mikes. >> cull spreads into tesla earnings >> carter. >> tesla and acquire caution ahead. >> dan. >> yeah i agree with that square and i think apple sets up good for a hedge. >> all right our time expired off r fotwoweeks have fun "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 is always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. 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 educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. the stock market isn't always a friendly place kit be volatile, painful, and just downright difficult there are tons of big picture

problems that can derail any rally. problems you might not have any idea about until they hit us that's why i'm so adamant about trying to make you a better investor i want to teach you the tricks of the trade so when the market turns negative, when it gets hostile, you'll be prepared. you'll know what to do i spent my entire career analyzing the way stocks trade, searching for patterns for what's worked for me and what hasn't from those observations, i've put together a set of rules, rules that are designed to help protect you from the worst mistakes you can make in both good markets and bad as much as i sometimes might seem like an unhinged lunatic, the truth is i'm all about discipline you're going the make mistakes in this business it's inevitable. but if you stick to your discipline, if you stick to the rules, that should help you minimize your losses and maximize your gains.

♪ hallelujah so let's talk about discipline i'm always telling you to buy best of breed companies, even if you have to pay up for their stocks i use that phrase constantly because it's just that important. why should you try to identify the stocks of the best run companies with the best prospects in each industry let me flip that on its head why is owning best of breed even an option. when shopping for a car, you buy best of breed, to best you can afford we pay up for highest quality brand, because we know a good brand signifies reliability. it tells us we can expect a higher level of service, a quality of ownership that will make your drives safer and easier for years to come they t idea that you would purposely pry tri-to buy a worst of breed car is downright crazy, isn't it no one says i'll take the ones without the air bags it's cheaper why it is people think differently about the stock market i think it's because many of us simply can't resist what we perceive as a bargain, emphasize

on the word perceive if you go hunting for cheap stocks and low quality companies in the market, it's more likely to lead the losses than gains. let me be clear. i'll all about bargain hunting but a stock is only a bargain if the underlying merchandise is only worth owning. a real bargain is when the market gets hit with a sudden sell-off, taking down everything and you can pick up the stocks in best of breed companies a at discount you know what's not a real bargain? buying junk ms. because it seems cheap. that's why whenever i get asked about a low quality stock in the "lightning round," you hear me say something hey, skee-daddy, if you like blah, blah, blah, you'll love johnson & johnson and that's best of breed sure, they're not going to give new any short-term pyrotechnics, but it's an industry lead were a great balance sheet, long history of dividend posts and a strong pipeline of new products in the works what makes a company be the best of breed well, like the late, great supreme court justice potter stewart once said about pornography, i know it when i see it

but to help explain this concept to you, when i say best of breed, i'm talking about well managed, high quality companies like a johnson & johnson if you can get j & j on sale, great. if you can't, i still prefer you to pay up for something like j & j. then try to pick up penny stocks because it seems cheaper there are very few bargains out there when it comes to second order third tier players their stocks may look cheaper but that's because they deserve to be cheaper. the businesses are worth less. don't worry about paying a higher price to earns multiple for best of breed. it may seem more expensive,but in addition to being the better investment you're also buying peace of mind. own best of breed companies. you almost never regret it once you find yourself a best of breed company, a company that you believe in, high quality companies represent value and giving up on value is a sin. i see many people throwing in towel on companies that are real assets and real worth, just because their stocks aren't

working right here, right now. it drives me nuts. look, patience is a virtue if you have reason to believe in a business, don't dump its stock because it's not getting any traction from the moment you're not a hedge fund manager. you don't need your positions to show gain, every quarter, every month or even every day. you don't have investors that will pull their money from your portfolio because one particular position is taking too long to pay off that means you can afford to wait for these stories to play themselves out that's your advantage over the hedge fund manager i say this because you'll be tempted to sell even best of breed stocks at times. you may correctly identify value, but this market can make it very difficult to stick to your guns, even with a company you truly believe in when you own a stock that is going down, you are going to feel compelled to give up on it. i know that. but in many cases if you have done your homework and have conviction in the underlying business, well, that urge to sell will be a mistake and look, it happens to all ous. in 2016, i did an interview with tim cook, the ceo of apple his stock had plummeted from 136

to 93 in a fairly short period of time. remember this? >> backing up and looking at the larger picture, we're in great markets. we have huge opportunities geographically we've got great innovations in the pipeline people love our products they love using our services all of this to me equals great opportunity. now, your viewers have to decide what they want to do, obviously, but this is how i feel >> wow, people were giving up on tim left and right i looked at the stock, which was selling at an incredibly low price-to-earnings multiple 99%. the service revenues stream and the cash position. what the heck is the point of selling this particular stock that makes the greatest products of all time? that may sound like a no-brainer, but there are tons of apple skeptics out there, constantly arguing that the company's best days are behind it presenting these surveys of apple component suppliers is evidence the company is in decline. time after time they've been wrong, yet they get away with

it telling you to buy apple at 93 was a fabulous call because it gave you a wonderful opportunity to pick up a stock that was terrific at a major discount the key here, though, is that apple is a high quality company, a best of breed company. so when the stock came down, well, you know it's getting cheaper. selling apple at 93 would have been a classic example of giving up on value, and you would have missed a huge move, which is why giving up on value is such a huge mistake so often. here is the bottom line. don't ab afraid to pay up for best of breed. they're also much less likely to blow up in your face the best of breed premium is worth it oh, and once you find a company that is best of breed with a story you believe in, don't let the bears scare you away, even if the stock is temporarily broken patience is a virtue giving up on value, well, that's a sin. let's go to fred in ohio fred >> caller: jim, i understand that when a company buys back stock that it can retire the shares or hold them in inventory.

my question is, does it make a difference to us in evaluating a stock in a buyback which approach the company is taking and how do we find out which the company is doing >> well, i mean, a true buyback is what we call they're crunching the stock. when they crunch the stock, you're fine. if they're buying the stock and selling it again, boy, that would be something i wouldn't want to be in. what you need to know is if it's crunched, it's a buy carlos in missouri, carlos >> caller: big mad boo-yah from southwest missouri, jim. long-time fan. >> i like that what's happening >> caller: hey mix, question today is about fundamental investing. with all the microtrading and the algorithm trading and what not, do you think that's eventually going to go away, just investing on the fundamentals >> i think the fundamentals are going to will out. i say that because we have found -- we have started to see periods of time where a best of breed stock is doing much better than a worst of breed stock in a particular sector.

and that didn't happen for a long time. it's happening now i think fundamentals matter more than ever. let's go to gregory in maryland. gregory? >> hey, jim, thanks for taking my call. >> sure. >> caller: my question is after a stock run-up like apple right now, at what increased percentage point should i take profits so i won't be slaughtered like a pig >> in some of my books i've been saying when a stock goes up 25%, take a little bit off. and that's what i've been doing for my charitable trust. not a lot. but the main thing is when a stock doubles, you take out your costs and then you let the house money ride listen up. i want you to survive and thrive in any market. i want you to be the best investor you can be, and that means not being afraid to pay up for the best of breed stocks they're worth it better than all the rest get out your pencils, cramerica. i'm coming right back with more rules of engagement. 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. >> i want you to know that you have transformed me. thank you, cramer.

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how can you keep track of a confusing market let me give you some advice that rarely ever steered me wrong there are two things i want you to watch one, macro, big picture, and one micro, company specific. let's start with the big picture. if you want know where the stock market might be headed, i say keep your eyes on the bonds. look, i know the bond market boring as all get out, but it's much larger than the stock

market and it's very important to the overall direction of stocks. back in the day when i was run my own hedge fund, i'd always call in from the road the same way. if i had to call from my own desk, i'd begin every conversation by asking where are the bonds. stock market investors seemingly forget the bond market all the time they forgot in 2000 even though the bond market was softening right near the .com peak it was clear that interest rates on cash were far too competitive versus stocks. and would this cause a massive sell-off they forgot it when the fed raised rates 17 times and led up to the financial crisis, precipitating the worst downturn since the great recession. there were tantrums where some will strike a hawkish tone and everyone freaks out that rates are headed much higher morerecently a schizophrenic relationship with bonds when the yield on the ten-year treasury started breaking above 3%, everybody panicked when it pulled back, many investors were quick to forget

about the bond market. it should never come as a surprise that long-term interest rates are rising or falling. bonds can punch your portfolio in the face if you aren't paying attention. a lot of people don't pay attention, because as i said, bonds are boring that's why i say don't forget bonds. always keep those bond price and interest rates right in front of you. when i was coming up at goldman sachs, i was trained to focus on bonds because bonds are the true competition to stocks, the competition i most feared. when short-term interest rates, the one set by the fed goes sky-high you have to expect that dividend stocks, the stocks of companies with high yields like american electric and power, they'll sell off when long-term interest rates rise, the one to watch is the yield on the ten-year u.s. treasury then you have to be wary that all stocks might suddenly be wto less it's simple. the bond market get morse attractive, the stock market gets less attractive thchlts is indeed a zero sum game you should be especially worried about rising long-term rates caused by a pickup in inflation.

[ booing ] that's a toxic view. inflation eats away at the value of long-term values like equities they also make it more expensive for banks to lend, and that puts a damper on the economy. for a long time we had an ideal environment for stocks, low inflation and low interest rates. that's an incredibly debev nine backdrop i don't want it to lull you into a sense of security. that's why you to watch the bond market you know what? let me put this another way. if this were basketball, i'd be saying that if you just watched the man with the ball, let's call him citigroup, and you don't watch the other men, there is no way you get to the market. the bond market can determine the stock action every time. many people who got in the game in the last decade don't even know what bond markets are they're troubled when you say the bonds went up today. what it really means is interest

rates are going down if you don't understand how bonds work, you're going to be at a severe disadvantage when it comes to investing in stocks so keep your eye on the ball and the bond that's right the bond what else do you need to watch on the micro level now, micro meaning the company's specific level, you need to be very cautious when you see unex-plain and resignations by key executives to put it bluntly, hen the chiefs resign, maybe you should go too when you see a ceo step down for no notable reason, you should assume something is wrong and do some selling first and ask questions later. i've sold stocks because the cfo or ceo resigned. and it turned out i jumped the gun, there was nothing wrong, i would simply buy the stock back. but in my whole career, you know how many times i can recall that a ceo left for an undisclosed emotional reason and the stock was still worth buying once visa i racked my brain to come up with other examples.

i just can't think of any other, because that's how uncommon they are. why? ceos don't quit for personal reasons. not if they want to keep their bonuses. these are fabulous jobs. you're paid a fortune. you don't get to be a chief executive officer by being devoted to your family well, you know nobody gets one of these jobs without giving up great deal of what most people enjoy about life, things like family, friends. company positions are so fierce that when you finally land one, you don't up and leave, not for real reason. when c suite leave for undisclosed personal reasons it's almost always because there is something wrong at a company. hence my rule, when high level people quit at a company, nothing is wrong i know a ceo quit because he had an epiphany about climbing k2 or a ceo left because she wanted to spend more time with her family. fine of course there are exceptions at some point, somewhere, a ceo really will step down just to spend more time with his kids. but here is the thing. when you're investing in the stock market, it's not the exception that matters, it's the

rule there will always be some situations where it's a mistake to sell a stock when senior executives leave i don't care, because most of the time sell willing be the right decision this this is the kind of rule that helped keep me in the game at my old hedge fund it's all about helping you avoid loss that's what matters. one way you do that is by not making on unnecessary risk like betting on companies where the ceo just resigned for undisclosed personal reasons the bottom line, if you want to get a handle on the stock market, you need to watch what's going on with the bonds. that should be obvious at this point. but it's something people tend to forget. and when you're looking at individual companies, remember that unexplained high level executive resignations equals sale giorgio in illinois, giorgio >> caller: boo-yah, mr. cramer thank you for all after that you do i truly appreciate it. >> oh, thank you >> caller: my question is what percentage of a portfolio should be in index funds and held in cash with the volatility of these future markets >> okay, well, a lot of that depends on your age. for instance -- by the way,

index funds are fabulous because you don't have to do the work on individual stocks, and they give you a great diversification. when you're a young age you want to have 100% in stocks as you get older, you want the take that money out and take that money out i've got it in "get rich carefully. really, all my books i talk about the different stages but as you get old. >> you got to raise cash that's the best way to put it. blake? >> caller: boo-yah, jim. >> caller: what advice do you have for the young investors compared to older investors? >> ride it out young people have their whole lives to make back the money they might lose in the market. older people, while time gets shorter and you can't make it back that's why you got to be a little more conservative if you want the get hit on the stock market, bond's the word. and please, when an executive steps down without an explanation, sell, sell, sell! and stick with cramer. take control of your financial future with the new

madmoney.cnbc.com. cramer's exclusive ceo interviews full episodes, analysis, even your own soundboard. plus special access to "mad money" 101, with rules and techniques to break down the market for all investors >> the red flag that makes me drop a stock immediate di -- >> it's everything you need right when you need it the new madmoney.cnbc.com.

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after the dozens of corrections, meaningful pullbacks we've had over the last 20 years, you think we get used to the process if people were reasonable are, if we were a realistic species you would assume that we say something like hey, let's prepare for the correction because it could be right around the corner yet aside from the bears which we think are always due for a pullback, most people act like every correction is a total shocker. the type of thing that never happens. so every time the stock market goes down there, is a huge contingent of people who seem totally stunned. just caught by surprise. you know what? that's a bad attitude. to me the corrections, you know what they're like? they're like the rain. i know that rain is inevitable so do you. i expect to it rain. i prepare for it hen the rain comes, i am ready skee-daddy i got an umbrella or coat and stay indoors that's how you need to approach the possibility of a pullback. sooner or later we're going to get one so, best to keep some cash ready on the sidelines,

just in case that time turns out to be now. that's what we do for my charity g trusts action alerts in recent years, we've had a lot of major declines were precede by terrific updays in which we made lots of money and everything looked peachy in january of 2018, the stock market roared higher people were acting like it was an unstoppable rally but in february, the averages, they got obliterated why do i mention this? because the time to be most worried about a moment of correction is the moment when nobody else is concerned that's when we get the brutal supposedly unexpected declines, when everyone is euphoric. i used to have a all in my old hedge fund when i made 2% in a day on the upside, i knew i was too exposed. that's the word you use. i knew i was too long. i knew i had too much stock. i knew my portfolio would kill me if we caught a storm. [ gunshot so as the market lifted and i would pull back, sometimes

furiously selling -- >> sell, sell, sell, sell, sell, sell, sell, sell, sell. >> to prepare for the big down day that had to be right around the corner sometimes the correction never came and i had to swallow my pride days later and buy back the stock i sold but when we did get it, my hedge fund outperformed by so much that my clients thought i was genius i wasn't a genius. it wasn't genius at all. it was discipline. it was preparation plus, because i had taken something off the table in order to raise cash, i would be able to use that money to buy all sorts of high quality stocks into the weakness i so often preach to you. look we may not be able to predict when a storm is going to strike, but we do have barometric readings that are immensely he feel. where should you get your weather port any pay for something. that's right i like to follow the proprietary standard & poor's oscillators that tells us when the market is getting overbrout bought or oversold whenever this registers plus 5 or above, that tells me we've come up too far to fast. to me a plus 5 reading means you

need to pull back aggressively and wait for a correction. what do i mean by pull back aggressively if you're ninl, admittedly a big if, you might want to ring the register on half half the shares in each position that way you'll have a ton of cash on the sidelinious can use the buy back your favorite stocks at lower levels when the storm hits even if you're not at all nimble, you should be selling something to raise some cash when the oscillator, again, that i buy from the s&p company, hits plus 5 and look, i understand maybe you want the take a little off. but people were aggressive, wanted to take a lot off that doesn't happen very often when the oscillator hits minus 5, it means the market is incredibly oversold. in that situation we've usually come down so far so fast that we're due for a short-term bounce it's worked like that for years. that's a good place to put your cash the work if you haven't already by that point a sell-off worst case scenario, there is no storm, stocks go higher, and you underperform the averages because you have such a large cash position.

i'll admit that's a real risk. but look at this way using this methodology at my hedge fund, gave my investors 24% after return of fees that's more than twice the s&p 500. as i see it, that's pretty strong evidence that avoiding losses on big down days more than makes up for possibility of missing some partial gains on the big up days. you need to accept that meaningful sell-offs inevitable. like bad weather but you also need to stop yourself from making investment decisions based on misleading emotion, and the worst of those emotions is hope hope whenever i hear the word "hope" as in i hope that doom stock du jour will come back to where i bought it so i can sell it without taking a loss, i get furious. hope is not part of the equation don't hope for anything. hope is emotion, pure and simple and that is not a game of emotion, or at least not your emotion. every stock you own because you hope it goes higher is another

position in your portfolio that's not being filled by a stock you believe will go higher yet, i hear hope constantly. that's fine if we're talk about religion or sports you know the coaches of some of these come from behind ncaa men's basketball teams keep their players motived through hope but this the stock business, hope, it's a mistake why? because it's reason. especially when we're talking about stocks that trade in the single digits. you tell yourself hey, i bought this at $5 i bought it at $4. i hope it goes back then i'll sell how fard hard can it be, right wrong. most companies will fight tooth and nail to keep their stocks from going into single digit territory. so when you find something that sells for just a few bucks, the market has already rendered a harsh judgment when you let hope become part of the equation, you could end up holding these low quality pieces of paper, waiting for something that will likely never happen.

forget hoping and forget waiting for higher prices. i say the thing to do is to cut your losses and move on to a stock you can actually see, can see going higher in other words, a stock that you had done the work and believed will good higher and it's not because of hope, but because of reason. the bottom line, it pays to be realistic in this business so prepare yourself for corrections. big pullbacks are like rain. they're inevitable and whatever you do, don't make stock picking decisions based on hope [ buzzer ] you need to invest in the real world, not in a fantasy land created by your own hopes and dreams let's go to dick in virginia, dick >> caller: hi, jim i love your show >> thank you. >> caller: i listen and learn and profit from your advice. >> thank you >> caller: and i have a general question about retirees and stock market i'm now 72 years old, retired, and wondered even though i'm well diversified in most of your favorite stocks, i can not risk

a large market correction. i might not have enough time to recover. the stock market is the best vehicle for wealth building. should i consider derisking my portfolio by agenda bonds or bonds equivalents? and even though we're in a rising interest rate environment, or get rich carefully by being well diversified by stocks? >> i think at 73, i think you should raise some cash i would say even i'm not sure about your work status, but someone's 73, to have 25, 30% cash, remember, i believe we're going to lead much longer lives than most people think 25, 30% would be fine in short-term cash, okay? because rates are going higher and then we'll deal with it. let's go to pat in colorado, please pat? >> caller: hi, jim this is pat from beautiful, beautiful colorado my question is this. i owe $189,000 on my mortgage. i'm concerned about a severe

market correction. some time back you said they usually happen about once every ten years. i have enough money in my mutual funds and accounts to pay it off now, but should i face the tax ramifications of adding $189,000 to my income next january? thanks >> tax things, i usually say you got to speak to your tax accountant to be sure. i do think you're -- look, let's put it this way. i think that to each his own on that particular kind of thing. but i will say we've had corrections more frequently than ten years. and that's really the issue. i do expect them a lot more frequently these days because we've got a much more volatile market that's up a lot over multiple years let's be real. it pays to be real realistic, that is "mad money" is back after the break. jim cramer, you're one of my heroes >> i look forward to his show

every week night >> thank you so much for helping beginning investors like me. >> when you talk about the market, i just believe that you're spot-on >> oh, i love it thank you so much. every night we watch you i have learned and earned. ♪

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you don't need me to tell you that the internet has been kind of a double-edged sword that's true in every area of life, including investing. sure the web makes everything more convenient. you have all sorts of information available at the push of a button, something that was unimaginable when i got started in the business. it was much harder to do the homework in the old days it took real effort. these days everything is searchable but for all the ways the internet makes it easier, it also creates new problems. when we have new problems, we need rules to help contain them. for example, you absolutely have to be able to explain your stock picks to another human being if you can't do that, you have are no business buying the stock in question. in the old days, this rarely came up. but the rise in the internet took away one of the most

important brakes on the process, one of the warning systems which is talking to another person what you want the buy. it used to be you had the talk to a broker. now with the stroke of a key, you can buy let's say a stock of work day or square without ever having to tell another person why you're doing so. why is that an issue why do you need to explain this stuff to someone else, anyone else it doesn't have to be a professional, by the way it could be anybody, preferably an adult but you can fall back on explaining to your kids if you have to. buying stocks is a solitary event, too solitary. but we're all prone to make mistakes, big ones to err is human. if you want to cut down you should force yourself to articulate to someone else, not just yourself, why you like the stock. do you know how they make their money? do you know how their earnings are supposed to look if you don't, then you're setting yourself up for trouble. i always see this in biotech, including questions in the "lightning round" that people ask about. so many people own biotech stocks without even having the

vaguest understanding of what the underlying companies do or how they could possibly turn a profit i urge you to be able to articulate a thesis for owning every stock in your portfolio to anyone think of it as a test to make sure you've actually done the homework that way if the stock gets slammed, you'll know whether to cut and run or buy more. if you don't actually know what you own, believe me, you're going to get slaughtered on the next decline and there is always a next decline. when i was at my hedge fund, i always made my employees sell me the stock, literally sell to it me like a salesperson before i would buy it if you're in a position you're picking stocks yourself, get someone to listen to you, and let you articulate your reasoning. that's what's so important i also like to ask people, what's going to make this dog go up what's the catalyst? or have we missed the move in this overvalued stock that's up 100% already this year i get a lot of those questions too. and what's your edge these are all important questions. if you can't answer them you shouldn't be buying. and look, the ability the make

hasty decisions is not the only thing you need to be wary of on the web. there is something else you need to be aware of the internet has vastly increased the power of the wall street promotion machine i've long believed that home gamers and professionals alike simply don't have respect for this promotion machine when wall street falls in love with a stock, it will go much further than anyone expected in its efforts to hype that stock to high heaven consider the case of valiant, okay which has changed its name valiant, the big pharmaceutical rollup that was one of the most heavily promoted stocks of the last decade. its shares soared to the $200 and then some on acquisition after acquisition as analysts routinely raised numbers why? because management would slash costs and raise prices when the political environment changed, the analysts turned on valeant and the numbers fell apart. within a few months, the darn thing had plunged from the mid

200s to the mid-20s. it took valeant almost two years to bottom, and before then, it fell all the way to the single digits and on the way back, it became ball health. whatever it changed its name to. the thing is valeant should never have been trading above $200 in the first place. the only reason it reached those levels to begin with was because the analyst promotion machine was so darn powerful, and the web amplifies the reach. so any time you see nearly unanimous bullishness on potentially dubious merchandise, i think you ought to be beware you should beware. in the words of public enemy, please, don't believe the hype one last thing, and this is really true of all media, both online and offline whether you're watching tv or webcasts, it pays to be a critic mate sound crazy for the host of a cable tv show to make this argument, but you can't believe

everything you hear on television lots of times executives say whatever they want on air knowing they can get away with it a lot of times fund managers come on air and out the their own holdings, but they rarely tell you whether they're in it for the long-term or the short-term, and boy does that ever make a big difference you need to accept this as a given. my general approach is when you hear on tv is probably right, but no more than that. same goes for the web, except you have to be a lot more careful because there is a ton of junk information online it's just the world we live in so repeat after me just because someone says it on tv doesn't mean it's true. i hate to say it, but you're being naive if you simply believe everything you hear. that's one reason why we only bring high level executives on to "mad money. they can still mislead but if a ceo of a public company outright lies about how their business is doing, their legal bills will start to add up generally speaking, you see a lot of money managers coming on television for a variety of different reasons. these guys aren't often well vetted and oftentimes managers

can't help themselves when it comes to being promotional here is a rule of thumb. if a money manager is on tv, he is moving his lips he is probably talking his book. if someone comes on, he must be really stuck bottom line, always be able to explain your stock picks to another human being, and never take anything on faith in this business not from the analyst community, and not -- well, let's just say from the money managers who love to come on tv and talk their book jimmy in delaware. jimmy? >> hey, jim, how are you doing >> i am doing well how about you, sir >> i'm doing great my name is also jimmy. >> i like that. >> caller: so i had a question regarding whether it's better fob somebody who is getting into stocks whether they should go in with general knowledge or they should take the time and learn more because i'm currently 19, and i have a lot of money in cryptocurrencies, and i've been making money there and i want to diversify my

investment, but i don't know much about stocks. so would you subject that me buying general company i know about is a good thing or a bad thing or whether i should take the time and learn a lot more. >> i think it's a great question i like to have the first investments be index funds particularly if you don't have time to do the homework, as i described a lot listening to the conference call, reading through the documents, seeing analyst research, then i really thank you i don't should be in an index fund it's no surrender. after you build up that stake and you're still haved in buying stocks and wanting to do a little homework, then i think it's okay. but to not have a lot of knowledge and buying stock, i think that's a recipe for defeat can i go to denise in minnesota, please, denise >> caller: hey, jim, boo-yah and thanks for all of your hard work for us. >> oh, thank you >> caller: say, jim, you explain dutch auctions and why a company has them and what a shareholder should do about them >> well, that's a company trying

the show you basically they think the stock is worth author than it is, and they're buying the stockhigh. you want to tender to it you're not going to be able to get al after your stock done but it's a nice way to make a little money and i think companies that do it are showing that they have tremendous belief in themselves. and the last one that i really loved was the old jordan martin franklin really good for everybody. always be able to explain your stock picks to another human being, and never take anything on faith in this business. more of my rules of engagement and your tweets after the break. so stick with cramer nice. good evening, sir. good evening. glengarry chamberlin, esquire. welcome. jimmy crabtree, plus one.

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just ask dana white, the founder of paralee salon in detroit. dana didn't want her customers stuck in a chair all day long. find out what she learned on your business, sunday morning at 7:30 eastern on msnbc. ♪ no how smart you are, no matter how well informed, no matter how lucky, sooner or later you're going to make some suboptimal stock picks it happens to the best of us every portfolio has a few dudes. but a difference between a good investor and a bad investor is how you handle your losers people seem to have a natural aversion to selling losers professionals and amateurs alike hate doing it. they keep hoping, operating

under the assumption that sinking stock in wrong in its direction. they rationalize that the weakness or the lack of interest will be fleeting, and that people soon will recognize the value of their stock, the one that's in question that's all well and good until you need money maybe you want to raise some cash because your portfolio has gotten a little too stock heavy. maybe you have real-like expansions that require you to put money in a hurry maybe you're a money invest they're want their money back. ever read "confessions of a street addict" holy cow how do you decide what to sell this is where our tendency to hold on to losers shows a sinister side. a lot of investors prefer to sell the best performers rather than the worst yes, they'll sell their winners to subsidize the losers. you then get a self-fulfilling spiral as the bad stocks stay bad. they usually keep going down with fewer winners, your performance will get even worse.

this is particularly dangerous for a hedge fund manager because bad performance triggers more redemptions from your clients, and if you keep selling winners to give the money back, it creates a vicious cycle down individuals do the same thing. you only have a finite amount of capital to invest, right rather than take your medicine, take a loss, far too many people prefer to hang on the their worst performers thus my rule never subsidize losers with winners. my advice to anyone who is stuck in the position is quite simple. sell the losers. if you really want them back, go buy them back the next day but once they're out of your portfolio, i got to tell you, i doubt you'll even be tempted to buy back that stock. by the same token, you can't keep hanging on the a low quality stock because you're hoping for a takeover. oh, that's a real good idea. look, i get it nothing is more exciting than a takeover nothing is as lucrative. you can put on a lifetime's worth of gains in a day. so people go to great lengths to

try to cap theose moves funny thing about bad companies. they really do get bids. in reality what gets ainquire ready great companies with cheap stocks, not crumb any companies with stocks that seem cheap but in reality are expensive yet so many people buy this junk merchandise because they think a takeover will save them. which brings me to my next rule. never speculate on takeovers of companies with bad fundamentals. the odds are that you'll end up owning something that you could go down much more than you ever thought. even as it is very limited upside even if a bad company gets a takeover, it might end up coming at much lower price than what you initially paid for it as a stock. that's the thing about bad companies. the stocks tend to go lower, deservedly you can do much better buying a well-run company that's in good shape and can still get a takeover bid than you can from getting a company that's doing poorly and thus unlikely to get a bid. it makes sense not bad companies get acquired

because not many companies can turn bad companies into good ones don't wait future a company with lousy fundamentals to get taken over you could be waiting a long time if you just moved on you could buy the stock of a high quality company that is much likely to give you higher performance. even speculating on a takeover, even there f there is no deal, you have other ways to win when the stock of a good company goes down, you can confidently buy more on weakness that's not something you can do with a company that's going from bad to worse while you were waiting irrationally for lightning to strike. the bottom line, never sell your winners to subsidize your losers if you need to raise money for whatever reason, just take the darn loss and sell something that's underperforming and absolutely do not speculate on takeovers and companies that are deteriorating fundamentals if a possible takeover is the only reason you have for liking a stock, that's not something you should own stick with cramer. - learning from him is great... when i can keep up!

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this is the most interactive show on television i like to brag about having the smartest audience there is that's you, cramerica. let's get to some of your tweets first up, a tweet fro from @bullflags. watching ironman with son. forgot action cramer lives in the #marvel universe, mad tweets, awesome. oh, yeah, that was just fun. i broke that cup it was one take. it was really kind of crazy.

and i am forever indebted to the fabulous people, including jon favreau, that do those movies. and here is a tweet from big dude making big mo says action cramer, i'm a new investor, less than three months in i've always been a great saver; but how do i develop discipline as an investor all right. here's what you want to do as an investor, why don't you just buy small this is what we do for the club. if the stock comes in, you've got more room. but i want you to do it so you don't -- the discipline is going to make it so you're not going to be able to necessarily make as much money as you'd like, but we're trying to cut off our losses that's why we start small. now a tweet from @dari 77426739. what is that, like your pin number jim cramer, do you ever sleep? i see you on tv early in the morning and very late at night and the answer is i rarely do sleep, and i have pulled a huge

number of all nighters within the last three years i wish that weren't the case but it is true and now very much looking forward to some perspective tonight. is there such a thing as market inertia? with the amount of money moving in the market, is this like steering the titanic versus a jet ski? mad tweets bill from gfs no, it's not and i'll tell you why. we don't have that much money coming in. literally, the money has been going out. so the fact that the market is going up is really a test top of the the fact there is this core group of people who are not leaving. they're being just like warren buffett. they're putting a huge amount of money in index funds, that's okay that's not inertia that's believing in america and believing in progress. i have no problem with it. now a tweet from @mikemonroe thank you for being the voice of reason and keeping our sanity amongst all this market craziness. don't know what we do without you. well, thank you. my goal is to make it so people

don't freak out, all right there were times when i would tell you, listen, you do have to go and those have happened. when is there is systemic risk, meaning risk where you can't assess where the system is going to hold. but most of the risks we see are really just market risks that are not in sync with how the strength of the company and the strength of the companies. so i will warn you if i think that things are really coming unglued. but otherwise, my job is to try to put it in perspective thank you so much. that's a very nice tweet they're all nice next we have a tweet from @commonstock. omg, jim cramer's part of jeopardy question. i would have totally got that answer right my youngest daughter just loved that too ah, dad, dad's made it and now she knows i have a show. thanks, cramerica. we really do have fun. stick with cramer. ♪

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♪ >> narrator: in this episode of "american greed"... >> please send everybody you possibly can. officer is down. >> narrator: lieutenant joseph gliniewicz is a small-town cop gunned down in the line of duty. >> it was real scary. things like that don't happen in fox lake. >> subject is armed and dangerous. >> narrator: as police search for three suspects, the community mourns the loss of a leader. >> everybody who knew joe just loved him and adored him. >> there were tons of little kids holding signs with his picture on it. they looked up to him as a hero. everybody did. >> narrator: but when the investigation hits a dead end, all eyes turn to the officer himself and the youth group he