impact of the brand being hurt. so far, most analysts have said to me this isn't an earnings issue. it has been a multiple issue because of the potential brand damage, but not an earnings issue yet. >> that's a good point. wil, thank you for bringing us that exclusive. wilfred frost joining us on the fast line. exclusive interview with the new wells fargo ceo tim sloan. drifting slightly higher, up 1.8%. how do you think the full market session will take this news? will we see wells fargo tomorrow close in the green? >> well, if i've been short this stock and you're coming into an earnings period given this news,

i would probably more inclined to cover at least part of my short. so do you see it close in the green tomorrow? yes, if you're pinning me down. >> all right. for continuing coverage on wells fargo, go to cnbc.com and of course tune in tomorrow for more developments throughout the day. meantime, we join "mad money" in progress. >> when it's really calm out there, you can really do some good decision making. remember, not all stocks are created equal. you have to be willing to circle the wagon, just like a wagon train going out west in 1,800 others, around a few good stocks. by them down to get a better basis or average price for your holdings. why does this matter so much? because we must expect corrections, and we must expect declines as a matter of course. more than that later in the show. we must anticipate the days where we wake up and hear the good people on squawk box saying the futures are down. they're down a great deal, and the market looks to open down a

half a percent or down a percent. come on, you've heard that so many times. we have learned so much over the years about what triggers corrections. more on that later too. but the most important thing is to have a game plan where you know that even when you've done all the homework and have the tremendous conviction, discipline dictates that you must assume there is something you don't know going on with your individual stocks or that there is something happening in the world that is beyond the control of your acumen and you're just being victimized by the events of the moment. my ranking system will indeed get you three the chaotic times, allow you to stay cool and methodical about your money when all others are around you are fumbling and fretting and deciding they just can't take it anymore and just have to get out of dodge at the exact worst time. so here's the bottom line. in order to be able to deal with the decline in your stocks or in the stock market as a whole, you have to accept that something is wrong at the companies you own shares in that you might not know about or maybe there's something happening in the stock market that you didn't foresee. therefore, you must be ready

with a game plan that can bail you out short-term and keep you in the market longer term so that your money works for you and not against you in a time when you need it most. frank in new york, frank. >> caller: jim, i understand why a company goes public, to raise capital for various different reasons. but why would a company want to go private? >> all right. this is a great question. typically i want a company to go private because they think it's worth a lot more than what the stock market is currently paying for it. when you see a company go private, that is typically because the owners of the -- the managers of the company recognize there's so much value and the stockholders and buyers don't. they take it private. they make it look better, and then they tend to bring it public again. how about ann in california, please. ann. >> caller: hi. i haven't seen any prospectus on stock book lately and i'm curious if there's any way to tell when a company is going to split their stock. >> no, there isn't. companies tend to be very close

to the vest about it. remember, when you split a stock, you only get two pieces of the same company, so it doesn't necessarily create any wealth at all. it happens to be exciting, and i can tell you when stocks do split, some of the smaller investors then get a chance to buy. all right. that they didn't have otherwise. so i am pro split, but it does not create any wealth, and they tend not to signal when it will happen. discipline isn't fun, but it is necessary if you want to make big money in the stock market. when there's a decline, you have to accept the facts and always have a game plan ready. i'll help you out. on "mad money" tonight, there are trades, and there are investments. i'll explain why understanding the difference will save you from a world of hurt. then headlines may be black and white, but investing on their every word could have you drowning in a sea of red. i'll help you spot the true story. plus a correction is always lurking around the corner. i'll help you protect yourself when it strikes. so stick with cramer.

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learn more about the safeguards at yeson64.org. tonight we are going over the rules. the rules make it so losses can be palatable, rules that keep you in the game when others are freaking out. i used to talk about these rules all the time when i was managing

money until they became second nature to me. but that was years ago now, and when i think about it, it's usually in response to a tweet @jimcramer that asks a question that the rules answer, and they answer kind of actionio matically. that's why i got to dust them off here, make sure that people know i'm not ducking their questions. i'm just looking for a better format to flesh them out than 140 characters where i can't be thoughtful. i want to be thoughtful on twitter, but it's really hard. this is the format. so here's a typical question. someone will mention a stock, an oil driller say, that has had a hideous decline. they'll ask, what do i do now? i often turn the table on the person asking, why did you buy it in the first place? the followers tend to regard that answer as either arrogant or flip, but what i'm really trying to do is figure out if they bought it as an investment, which means it might be fine for them on a longer time horizon and they should buy more, or did they do it for a trade, and perhaps they should cut their losses.

why does this matter? because one of my card nat rules is to never turn a trade into an investment. if there's one concept you must take away from this show, it's that you must never, ever turn a trade into something that it wasn't meant to be, a long-term investment. so first let's talk about the process of buying a stock. the actual check down you must do before you pull the trigger. when i decide i'm going to buy an oil driller, okay, i have to declare right up front to myself whether i am buying it for a trade or for an investment. what's the difference? a trade means that i am buying it because of a specific catalyst, a reason that will drive it higher. that catalyst might be a data point, a recommendation, a belief that things are better than expected when the earnings come out, or some news about a restructuring like we always talk about, a breakup into several pieces or some other material event that could occur. in other words, there's a moment to pull the trigger. a moment to buy. >> buy, buy, buy.

>> perhaps you think that oil is about to spike or maybe some problems in the middle. and then there's a moment to -- >> sell, sell, sell. >> -- when the event occurs and you're done. but you must declare first before you buy and here's why. the vast majority of you will buy a stock for a reason, and -- you'll say darn, i'll buy more if it goes down, or perhaps the reason never occurs that you bought it for, and you decide to hold on to it because, well, what's the worst thing that can happen? the answer, of course, is plenty, and almost all of it bad. the answer is that you would never have bought it in the first place if you didn't think the reason was going to occur. so now there is no reason for you to own it in the first place. i have seen a myriad of investors turn trade into investments, developing a rationale or an alibi to fool themselves they're doing the right thing. that's because they don't make the distinction between a trade and an investment. if the reason i bought the oil company at higher oil prices

doesn't materialize, then i really can't say, i'll hold on to it because it has a swell dividend. fr all we know, the only thing that would have saved that dividend from being cut is higher oil prices and without them, the idea for the trade is gone, and the dividend. now, when i want to invest in a company, not trade, invest in a company, i buy a small amount of it to start and then hope the market will knock down the stock so i can buy more at a better price. that's right. i actually, when i invest, want the correction, which is always the way you want to be thinking if you're trying to start a new investing position. you don't want to invest in stock at the 52-week high, but there is nothing like a nice wide, market wide sale to get you better prices on your buys. trading is the opposite. i put the maximum on at the beginning because i believe the data point or the event is about to occur. i never buy anything for a trade without that defined catalyst. that's the word we use,

catalyst. i never buy anything for trade just hoping it will go higher as there could be no hope in the equation of buying a stock. i buy down, lower prices, when i'm investing. i cut my losses immediately when i am trading if the reason i am trading the stock doesn't pan out. that's why i like to say that my first loss can be my best loss. if you buy a stock for trade, not an investment, and it starts going against you in a meaningful way, perhaps a decline of 50 cents is meaningful when you're trading, you may have a real problem on your hand. i'm not kidding. when it comes to trading, i am an extremely disciplined person to the penny. i like to cut my losses quickly and get over them quickly. that's why i say that my first loss is my best loss. all other losses tend to be from lower levels and at bigger cost to me if i don't operate on this principle. again, people, anyone watching can instinctively feel the trade going awry but because of ego, pig headedness, they don't want to heed the thunder, and they

stay in, only left to panic out at lower levels when the catalyst doesn't occur and the whole reason to own the darn stock evaporated. so please don't fool yourself. cut your losses quickly when you put a trade on and it starts to go awry. sure, there's an occasion or two when it's about to pan out and the market doesn't know it. but for the most part, it does, and you're probably going to be wrong. it's just a fact of life. it's a compendium of all the studies i've made. the bottom line, never turn a trade into an investment. better just to take the loss because believe me, the percentages say that you will most likely lose money, and if you do so, do it earlier rather than later and save some bucks. stop fearing the big score, and start fearing the losses because it is the latter that can wipe out all those good juicy gains you have and then some. there's much more "mad money" ahead. a stock rising can be quite seductive, but chasing doesn't always have a happy ending. i'll help you know when it's ever right to run after a hot stock. then corrections are as certain as death and taxes.

don't miss my take on how to prepare yourself for the inevitable. plus it's easy to get attached to your holdings. but holding on for too long can burn you in the end. i'll let you know when to cut the cord. stick with cramer. the experts at cdw brought i.t. orchestration to

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we are going over the rules that have gotten me to this point in my career, where i can play for charity at actionalertsplus.com instead of trading at my own hedge fund which i retired from. but the lessons of the hedge fund are very much with me, and i'm going over them tonight in this special show to help you with your portfolio. let me give you one that's the height of silliness. if it weren't for that darn buy of, and then you fill it in. why don't we use high max, i would have been up big, or i would be making a huge amount of money in the market if only i hadn't let blank -- let's use fire eye -- run against me when there was altogether thl that i selling. darn it all. it takes only one or two losers to wreck a portfolio. i try to devote far more of my time analyzing my loser stocks than my winners, not because of some sort of mass oh kiss tick streak. rather, i recognize that stocks oven telegraph declines ahead of

time. lost control is the paramount concern for all of those in the market because the winners, the good stocks, i got to tell you something. they take care of themselves. take the loss before it gets hideous. don't buy into the notion that you can't sell until it comes back, and then you promise not to do it again. how many times have i heard that one? by the way, that's how losers think. you need to think like a winner, not a loser. so you want one of those people whom i answer with, focus, will you, on twitter because you are obviously unfocused and undone by the market. of course the flip side is true too. you don't have a profit. listen to me, you do not have a profit until you sell the stock and nail it down. >> sell, sell, sell. >> it's not a profit. it's something ephemeral. people confuse book gains, real gains you can take to the bank or, of course, to get yourself a cashmere sweater at a nice department store, with phony

paper gains that are meaning less. most people are also reluctant to ever book a profit because they don't want to pay taxes. i always tell people if i could just rewind the tape to january of 2000, or july of 2007, when people were sitting on literally trillions of dollars in unrealized gains because they want to pay the tax man, we would be able to drill this point home well enough that people would respect it. gains not taken can be losses that will be taken. gains taken never become losses. it's that simple. i stress this point because we have all been brainwashed not to sell. somehow we think it's sinful. it's trading. it's common sense cal to sell. it's logical to sell, and it may be the only way to really get rich in a choppy business. but it's just counter to human nature. when it comes to stocks, human nature, i think you got to learn to counter it. i can't tell you how many times

i have had my heart in my throat, pounding, pounding, because i didn't own enough stock in a rising market. i didn't have enough exposure. i can't tell you how often i felt that i had to play. i had to be big in stocks because the market was going higher, and it was going higher without me. do you know that almost every time i had that feeling, that instinct, almost every time, i had that i can't miss this action drama playing around in my head, do you know what happened? that's right. i lost money. discipline is the most important rule at winning in investing. we're doing winning investing here. that's what we're teaching. sometimes that discipline means admitting that you missed the opportunity, and it is already too late. i almost always feel like i've missed something right near the top of the market, the top of the move. when i was a hedge fund manager, i actually -- are you sitting down for this one? i actually turned that sentiment into a profit center by actually betting against myself and the market when i thought i was missing the upside.

that heart stuck in the throat feeling correlated with the tops of moves, not the bottom ones. i actually made money saying, oh, there's that pan again. sell. i always remember that the best time to buy is when it feels most awful, not when it would relieve the incessant pain of fearing that you're going to miss the next big rally, especially given that the rally is invarableably already occurred. you must also protect yourself against overtrading because there aren't that many great ideas out there to act on. the real great guys don't have that many great ideas. you always have to think about when you're prone to this. for instance, when i go on twitter, i'm always amazed at how people want me to opine on a stock that just reported and they want me to do it in just one headline alope. i find the business wires that report these numbers are almost wrong in their quick takeaways simply because business is a lot more harder and complicated than the press release which often obfuscated what's really happening. the headlines can't capture the reality because the reality is,

in reality, a jumble. head likes that present stories about such and such a number being better than expected are the types of headlines that always punch the quick draw mcgraw traders. the reality is there is something else, some other metric that might be more important, or that the quarter is manufactured with one-time gains. that happens all the time. i think you have to read the whole story and listen to the conference call. which part's most apparent? the portion right before the q&a, when the company lays out its guidance for the future. that moment, and not with the headline writer is responding to is what you will see will make the stock move. that's where you get the accurate move from. everything else, guesswork. we can't do much with just guesswork except get in trouble. so many of you want to get in trouble because periodically one of you wants to be right. this point is very important because of electronic trading you can move too fast, and often many do. it's like your car goes too fast for you. if this is really a great opportunity, you will not miss it by taking time to inform yourself, believe me.

before you do so, be sure you know what to look for and what matters. you might want to have a grid of what all the analysts have been saying about what is about to occur. that way you won't be fooled by the first move, which could be taken by people who are less informed than you are, and they are less foirmed, believe me. most important, understand that the headline for many companies' earnings doesn't even tell you how the company is doing on those key metrics. with an oil, what are you looking for? production growth, not earnings per share. with hotels, what are you looking for? revenue per room, not earnings per share. airlines, revenue per seat mile, not earnings per share. many times in my career, i've seen up headline numbers only to learn that the company is guiding down expectations later in the conference call or that the key metric estimate wasn't beaten even though the headline says it was. the bottom line, don't let gains turn into losses and certainly never trade because you fear the market going up without you or a stock rallying off a headline that maybe, just maybe, might be wrong, as they so often are. ed in california, ed. >> caller: booyah, jim.

jim, i'd like your opinion on a strategy that i've been using in deep in the money calls going out of anywhere from six to 12 months on stocks that you recommend. this is to avoid any possible volatility in the market swings. what do you think of that? >> this is exactly what i want. ed is doing example what i want. i talked about this in getting back to even, a 1-page chapter that i tried to cut back and decided i couldn't. he is doing what is called stock replace many. he is literally taking the risk out of common stock by stopping the decline at a certain point and et gooding the upside. you are the man, ed. you know what i have to say. you have horse sense. jacob in california, please. jacob. >> caller: hey, jim, how are you? booyah. >> booyah. >> caller: hey, jim. i love the show. >> thank you. >> caller: the advice is phenomenal. >> thank you. >> caller: jim, as an initial first-time investor, what is your recommendation on how many positions one should have without going, you know, over their head? >> okay. we can only handle 30.

as soon as we do more than 30 -- and we are pros who are devoted to this -- we get hurt. which means i think more than a dozen on an individual who may not be as sophisticated as we are is going to end up making mistakes. so try to limit it. when we play in my dwerdified, it's five with "mad money." larry in massachusetts, larry. >> caller: jim t was offensive said that jack kennedy's greatest strength was that he surrounded himself with extraordinarily bright people. well, i wouldn't be in the game at all but for your teaching through the many books, action alerts, and the show. you know i'm a cramaniac. when does a holding start looking long in the tooth or something to be ditched? in other words, what characteristics made it a core holding such that the bad news threshold for dumping it are higher? >> what a great question. first of all, thank you for all those nice things about action alerts, street.com, regina, everybody. here's what you're looking for. when everybody knows what you know, when there isn't a single analyst that doesn't love your

stock, when you constantly hear that that company is great and the ceo is great, you know what? it's long in the tooth. got fomo? don't trade because you fear the market going up without you or if you fear a stock rallying off a headline that may be wrong. there is such a thing as overtrading by the way. i'm here to help you out, coming up, sure, corrections will come, but you don't have to suffer when they strike. i'm going to show you how to prepare for those painful days. then we all want our stocks to succeed, but getting too attached can be a portfolio killer. i'll explain why emotions and minor don't mission. they're oil and water. plus i'm taking on your tweets. stick with cramer.

tonight we are going over the rules and disciplines that i

have learned in, holy cow, four decades of investing. rules that i want you to know. rules that i want you to just kind of learn by heart like i have. you know, not just like the usual twitter 140 character stuff. this is real stuff here. a lot of people, for instance, don't think a correction is ever going to occur. they get lulled into the market during good times. a lot of people get involved when there's just been months and months of good times, and when bad times hit, they are eager to pin blame or be shocked in disbelief. instead of just expecting corrections and not being fearful of them. yep, when a correction occurs, many investors decided they now want nothing to do with the market. the krekds signifies that something is wrong with the market as a whole as if these aren't stocks of companies, and therefore the market can't be touched. that is a really big mistake that is made constantly. corrections happen all the time.

they particularly happen after big runs. they're to be anticipated. i learned this from the great peter lynch years ago. he said anticipate these. but you can't write off the market when they happen. i always like to tell the stories, i like to put things in sports analogies. i tell the story of joe dimaggio after his own personal bull market. his 56-game hitting streak, when he failed to hit in game 57, should you have traded dimaggio? should you have cut him because of a -- well, whatever. was he finished? is that smart thinking? same with the market. corrections are to be expected and accepted as a matter of course, particularly after 56 great days of the market, you're going to get something like that. hey, when they happen, they're not a reason to panic. they can be great opportunities. even as people insist that the market's done because the charts are bad, taking out the 200-day moving average, a death cross, a

hindenburg cross, or the market's unpalatable, some clap trap i hear every time the market snaps a winning streak with a couple of losses and you read, bears who come out of hibernation. they like to be right that day. now, given that so many don't expect corrections, here's something that seems pretty common sensic al but avoided by many people i have met. lots of people wrongly believe in being fully invested at all times. lots of managers think they're supposed to be fully invested every day. i have to tell you this is nonsense. lots of time the market just stinks so you want to have some cash on hand. i'm not saying go in and out of the market. i'm saying having some cash. pretty good. a lot of times there's nothing to do except have some cash. one of the chief reasons i outperform every manager in the business during my 14 year run is there was were substantial blocks of time where i had a lot

of cash. so it was actually a 22.6% hit to be precise. cash is such a great investment at times, even when it earns little to nothing as it has for ages. you know what, i regard it as a better hedge, a perfect hedge, as opposed to shorting the market because the market keeps going higher as it did in 1999, you could face devastating losses as an overvalued market can continue to stay overvalued and climb and climb and climb. i think cash may be the single most underrated of investments because nothing feels as good as cash when the market comes down. i know that from my charitable trust. always great to have a big cash position when the market gets hammered. it's one of the reasons why if you follow my method of how to trade around a stock, you will know as the market spikes, i take stock off, sell a little, trim here and there. yes, to get ready and reposition myself for the next correction. close viewers of the show know i

sell strength, and i buy weakness. when the time is right, i almost always have that cash to put to work because i believe so strongly in cash as an option. if you don't raise that cash, here's what could happen. you might end up selling your winners to subsidize your losers. that is another common mistake people make. so many bad portfolio managers and befuddled individual investors always sell their best stocks so they can hold on to their worst stocks. you can always tell when you see this pattern. you'll be reviewing someone's portfolio, as i used to all the time before my rules prohibited giving individual investment advice, and the portfolio will be filled with junk. i'll say, what happened to all your blue chips, the kinds of stocks that can best weather the tough times. invariably, they will say, i had to sell those. i had to buy more of these other stocks because they kept going on down. many on twitter seem to have this problem, portfolios riddled with stocks that stopped working a long time ago. i have counciled enough professional investors that were in trouble to know the first

things that get sold are the best stocks because they can be sold. there's always a bid for the good stocks. a ready buyer that's willing to put up capital while the bad stocks just seem to go straight down the line and fold under any pressure. but when even some of the more admired professionals have a handful of good and awful stocks, they don't sell the awful ones because they're down so much, a typical alibi for not taking action. nonsense, they're probably going lower. please do not subsidize losing stocks with winners. if you own companies with deteriorating fundamentals as opposed to good companies with deteriorating stock prices, a common occurrence, please sell the bad ones. take the loss. reapply the proceeds to the good ones. move on. don't feel bad for yourself. lots of times the circumstances have simply changed for the stock market. the company in which you have invested might do a lot of business, say, in russia, which could have been rate before sew xi, but then with the fight over ukraine companies profiles changed. you may have to sell that one for a company that's largely domestic, or perhaps a slowdown in the economy.

one of the largest trends out there that blindsided many of the food stocks traditionally thought to be safe. or perhaps a terrific drug company like pfizer until they went off patent and the generic competition crushed their margins. these kinds of stocks were so often kept because they had gone down and investors bought more of these stocks and subsidized these losers with the sacrifice of winning stocks. let me give you the bottom line. get ready for the correction. it's coming. have some cash on hand. and when it happens, don't sell the good ones to subsidize the bad. you'll end up with a terrible portfolio that won't be able to bounce back when times turn better. "mad money" is back after the break.

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they're a drag, aren't they? i hate rules, but they will keep you from getting blown out and help you navigate the tougher times that come up when you least expect it. if you aren't prepared mentally, you won't be tough enough to handle these moments, and you will flee instead of thinking about what's really right to do, or you'll be paralyzed with fear and self-doubt instead of mindful and opportunistic. emotions have to be checked at the door in this business. i often hear people say, i hope that a stock goes up, or they ask @jimcramer on twitter, doesn't it have to go up, implying a question like, doesn't a team have to win a game sometime? people, this is not a sporting event. we have no room for hoping or rooting. we're buying stocks that we believe should go higher because

of the fundamentals and we're avoiding stocks where the underlying business is bad and getting worse. where should hope fit in? nowhere. people treat this business at times like a religion, like an ideology. they believe that if they pray things will work out, maybe if chair chanting, maybe they will, or they fall in love with these miserable pieces of paper with the idea that love will somehow be requited. be realistic. hope, pray, love, rooting, these are all enemies of good stock picking. i can still recall the ringing in my ears when i would get off the trading desk with karen cramer, who was our head trader, and she would say, what's the deal with this mem rex, a now long defunct company that got crushed back in the 90s. i would say i am hoping it gets a big contract. she would scream, hope? hope? we need hope to make this work? sell it and give me something where we have more in our favor than just hope. man, what a beatdown. many times she didn't even ask. she just sold it after i used

the word hope to see if i would buy it back. invariably i didn't buy it back. i was hoping somebody would happen, and once it was sold, i felt, well, relief. sometimes the stocks of good companies do nothing and you get frustrated and you do want to sell them. good stocks at times can do nothing for ages. i remember when berkshire hathaway did nothing for ages. if you're a professional investor at a hedge fund, this waiting can be unnerving. you have partners in your fund calling you regularly asking what you're doing with their money. they don't want to hear you own a whole bunch of stocks that aren't moving up at once. but individuals have no such pain. individuals can sit on stocks as long as they want. unfortunately when i counsel patients, many individuals get antsy. they want the gains. they want it now. i say some of the best stocks require some incubation. do you know how patient i was owning intel, one of the greatest stocks of our generation? for 18 months, i wap watched it do nothing at all in the late 1980s. but i believed. i held on to it because at that

time i had only a few partners and none of them needed to know every minute how much they were worth. later in my career when partners hounded me daily, i would never have held on to intel that long. lots of stories take a long time to incubate, to develop. lots of turnarounds take 18 months to two years. when you buy a stock and recognize it could take a long time to turn, mark it as such in your mind so you don't get tired of it and just sell it and give up. here's something really important to remember. stocks that are stuck in the mud a long time tend to romp like thoroughbreds when they are freed from the great. they're mudders. do you have the patience? if you don't, let someone else invest your money. finally i like to say no would have, should have, could haves. one of the despicable traits is second guessing. you make a call. you buy some celgene, and then it suddenly has a patent issue, or you sell du pont the day before a noted activist takes a stake and sends it soaring. next you're filled with

self-doubt. that's nonsense. get it together. the market requires you to have the right head on at all times. you have to be ready to see the ball right for the next pitch, okay? there's no time to get down on yourself. do that for fantasy if you cut like brady or something. if you want to be introspective and constructive, bracket some time at the end of each month or maybe at the end of a quarter to assess your strategy and your stock-picking abilities. but to second guess your strategy is to put yourself in a loser mind set. i want the pain felt. when i thought one of the younger people in my office made a mistake that was costly to me, i made them wear the symbol of the stock that they screwed up on as a post it on their forehead for the day. i even sent them outside. but i insist that anytime saying if only i is time that takes you from getting the next big stock. karen cramer believed that women are much better traders than men because they lack the second

guessing instinct. they did teach me to steel myself and come in the next day without the mental baggage of a screw up so i could be ready to swing at the next big pitch. here's the bottom line. this is business is not about hope. it is about the fundamentals. don't root for your stocks to go higher. just pick shares in good companies, and they will unless circumstances change dramatically that cause you to sell. they'll go higher. but be patient on the good ones and try to keep the self-doubt to a minimum. clear your head. get out there immediately and find out if the next big winning idea. there's just no room for should a, would a, could a. and stick with cramer.

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favorite part of this special. we go for what you want. that's right. we got some tweets you've been sending me @jimcramer. our first tweet comes from mark

richard auto dividend reinvestment or take cash and buy selectively? a huge percentage of the gains people have in the stock market over the years couple exactly from dwent reinvestment. this is a no brainer and there are very few free lunches in this business. compounding is the secret behind great welt. revest. here we have at jamie who wants to know who first came up with the way you say bristol-myers. that happened to be an old broker at kiter peabody. can you imagine when karen cramer and i tratded together, we had a broker who often recommended bristol-myers. he always said it that way and you know what? i decided, hey, that must be the way it's really pronounced. let's take our next tweet from @craig boo. who asks, which is smarter, add to a holding that has been recently hurt or add to a new position? if you do not want to buy more of that stock lower, than you should just sell it because if you liked it higher, you should love it lower. so the answer is buy more of the

lower one or get rid of it. up next, @no to l, whatever, asks, at what percent for profit should we sell shares? at no 2. this is really important. there's no firm rule. when a stock goes up about 50%, i like to sell some of it and then a little bit more, but the ultimate goal for all great investing, you play with the house's money. that's the way to do it. always try to fight to get to the point where you're playing for the house's money. and, yes, stay with cramer. cdw brought i.t. orchestration to printing, dramatically increasing print security with enterprise printers by hp. which is great, unless you're a corporate spy. unsecured printing makes your network vulnerable. enterprise printers by hp help prevent costly security breaches that can compromise your network and reputation. so i'm stuck spying the old fashioned way. hey. i'm not spying.

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i like to say there's always a bull market somewhere. i promise to try and find it just for you right here on "mad money." i'm jim cramer, and i will see you next time.

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