the double top but you use put spreads to pay it. >> guy. >> watch this. medical device, love boston scientific breaking out, sister >> that does it for us after at marvelous haiku. see you back here tomorrow at 5:00 for more "fast. "mad money" with jim cramer starts 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 to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach so called me at 1-800-743-cnbc or tweet me @jimcramer every night i come out here and tell you what happened during the day, why it happened, and what you can do with the information. i do in in order to help you be

a better do it yourself investor, or better client i do it with a spectacular team of people headed by a spectacular produce. >> regina who has been with me since inception and dozens of people responsible for all the look and feel of the show to the research we have a team that helps me with memos that back up the research and we have a head writer who is really our only writer, has been our only writer since inception when he was a freshman in high school that's cliff mason my sister nan and her husband todd's son, my nephew. now the show after years and years has become a bit of a labor of love. we have been doing it so darn long, we take it for granted what we do you know what? tonight i'm going to change that i'm going to correct that. tonight i want to talk about the show, its evolution, and how you can best use it, or worst, misuse it. and i am doing so because there is so much we throw at you that you might not be able to use it as effectively as we would like. i know this because i talk to

enough people about the show and interact with enough people through e-mail and callers as well as twitter action cramer, i have a pretty good idea why you come here and what you really want the show has evolved mightily when from when we started. the show was an outgrowth of a radio show it was where you first heard boo-yah. i did it in conjunction with the street still going strong, and i manage my charitable trust from those offices. when we started the show, people were thirsting for specific investment ideas i was happy to comply. but the stock market changed over time. we got hit with a great recession, which challenged what we call the entire asset class of stocks, meaning stocks as a way to save and make money we had many companies, big companies particularly in the financial world destroyed by the downturn mostly because they had lent a lot of money and didn't have enough money in the bank to handle the losses that came from dramatic cle klein it was a credit crisis i am proud of the fact that if

you watch me, you might have avoided a lot of the downturn because i shouted from the rooftops that the fed was nuts, they were nuts, and that the situation was far worse than anyone realized. no matter. i always find it a tad ironic while even the fed acknowledged in its minutes i was the only guy saying things were falling apart, i was also the only guy in the media for not telling people to say. damned if you do, damned if you don't. but that year has changed. and it changed me. it changed the show. it was more of a metamorphoses a new manifesto, a new reason for being. now say every night in some form or another that the show is meant to educate, to entertain, to teach and i say it different times, in different ways each night. that's very important and very different from the original show, a total break in a lot of ways because i think it's just not enough to give you stock ideas. in fact, we deliberately minimized them over the last, well, decade we want for you to be able to

understand the process and to pick them for yourself or more important, we want you to understand the stock market enough for you to make a judgment whether you can do it yourself now me, i love individual stocks, have for years and years and years. i think they can be tremendous veeblgs that can lead to great wealth our show's identification with certain stocks literally from the get-go, stocks like apple, pepsico, salesforce, honeywell, bristol-myers, it hasn't gone unnoticed. but ever since we changed the show we tried to leave behind the new ideas or hot ideas and instead give you themes to allow you to invest in more fertile sectors, themes that i hope i can make come alive with analogy, sports, whatever so, you can do the homework on them. themes like the new frugality or living longer through healthy eating habits, social, mobile, cloud, connectivity investments. i've written many books over time, proud of that. i know that confessions of a

street addict written four years before the show began remains a favorite but i think that "get rich carefully" is designed to be this new show's companion. a lot of what i talk about in the show, if you're having trouble get rich, do it. i'm cognizant that the market is hard you've got time burdens you've got demands you may be bewildered despite my attempts to try the make things clear. that's why i've emphasized that i'm not just okay with index funds, but i insist that you use them i would not own a single stock until i put away at least $10,000 in an index fund, either through your ira or your 401(k). while i have addressed saving for retirement and saving for tuition and emergencies in many shows, i have never not point-blank warned you off individual stocks. let me do this on tonight. i would vastly prefer you to invest in index than mutual funds. mutual funds have not distinguished themselves enough to be able to take the percentages they do. there is always individual cases where individual managers do acquit themselves. but managers move and records

can change and past performance is no guarantee, all that jazz which brings me to point number one of the show. i am not a schill or a snake oil salesman for individual stocks i am a believer in the asset class of stocks as an overall way to save money for retirement, vacations, tuitions, anything your heart desires. i do want you to have what is known as exposure, that's a technical term to the stock market, and try to mightily convince you that it is worth it to do so, because stocks have indeed created so much wealth over time, if you dent believe me, why don't you read warren buffett's amazing golden anniversary report that describes which stocks are tremendous as an asset class to own. he makes a great plea for them why do they work they represent the sum progress of business and the prospects for business going forward they represent the wealth that companies create in aggregate and the sharing with shareholders you get to be along for the ride, and i want you to be along for that ride in a responsible way, which is most definitely owning an index fund i'm partial to the s&p 500, but i also like a fund that gives

you a total return or a fund that encompasses all the stocks in the market and is often found among various fund houses. if you aren't offered one, then of course go to the s&p 500. once again, for those who don't get it, here is my bottom line the show has changed over time from one where we picked stocks for you to one where we educate you about stocks so you can understand why an index fund of stocks might be wto investing in there is only one problem. we know you like stocks too or you wouldn't be watching or need to watch, which is why when we come back, we'll explain why we bother to delve into individual stocks at all, after we have professed such undying love these days for index funds as the first way to go. larry in massachusetts larry? >> caller: jim, i know i've mentioned it before, but i just want to tell you how much your nightly focus lessons remind me of roosevelt's fireside chats. >> well, president roosevelt was a great man. larry, thank you that's something my mom says, just say thank you thank you, larry >> caller: we need you out here.

>> jim. >> thank you. >> caller: here is the question for tonight. when does an investment turn into a trade we don't chase the stock, we don't accumulate too many stocks to have to monitor so how quickly and at what percentage gain do we unload a small position which has gotten out of control high quality problem? and conversely, how quickly and at what percentage loss do we admit that we got it wrong >> okay, i have shorthand for these. i like to take off my rules have evolved. when you're up 50%, you take off 25 when you're up 100%, you take off, yes, all of your initial investment and then you play with the house's money and say thank you very much, and you got a good gain investment into trade, we don't do that. if it's labeled investment, it is investment. if you didn't get enough in when the stock came down and then moved up, you can kick that out for a trade. and investment becomes a trade when you didn't get the whole position on. greg in new york, greg >> caller: jim, i feel like we

speak every day. how are you doing? >> i'm doing quite well, greg. how with you. >> caller: well. me amy friends are in our 20s. it is worth taking more risk when you're younger and you don't have enough money to put more money on the line and try to seek the higher profit? >> greg, listen. listen to me, greg yeah, i didn't start with much money. but i took big risks because have i my whole life ahead of me you've got your whole life ahead of you buy some stocks when they go down big you've got that paycheck coming. it's only older people who don't have enough paychecks left you take that big risk that's what i want chris in oregon, chris >> caller: yes, jim, thank you for taking my question. >> of course. >> caller: and thank you very much for all the great advice you've given me. every position in my portfolio is captain cramer approved and doing very nicely. >> you're very nice, chris thank you so much. how can i help

>> caller: my question is i have a ira equity portfolio that i don't plan to draw on for about five more years, and everything then is obviously reinvested into it. my question is about dividends does it matter whether you reinvest those dividends back in the stock that generated them, or just reinvest them in the fund in general? >> all right i have -- any time you can reinvest dividends, reinvest always reinvest those dividends. the power of compounding one of the greatest single things that can happen to your money is the compounding of dividends. okay teach a man to fish. the show's evolved our mission remains the same, to make you the home gamer a better investor, no matter what you invested i'm in your corner plenty of "mad money" ahead, including how to plug into one of the market's biggest sources of wealth over the past few decades. plus, kit be a huge way to win, but also a massive catastrophe if you're not careful. don't miss this important

advice i'm taking your tweets "mad money" will be back after the break. >> 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. ♪

(butcher) we both know you're not just looking for pork chops. you're searching for something more... ...red-blooded. right this way. you thirst for adrenaline, you hunger for raw power. well, you've come to the right place. the road is yours, dig in.

we need to find the hidden world. woo hoo! we have one shot at this. i thought this was supposed to be a "stealth mission." yep, we forgot to fire proof his butt. [ screaming ] ♪ show them what you've got, bud. [ mumbling ] wow. try to keep up. sorry we're late for the party. [ screaming ] [ bleat ] [ low growl ] ♪ we've started the show explaining why we teach what we teach and why you want to own index funds to capture the profits and opportunities of stocks in aggregate.

for those coming away from the show who say we out the stocks every night and index funds are waste of time. what can we say? we're not going to change you overment we're not going win you. and we do know that's fine. with live with it. why do we bother to do the show other than i like to be compensated for doing something if i like index funds that much? you know what? it's a terrific question, actually surely i could have retired by now. i did well at a previous live, hedge fund manager, gave my investors a compound return after all fees of 24% when the standard & poor's index gave you an 8% return during the same period i'll come back to that number. i'm lucky enough to be able to do what i want to do at this stage of my life every now and again i'm tempted to thinking maybe i should go back and be the hedge fund manager. but whenever that occurs, i remember my late father thought i was much happier doing what i do now, and he thought it would be a mistake to go back to that old life because he thought it was too hard

plus, he thought the show was terrific and really helpful and was my biggest backer in what i was trying to accomplish here. thanks, pop. why ever talk about individual stocks then? someone must want the information or we wouldn't have lasted as long as we had in the end this is a commercial product and the market has judged it to be worst something. second, i do it because of six stocks national video you don't have to write this down this ishistory national video, american agronomics, st technologies, giant foods, heinz and gantos. these six stocks are at the core of why i think they can play a role in your financial education and get to the point where you can make few errors and have more of a chance to make more money longer term. if you choose to invest in individual stocks as well as index funds. index funds are preferable for the majority, but you're going to die in individual stocks anyway or you wouldn't be

watching "mad money. national video when i was growing up, my father's brother new a broker, and that broker's name was jack. i met jack once. i recall he played a lot of tennis he had a really good backhand. my father worked hard. after the war he started at gimbels, the now defunct partner store, selling men's slacks, gabardines when it was clear he ever wasn't going to get promoted, he decided to strike out with his brother, first selling carpet, then toy games, and gift boxes to retailers those retailers who have heard my father's eulogy delivered the day after he died november of 2014 know that my dad had a really hard business life. he and his brother started the national gift wrap and box company to supply merchants with everything they needed to box, wrap and bag whatever they sold to their customers well, he never had much competition. his customers were always going under, and he was on the road quite a bit, trying to find the

new ones i remember endless days of discouragement i was growing up you know, those were the days my mom would tell me go to your room go to your room before pop got home because he had hard day and didn't make any sales or customers were cruel to him. it was tough for him to save he had money in a bank account and a savings & loan, but it didn't pay much interest and i know he was always deathly afraid he couldn't pay the bills. one day pop said he knew what he was going to do. he was going to buy the stock of national video because pop's brother had heard from jack, the guy with the good backhand who was a broker that it was the next big thing the stock of the millennium, so to speak, or at least of the roaring 1960s. at first the stock went up dramatically, and i could tell that pop was elated and he bought more of it and more of it because it was going higher. yeah, in fact that was really about all pop knew about national video pop didn't follow it intra-day he found out how it was doing by

reading the evening bulletin, which came out at the close of the market or he turned on the radio and they would list a lot of closing prices on the station he put on, including the heavily traded national video, and he'd cheer. he even encouraged me to follow it i have told you in the past how i kept a journal of stocks that i followed in the fourth grade i didn't know any more about the companies behind the stocks beyond what pop knew about national video, but i wasn't playing with real money. he was sure enough, after pop put a sizable amount of his life savings into national video on the way up, it started going down like many people, pop didn't know what to do, so he would check in with his brother who checked in with jack who told his brother who told pop that all was well and he should keep buying national video, which he did. all i can say is i'm grad for two things one is that pop never borrowed money to buy national video, and two, stocks blessedly stop at zero on the way down pop lost everything. everything i didn't notice the changes back then, but let's put it this way. we didn't take much vacation,

and we sure didn't stay at the ritz carlton or the four seasons when we went away. i remember ritz mock apple pie made with the crackers there is a thing that sufficient fuses the for show one of the presoechs "mad money" is know how to invest in individual stock if you're going to do so think of the mistakes my father made with national video and you will know why this show is set up the way it is first, he didn't know anything about it so we had no idea how the company was doing, how risky it was, how it could go down as well as up, and how it could go under. he relied on a stockbroker friend of his brother. he had done no work on it at all. so he was at the mercy of the movement of the stock, and he only knew to continue to buy rather than to cut his losses. that's right he had a tip he bought the tip up and down after doing no work and he lost everything

a substantial chunk of his life savings. so let me give you the bottom line here are the many takeaways from the national video story tips as i like the say are for waiters. two, you must do homework if you're going to own individual stocks if you can't do homework, own an index fund and if you fear losing money, don't own stocks as well, because they can go down as well as up. which is the case with national video. by the way, i still don't know what it does i could google it, but that's another chapter in tonight's story. after the break i'll try to make you more money >> boo-yah, jim. congratulations on a great show. >> "mad money" is not a show about picking stocks for you it's a show about empowering you to think for yourself. >> this is bill from new york. thank you so much. >> this is curtis from north carolina i wanted to say thanks to you for creating "mad money. >> ba-ba-boo-yah. >> the man, the myth, the legend >> the wizard of wall street >> i want to give a goo boo-yah. >> you are the reason why we do

this

♪ welcome back to a real special show of shows. me describing what this show is about and why i do it to begin with first we covered that i don't even want you buying an individual stock until you own a diversified index fund, and own enough to make sure it's always going to be the biggest part of your savings, never stocks we don't call the show "mad money" for nothing we are using mad money only to buy stocks the rest goes into index funds the rest, how not to buy a stock. buying national video from a tip through a broker via brother and riding it all the way up and all the way down >> that was easy. >> that wouldn't happen with an index fund but we respect the right everyone has to try to invest in individual stocks, even as we

recognize that my father, had he diversified into an index fund if they had existed back then or at least a basket of stocks might have had a lot more to show for it. which brings me to the next lesson, americaning aomics initially when i got out of school, i made about $153 a week and then homicide in l.a., after winning some awards for my coverage of the ted bundy murders in the florida capital i didn't make much money either there, but i knew to open an ira to save money. my dad told me to do it. so whatever money i had automatically went to the fidelity magellan fund that was run by peter lynch, the best investor of his day but like my dad, i was determined to try to augment that mutual fund and my paycheck by buying individual stocks. however, i was going to do it the right way, by researching the stocks, getting an edge through the research, not through the brother, the broker, all that stuff where was i going to get that edge i figure why not read all the

periodicals that cover stocks. i was helping start a magazine called american lawyer, a trade association devoted to law and my sister let me crash in her studio apartment in the village for a bit, i was actually able to save some money. in fact, i saved more than $200 beyond my contributions to my ira, and decided to use that definition of "mad money" to buy -- >> buy, buy, buy >> the stock of americaning in a agroomics. i read an article and it said this orange grower was doing incredibly well, and i would be on the ground floor if i bought it so i picked up ten shares of this $9 stock. i was in on the ground floor you know what ground floor i was in on? i was in on the cheap linoleum ground floor that i ended up sipping that cutty sark because the crop wiped out my investment i should have given up right there. i just change mid m.o.

what i did give up on is buying a stock off a well researched article in a good periodical and letting it ride. it didn't hit me about a better way until i got a call from an old friend of mine, a high school friend who said a local steel mill called sps at that point was hiring if i was looking for a high paying job. they had a lot of orders and were december spat for workers my friend didn't know i was struggle for extra money and knew i might want another job. those calls in the middle of the recession from a friend for a job, they can be like gold and i said nah, i was happy where i was. but i decided why not look into sps and see how it was doing as a company, as a stock. so i went to the midtown library in new york, that's where they had all the periodicals and profit ly read up on everything hey had wall street research, you name it. and here's what i discovered first, there wasn't much known or written about sps and second, what wiz written was

pretty darn negative my first thought was oh, well, it's not doing that well bummer but then i realized, hold it, my information is the most current possible i got a guy telling me they can't handle the business they have and need to add additional shifts of unskilled labor like me, but the periodicals all read negatively about it. in other words, i had insight nobody else had. i was ahead of the story now these days it's kind of hard to get that edge edges do, exist, though, we do our best to present them every night. interpretation of news and events can augment those edges, and analysis is very important but back then i had the pure play i took everything i had, everything everything i had saved and i made a ton of money as the sps story unfolded enough money that i decided i would look around the office for more ideas where i had an edge i was writing about lawyers who working on mergers and acquisitions back then all the public ones. and it was pretty clear that the hot field was always about oil and gas. one after another they were being gobbled up why don't i find one that hasn't

been gobbled up yet. so back to the library to read about the industry i found natomis, which had just discovered a large find in indonesia. i took another chunk of money, talking $300 and bought that stock. i don't think i had to wait very long before i caught another takeover bid at that point i was hooked that changed everything for me changed my whole career plans. anything left went into individual stocks and i made enough money to pay for my first year of law school when i decided to go back to become an attorney i know there are people out there who say wait a second, none of this is possible today first the research is everywhere now cou courtesy of the web. you would have known that sps was later taken over subsequently got a bid from warren buffett was hiring and doing well third, there are now rules that make it hard to get any sort of edge because companies have to have full and fair disclosure or be prosecuted by the government. that means some would say you can't possibly game stocks at all, and you might as well buy

an index fund. you know i'm not against that. i was investing in individual stocks right alongside a much bigger percentage of my savings in the best mutual fund of the time still, i recognize that you can study and pick worthwhile stocks that might be doing better and that can indeed augment your savings provide you'd do it right. have some edge and stay current on the company so here is the bottom line remember american agroomics and sps. if you only know what one person in the media says me, or the writer of forbes or anybody else, and you buy, i'm telling you that's not good enough it's a start better to have genuine insight that others might not have, especially if it's against the grain of theconsensus. then you increase the odds of that succeeding. any hardworking you can do to increase the odds in your favor is going to make it more likely than not that you will succeed as a do it yourself investor, which in the end should be the exact reason why you watch this show joe in new york, joe >> caller: boo-yah, jim. this is joe from kings park, new

york thanks for taking my call. >> of course >> caller: just a quick thank you for sharing your wisdom with your viewers >> i have a great staff that helps me thank you. >> caller: if i wanted to diversify and add three or four companies to my portfolio for the long-term, but by diversifying i would only be able to buy two or three shares of each company, or would it be better to buy ten shares of one of them. and what isthe least amount of shares you would invest? >> ten shares is -- well, i've done many times i've owned ten shares i've done two or three shares at various times in my career remember, i favor an index fund for your first investments and only after you've maxed out on index funds would i suggest you buy a individual stock nobody said it was easy. that's why i come every night to put the odds in your favor it requires time and hard work on your part but don't worry, you know what we'll do it together so stay with cramer. boo-yah, jim >> hi, jim, watch your program every day. i love it. >> you are currently coaching

three generations of my family >> thank you for being the greatest in the world. >> i'm here with my son jonathan who is 9 years old and loves your show. >> i love your show. >> i love it when kids are involved >> thanks for everything you do for us. >> i wanted to thank you for all the wonderful advice you provide us. >> we're going get through this together we're going to be constructive we're not going to be pessimistic. we're going to be realistic. >> we believe in diversification and the s&p index fund is the best diversification method ever invented >> our world is a better place with you in it >> we thank you for all you do (vo) we're carvana, the company who invented car vending machines and buying a car 100% online. now we've created a brand new way for you to sell your car. whether it's a few years old or dinosaur old, we want to buy your car. so go to carvana and enter your license plate,

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♪ tonight on telling you how to increase the odds of successful individual investing using stocks from my personal history as a metaphor to tell the whole story. we have gone over whywe start with index funds we've seen the wrong way to invest by examining a failed investment of my dad's, national video. and we have seen the right way through a couple of stocks i bought before i went to law school, all of which were ahead of the publicly available data curve back then. while at law school i managed to trade pretty much daily using personal insights and going to the harvard school library which had everything at the time you

could dream of, including the research from pretty much every major brokerage house as well as what we call microfische of individual filings so what it f it was a month old. it was better than nothing during law school we saw the bundling first of the stocks followed by the value line company that was an influential research firm at the time. still around and then ultimately the s&p 500. i didn't think much of when they bundled the s&p 500 back then. i liked individual stocks and i had big score, but at no point did these changes cool the arder for individual stocks. we were coming out of a long period of sub-par market performance with a 30-year treasury peaking in the low teens. that's right interest rates were about four times, five times what long gated bonds are now.

and money coming into stocks and the fervor, well, let's say it was all beginning. how did i know this? when i started on commission at goldman sachs, i used to get a call every day from none other than my mother who absolutely loved the stock market and would call for quotes on her favorite stocks i had gotten her interested in stocks in the early '80s, and she chose to invest in the way peter lynch had started to teach all of us back then, buy what you know and stay ontop of it. she had been shopping in giant food, which was a very progressive supermarket chain at the time and she asked if it was publicly traded. she had bought about 35 shares and was itching to buy more. what i would do is something i would often tell you to do i would read up on the wall street research and marry her experiences a the chain, personal insight with the fundamentals of the grocery business goldman had what was known at the time as the ax, the best analyst on the street of supermarkets, and i would read what he had to say about giant versus the other firms he really liked it i had the luxury those days having a friend from the loews

corporation who would send me a big gym bag of research err week so here was the process of homework back then you like an idea through personal experience, giant food you read up about it with the best research. you match those insights with those of other firms if the ax liked it more, you might have a slight imperfection as other analysts got on board and started recommending it. it was particularly helpful if the ax were to trace out the game plan, because if there was terrific growth, especially regional going to national growth, that would mean investors would only pay out more than for other companies in its sector, meaning the multiple, which is the price we pay, we were willing to pay for future earnings or the price to earnings multiple, the p/e could go higher. these days everything is so much easier why giant food was bought by a dutch company you could have gone to its web page and it would have everything you want, a stock price, which by the way is available everywhere. no need to call the broker everyone has same info

public information but the insight by my mother was the starting point you can't substitute for that. no as an aside, my late mom never lost her interests in stocks she took cyclic cancer and would call me every day at 9:30 to get her quotes on giant and other stocks she followed. she did it to stay alert and to stay connected to me goldman sachs only gave me as much time as i needed to spend with her before she died, but i never forgot how easy it is for a parent and son or daughter to talk about stocks which is a major reason maybe some of you watch the show and i pledged to my mom i would do something more creative than just make money with money, something fulfilled years later by this show now it is important to note that despite all these different inputs, the process of picking winning stocks can be upended by events, as we know from the great recession, or by execution of the company itself and the power of its competitors to knock it off in stride which brings me to the fifth stock in our saga, gantos. anybody remember gantos?

here is a women's apparel change that goldman sachs love and had a close relationship with. it was heavily promoted by the firm i tried to get my father to buy stock in the chain, but he would hear nothing of it i asked him why? because we had the best analysts on the street. he said because no one goes there. i told him that was impossible it's way too highly rated by goldman. my father said all right, let's let's take a trip to franklin mills, a giant outlet mall outside of philadelphia that my father used to go as he called on merchants to see if they needed any of his boxes and bags there was a gantos in one of the malls. my father said here is what we're going to do. we're going to sit on this bench in front of gantos on a busy saturday and make a judgment ourselves. we sat there for hours and hours talking and watching, and only about a dozen people entered the darn store i can't remember if we saw one woman coming out with a bag. i shorted the company that monday and stayed short pretty much until the whole thing went to zero and got liquidated

another lesson learned wall street research can be very wrong. gantos made me skeptical i never forgot that exercise i'm offering a way that this show can bolster the process i infuse the show with all the lessons here try to match my mother being caller try to keep the skepticism of the gantos lesson my father presented. try to present you the giants and the gansoses so you can understand the process of investing. most of all, i want to show it isn't reckless and those who say it is don't understand the process of married with research buttressed by skepticism it all increases the odds of successful individual stock investing while minimizing the risks of single stock ownership. so here is my bottom line. my mom was no genius at stocks, but she did have a genuine interest my dad was a genius at retail, and i would like to thank that some of that rubbed off on me. stay with cramer jim cramer, you're one of my

heroes >> i look forward to your 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 have i learned and earned. your daily dashboard from fidelity. a visual snapshot of your investments. key portfolio events. all in one place. because when it's decision time... you need decision tech. only from fidelity. a cfp professional is trained, knowledgeable, and committed to financial planning in your best interest. find your certified financial planner™ professional at letsmakeaplan.org.

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♪ we're talking tonight about the notion of individual investing and recognizing how try to teach you how to analyze stocks you might pick if you have the time and inclination. again, if you don't, you can keep watching, but i want you to invest in index funds, not individual stocks. why? because i can't have you buy a stock on a tip and do no research i want you to have an edge or a catalyst or a personal experience where you can match that experience with homework, principally, research. and the knowledge gleaned from the company's website, but recognizing you must be skeptical at all times now, though, let's get to the final piece of the puzzle that eludes so many of you and make the process far more mystical than it seems. let's talk about heinz, the ketchup company that was bought

not that long ago by a consortium that includes warren buffett. when i decided to leave goldman sachs after four or five years to open my hedge fund, the first stock i bought was heinz why did do it? i was looking for a great management team that could deliver earnings through thick and thin it was a classic growth stock, and therefore ifft had a clear growth path ahead for multiple years. plus, at a time when the japanese were nipping at our companies and the chinese were just becoming a world power, which us confident we would never have asian ketchup on the picnic table that proved to be right. but what i didn't count on were the performance demands on the hedge fund manager class as long as i was at goldman sachs recommending stocks i needed to find those that i could always suggest to my clients buy more of in case they went down. i could just reiterate by michigan buy but performance management has its own set of rules and it was learning them on the

fly that really got me, let's just say, down on my luck. just buying stock because you knew it was terrific didn't matter to my new investors in my fund they wanted performance, often daily performance. and i started my fund at a time when the economy was just beginning to heat up heinz was a staple with a good dividend when the economy heats up, people dump these stocks for something more cyclical and they do it in a blink of an eye i watched as heinz and other best of breed companies like bristol-myers drop and drop and drop and more. i didn't realize it was rotation into stocks that were diversified industrial machinery business was earnings that would heat up, start popping i didn't get that if i wanted to perform daily. i realized i had to dump my heinz and my bristol-myers, start buying reynolds metals and phelps dodge, to name a few yesteryear mining and mineral companies. nevertheless, i had this clause in my contract with my

investors. it was a silly one, but one demand by one of the guys that if my fund dropped by more than 10%, i would are to open the doors and let people out of their contract with me i noticed each day my fund sank and sank and sank, because it was filled with best of breed and not what was fashionable finally, when i had fallen to 9%, we booted all my faves and started playing that rotation game quickly got to even and much more so it was a sobering lesson i never forget if you want to perform on a daily basis as so many hedge funds have to do, you have to take action. you can't just get your head in because you own best of breed companies there is only one problem. the rotation game is not one you can play at home without being almost a full-time professional. here's why as that year progressed, the economy got hotter and hotter and hotter, and these stocks kept getting higher and higher at a certain point, though, things got too hot people started worrying about interest rates going higher. don't we know all than and the next thing you know, the stock market, it crashed all the cyclical plays were

decimated. so were bristol-myers and heinz, initially. but you see, they snapped right back and that's what happens to the best of breed well managed companies. so let's come back to the show itself remember, i have now told you to use an index fund no matter what and only buy individual stocks with mad money using the right way, not the wrong way here i've detailed how a rotation can derail the best of the best for a short period of time what we do on "mad money" is to try to explain right up top why your stocks might not be following the fortunes of the companies underneath, because of things like rotations and so-called macro events then try to show you as a home gamer, you can use the flailings of the hedge fund performers to your own advantage by picking up best of breed companies. i do that basically through the longer pieces that use stocks as examples of what's happening and also bring in executives to learn about the stories. see if they fit into what's right or what's wrong in the "mad money" world view i've seen the best of breed win out in the end, be after the great crash of '87 or the great

recession of 2007 and 2009 my job is to keep an eye on the price for you and explain why the market may not be reflecting accurately what's going on at actual companies, and that's your chance to get in them at reasonable prices. i augment these views with reasonable works get rich carefully has a lot of this stuff as well as my blog and my charitable trust, which you can travel along at actionalerts.com that's a way to show how big money works by playing with an open hand. it can help you understand the rotations better than anything out there while producing some good profits for charities i'm proud that i've given way more than $2.3 million. all along the way i've had the interest to have you be a better investor i want you to understand how it works and how the pros intertwine with how a home gamer should invest, a product of more than 35 years of trying to figure it out myself i know the show is not perfect i've made my share of mistakes

my companies that didn't work out or didn't do any own homework correctly i know i have a representation, not really deserved i feel for being too bombastic. all i'm trying to do is keep you entertained in an entertaining way. if i didn't make it a little fun it would have failed years ago commercially and i would have let down my mother, my father and you home gamers years and years ago. the education is what it's all about, as long as you know what the bottom line is i'm doing my job and hopefully doing it right. stay with cramer take control of your financial future with the new madmoney.cnbc.com. cramer's exclusive 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 immediately >> it's everything you need right when you need it the new madmoney.cnbc.com.

hey, everybody, i get your tweets all day try to answer as many as i can today i thought i would dig into some of your tweets right here on "mad money. in real money, he means the book, you said to be aware of firms financed heavily with debt is there a certain debt ratio percentage to avoid?

actually, if you go to stay mad for life, i've got a lot of rules about that, but the main thing you have to do you have to be sure the interest they have to pay isn't overwhelmed, it doesn't overwhelm the company. in other words, can the cash flow pay for that interest and that's what you'll get, cash flow versus interest here we have at number two, i @jimcramer #cramer 2, is there any possibility of returning to the gold standard? no we don't want that it pegs it so that we have no flexibility. however, i do think owning some gold is always a good idea you can do it through the bullion or the gld or periodically i might recommend a stock. those are the best ways. check this out we have @dolan great morning on the west coast. teaching my 5 day old the value of investing at an early age on "mad money" on cnbc. you know what that kid has horse sense. high quality companies, could

you define precisely valued good cash flow, low debt, momentum, what is the quality? everything gets sold okay it's best of breed high quality companies, it is acknowledged to be the corporate leader in its sector that's what i want and if the sector is a good one and this is the best of breed in the sector, i think you're going to have a good long-term investment i prefer for you to wait until we get these period moves down that are caused by some sort of exogenous event. that's when you pull the trigger. we know that money never sleeps, but do you i've always had a sleeping problem. my sister has a sleeping problem. my father had a sleeping problem. we cannot stay asleep as long as we like and that's why you see me tweeting at 3:40. next, who are some short sellers worth following and learning from you know what? this is an industry where what i'm looking for is actually the best shorts, not the best short sellers, because what i found is that periodically, the best short sellers are in the wrong stocks

they're all shorting the same stock. so i like to look at the companies case by case here's @laz maniac your 6:00 p.m. shows replaced the nightly news amazing coverage i still like "nightly news," but i appreciate that. i'm glad you watch it when it's on air you get the scoop on the people who tape it and watch it later at cjp, professor, so glad you're helping us. i read every action alerts plus alert. very helpful thank you for the extra tv hours as well. never minutes one. thank you, actionalerts.com is a companion newsletter to my charitable trust it's my own money in a trust which i then send to a charity and write about it while i'm doing it to analyze it stick with cramer. it doesn't have to happen to you. you can generate consistent, reliable income and preserve your savings from the comfort of your home. sign up for the ultimate retirement solution, from vectorvest. you'll receive step by step, rules based training

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