back to where we were before the cambridge analytica. >> you sell the 150 put out in september. if you want to get long it and that's the way you do it and that was the low. >> this is both sides of the balance sheet, folk. >> that doesmorning. facebook shares down 23% "mad money" starts right now 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 other people want the make friends. i'm just trying to make you some money. my job is not just to entertain, but to teach and educate you so call me at 1-800-743-cnbc, or tweet me @jimcramer. tonight i want to share some of my accumulated wisdom. believe me, i've been doing this thing for a long time, because there are so many different things you need to balance in

order to be a great investor, that it can be hard to keep track of everything that you need to do and a lot of this stuff is much more important than the day to day action in any particular session, without the discipline, the right framework, the right, dare i say, philosophy, well, you're going to get yourself into trouble but i also know the big picture financially can be hard to process. a lot of it seems downright contradictory to most people >> sell, sell, sell. >> buy, buy, buy, sell, sell, sell, buy, buy, buy. >> we say you need to be ready to change your mind on a dime when the facts change. you need to be cautious because it's so dangerous out there, but you also need to be ready to pounce on opportunities when they present themselves. >> buy, buy, buy >> you need to be skeptical, but you also need to know when to suspend your belief, your disbelief. you need to avoid chasing stocks that have run too much, be you also shouldn't care too much where a stock is coming from, if you believe it's headed higher you know the rules it doesn't matter where a stock has come from, it's where it's

headed to. believe me, i get it i get it if you take all my rules literally, you're going to be running around in circles while tearing your hair out. how do you i'm bald? tonight we're going to take a step back, try to put all this discipline stuff into perspective. if you pick your own stocks, the thing you really need above all else is good judgment. but obviously good investing judgment is not the thing someone can teach you in an hour of television, or even a year of television, for that matter. that's why try to help you build good habits. try to teach you better ways to think about individual stocks and the whole market try to give you tools to develop your own judgment. all my professors in college focused on teaching us how to think, how to think, not teaching us what to think. i've always tried to take my cue from them. i want to teach you how to be a better investor, not just tell you the stocks that i think are good investments the problem is that's a heck of a lot to process so let's try to put it all in context. first and foremost, when you're

managing your own money, before any other consideration, you need to know yourself. i've said this before. i'll keep saying it because it's so important you simply can't know which stocks you should buy if you haven't taken the time to consider what your own personal perspectives are i can't decide them for you. do you need to build up your wealth to purchase a home? are you just trying to get a decent return as you save for retirement do you have money to burn and you're willing to take more risks? the truth is there is no one size fits all approach to investing, and anybody who tells you differently is either dangerously misinformed or flat-out lying to you. [ booing ] probably in order to tell you something. [ buzzer ] but far too often people invest in the stock market with the simple poorly defined goal of making some money. yeah, all we want to do, want to make money everybody wants to make money, but how quickly do you want that return what are you willing to risk to get there?

how much can you even afford to risk in the first place? these are really important questions that you need to ask yourself before you start trying to pick any given stock. why? because without clearly defined goal you have no way to determine which stocks you should be buying in other words, your 401(k) or our ira or your brokerage account do not exist in a vacuum if you're trying to save up for retirement, a stock like a netflix might not be the most appropriate place to put your capital. on the other hand, if you already have a decent sized nest egg for retirement, and you just want some appreciation, then netflix and the fang cohort, amazon, google, google, let's say they look a loot more attractive given that mind-set and sure, before you can start making judgments about stocks, you need to figure out what your own internal yard is going to look like. that's the foundation, knowing what you need so you can find stocks that are suitable to your particular needs let me put it another way. if you want to fly across the

pacific ocean, you do it in an airplane, a boeing 747 you don't try to fly across the pacific in a ford fiesta now, if you want to pick up your kids from school, taxiing down main street in a 747 i'd say would be really impracticable. in that situation much better with theed for fiesta. how filibuster you're renovating your house so you need to go to home depot for a metric ton of lumber and tiles and paint and maybe power tools. theed for fiesta is too small. there is no way you're going to fit a 747 in the packed home depot parking lot, ah, but a pickup truck sounds perfect. it's the same way with stocks. when you're saving for retirement, you want low-risk holdings that will give you a slow and steady return for those of you who don't have time to research individual stocks, you can't really go wrong with the basic low cost s&p 500 index fund -- ♪ hallelujah -- that tries to mimic the performance of the broader market look, i recommended index funds endlessly here and i'm going to

keep doing it, because they are phenomenal at best they help democratize the u.s. stock market. america's a growing country. it's very business friendly compared to the rest of the world, particularly the developed world. and when you buy an s&p 500 index fund, you're basically betting on the long-term participation of the u.s. economy. you know what you're betting on? you're betting on progress historically, that's been a very good bet that's why i always say you need to invest your first $10,000 in an index fund. don't bother trying to pick individual stocks until you have more money than that again, first $10,000, index fund future you're looking to make slow and steady money over a period of decades, that's retirement investment in a nutshell, you might consider certain stocks especially steady companies with big dividends because of compounding. a 4% dividend yield may not sound all that spectacular, but even if the stock goes anywhere, that will double your money in 18 years thanks to the magic of compounding. of course, not every investor is

simply trying to fund their retirement and even if you are, that may not be the only thing you want to do with your savings. this is another important point. you can have multiple objectives you can and should have multiple pools of money i like to break things up into your retirement portfolio, where you need to be pretty cautious and your discretionary mad money portfolio, the extra money that you're not going to need in order to support yourself after late-stage capitalism has ground you down and you no longer are able to work that discretion portfolio is where you can afford to take more risks in order to generate faster profits makes sense? but, mighty big butt here, for the vast majority of people your discretionary portfolio is much less important than your retirement portfolio it's not just retirement if you want to pay for a house, want to send your kids to college, you should take a more conservative approach to managing that money. whatever kind of account you're putting it, your strategy for college tuition savings or future house savings should look more like your retirement

portfolio than that mad money portfolio. so please, get to know yourself before you jump down the rabbit hole of getting to know individual companies bottom line, trust me, i get it. when you get excited about a particular stock, you often want to dive right. in i've been there before. first, though, you need to consider what you're trying get out of the market. the answer to that question is not going to be the same for everyone, but everything else stems from it. you can't make judgments about stocks until you know what characteristics you actually value. let's go the paul in texas paul >> caller: boo-yah, jim. >> boo-yah, paul >> caller: i've noticed companies, a lot of them will exceed on one and miss on the other in reference to revenue and earnings per share so as a shareholder in the companies i'm looking for, if they're going to exceed one and miss one, would bit more important for them to exceed on revenue or would it be more important for them to exceed on earnings per share >> holy cow, what a great question, because i have actually done a huge amount of research on this and thank you, paul, for asking.

it's revenue growth. we want to see pure revenue growth that means that there is demand for the product. the actual earnings per share may be in some case manufactured, literally by tax rate, by buying stock back, but you can't rejigger sales okay know thyself always consider what you're trying to get out of the market before you dive into a stock on "mad money" today, yoga won't help you with the pipe flexibility i'm talking about about. and then feeling verklimt about your stock picks i'll tell you how to snap out of it and how the late great maya angelou offered some of the best investing advice i've ever heard. so stick with cramer >> don't miss a second of "mad money. follow @jimcramer on twitter have a question? tweet cramer, #madtweets send jim an e-mail to madmoney.cnbc.com.

or give us a call at 1-800-743-cnbc miss something head to madmoney.cnbc.com. ♪ you shouldn't be rushed into booking a hotel. with expedia's add-on advantage, booking a flight unlocks discounts on select hotels until the day you leave for your trip. add-on advantage. only when you book with expedia.

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regular viewers know i've got a lot of rules, the result of more than 30 years in the money management business. first as a broker then a hedge fund manager then as a journalist and commentator i've got rules for trading, rules for what to do in a rally or sell-off, for picking winners, for avoiding losers, it can be a lot to take in. but as i mentioned before, the point of all these rules is to help you learn from my mistakes and develop your own judgment. i just explain why you need to have a clear understanding of your own objectives before you start buying stocks, something more focused than merely trying to make some money so let's pretend you've already done some self-reflection and you know what you're trying to accomplish now you start buying individual stocks enough to buy a diverse portfolio, five to ten names, right? hold up. before you buy anything, i need you to do one more thing first you to do the homework now, i've covered this before.

i'm going to give you a quick version right now. if you're going to invest enough money in the company for it to matter for your portfolio, you need to know what the heck the company does you need to know how it makes its money and how much money it makes. the internet has made this whole process much easier. certainly when i first started the show, holy cow, this is now a delight. i mean, you can go online, read the sec filings, which contain a wealth of information. you can listen to or read the transcripts of the conference calls which i regard as the best way the get familiar with the business and the key metrics that will drive its stock. feel free recent journalism on top of, that listen to opinions, with the company and the way the stock trades i've written half dozen books about this topic, about how to do the homework. but the actual research is just part of doing the homework after you've learned what you can and developed a thesis, a theory about why you think the stock is set higher, there is one final step you to explain that theory to another living, breathing human being. it doesn't have to be a professional you can talk to your mom, your

kids, a friend the important thing here is you put your thesis into words that you can basically comprehend yourself lay out why you want to buy this thing and why you think it's headed higher. if there are major holes in your theory or you're relying on wishful thinking, even a reasonable adult or mature teenager will be able to catch that once you've done that, then you are ready to pull the trigger. [ gunshot for those of you who are tuning me out because you can't stand to hear another word about homework, i'm done, that's it. that's all i'll say about that process prepare to buy stock let's fast forward a little. once you have done the homework, you can build a diversified portfolio of five to ten individual stocks. any more than ten and you likely won't have time to keep up with them all the idea here is you should be able the do this in your spare time, not that you'll turn money management into a second or third job. i have so many stocks for action alerts.com which you can follow along, obviously subscribe, because i've got two research

assistants you're doing it yourself so let's assume you own shares in a bunch of companies that you genuinely believe in you now have a thesis for each one. there is no sector overlap, meaning you have five to ten companies in distinct industries that don't tend to trade together diversification, like we play on the show in short, you have in theory what is an ideal portfolio what's the most important thing for you to keep in mind? above and beyond everything else, you need to know that your perfect portfolio won't stay perfect for long those five to ten stocks you thought were winners, yeah, unless you're absurdly lucky, not all of them will stay winners. some will be losers. some will do nothing and some of the companies you liked best will inevitably disappoint you [ crying ] what can i say the game is full of heartbreak, which brings me to my next matter always, please, please try to stay flexible. you have to be flexible because business, by its very nature is dynam dynamic, not static. things do change markets change new competitors will enter the

industry and undercut existing players on price the take market share. previously well run companies will start executing poorly, and we've seen that time and again customers cancel orders. unforeseen events happen that hurt business or simply make some category of stocks seem less attractive to the big institutional money managers who dominate the market. when something like this occurs, when the story of a company that you own shares in changes, well, then you got to be willing to acknowledge that things are different. if your thesis is no longer inta intact, then you should sell this is why you need to explain your picks to another person so, you can recognize when your original idea has stopped being workable that may sound straight forward, but for decades, experts have peddled the idea that when you buy a stock, you need to be prepared to hold on to it until the -- until the death of the universe how many times have you heard someone say buy and hold, buy and old. well, got it tell you, that's nonsense don't get me wrong i would love to buy a stock and

hold it from here to eternity, because the story pans out and the darn thing keeps going higher but if the story doesn't pan out, or after a long time there are big changes in the industry, well, you got to be willing to sell >> sell, sell, sell! >> at least sell some. that's why i tell you it's buy and homework, not buy and hold i wish a lot of the graveyards would adopt buy and homework we'd s save people a lot of money. i bring this up because people hate, hate, hate admitting when they made a mistake. of course they hate selling anything because they're worried about taxes. but once we make up our minds that things are great for coca-cola, we don't want the facts to get in the way of a good story, right? but you know what? you can't afford to fall in love with a stock when you buy shares of a publicly trade company, you're not joining that stock in holy matrimony. you don't swear to stick with it in richness and health, for rich or poor. acknowledge when something changed. you buy a stock because the underlying market is going to take a ton of market share and

it fails to do so, don't move the goalpost on yourself don't search for new reasons to hang on. just get out of there. you must be willing to recognize that companies can can take a turn for the worse managements make mistakes. [ buzzer ] ceos make bad strategic and tactical errors every day. let's pick one let's pick bed, bath & beyond. it spent $5.4 billion buying its own stock back from 2013 to 2017 and therefore taking stock price up but it didn't really work. the company kept losing market share to online competitors like amazon and the buyback accomplished next to nothing but the summer of 2018, they had a market of less than $2.7 billion. they spent twice that amount on the buyback. if they put that money in a mattress, the company would be worth twice as much. you what their mistake was the guys running bed, bath &

beyond, they weren't flexible. they kept buying their stock in the belief it would help don't make that error. when something goes wrong with the company you own, be ready to stop hoping and start selling. being unwilling to recognize a turn for the worse, as bad as it might be, always seems to lead much larger losses than you've already accrued. the bottom line, let's bring it all together before you buy a stock, do some homework and come up with a thesis a reason why you think that stock is headed higher once you own it, please stay flexible if your thesis doesn't play out the way you expected it to, sell the darn stock don't keep bashing your head against the wall recognize that things don't always go your way, and then -- >> sell, sell, sell! >> move on liam in massachusetts. liam >> caller: boo-yah, jim. >> boo-yah, liam. >> caller: i had a quick question on index funds. >> sure. >> caller: you say with certain stocks buy them at certain times like monthly or quarterly or when at a good price does that apply to index funds

because you say to purchase $10,000. >> yes, but what i'm really trying to do is make it so you don't necessarily come in all at once i actually like to space things out. maybe try to catch -- when you get a real downturn, if you put all your money in before then, you can't take advantage of it that's why i like to be flexible mike in texas, mike? >> caller: yeah, hawaii, jim thanks for taking my call. >> of course >> caller: jim, i'd like to own some individual names in the tech space. >> okay. >> caller: but i'm finding that the prices of these stocks are just too expensive so i've started looking at some etms and mutual funds as an affordable way to gain some exposure to these names, and i'd really like to hear what your thoughts on the matter what do you think? >> one of the things i don't like about the mutual fund industries is they don't update what they really own they may be buying the same stocks you think are too price it is. when it comes to an etf, you're marginalizing the same deal. so you either have to decide

that the market is too rich or that group is too rich and therefore not to buy, or, of course, you just say you know what i'm going to take a long-term view and i'm not going to game it and maybe don't buy it all at once, but space out your buys. matthew in arizona matthew? >> caller: hey, jim. this is matt how are you doing? >> i am well how with you, matt. >> caller: i am good couldn't be better hey, i got a thing for you is it a good idea to invest in the government if so, should it be a short-term investment or a long-term investment >> well, look, cash is short-term investments longer term, you may just want to be able to take advantage of some higher rates and get in there and use the power of compounding. i think the conservative investor who is older should be thinking about treasuries. some young person, and you do sound young that >> don't fit you need tyke on more risk, not less you've got your whole risk to make up that money if you do lose it. before you own a stock, come up with a thesis on why you think it's headed higher and once you own it, please stay flexible much more "mad money" ahead. there's not crying in it

there is not crying in investing. i'm telling you why it's time to take a motions out of it when it comes to picking stocks. then how the acclaimed poet maya angelou gave me some of the best investing vice i've ever heard. and i always say there is a bull market somewhere every night, right? and tonight i'm telling you where to find it so stick with cramer of - i love my grandma. - anncr: as you grow older, your brain naturally begins to change which may cause trouble with recall. - learning from him is great... when i can keep up! - anncr: thankfully, prevagen helps your brain

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♪ tonight we're zooming out and talking about the big picture. the stuff you absolutely have to do if you want to manage your own money in the stock market. before i get back into it, let me just say that if you don't feel like reflecting on what you need from the stock market, if you don't want to do the homework, if you don't want to watch the underlying companies and give up on their stocks when something goes wrong, nobody is forcing you to do that there is no gun to your head it's okay if stock picking is

not for you. and that's why vanguard ininvented index funds it's why the dutch invented bonds, for heaven's sake plenty of other investment options. so if you're going to play the stock market, and i use the word "play" pretty loosely. if you're going to invest in it, you should put in the effort to do it right, don't you think i think stock is the greatest engine of wealth creation in history. you can harness that engine, make it work for you, if you know what you're doing, all right? now a lot of this comes down to discipline, the stuff i've been talking about all night. but there is another ultra important component here call it the emotional side of the equation you need the right attitude toward the market, because without the right attitude, stocks will break you. i mean this is a brutal game, and you need to make sure you've got the right head space if you're going the play it i cannot stress this enough. for many of you managing your emotions will be the hardest part of investing, harder than picking winners. harder than identifying new trends harder than knowing when to cut your losses. why? because the market is a harsh

mistress at times owning stocks can feel like being in an abusive relationship because we keep coming back, because long-term it is a great way to try the make money. the thing, unless you can perfectly predict the future, you're going to make lots and lots of mistakes it's inevitable. [ buzzer ] and when you -- when mistakes lose you money, that can be very tough to handle. you need the patience, the patience of the dalai lama to not get upset when you buy a stock and it falls off a cliff imagine what it was like for me at my old hedge fund before i mellowed out i was the opposite of the dalai lama when i got something wrong, i would flip out you did not want to be around me on a down day. especially if i was way too long so i can tell you from experience that this is not a proifk attitude. you know what? if you did read "confession of a street addict" you know exactly attitude i know better than anybody that

you need to try to remain calm because constantly getting mad at yourself is just not sustainable. you'll beat yourself up. it's crazy you'll end up rung out of patience and giving up on the whole asset class. look, i'm not telling you to be the dalai lama you don't need to be a buddhist monk to be a good investor it's okay to get mad or sad when the market punches you with its behavior the stock that may charitable trust owns, if it gets really hit, i feel awful. i do i can't get it out of my system. but you know what? i have to. you can't afford to punish yourself the market is brutal enough on its own. in other words, get your head on straight your head matters in this game you need to have it on right every day if you're going to spot opportunities yet so many of us approach the market with inferior attitude and inferior state of mind our heads are crowded by negative thoughts that throw us off target, making us do the wrong thing. you will be in the wrong frame of mind to spot the next opportunity. so let me be your stock market

therapist for a moment there are a lot of recurring harmful thoughts you could have that will mess with your judgment but the worst of the worst, if you think to yourself if only, if only i had acted sooner in electronic arts or if only i pulled the trigger ahead of nvidia or if only i staged chesapeake energy, coy have made a fortune. don't get hung up on the would have, should have, could haves this is wasted, damaging emotion we're talking about. it's destruct alternative the positive psychology you need when you're making investment decisions. for a long time, i took it to an extreme. i would be mesmerize bade couple of big miss, but things i got wrong. i would be obsessed, going over the big miss over and over and over again i can put it out of my head for action alert news in a couple of hours. i'm talking about days on end. not anymore, i don't do that it took me a long time to learn. but eventually i was able to see just how destructive playing the would have, cot have, should have game can be

if you're an emotional guy like me, you need to trick yourself into a more productive pattern of thought i've had to build in all sorts of methods of tricking my mind to not playing this game, chiefly removing the stock from my desktop and my global stock just going in, just taking it right off. you look at it every day when you scroll down. you see it it brings up that bad thought? get rid of it. just clear it out. if you like it so much after you sold it, go buy it back, for heaven's sake. but don't tell me what you should have done or should have done you didn't whether you walked into a big loss or missed out on a big gain, it's irrelevant. stop beating yourself up for heaven's sake. bottom line, the stock market can be punishing enough. you don't need to make things harder by punishing yourself don't play the if only game. if you need help curbing this kind of destructive thinking, go to that extreme. take the stocks off your monitor or your portfolio watch, off your cell phone. you'll be surprised at how much

better your decision making becomes when you stop the would have, should have could haves. devon in florida, zmefn. >> caller: hey, jim. how's it going >> real good how about you, devon >> caller: good, good. >> what do you got >> caller: all right so i'm 25 years old and maxing out a roth ire rachet and i know you've always suggested investing in low cost index funds. >> right. >> my question is should i be 100% of my portfolio s&p index fund or using multiple index funds to build a diversified portfolio? >> i actually think what you ought to do is think of it like this i think you should put the preponderance in an s&p 500 fund that's terrific, low cost. and after that, pick one or two. i don't want you to be in mutual fund and mutual funds. that makes it even harder. basic bedrock s&p and a couple others maybe you like health care maybe you like tech that would be my choices. mike until california, michael >> hey, jim, thank you for taking my call. >> of course

>> caller: i had a question about 401(k) plans my company just put out their 401(k) plan. and being a novice when it comes those kinds of things, i just wanted to know what percentage of my paycheck would be a good starting amount to contribute. >> whatever the maximum you're allowed, because what happens is that this, if you use the power of time, the power of compounding, you will have so much more. but you got to put it all in and i always advise people, take the max, take the max, take the max. enough with the would have, should have, could have, people. don't play the if only game. you'll be surprised how much better your decision making becomes if you stop that ahead, to quote the great cyndi lauper, i see your true colors shining through it's not just a great song, it's sage investment adds well. i'll help you find the bull market no matter where you are,

and i'm answering questions on twitter. stay with cramer is this at&t innovations? yeah, wow..this must be for one of our new unlimited wireless plans. it comes with a ton of entertainment options. great, can you sign for this? yeah. hey, uh.. what's in that one? that's a shark. new and only with at&t, you can get unlimited data, 30+ channels of live tv, and your choice of things like hbo or amazon music. more for your thing. that's our thing. visit att dot com.

let me give you a piece of advice that would have saved me

a lot of cash, and even more heartache back when i was running professionally, but didn't know it this is genuine, sage investing wisdom from the late great maya angelou. when someone shows you who they are, believe them the first time i know she wasn't actually talking about publicly traded companies, but man, if the shoe fits, wear it. all night i've been trying to hammer home important bedrock principles of investing, and this is another essential one. when some company shows you who they are, believe them the first time or to put it as bluntly as possible, when the ceo tells you business is bad, take their word for it don't bend over backwards finding justification so you can keep owning stock of a company that's not delivering. just get the heck out. at least until the smoke clears and you can better assess the damage the better i do for my charitable trust, it's because of this rule the worse i do, well you know what i'm talking about let me read you the rest of the maya angelou quote, because there is another really valuable

insight in here. she continues, people know themselves much better than you do that's why it's important to stop expecting them to be something other than who they are. all right. same thing holds true in the corporate world. a a company's executives are almost always going to know their business better than you will, unless they're being ridiculously negligible. they have access to information you don't. they can spend 80 hours a week or nor running their company you have your own job. and even if you manage money full time, there literally aren't enough hours in the day for you the devote half of that time to a single stock in a diversified portfolio. that's why it's so important to listen to what these ceos and cfos have to say whether orrin the quarterly conference call or when they come visiting on the show or even someone else's show high level executives are your best resource. i wouldn't have them on if i don't think that don't get me wrong. you can't just take everything that comes out of a ceo's mouth as gospel there are plenty who talk like they had rose colored

glasses welded directly on the to their face. i find what i'm really looking for are people who aren't wearing these, okay? these are actual rose-colored glasses. all right. anyway, try to ask more skeptical questions whenever my cockeyed optimism alarm guess off during these interviews, because i can't have you get snowed by watching the interviews that i do occasionally ceos can be misleading, almost never flat-out dishonest, though because lying about material information is a crime so sometimes you need to take what they say with a grain of salt, if not a full carton of morton's iodized but the more cynical among you would be surprised by how many straight shooters you'll find at the highest levels of corporate america. i really believe that. don't -- i don't want to be too cynical here and, again, when we have someone on the show with a track record of being extremely candid or extremely reliable or both, try to point that out. it matters when honest, smart executives tell you something has gone

incredibly a write, well you should believe them. and when they say it's going incredibly well, it might be a reason to buy. this could be very profitable strategy if you get right. let's take an example. when mark benioff, the bankable ceo of salesforce.com came on the show during the depths of the recession and told us business would be fine, you had the grit your teeth and buy it from. november of 2008 to july of 2018, salesforce gave you a 1,009% gain. and you had the get in it when he said things were fine he was bankable. when paddy doyle came on his stock was trading at 10 bucks. when doyle retired in june of 2018, domino's was at $282 wow. they deserve the benefit of the doubt. if you didn't trust them, you missed out on some monster moves, and, look, i don't want to be too proud here, but i said hey, listen, this i believe guy.

and that's what helps. it helps to have me say it because i've thought about this a lot and talked to more ceos than pretty much anybody in the world. more important, if management tells you something is wrong, take them extra specially seriously. you need to wait at least 30 days before you think about buying that stock. a lot of people are tempted to buy these negative renouncement names as they're tumbling to new lows but in practice, i found that other than some rare exceptions, the opposite is the case when business is so ugly that a company is forced to come out early and cut numbers, i think it typically means there is more bad news ahead or they wouldn't say anything why? it comes back to maya angelou. when someone shows you who they are, believe them the first time that negative preannouncement is the first time when management preannounces a bad quarter, they're looking a the order book to their future believe me, if there was any hope the business would get better, the company wouldn't have to cut numbers between its regularly scheduled quarterly

reports. if they thought something could get better, not worse in the next 30 days, they just keep their darn mouth shut and wait preannouncements signal an ongoing weakness that is going to continue. that's why i recommend waiting 30 days to see if anything improves before you think about buying that stock. this will really keep you out of trouble. because i can count on one hand the number of times things got better within a month. sure, now you're going to miss some great opportunities like i said, maybe there is a half dozen, and sometimes the stock bottoms early. most of the time, after 30 days, you'll have sidestepped yet another brutal leg down. i know the 30-day sounds arbitrary, but i've done a lot of homework on this particular question it usually takes at least a month for the bad news to get fully baked into the stock price. the bottom line, sometimes it can seem like we live in a post truth world where it's impossible to know where we live on any particular issue. but you should believe executives when they announce a preearnings shortfall. believe me, these people don't like slashing their own numbers.

they do it because they don't see much hope of things improving by the time their company's scheduled report is next quarter so in the wake of a shortfall, you to assume the stock won't be bouncing back any time soon. treat it as a falling knife. even if you're not a huge fan of maya angelou's poetry, you should stick her investment advice stick with cramer. whoooo. you rely on tripadvisor so you don't miss out on the perfect hotel... but did you know you can also use tripadvisor so you don't miss out on the best price? tripadvisor searches over 200 booking sites to find the hotel you want for the lowest price. saving you up to 30%! so you can spend less time missing out... and more time paddling out!

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♪ i spent a lot of time tonight talking about the many ways in which you can make mistakes [ buzzer ] and the need to guard against them by knowing when to admit that you're wrong. but let me clear the market can be just as wrong as any individual investor the market makes mistakes every single day so this is my next big picture lesson for you don't assume that the action necessarily makes sense. a lot of times stocks go up for the wrong reason or no reason or an outright stupid reason. when a company reports earnings and a stock goes down there, is a natural impulse to believe that the company must have

disappointed and must have been a bad quarter, right why else is the stock going down you know what? often that will be true. but it's not always true sometimes there are other forces at work. stocks will go down on the initial earnings release and then bounce back when management explains things on the conference call, or vice versa which is why i'm always telling you not to jump to conclusions until after you listened to the call which is a huge drag, but it must be done. with hundreds of companies reporting every day, the market makes a ton of mistakes. but it's not just about errors in judgment. the truth is stock prices do not always reflect the actual fax and figures about how the business is doing. the fundamentals are a big part of it. over the long-term, i say the most important part, which is why i spend so much time focusing on them and how to understand them. but they're not the whole picture. you to understand, the stock market is first and foremost a market of stocks and just like any other, market, it's prone to all sorts of

distortion when adam smith wrote about free market capitalism, he forgot to mention it's the hand of someone with bad reflex, lousy coordination and possibly some kind of neurological disorder. in short, questions do not somehow reflect reality all the time as if by magic. they're as much a product of perception on wall street and the mechanics of the money management business as they are a product of the full fundamentals by the way, this is why it's possible for you the beat the performance of the averagers by investing in individual stocks if the market worked perfectly, you would never be able to exploit any opportunities because the whole point of this game is to spot stocks are that mispriced. so why do i bring this up? when the action is irrational, kit be very frustrating. i want you tao be able to take advantage of these minutes where stock prices are simply wrong, or at the very least i don't want you throwing up your hands in disgust and giving up the whole enterprise because nothing makes sense that would be bad. remember what i always say about stocks greatest wealth engine ever

created. let me go over some of the largest distortions. i spent a lot of time talking about the etfization of stocks as this has become a major issue for the market for most of my investing career, you could bank on the fact that about half of those stocks' performance came from sector mainly how the sector was doing and the other half from the fortunes of the company itself, management your average company was in control of about half its own destiny. this is a good situation as listening as you make sure to avoid sectors out of fashion you can do pretty well by researching companies and trying to predict which ones will do better than their competitors. but the rise of etfs, that's changed the equation gimmicky ones that like the dozen or so that are made up of fang, or acronym for facebook, amazon, microsoft and netflix. even companies can get dragged by an etf-driven riptide

fang is the most ridiculous example because when netflix catches a cold, the other three sneeze even if it has little to do with the advertised business of facebook a lot of times you'll get situations where they'll throw the baby without the bath water. if they report bad numbers, the whole group tends to go down, even if everyone else is doing well, and those are your opportunities. you've got to pass. >> buy, buy, buy >> sometimes the market is just obtuse you'll see companies reporting good quarter after good quarter to no real effect. and then suddenly critical mass money managers yes, things are really going well. the next time that supports a strong number, the stock soars in those cases, you just need to be patient the caveat here, though, is sometimes when the market makes a mistake, it's not worth trying to fight it. because while markets are often irrational, they can remain irrational for longer you can remain solvent to borrow a phrase from john maynard canes.

your goal is not to be right, it's to make money sometimes that means being a little cynical about other people's expectations. but here is the bottom line. don't just assume that stocks that go down deserve it. in the immortal words of clint eastwood in "unforgiven closh deserclosh. reserves got nothing to do with it your job is to recognize when something is going wrong and to try the take advantage of it stick with cramer.

i love hearing from the smartest audience in television. that's you, cramerica. so let's get to some tweets. first a tweet from @brick hand 65 jim, why would a caller named richard calls in do you and the staff say his name in a high pitch? #madtweets that's in reference to the movie "tommy boy." let's say a caller is named richard, we say -- >> richard >> thank you now a tweet underscores souza, and he says hi, jim cramer cramer anything for new parents investing for the newborn child? so many options out there. do a uniform gift for minors to get start and then do something to escape estate plan. uniform gift to minors buy growth stocks. they've got their whole lives ahead to make the money back

buy high quality growth stocks, the likes of which we talk about all the time on this show. next up is a tweet fr from @stallkupp wend indictment she says i work with male teens, and they think you sound like master yoda, lol i'm learning, and so are they. thank you, jim cramer, aka master yoda. you're awesome@jim cramer. okay yeah all right. yep, that's precisely why my wife loves me so much. and here is a tweet from @ross benson 5 other than banks who benefits from raising interest rates? you know what? not really many other companies. i think that as a corollary, people think the economy is strong and people buy the industrials. but the banks are the ones that benefit directly because they're able to charge you more when you go for a loan. they make more money from your

deposit and they lend them out when rates are going higher. and now a tweet. he asks, jim, i actually love quote gte rich carefully". you be writing another book any time soon? i got to tell i don't, this is very interesting because the economics of book publishing have changed radically i'll work my butt off on something like this and work most nights and almost every weekend, and then i'll read the book and it used to be a very lucrative business to write books. now it's just a labor of love. and i have other labors of love i want to perform, including my garden here is a tweet from amy, and she says i may not always watch @madmoneyoncnbc @jimcramer , but when i do i take notes so i can do my homework later i have to tell you, whenever i'm out with people, and i will reference this because my late dad would always say this too.

particularly people who were elderly who play the stock market that. >> always come out with these long lists of what they took down and i absolutely love it they'll go over whether they like this, like that it happens all the time to me. and i just think it's terrific i think younger people don't know how to write down on a piece of paper anymore that's the difference. they are immediately putting it into their cell phone. they have no list because they have no pencil, and they have no paper. here is a tweet. they ask @jimcramer, #madtweets. we're looking at annuities better off or individual stocks or etfs? i would say and my friend ken fisher, i would say pick individual stocks. pick etfs. and term life insurance is a fantastic buy. so i think you're doing things very right but i like you to be in control of your destiny. no fees whatsoever when you buy individual stocks other than the commissions. and here is the tweet fr from @gearhead531. and he asks, what is really

going on with inexpensive stocks with high yields for example, a $7 stock with 11% yield? thank you. love the show. okay what's going on there is a classic red flag, meaning that people have gotten way too complacent and when a yield is that -- when a dividend is that high, reaches that high, it is often unsustainable. i want you to be very careful of that kind of a situation here is a tweet from @jay stanley. can you suggest some reading for a young first-time investor? i want you to go to amazon and hit up the name peter lynch, okay and look at "one up on wall street." that's the book i cut my teeth on it's the book you can cut your teeth on all right. well, that's all our tweets, so stick with cramer.

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

>> welcome to the shark tank, where entrepreneurs seeking an investment will face these sharks. if they hear a great idea, they'll invest their own money or fight each other for a deal. this is "shark tank." ♪ first into the tank are jayson sandberg and taylor gwiazdon, who believe they've made a common product that everybody has even better. hi, my name is jayson sandberg. and my name is taylor gwiazdon. we are the proud owners of liddup corporation,