put it on. january could be a little ugly don't press it on holiday week and happy holidays everybody. >> that does it for "options action." see you back here at 5:30 m. xt friday. "mad money" starts next. 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 in summer, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramer. i'm trying to make you some money. my job is not just to entertain but to teach and educate you or tweet me @jim cramcramer tonight i want to share my cumulative wiz tsdomwisdom

there's so many things you need to balance, it's hard to keep track of what you need to do a lot of this is more important than the day-to-day action, without the right discipline, framework, the right dare i say philosophy, you're going to get yourself into trouble. i also know that big picture financial advice can be hard to process. a lot of it seems down right contradictory to most people. >> all right sell sell sell sell. >> we tell you to have conviction, to stick with the companies you believe in then you need to be ready to change your mind on a dime when the facts change you need to be cautious, but you also need to be ready to pounce on opportunities when they present themselves. >> buy buy buy. >> you need to be skeptical. you also need to know when to suspend your belief, your disbelief. you need to avoid chasing stocks that have run too much, but you also shouldn't care too much where a stock is coming from if you believe it's headed higher down the rules, it doesn't matter where a stock has come

from it's where it's headed to. believe me, i get it take all my rules literally, you're going to be running around in circles while tearing your hair out. how do you think i went 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 is good judgment obviously good investing judgment is not the kind of thing anyone can teach you in an hour of television or a year of television for that matter that's why i try to teach you better ways to think about individual stocks and the whole market i try to give you the tools you need to develop your own judgment all my best professors in college focused on teaching us 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 i think are good investments. the problem is that's a heck of a lot to process 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 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 really consider what your own personal objectives are, and i can't decide them for you. you need to build up your wealth to make a life changing purchase like a home. are you just trying to get a decent return. do you have money to burn that you're willing to take risks those are all different mind-sets. there's no one size fits all anyone who tells you differently is dangerously misinformed or flatout lying to you. >> boo >> probably in order to sell you something. but far too often people invest in the stock market with a simple goal of making some money. yeah, all we want to do is, we want to make money everybody wants to make money. 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 a clearly defined goal, you have no way to determine which stocks you should be buying your 401(k) or ira or brokerage accounts do not exist in a vacuum before you can start making judgments about individual stocks you need to figure out what your own internal yard is going to look like that's the foundation of good investment judgment, 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 if you want to pick up your kids from school, taxing down main street in a 747 would be really impractical. how about if 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. the ford fiesta is probably too small. there's no way you're going to fit it in a 747 in that parking lot. a pickup truck would be perfect. that may sound simple, but 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 a basic low cost s&p 500 index fund. >> hallelujah! >> that tries to mimic the performance of the broader market i've recommended index funds endlessly, i'm going to keep doing it they are phenomenal. they help democktize the incredible engine of wealth creation that is the the u.s. stock market america is a growing country and it's very business friendly compared to the rest of the world. when you buy an s&p 500 index fund you're betting on the long-term performance 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 say you need to invest your first $10,000 in an index fund don't bother to try to pick individual stocks until you have more money than that first 10,000 index fund. if you're looking to make slow and steady money over a period of decades, that's a retirement investment in a nutshell you might consider certain kind of individual stocks with big dividends because of come poupding a 4% dividend yield may not sound that spectaculaspectacula will double your money in 18 years thanks to the magic of compounding. not every investor is simply trying to fund their retirement. 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 and your discretionary mad money portfolio the extra money you're

not going to need in order to support yourself after lat stage capitalism has ground you down and you no longer are able to work. that discretionary portfolio is where you can afford to take more risks in order to generate faster profits, make sense mighty big but here. for the vast majority of people your discretionary portfolio is going to be much less important than your retirement portfolio it's not just retirement if you want to pay for a house, you want to send your kids to college, you should take a more conservative approach to managing that money. whatever kaind of account you pt it in, your strategy for college savings or future house savings should look more like your retirement portfolio than that mad money portfolio. 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 first you need to consider what you're trying to 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 to paul in texas. paul. >> booyah, jim. >> booyah paul. >> i've noets noticed the companies a lot of them will succeed on one and miss on others as a shareholder in the companies i'm looking for if they're going to exceed one and miss one, would it be more important for them to exceed on revenue or earnings per share? >> what a great question i've actually done a huge amount of research in this. thank you for asking it's revenue growth. we want to see pure revenue growth that means that there's demand for the product. the actual earnings per share may be in some cases manufactured, literally by tax rate, by buying stock back, but you can't -- sales know thyself always consider what you're

trying to get out of the market. on "mad money" today, we'll help you with the tight flexibility i'm talking about. i'll reveal the backbends you should be doing to get your portfolio in order i'll tell you why it's time to snap out of it. and how the late great maya angel angelou, 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.cbbc.com.

♪ there's no place like home ♪

argh! i'm trying... ♪ yippiekiyay. ♪ mom. ♪

regular viewers know i've got a lot of rules, the result of more than 30 years in the money management business. first is broker nen as a hedge fund manager, i've got rules for investing for trading, what to do in a rally or selloff, for picking winners, avoiding losers that can be a lot to take in 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 explained 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 can start buying individual stocks, enough to fill out a diversified portfolio five to ten names, right? hold on. before you buy anything, i need you to do one more thing first you have to do the homework i've covered this before

i'm going o'give you a quick version now. if you're going to invest enough money in a company for it to matter for your portfolio, you need to know what the company does you need to know how it makes its money and how much money it makes. the internet has made this process easier when i first started this show, this is now a delight. you can go online, read the s.e.c. 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 it get familiar with the business and the key metrics that will drive its stock. feel free to read journalism, listen to opinions, familiarize yourself with the company itself and the way its stock trades i've written a half dozen books about this topic, about how to do the homework. 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 heading higher, there's one final step you have to explain that theory to another living, breathing human being. it doesn't even have to be a

professional you can talk to your mom, your kids, a friend the important thing is that you put your thesis into words that you can basically comprehend it 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 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. for those of you tuning me out because you can't stand to hear another word about homework, i'm done that's it. that's all i'm saying about that process. tonight i'm trying to focus on the bigger picture let's fast forward a little. once you've done the homework, you can build a diversified portfolio. any more than ten, and you'll like not have time to keep up with them all. the idea here is that you should be able to do this in your spare time, not that you'll turn money management into a second or third job. how can i have so many stocks --

i got two research assistants. you're doing it yourself let's assume you own shares in a bunch of companies you genuinely believe in you now have a thesis for each one. there's 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 what in theory 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 certainly lucky, not all of them will stay winners. some will be losers. some will do nothing, and some of the companies that you liked best will inevitably disappoint you. what can i say the game is full of heartbreak, which brings me to my next rule, always please, please try to stay flexible. you have to be flexible because business by its very nature is dynamic, not static. things do change markets change, new competitors

will enter an industry and undercut existing players on price to take market share previously well-run companies will start executing poorly, and we've seen that time and again customers cancel orders, unforeseen envents happen that hurt business that makes some categories of stock seem less attractive when something like this occurs, when the story of a company that you own shares in changes, then you've got to be willing to acknowledge things are different. if your thesis is no longer intact, if the reason you gave is no longer valid, 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 workab workable for decades so-called experts have pedalled the idea that when you buy a stock you need to be prepared to hold onto it until the death of the universe. how many times have you heard someone say buy and hold

identi i've got to tell you that's nonsense i would love to buy a stock and hold it from here until eternity because the story pans out, but if the story doesn't pan out or after a long time there are big changes in the industry, you got to be willing to sell. >> sell sell sell. >> at least sell some. that's why i always tell you it's buy and homework, not buy and hold i just wish a lot of the gray beards would adopt buy and homework we'd save people a lot of money. people hate admitting when they've made a mistake and of course they hate selling anything because they're worried about taxes. once we make up our minds that things great, we don't want the facts to get in the way of a good story you know what? you can't afford to fall in love with a stock when you buy shares in publicly traded companies, you're not joining that stock in holy matrimony. you don't swear to stick with it in sickness and health, you don't need to go to a judge and get a divorce, it's just a piece of paper acknowledge when something changes. if you buy a stock because you believe the underlying company is going to take a ton of market

share and it fails to do so, don't mover the goal post for yourself don't search for reasons to hang on, just get out of there. you must be willing to recognize that companies can take a turn for the worst. management make mistakes ceo's make bad strategic and tactical errors. bed, bath and beyond spent $5.4 billion buying its own stock back from 2013 to 2017, and it was an attempt to boost the earnings per share by shrinking the denominator so to speak and therefore take its stock price up, but it didn't work the company kept losing market share to online competitors like amazon, and the buyback accomplished next to nothing by the summer of 2018, bed bath had a market cap of less than $2.7 billion they spent twice that amount on the buyback. if they'd simply put that money in a mattress, the company would you know what their mistake was? the guys running bed, bath and beyond weren't flexible. they kept buying back their own

stock believing it would help. don't make the same error. when something goes wrong with the company you own, be ready to stop hoping and start selling. listen, being unwilling to recognize a turn for the worst as bad as it might be almost always seems to lead to 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. >> caller: booyah, jim. >> booyah, liam. >> caller: i just had a quick question about index funds you say with certain stocks buy them at certain times like monthly or quarterly or when at

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

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. >> caller: hey, jim. this is mat, how's it going? >> i am doing well, how about you? >> caller: i'm doing good. couldn't be better 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 >> cash is short-term investments. longer term you may want to be able to take advantage of 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, they don't fit. you need to take on more risk, not less you've got your whole life to make up that money if you to lose it before you own the stock, come up witha thesis on why you think it's headed higher, once you own it, please stay flexible. much more "mad money" ahead.

there's not crying in investing, i'm telling you why it's time to take emotions out of it when it comes to picking stocks. then how the acclaimed poet maya angelou gave me some of the best investment advice i've ever heard. tonight i'm telling you where to find it, stick with cramer

there's brushing...and there's oral-b power brushing. oral-b just cleans better. even my hygienist said going electric could lead to way cleaner teeth. and unlike sonicare, oral-b is the first electric toothbrush brand accepted by the ada. oral-b. brush like a pro. and all thro' the house. 'twas the night before christmas, not a creature was stirring, but everywhere else... there are performers, dancers, designers

the dads and the drivers. there are doers of good and bringers of glee. this time of the year is so much more than a bow and a tree. (morgan vo) those who give their best, deserve the best. get up to a $1,250 credit on select models now during the season of audi sales event. ♪ 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's forcing you to do that there is no gun to your head it's okay if stock picks ing i

not for you. that's why vanguard invented index funds. you have plenty of other investment options if you're going to play the stock market, if you're going to invest in it, then you should put in the effort to do it right, don't you think i think stocks are the greatest engine of wealth creation in history, and you can harnness 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's another 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 to play it. i cannot stress this enough. for many of you managing your emotions will be the hardest part of investing, harder than identifying new trends, harder than knowing when to cut your losses

why? the market is a harsh mistress at times owning stocks can feel like being in an abusive relationship but we just keep coming back because long-term it is a great way to try to make money. the thing is, unless you can perfectly predict the future, you're going to make lots and lots of mistakes it's inevitable, and when -- 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 i can tell you from experience that this is not a productive attitude you know what if you did read confession os after street addict, you would know exactly the wrong attitude i made a lot of money but i was

hell to live with. i know better than anybody that you need to try to remain calm constantly getting mad at yourself is not sustainable. you'll end up rouchk patience a -- running out of patience. you don't need to be a buddhist monk to be a good investor 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's 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 and act on them, yet so many of us approach the market with an inferior attitude and an inferior state of mind. our heads are clouded 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. let me be your stock market therapist for a moment there are a lot of harmful recurring thoughts you can have that will mess with your judgment the worst of the worst, when you think to yourself if only, if only as in if only i had acted sooner in electronic arts or if only i'd stay -- to begin with i could have made a fortune. don't get hung up on that. this is wasted damaging emotion we're talking about. it's destructive to the positive psychology you need when you're making investment decisions. for a long time i took it to an extreme. i would sit and be mesmerized by things i got wrong i would be obsessed going over the big miss over and over again. it wouldn't just be over i can put it out of my head for action alerts now 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 could have should have game can be if you're an emotional guy like me, you may need to trick yourself into a more productive pattern of thought i've had to build in all sorts of methods into tricking my mind into not playing this game, chiefly removing the stock from my desktop and mobile stock list going in and 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 but don't tell me what you could 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 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 how much

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

>> of course. >> caller: i had a question about 401(k) plans my company put out their 401(k) plan and being a novice when it comes to those kinds of things i just wanted to know what percentage of my paycheck would be a good starting amount to contribute >> whatever your -- the maximum you're allowed because what happens is that this -- if you use the power of time, the power of come poupounding you will ha much more but you've got to put it in. take the max, enough with the would have, could have, should have, people don't play the if only game. you'll be surprised how much better your decision-making becomes. i see your true colors shining through. it's not just a great song it's sage investment wisdom. then, i'm helping you find the bull market no matter where it might be hiding, and i'm answering the questions you've been sending me on twitter

stay with cramer

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 money professionally but i didn't know it this is some genuine sage investing wisdom from the late, great, maya angelou. when someone shows you who they are, believe them the first time now, i know she once 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. 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 a ceo tells you that business is bad, take their word for it. don't try to make excuses. don't bend over backwards finding justification so you can keep owning the 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 it's because of this rule. the worse i do you know what i'm talking about. let me read you the rest of the maya angelou quote there's 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 courtroom a company's executives are almost always going to know their business better than you will, unless they're being ridiculously negligent they have access to information you don't. they can spend 80 hours a week or more running their company. you have your own job and even if you manage money full-time there aren't enough hours in the day for you to 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 on the quarterly conference calls or even someone else's show high level executives they are your best resource i wouldn't have them on if i didn'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 of executives

who are excessively promotional or talk like they have rose colored glasses welded directly onto their face. i find that what i'm really looking for are people who aren't wearing these, okay these are actual rose-colored glasses. anyway, i try to ask more skeptical questions whenever my cockeyed optimism alarm goes off during these interviews. i don't want -- i can't have you get snowed by watching the interviews i do. ceos can be misleading almost never flatout 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 you'll be surprised how many straight shooters you see at the higher levels of corporate america. when we have someone on the show with a track record of being extremely candid or reliable or both, i try to point that out. when honest smart executives

tell you something gone awry you should believe them, and when they say it's gone incredibly well, it might be a reason to buy. we'll take an example, when mark bene off the ceo of salesforce.com came on the show during the depths of the great recession and told us his software would be just fine, you had to grit your teeth and buy it from november of 2008 to july of 2018 sales force gave you a 1900% gain, and you had to get in it when he said things were fine he was bankable. when patty doyle, the former ceo of domino's pizza came on in february of 2010 and told us he was going to turn things around his stock was at 10 bucks. when he retired domino's was at $282 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, i believe this guy and that's what helps.

it helps to have me say it because i've thought about this a lot, and i've talked to a lot more ceos and pretty much anybody in the world, more important if management tells you something is wrong, you should take them extra special seriously. when a company preannounces a shortfall, 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 names as they're pummelling on to new lows they figure the bad news is baked in in practice i found that other than some rare exceptions, the opposite's the case. when business is so ugly that is a company is forced to come out early and cut numbers, i think it typically means there's 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 that first time when management preannounces a bad quarter, they're not just looking at the past, they're looking at the order books for their future if there were any hope that business would get better, the company wouldn't have to cut numbers between its regularly scheduled quarterly reports. if they thought maybe something

could get better not worse in the next 30 days, they keep their darn mouths shut and wait. preannouncements signal ongoing weakness that's going to continue that's why i recommend waiting that 30 days to see if anything improves before you think about buying that kind of stock. this will really keep you out of trouble. i can count on one hand the times when things got better within a month sure, now you're going to miss some great opportunities like i said, maybe there's a half dozen and sometimes the stock bottoms early. most of the times after 30 days you'll sidestep another brutal leg down i know 30 days sounds arbitrary. i've done a lot of homework. it usually takes at least a month for the bad news to get fully baked into the stock price if not longer. sometimes it can seem like we live in a post-truth world where it's impossible to know who to believe on any particular issue, but even the most skeptical among you should believe executives when they preannounce an earnings shortfall. 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 schedules its next quarter. in the wake of a shortfall, you have to presume that the stock won't be bouncing back anytime soon for the next 30 days, you should treat the darn thing as a falling knife. in short, even if you're not a huge fan of maya angelou's poetry, you should trust her investment advice. stick with cramer.

i spent a lot of time tonight talking about the many ways in which you can make mistakes and the need to guard against them by knowing when to admit that you're wrong. let me be clear, the market can be just as wrong as any individual investor. the market makes mistakes every single day 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 or down for the wrong reason or no reason or an outright stupid reason when a company reports earnings and the stock goes down, there is a natural impulse to believe that the company must have

disappointed, it must have been a bad quarter. 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, 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've listened to the call especially when we're in the middle of earnings season, 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 that stock prices do not always reflect the underlying fundamentals, the actual facts and figures about how the business is doing. the fundamentals are a big part of it. over the long-term i'd say the most important part, which is why i spend so much time focusing on them and how to understand them, but they are not the whole picture. you have to understand the stock markts is first and foremost a market of stocks it's prone to all sorts of distortions. wrote about the invisible hand

of free market capitalism, he forgot to mention it's the hand of someone with bad reflexes, lousy coordination and possibly some kind of neurological disorder and short stock prices 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 actual fundamentals by the way, this is why it's possible for you to beat the performance of the averages by investing in individual stocks if the market worked perfectly, you'd never be able to exploit any opportunities because the whole point of this game is to spot stocks that are mispriced so why do i bring this up? when the action is ir rationale it can be very frustrating i want you to be able to take advantage of these moments where stock prices are wrong or at the very least, i don't want you throwing up your hands in disgust and giving up on 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 the largest distortions. i spent a lot of time talking about the etfization of stocks this has become a major issue for the markets. you could bank on the fact that about half of the stock's performance came from a sector, mainly how the sector was doing and the other came from the fortunes of the company itself, management your average company was in control about half of its own destiny. this was a good situation for stock pickers. as long as you made sure to avoid sectors that were out of favor with the wall street fashion show you could do well by researching companies and trying to predict which ones would do better than their competitors, but the rise of etfs that's changed the equat n equation, especially sector etfs, faang, our acronym for facebook, amazon, netflix, goog and will alphabet. although there's been a resurgence of the power of individual stocks, even stocks of well run companies can get drug down by an etf rip tide

when say netflix catches a cold, the other three stocks sneeze, even if the streaming based video of netflix has little to do with the advertising based business of facebook a lot of times you'll get situations where sellers throw the baby out with the bath water. if the worst company in an industry reports bad numbers, the whole group tends to go down, even if everyone else is doing well and those are your opportunities. you 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 a critical mass of money managers figures out that yes, things are going well, so the next time that business reports a strong number, the stock soars. in those cases you just need to be patient the caveat here, though, is that 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 longer that you can remain solvent. by the way an important economist who also is a very good money manager, your goal is

not necessarily to be right. it's to make money sometimes that means being a little cynical about other people's expectations. but here's the bottom line don't just assume that stocks that go down deserve it. in the immortal words of client eastwood in "unforgiven" deserve's got nothing to do with it the market is going to make mistakes your job is to recognize when it's doing something wrong and to try to take advantage of it to try to take advantage of it stick with cramer. exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

i love hearing from the smartest audience in television. let's get to some tweets first a tweet from brick ham 65. why when a caller named richard calls in do you and the staff say his name in a high pitch >> that's a reference to the movie tommy boy. chris farley and david spade let's say a caller is named richard, we say richard. >> thank you now a tweet from @joka 9, and he says hi jim cramer any advice for new parents investing in something for the newborn child, education savings or tax free savings, so many options out there. you can do some a state by state plan uniform gift to minors is the way to do it buy growth stocks.

they've got their whole lives ahead to make the money back high quality growth stocks the likes of which we talk about all the time on this show. next up is a tweet fr from @stallcupwendy. i work with male teens and they think you sound like master yoda i'm learning and so are they thank you, jim cramer, aka master yoda. you're awesome at jim cramer okay yeah all right. yep, that's precisely why my wife loves me so much. and here's a tweet fro from @russbenson5. other than banks, who benefits from raising interest rates? >> not really many other companies. i think that as a corollary when rates go up people think the economy is strong and therefore 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 deposits and they lend them out when rates going higher. and now a tweet from @joey i absolutely love get rich carefully. will you be writing another book soon >> this is a very interesting question because the economics of book publishing has changed radical radically. i'll work my butt off on every weekend and then i'll read the book, and it used to be it books. now it's just a labor of love, and i have other lors of love i want to perform. here's a tweet from amy, and she says i may not always watch @mad money on cnbc, but when i do, i take notes so i can do my research later #investing ive to tell you, whenever i'm out with people -- and i will reference this because my late dad would say this too -- particularly some people who are

let's say elderly who play the stock market, they always come out with these long lists of what they took down. i love it. they'll go over whether they like this, whether they like that it happens all the time to me. 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's a tweet from @cleanpros jim, can you explain annuity investments? i'm 43 with a decent retirement nest egg and term life insurance. i would say and my friend ken fisher, i would say pick individual stocks. pick etfs. 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. here's a tweet fro

from @gearhead531. 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. >> 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 or distribution that high, it is often unsustainable. i want you to be very careful in that kind of situation here's a tweet fro from @jaystanley023. can you suggest some reading for a young, first time investor >> i want you to go to amazon, and i want you to 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 that you can cut your teeth on. all right. well, that's all our tweets, so well, that's all our tweets, so stick with cramer. the world is alive as you can see, this time of the year is so much more

than a bow and a tree.(mor) those who give their best, deserve the best. get up to a $1,250 credit on select models now during the season of audi sales event. ♪

i still can't believe how incredible the screen is on the new iphone xs. and our unlimited plan really takes things to the next level with your choice of the best in tv, movies, or music. it's the perfect holiday upgrade. i know what i'm asking santa for this year. you still write letters to santa? no. please. i send him emails. can i get his email address? oh... i don't feel comfortable sharing it. get the iphone 10 s and our unlimited plan with your choice of the best in tv, movies, or music. more for your thing. that's our thing. i like to say there's always a bull market somewhere. i promise to find it for you on "mad money." i'm jim cramer, see you next

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." ♪ my name is ryan carpenter. i live in portland, oregon, with my turtle, mo, and i'm the owner of moberi. i love living in portland. portland is the place where weird ideas thrive, and what i do is definitely a little weird, and people really like that here. leading a healthy lifestyle is something i've done for a long time. i frequently ride my bike around to the farmers market, picking up fresh produce.