two call spreads. >> dan. >> on the qqq, we really went all over the trade there listen, if you're bullish, buy the after the money call if you've bearish, buy the after money put. >> catch us back here next friday at 5:30 in the meantime "mad money 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 my job is not just to entertain but to teach and educate you so call me at 1-800-743-cnbc or tweet me tonight i want to share my

accumulated wisdom believe me, i've been doing this thing for a long time. there's so many different things you need to balance in order to be a great investor that it can be hard to keep track of everything that you need to do and a lot of this stuff is more important than the day-to-day action in any particular session. without the right discipline, framework, philosophy, you're going to get yourself into trouble but i also know that big picture financial advice can be hard to process. a lot of it seems downright contradictory to most people >> sell, buy, sell, buy. >> we tell you to have conviction, for instance, to stick with the companies you believe in then we say you need to be ready to change your mind on a dime when the facts change. you need to be cautious because it's so dangerous out there. but you also need to be ready to pounce on opportunities when they present themselves. >> buy, buy, buy >> you need to be skeptical, but you also need to know when to suspend your 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 you know the rules

it doesn't matter where a stock has come from, it's where it's headed to. believe me, i get it i get it 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, above everything else, is good judgment but obviously, good investing judgment is not the kind of thing anyone can teach you in an hour of television or even a year of television, for that matter that's why i try to help you build good habits. 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, how to think, not teaching us what to think. i've always tried to take my cue from them. i want to teach you how to be a better investor, not just tell you the stocks that i think are good investments the problem is that's a heck of a lot to process so, let's try to put it all in context.

first and foremost, when you're managing your own money, before any other consideration, you need to know yourself. i've said this before, i'll keep saying it because it's so important. you simply can't know which stocks you should buy if you haven't taken the time to really consider what your own personal objectives are and i can't decide them for you. do you need to build up your wealth to make a major life-changing purchase like a home are you trying to get a decent return for retirement? do you have money to burn that you're willing to take risk on more speculative propositions? there's no one size fits all approach to investing, and anybody who tells you differently is either 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 the simple poorly defined goal of making some money. all we want to do, we want to make money everybody wants to make money, but how quickly do you want that return

what are you willing to risk to get there? how much can you even afford to risk in the first place? these are really important questions that you need to ask yourself before you start trying to pick any given stock. why? because without a clearly defined goal, you have no way to determine which stocks you should be buying in other words, your 401(k) or ira or brokerage account do not exist in a vacuum. if you're saving up for retirement, netflix might not been appropriate on the other hand, if you have a decent nest egg and you just want some capital appreciation, then netflix and the rest of its fast growing f.a.n.g. cohorts, facebook, amazon, google, now alphabet, they all seem, let's just say, they look a lot more attractive in short, before you can start making judgments about individual stocks, you need to figure out what your own internal yardstick is going to look like. that's the foundation of good investing judgment, knowing what you need so you can find stocks that are suitable to your

particular needs 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, taxiing down main street in a 747 houb really impractical. you'd be better with that ford how about if you're renovating your house so you need to go to home depot for a metric ton of lumbar and tools and paint to get the job done the ford is probably too small, no way you're going to fit a 747 in that packed home depot parking lot. oh, but a pickup truck would be perfect. this may sound simple, even downright obvious 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 that don't have time to research individual stocks you can't really go wrong with the basic low cost s&p 500 index fund that tries to mimic the performance of the broader market look, i've recommended index

funds endlessly here and i'm going to keep doing it because they are phenomenal. they maximize the engine of wealth creation that is the u.s. stock market america is a growing country it's very business friendly compared to the rest of the world. particularly the developed world. and when you buy an s&p 500 index fund, you're betting on the long-term performance o. u.s. economy you know what you're betting on? you're betting on progress historically, that's been a very good bet that's why i always say that you need to invest your first $10,000 in an index fund don't bother to try picking individual stocks until you have more money than that again, first $10,000, index fund now if you're looking to make slow and steady money over a period of decades, that's a retirement investment, really, in a nutshell, didn't it you might also consider certain kinds of individual stocks,especially consistent, steady eddie companies with big dividends because of compounding. a 4% dividend yield may not sound spectacular but even if the underlying stock goes nowhere, that will double your money in 18 years thank to the magic of compounding

of course, 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 where you need to be pretty cautious and your discretionary "mad money" portfolio, the extra money you're not going to need in order to support yourself after late stage capitalism has ground you down and you're no longer able to work. that discretionary portfolio is where you can afford to take more risks in order to generate faster profits make sense but mighty big but here, for the vast majority of people, that is going to be less important than your retirement portfolio because 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 kind of account you put it in, your strategy for college tuition savings or future house savings should look more like

your retirement portfolio than that "mad money" portfolio so, please, get to know yourself before you jump down the rabbit hole of getting to know individual companies bottom line, trust me, i get it, when you get excited about a particular stock, you often wan to dive right in i've been there before but you need to consider what you're trying to get out of the market the answer to the 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 >> caller: boo yeah, jim i've noticed the companies, a lot of them will exceed on one and miss on the other and reference to revenue and earnings per share so, as a shareholder in the companies i'm looking for, if they're going to exceed one and miss one, would it be more important for them to exceed on revenue or would it be more important for them to exceed on earnings per share >> holy cow, what a great question i've done a huge amount of

research on this and thank you, paul, for asking it's revenue growth. we want to see pure revenue growth that means that there'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 rejigger sales know thyself on "mad money" today, we'll help you with the tight flexibility i'm talking about. i'll help you with the backbends you should be doing. feeling ferklemt and how the late great ma maya angelou offered some of the best investing advice i've ever heard. so stick with cramer. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter have a question?

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♪ regular viewers know i've got a lot of rules the result of more than 30 years in the money management business first as broker then as a hedge fund manager, then as a journalist and trader. i've got rules for what to do for picking winners, avoiding losers, it can be a lot to take in but as i mentioned before, the point of all these rules is to help you learn from my mistakes and develop your own judgment. i just 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 up. before you buy anything, i need you to do one more thing first you have to do the homework now i've covered this before,

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

professional you can talk to your mom, your kids, a friend the important thing here is that you put your thesis into words that you can basically, like, 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, usually a reasonable adult or mature teenager will be able to catch that ones you've done that, though, then you are ready to pull the trigger. for those of you who were tuning me out because you can't stand to hear another word about homework, i'm done that's it. that's all i'll say about that process because 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 of five to ten individual stocks. any more than ten and you won't 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. can i have so many stocks that -- which you can follow

along, obviously, if you subscribe because i got two research assistants. you're doing it yourself let's assume you own shares and a bunch of companies that 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, 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 meta rule always, please, 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 into the 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 events happen that hurt business or simply make some category of stocks seem less attractive to the big institutional money managers who dominate the market. when something like this occurs, when the story of a company that you own shares in changes, well, then you got to be willing to acknowledge that things are different. if your thesis is no longer intact, if the reason you gave for buying a stock is no longer valid, then you should sell. this is why you need to explain your picks to another person, so that you can recognize when your original idea has stopped being workable than may sound straightforward but for decades so-called experts have peddled the idea that when you buy a stock, you need to be prepared to hold on to it until the -- until the death of the universe. how many times have you heard someone say, buy and hold, buy and hold well, i've got to tell you, that's nonsense.

don't get me wrong i would love to buy a stock and hold it from here to eternity because the story pans out and the darn thing keeps going higher but if the story doesn't pan out or if after a long time there are big changes until the industry, you got to be willing to 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 grates would adopt buy and homework people hate admitting when they've made a mistake of course they hate selling anything because they're worried about taxes but once we make up our minds that things are great for coca-cola, we don't want the facts to get in the way of a good story but you can't afford to fall in love with a stock when you buy shares, 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 do a judge and get a divorce. it's just a piece of paper so acknowledge when something should change. if you buy a stock because you believe the underlying company is going to take a ton of market

share and then it fails to do so, well, don't move the goal post on yourself don't search for new reasons to hang on. just get out of there. you must be willing to recognize that companies can take a turn for the worse. management makes mistakes. ceos make bad strategic and tactical errors every day. heck, look at -- let's pick one. let's pick bed bath & beyond, spent $5.4 billion buying its own stock back from 2013 to 2017 -- through 2017 attempt to boost the earnings per share by shrinking the denominator but it didn't work the company kept losing market share to online competitors like amazon and the buyback accomplished next to nothing but the summer of 2018, bed bath had a market capitalization of less than $2.7 billion they spent twice that amount on the buyback. if they'd simply put that money in the mattress, the company would be worth twice as much you know what their mistake was? the guys running bed bath & beyond weren't flexible.

they kept buying back their own mistake in t stock in the mistaken belief it would help when something goes wrong with the company that you own, be ready to stop hoping and start selling. being unwilling to recognize a turn for the worse, as bad as it might be, most 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, stay flexible if your thesis doesn't play out the way you expected it to, sell the darn stock just recognize that things don't always go your way and then sell, move on. liam in massachusetts. >> caller: boo yeah. >> boo yeah. >> caller: i had a quick question about index funds you say with certain stocks, buy them at certain times like monthly or quarterly or at a good price does that apply to index funds

because you say to purchase $10,000 -- >> yes, but remember what i' trying to do is make it so you don't necessarily come in all at once a lot of people just 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 beforehand, you can't take advantage of that make in texas. >> caller: thanks for taking my call >> of course. >> caller: jim, 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 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? >> mike, one of the things that i don't like about the mutual fund industry is they don't have to tell you what they really own so they might be buying the stocks that you think are too pricey when it comes to an etf, all you're doing is homogenizing the

same deal so you have to decide that market is too rich, 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 not going to game it and maybe don't buy it all at once but space out your buys matthew in arizona matthew. >> caller: hey, jim. this is matt how's it going >> i'm doing well, how about you. >> caller: i'm doing good, konts couldn't be better is it a good idea to invest in the government if so, should it be a short-term investment or a long-term investment >> well, look, i mean, cash is short-term investments, longer term, you may want to take advantage of some higher rates and get in there and use the power of compounding i think the conservative investor who is older should be thinking about treasury. some young person and you do sound young, they don't fit. you need to take on more risk, not less, got your whole life to make up that money if you do lose it. before you on the stock, come up with a thesis on why you think it's headed higher and once you own it, please stay flexible

much more "mad money" ahead. there's no 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. and i say this every night, right? tonight, i'm telling you where to find it so, stick with cramer.

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 get -- 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 picking is not for you. and that's why vanguard invented index funds. it's why the dutch invented bonds for heaven's sake. if you're going to play the stock market and i use the term play pretty loosely, 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 harness that engine, make it work for you. if you know what you're doing. all right? now, a lot of this comes down to discipline the stuff i've been talking about all night but there's another ultraimportant 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, there's a brutal game and you need to make sure you 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 picking winners, harder than identifying new trends, harder than knowing when to cut your

losses because the market is a harsh mistress at times owning stocks can feel like an abusive relationship but we 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 you -- and when mistakes lose you money, that can be very tough to handle. you need the patience, the patience of the daly llama to not get upset when you buy a stock and it falls off a cliff imagine what it was like for me at my old hedge fund before i mellowed out i was the opposite of the dalai lama when i got something wrong, i would flip out you did not want to be around me on a down day especially if i was way too long so, i can tell you from experience that this is not a productive attitude. you know what? if you did read "confessions of a street addict" you would know. i still 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 because constantly getting mad at yourself just is not sustainable. you'll beat yourself up, it's crazy. you'll end up running out of patience and giving up on the whole asset class. i'm not telling you to be the dalai lama you don't need to be a buddhist monk to be a good investor it's okay to get mad or sad when the market punishes you with its behavior i still do that stock that my chapel trust owns, if it gets really hit, i feel awful i do i can't get it out of my system. but you know what? i have to. you can't afford to punish yourself the market'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 inferior attitude and inferior state of mind our heads are clouded by negative thoughts that generally throw us off target, making us do the wrong thing you will be in the wrong frame of mind to spot the next

opportunity so let me be your stock market therapist for a moment there are a lot of harmful recurring thoughts you can have that will mess with your judgment, but the worst of the worst, when you think to yourself, if only, if only, as in, if only i had acted sooner on electronic arts or pulled the trigger on nvidia or if only i'd stayed short chesapeake energy, i could have made a fortune. don't get hung up on that would have, should have, could have. 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 mersmerized b a come of big misses it wouldn't just be over i can put it out of my head for a couple hours i'm talking about days on end. not anymore. i don't do that. 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 just going in and taking it right off. you know, you look at it every day when you scroll down and you sue it, it brings up that bad thought, get rid of it just clear it out. if you like it so much after you sold it, go buy it back for heaven's sake but don't tell me what you 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's sake. bottom line. the stock market can be punishing enough you don't need to make things harder by punishing yourself don't play the if only game. if you need help curbing this kind of destructive thinking, go to that extreme. take the stocks off your monitor or your portfolio watch. off your cell phone.

you'll be surprised how much better your decision making becomes when you stop the would have, should have, could haves devin in florida devin. >> caller: hey, jim, how's it going. >> real good how about you? >> 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% on my portfolio in an s&p 500 index fund or should i be using multiple index funds to build a diversified portfolio? >> well, 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 fund or mutual funds that makes it even harder. just basic bedrock s&p and then a couple of others maybe you like healthcare, 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 just 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 you're -- the maximum you're allowed because what happens is that this -- if you use the power of time, the power of compounding, you will have so much more but you got to put it all in and i always advise people, take the max. take the max take the max enough with the would have, should have, could have, people. don't play the if only game. you'll be surprised how much better your decision making comes in once you stop that. much more "mad money" ahead. to quote the great cindy lauper, i see your true colors shining through. it's not just a great song 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

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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 wasn't actually talking about publicly traded companies but man, if the shoe fits, wear it. all night i've been trying to hammer home important bedrock principles of investing, and this is another essential one. when some company shows you who they are, believe them the first time or to put it as bluntly as possible, when 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 for my -- it's because of this rule the worse i do, well, you know what i'm talking about let me read you the rest of the,

there railiterally aren't enoug hours in the day that's why it's important to listen to what these ceos and cfos have to say, whether they're visiting on a quarterly conference call or on our 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 i don't think, 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 who talk like they've had rose colored glasses welded directly on to their face. i find that what i'm really looking for are people who weren't wearing them i try to ask more skeptical questions whenever any cockeyed optimism alarm goes off because i can't have you get snowed by watching the interviews that i do occasionally 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 but the more cynical among you would be surprised by how many straight shooters you'll find at the highest levels of corporate america. i really believe that. don't -- i don't want to be too cynical here and again, when we have someone on the show with a track record of being extremely candid or extremely reliable or both, i try to appointmepoint that out

it matters when honest, smart executives tell you something's gone incredibly awry, you should believe them when they say it's going incredibly well, it might be a reason to buy. this can be very profitable strategy if you get it right let's take an example. when mark benihof came on during the depths of the great recession and told us his cloud based software company would be just fine, we had to grit our teeth and buy it from november of 2008 to 2018, sales force gave you a 1,900% gain and you had to get in it when he said things were fine. when patty doyle, the former ceo of domino's pizza came on in february of 2010, his stock was trading at $10 when he retired, domino's was at $282 wow. these guys deserve the benefit of the doubt if you didn't trust them, you missed out on some monster moves. and again, look, i don't want to be too proud here, but i said, hey, listen, i believe this guy.

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 than pretty much anybody in the world more important, if management tells you something is wrong, well, you should take them extra special seriously, specifically when a company preannounces shortfall, you need to wait at least 30 days before you even think about buying that stop a lot of people are tempted to buy these negative preannouncement names. they figure the bad news is baked in but in practice, i found that other than some rare exceptions, the opposite is the case when business is so ugly that a company is forced to come out early and cut numbers, i think it means there's more bad news ahead or they wouldn't say anything why? well, it all comes back to maya angelou. when someone shows you who are, believe them the first time. that negative announcement is the first time when management preannounces a bad quarter, they're not just looking at the past. they're looking at the order book to their future leave believe me, if there were hope, the company wouldn't have to cut

numbers. if they thought that maybe something could get better, not worse in the next 30 days, they would keep their darn mouths shut and wait. preannouncement signal ongoing weakness that's going to continue that's why i recommend waiting that 30 days to see if anything improves before you even think about buying that kind of stock and this will really keep you out of trouble because i can count on one hand the number of times when things got better within a month sure, now you're going to miss some great opportunities, maybe there's a half dozen and sometimes the stock bottoms early. but most of the time, though, after 30 days, you'll have sidestepped yet another brutal leg down i know 30 days soundsarbitrary but i've done a lot of homework on this particular question and i have found it takes a month for the bad news to get fully baked into the stock price, if not longer the bottom line, 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. they don't like slashing their

own numbers. they do it because they don't see much hope of thing improving by the time their company is scheduled to report its next quarter so in the wake of a shortfall, you have to presume that the stock won't be bouncing back any time 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 call it my comfortable future plan.

-it's our confident forever plan. -welcome to our complete freedom plan. -it's all possible with a cfp professional. ♪ -find your certified financial planner™ professional at letsmakeaplan.org.

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. but let me be clear. the market can be just as wrong as any individual investor the market makes mistakes every single day so this is my next big picture lesson for you don't assume that the action necessarily makes sense. a lot of times, stocks go up 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 telling you to the to jump to conclusions until after you listen to the call, which is a huge drag but it must be done, especially when we're in the middle of earnings season the market makes a ton of mitt takes but it's not just about errors in judgment the truth is that stock prices do not 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 say the most important part which is why i spend so much time focusing on them and how to understand them but they're not the whole picture. you have to understand a stock market is, first and foremost, a market of stocks and just like any other market, it's prone to all sorts of distortions when adam smith wroete about the invisible hand of free market

capitalism, he forgot to mention that it's the hand of someone with bad reflexes, lousy coordination and possibly some kind of neurological disorder. in short, stock prices do not somehow reflect reality all the time 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 isto spot stocks that are mispriced so, why do i bring this up because when the action is irrational, it can be very frustrating. i want you to be able to take advantage of these moments where stock prices are simply wrong or at the very least i don't want you throwing up your hands in disgust and giving up on the whole enterprise because nothing makes sense. that would be bad. remember what i always say about stocks in greatest wealth engine ever created so let me go over some of the largest distortions.

i spent a lot of time talking about the etf-ization of stocks like an hop mojization of stocks for most of my career, half of the stock's performance came from a sector and how wall street felt about it and the other half came from the fortunes of the company itself, management in other words, your average company was in control about half of its own destiny and 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 equation, especially sector etfs but also gimmicky ones like the dozen or so that are made up of f.a.n.g. although there's been a resurgence of the power of individual stocks, even the stocks of incredibly well run companies can get run down by etf driven rip tide. f.a.n.g. is the most ridiculous example because when netflix

catches a cold, the other three stocks sneeze, even if the streaming video based business of netflix has little to do with the advertising-based business of facebook. a lot of times you get situations where sellers throw the baby out with the bathwater. if the worst company in an industry reports bad numbers, the whole group tends to go down even if those are doing well those are your opportunities you got to pounce. sometimes the market is just obtuse you see companies report good quarter after good quarter to no real effect and suddenly a critical mass of money managers figures out things are doing well so the next time that business reports a strong number, the stock soars. in those cases, you just need to be patient sometimes when the market makes a mistake, it's not worth trying to fight it. because while markets are often irrational, they can remain an irrational for longer than you can remain solvent to borrow a phrase from the late john maynard keynes, your goal

here 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 clint 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 try to take advantage. stick with cramer. the visionary lexus nx. lease the 2019 nx 300 for $359 a month for 36 months. experience amazing at your lexus dealer. your but as you get older,hing. it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish.

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i love hearing from the smartest audience in television. that's you, cramerica. so let's get to some tweets. first, jim, why when a caller named richard calls do you and the staff say his name in a high pitch? #madtweets >> that's a reference to the movie "tommy boy." chris farley and david spade so let's say a caller is named richard. we say, richard. thank you. now, a tweet says, hi, @jimcramer, any advice for new parents investing in something for the new child, education free savings or tax free savings you can do some state by state plan but gift to minors is the way to do it buy growth stocks. they've got their whole lives

ahead to make the money back buy high quality growth stocks the likes of which we talk about all the time on this show. next up is a tweet from wendy and she says, i work with male teens and they think you sound like master yoda lol. i'm learning and so are they thank you, jim cramer, aka master yoda, you're awesome. okay yeah that's -- yep, that's precisely why my wife loves me so much and here's a tweet from russ benson, jim, other than banks who benefits from raising interest rates well you know what not really many other companies. i think that as a corollary, when rates go up, people think that the economy's really 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 are going higher. and now a tweet from joey and he asks, jim, i absolutely love get rich carefully will you be writing another book any time soon? i got to tell you something. the economics of book publishing has changed rather radically and i'll work my butt off on something like this and work most nights and almost every weekend and then i'll read the book and it used to be a very lucrative business to write books. now it's just a labor of love, and i have other labors of love i want to perform. including my garden. here'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 i have to tell you, whenever i'm out with people, and i will say this, references, because my late dad would always say this too, particularly some people who are, let's say, elderly who

are -- play the stock market they always come out with these long lists of what they took down and i absolutely love it. and they'll go over whether i like this, whether i like that, it happens all the time to me, and i just think it's terrific i think younger people don't know how to write down on a piece of paper anymore that's the difference. they are immediately putting it into their cell phone. they have no list because they have no pencil and they have no paper. here's a tweet and they ask, @jimcramer, #madtweets, i love the show. can you explain annuity investments? i'm 43 worth looking at annuities i would say, and my friend, ken, who has been a big -- 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 would like you to be in control of your death ndeath -- destiny. no fees whatsoever here's a tweet and he asks, what

is really going on with inexpensive stocks with high yields for example, a $7 stock with 11% yield. thank you, love the show okay, what's going on there is a classic red flag, meaning that people have gotten way too complacent and when a yield is that -- when a dividend is that high or distribution is that high, it is often unsustainable. i want you to be very careful in that kind of situation here's a tweet can you suggest some reading for a young first-time investors 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 stree street" that's the book i cut my teeth on it's the book you can cut your teeth on all right, well, that's all our tweets, so stick with cramer and saying, "really?" so capital one is building something completely new. capital one cafes. inviting places with people here to help you, not sell you.

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robotic arms. ♪ $4.95. delivery drones or the latest phones. no matter what you trade, at fidelity it's just $4.95 per online u.s. equity trade. no matter what you trade, at fidelity that's what happens in golf nothiand in life.ily. i'm very fortunate i can lean on people, and that for me is what teamwork is all about. you can't do everything yourself. you need someone to guide you and help you make those tough decisions, that's morgan stanley. they're industry leaders, but the most important thing is they want to do it the right way. i'm really excited to be part of the morgan stanley team. i'm justin rose. we are morgan stanley. i would like to say there's always a bull market somewhere and i promise i try to find it just for you right here on "mad money.

i'm jim cramer see you next time. narrator: in this episode of "american greed"... ...when a prominent family in a small oklahoma town is found murdered, their son is the only suspect. there are four members of a family. three of them are dead. narrator: trust-fund kid alan hruby starts his white-collar crimes early. byers: those watches and that trip, he stole it. there's just no other way around it. narrator: but when the money runs out, is he willing to go even further to satisfy his hunger for cash? you've got one chance to explain to me how this happened. and later, in chicago... my grandmother would be very proud. narrator: businessman seth gillman cares for the most vulnerable, while raking in millions. he used to fly out of the country just to go shopping for his clothes.