the disney plus outperformed but shown pricing power. >> we buy master card good revenue and margin and buying back stock. >> netflix again not a buy after the 15% run in the new year. >> really appreciate that. >> 49%. good win "mad money" with jim starts right now. my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to make you some money. my job is not just to entertain, but to educate and teach you so call me at 1-800-743-cnbc, or tweet me @jimcramer. you want to know the single most useless thing you can do in this busy that's easy. the most useless thing you can do as an investor is to worry

about what everybody else is worrying about the flipside of this is also true there is no point in getting excited about something that everybody else is eagerly anticipating why? because when the vast majority of investors agree that something's going to happen, that thing tends to already be priced into the stock market while the real economy moves at its own sedate pace you have to build out goods to transport them to retail outlets and wait for the customer to come along and buy them the stock market has no such limitations. stocks don't quite travel at the speed of light well, how about the speed of thought? they come pretty close the moment of preponderance of hedge fund and mutual fund managers decide that the economy is slowing or speeding up or flat lining, stocks start trading like that's the case instantaneously. it usually takes some time to build that kind of consensus which is why you rarely see these most happening all at once but once the big institutional

portfolio managers are on the same page about something you can be confident it's baked into the averages that week. it will happen that week now this is some basic economic 101 stuff. i don't have a ton of use for economists as a profession they tend to take a pretty ivory tower approach to the discipline, meaning they have all sorts of models for how the world is supposed to work. also, they can be very boring. sorry. but they rarely let the empirical facts get in the way of a good story. if the data conflicts with the model, economists have a bad habit of throwing away the data, not the model. however, as long as you keep that habit in mind, economics can have some very useful concepts for investors one of these concepts is known as the efficient markets hypothesis this theory says at any given moment stock prices already reflect all of the relevant information in the universe that's out there at that moment. when some new piece of data comes out, stocks immediately

adjust to reflect the new reality. you'll-up a off here purists explaining this theory why it's impossible for stock pickers to get any kind of edge, because whatever you know about a company should already be baked into its share price can't get an edge. as far as they are concerned markets are so efficient that investing in stocks is basically the same as gambling if everything you know is already baked in, your studying is meaningless it has to be something totally unknown, because if anyone did know, they would have already acted on already ergo, it would be built into the share price. that means under this theory, the only things that can move stocks are unknown unknowns, to use the parlance of former defense secretary donald rumsfeld if you're merely betting on unknown unknowns, you might as well play roulette it's more fun. that's why index fund advocates adore the efficient market hypothesis this theory tells them it's impossible for individual

investors to consistently beat the average. if you want equity, the only smart way to it doh it is putting it in a nice slow index fund that mirrors the s&p 500. as anyone who watches the show knows, i have no beef with that, beyond beef, beef, whatever. in fact, i think they're the best way for the vast majority of people to invest in the market i've said that since day one of the show even if you have the time and inclination to pick individual stocks and manage your own portfolio, you should still direct a big chunk into a cheap s&p 500 index fund it's the safest way to give yourself equity exposure and perfect for your retirement accounts it's had to be a good individual stock investor it takes real work but it's incredibly easy to be an index fund investor, right? 401(k), index fund territory, you can gradually contribute over time with every paycheck. and as long as you believe the u.s. economy keeps growing over the long haul, you can leave that money in the index fund and check in might be once or twice a month, and i know people with use the ira for stocks i'm saying index fund, index

fund, index fund for retirement. back on track, they said you can't possibly beat the market because the efficient market hypothesis tells us stocks are perfectly valid. here's what i feel about that one. [ buzzer ] it's bogus the people who presume it -- >> they know nothing >> putting aside i did consistently beat the averages every year at my old hedge fund, giving my clients a 24% compound annual return after all fees the simpl truth is markets are not perfectly efficient. they're often irrational they ignore things and make mistakes, misvalue information every single day that's why you can make money picking stocks these anomalies are good for your portfolio this free market economicsis a lo of communism. it makes a lot of sense in theory but it doesn't necessarily work in life so why the heck did i bring up the efficient markets hypothesis in the first place if it's such a boneheaded idea? even if it's not speaking true

empirically, we know for a fact the markets are all kinds of inefficient, all and it's still a very useful idea as an iron-clad law of the universe, it can help us as a rough guideline, it can lead news the right direction. markets do try to be efficient they aspire to efficiency. when a company reports a fantastic quarter, its stock will immediately spike because that's the kind of data that can get baked in very quickly. when the federal reserve changes policy, tells you it won't be raising interest rates as previously planned, that's huge news and it takes longer to bake as we found out the end of 2018. that took weeks and weeks to work its way through the averages stocks that benefit from lower rate, and there are a lot of them will instantly soar but it can take days or weeks or even months for the averages to fully reflect the new normal, because it takes time for portfolio managers to reposition they can't just go in and out. they have too much money under management we're talking about huge slugs of stock here. no mutual fund is going to buy

or sell them all at once soon we do reach a new equilibrium. let me give you the "mad money" version of the efficient markets hypothesis call it kind of sort of efficient markets corollary. when there is a widely held view, anything, be it positive or negative you have to assume that few is discounted by the market when everyone is feeling euphoric about the strong job market, that's possibly baked in to stock prices already. when everybody is worried about a fed mandated slowdown, it's baked in don't expect stocks to get slammed on disappointing numbers. people already anticipated dispoint of view when all the talking heads and journalists and are telling you to be afraid of the same thing you don't need to be afraid. let everybody else worry for you from the 's perspective, the fact that most investors believe something is going the happen means in a way it's happened already. yet it's so easy to fall prey to the group think when you're managing your own money.

emotions are infectious like a communicable disease when you see all sorts of experts coming on television and saying the same thing while the newspapers print similar stories and your friends echo this stuff back to you, it's only natural to assume it is true and you know what? very often it is true. but that doesn't mean it's going to move stock prices by the time we get any kind of real consensus on an issue, that move is probably over. you missed it. the bottom line, you want to be a better investors don't tear your hair out fretting about the same thing as everybody else [ buzzer ] instead, you should worry about the things other people don't seem to care about because the real threat is the one you don't see coming dave in virginia, dave >> caller: hi, jim how you doing? >> i'm doing well, dave. how about you? >> caller: good. i'm from virginia, i was born in plymouth meeting, and i was actually raised in summit. >> oh, my. we are doppelgangers >> yes

>> i love that >> caller: we want to leave half our assets with a certain minimum amount to our two children and retire on the other half they're both in their mid-20s, and we will adjust our lifestyle if we have to in order to leave that minimum now most money managers would say at our age in a normalized interest rate environment, we should be about 60% in stocks and the kids should be around 85%. so without setting up new trusts, shouldn't we invest the minimum amount as if it were their money now and if so allocate stocks half at 60% and the half at 85%? >> i think the 85% all in for younger people is definitely right. for you i'm assuming you're my age, i think 60 to 65, we would certainly feel that we're going

to go longer than the actuarial table. so i prefer always to put a little bit more stock in there if you want to go 90 for 20-year-olds, i would bless that too. we've got to have the long dated assets in there to make a lot of money over time. and thank you for the kind comments let's go to frank in new york. frank? >> caller: yes, jim. thank you very much. this is first time-long time. >> okay. >> what's the difference between general stocks and over-the-counter stocks? >> they used to be very different. one was done by different -- in my day, when i was at goldman, over-the-counter was a little different. these days it's really blended i wouldn't worry about it. just stay focused on the fundamentals listen up. don't sweat what they're all sweating pay attention to what others are ignoring on "mad money" tonight, to trade or not to trade? that is the question i'll tell you how to come out on top by pointing the different

ways to approach investors and feel like the market sometimes speaks a different language? i'll tell you how to decipher hidden messages in the tape. and the next time you see a hot ceo? should you consider buying the company for an eye not so fast. i'll tell you why. stay with cramer >> don't miss a second of "mad money. follow @jimcramer on twitter have a question? tweet cramer, #madtweets send jim an email to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc miss something head to madmoney.cnbc.com.

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♪ look, i told you before the break, when you pack into a crowded trade, you're playing with fire. if everybody is on the same page about a stock, or even a whole sector, that means that easy money has already been made, people [ buzzer ] it doesn't mean that you can profit from something, obvious that does happen but when you're late to the party, you're going have lower returns and higher risks that is the nature of the beast. fortunately, nobody is putting a gun to your head and forcing you to follow the hedge fund herd. in fact, you don't even have to think about spotting tops and bottoms by gauging sentiment if you don't want to there are a lot of ways to invest some take less work than others. for example, there is timing you could try to call every gyration in every average, buying stocks when they go

poised for a near-term bottom. you can trade around core positions. you can take a large holding and lighten up on part of it when it gets overextended and buy it back when the stock sells off. you can keep your battle in your shoulder, waiting for the perfect moment, where the whole market sales off dramatically, giving you a chance to buy your favorite stocks for much less than they're worth back in my old hedge fund, i love doing this stuff. if you have the time, the right information and resources, it's a terrific way the try to make money. but the you have a full-time job, this whole approach is lunacy and i say that as someone who knows a lot about crazy. regular people who work for a living don't have time to stare at the tape all day. even if you work the night shift, it's not a good use of your precious free time. that's why i come in here every night to do the show i focus on the market like a hawk so you can take a less intense approach to investing, one that lets you go to work and have a personal one. so how should you approach the

market if you're not prepared to devote your entire waking life to watching stocks what's the safest way to handle individual stocks part-time? for starters, let me just say again that index funds are a wonderful thing. wouldn't bit wonderful if everyone said jim didn't like investment funds did you listen to it what i describe is too daunting, don't hesitateto say individua stocks are not for me and put most of your mad money, the cash you invest that's not part of your retirement portfolio into a nice retirement fund that mirror the s&p 500. i tell you this a lot because it's good advice being a savvy index fund investor, it is easy, or relatively so sure, if you manage your portfolio well and do your homework and stay disciplined, i think you can beat, i've seen it hundreds of time

not everybody has the time or is comfortable taking on more risk to chase a higher return that's perfectly fine. you need to do what is right for you. keep that index option in your back pocket. assuming you do want to try to profit from individual stocks, let's talk about how you can do that without the market taking control of your life and just constantly living in a bowl of worry and confusion. from the get-go, you need to accept that the best is enemy of the good there is no point in trying to buy or sell stocks at the perfect moment nobody is that talented. even making the attempt will make you nuts. you need to accept results that are good enough rather than trying to chase perfection for example, if a steck you like hammered down from 50 to 60 and you pull the trigger, but then it goes down another couple of points before it bottoms and rebounds to 60, don't kick yourself for making a mistake. you made a great bet you should have made a couple of extra points if your timing had been flawless, but a win is a win, people. second, regular viewers know

that i don't believe in buying whole. i believe in buy and hold is reckless buy and homework is prudent. meaning you need to keep researching your companies after you buy. i think it's good idea to buy stocks slowly on the way down and sell them gradually on the way up all that requires a certain amount of active management. but don't feel compelled to be too active the last thing you need to be is flitting in and out of stocks with every gyration. i don't want that you think you can time things perfectly in and out, but most gains occur in concentrated bursts, and you're liable to miss them if you're on the sidelines. if you've got the time and the inclination to trade, that's great. however, most people don't when you a full-time job and you're trying to manage your own perfect, you have to be willing to sit tight there will be sell-offs. there will be rotations out of one group into another there will be crazy action on a week to week and even a

day-to-day basis you don't have to constantly adjust your holdings based on the moves. that would be wrong. if you believe in the stocks you own, and you shouldn't own anything you don't believe in. just sell them then you should be willing to stick with them when the backdrop gets tough. you can't just bail. ideally, you would be able to trade in and out but like i told you, the best is the enemy of the good. don't chase perfection when everybody is panicking over the latest crisis, you might be tempted to sell everything by bailing on the stock market, but sooner or later you have to get back in the whole point of sidestepping the decline is how to sell high and buy low unfortunately, it's really hard to nail the timing if you dump everything, there is no guarantee you'll be able to buy your stocks back before something changes and the market comes roaring back, something we saw in the spring of 2019, after fed chief jay powell told us some rate cuts might be on the horizon. wow. okay that would breathe new life into

the economy. so what's the solution if you don't want to give yourself apanic attack every day, keep doing the homework so you know what you own. when your stocks surge higher, use the opportunity to ring the register on part of your position to raise cash after a 20% move or more, you need to take something off the table. a little something, okay when your stock hits, put the cash to work but you don't have to nail every short-term top and bottom. that's too darn hard to trade or not to trade, that is the question. if you're trying to be an investor who doesn't need to stare at the tape all day long, it's nobler in the mind to suffer the slings and arrows of outrageous fortune you don't need to be perfect at managing your money. you just need to be good enough. you shouldn't waste your time trying to anticipate every little gyration in the market. it's too darn difficult and will rarely prove to be worth it. let's speak to ryan in new jersey ryan >> caller: hey, boo-yah, jim how you doing? >> i am doing well, thank you.

how about you? >> caller: i'm doing good. i'm doing good i'm looking to invest my first $20,000. i know that's putting the first pen into a s&p 500 index fund is smart, but what to do with the other ten? i don't have time to do my homework i'm wondering if it's a good move to go with index funds and etf. >> yes if you do not have time, you must and i don't want the small sector etfs. i prefer a total return fund that has all sorts of stocks or a fund that has a high growth. i don't want sector by sector because those tend to not make people money because people buy them high and sell them low. let's go the riley in georgia. >> caller: yes, thank you for taking my call you are the man. >> thank you >> caller: yes, sir, what kind of percentage would you recommend of building your portfolio? >> i think 10% is fine i know that it's been terrible but you don't want insurance to

pay off, do you? it's insurance, and nothing else don't try and anticipate every gyration in the market just do the homework on what you own. there is much more "mad money" ahead. nothing generates enthusiasm for the stock market like a newly minted company, and i'll tell you why you should proceed with caution the next time you see a company coming public. plus, being at the right place at the right time is essential. i'll tell you why. first, hear that it's the tape talking. i'll help you separate the signal from the noise. so stay with cramer. >> i'm opening up the lines to hear from you, the voices of cramerica, because it's an uncertain time i want to talk to you. >> mr. cramer, i just to tell you, you are absolutely positively fantastic >> thanks for helping us not panic in times like this the average investor, which we all know and love, you cater to us and we appreciate that for all you teach us >> i am not going anywhere you shouldn't either we will get through this together >> cramer has your back. call 1-800-743-cnbc.

and let's take on the market together >> we're going to figure this out. we'll puzzle it over, and we'll make it so that we're all smarter. tom steyer: i'm tom steyer, and i approve this message. climate is the number one priority. i would declare a state of emergency on day one. congress has never passed an important climate bill, ever. this is a problem which continues to get worse. i've spent a decade fighting and beating oil companies, stopping pipelines, stopping fossil fuel plants, ensuring clean energy across the country.

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the stock market talks to me, and i mean that figuratively, not literally. contrary to what you may have heard on twitter, i do not hear voice. although peeredcally i think my left molar crown does play some music. but that's all we're talking about here i'm constantly listening to the tape to get a read on what the big institutional moneymakers are up to. >> buy, buy, buy >> sell, sell, sell! >> and to do that i need to separate the signal from the noise. what do i mean on any given day there might be monster moves assuming the swings are equally significant when you see the cloud stocks get killed, your natural conclusion is something must be

wrong with the cloud when a really loathed group bounces, maybe the pain is at last over. but that's just too easy, people the truth is some of the moves are a signal some of them are noise it tells you the stock will probably keep moving the same direction. noise on the other hand is noise. to borrow a line from one of my favorite character, macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more it is a tale told by an idiot full of sound and fury, sig nighing nothing. in other words, while a signal carries a message, there is no real takeaway from noise in another life, shake spare would have been just a dino mite investor so how do you tell when a major stock swings really harolds something larger or should be ignored before we get into what makes a move meaningful, you need to understand we get major single day advances and declines with

no real significance all the time good stocks can get ahead of themselves before selling off. the technical term is call overbought and chartists measure it with the williams percentage, we talk about these on tuesdays and off the charts when you're overbought, it means pretty much everybody who wants a stock at a given level has already purchased it when you republican out of buyers, you almost always get a pullback but this doesn't tell you anything other than the fact that the stock in question needed to take a breather and digest the gains at the same time, even bad stocks can rally and for similar reasons. if they get oversold, you need to get a nice oversold bounce. once again, this is the sort of rally that doesn't convey much information. it's technical it's noise a stock got oversold it bounced unless something else changes, it could good right back down once it works off the bounce that's the thing you see head and shoulders with some ridges i bring this up because when you

see dramatic swings in the digital stocks, your mind will try to draw a conclusion and it connects to the fundamentals the real world fax about how the actual company is actually doing. you think that sometimes they relate sometimes that connection does exist. other times it is noise, not a signal and you'll end up feeling foolish if you take your cue from that kind of action those who want to know more about this can go back to the canon on stock markets right here wow. early release no doubt confessions of a street addict tells all where i describe how easy it is to see a stock move a point and see something happening underneath a describe a move of a point, a one point gain you will love it all that happens is you more buyers than sellers in a given mome moment disturbing it's not just the technicals there are plenty of other reasons why stock might explode higher or melt down. sometimes the market makes a

mistake and that mistake gets rolled back. no greater significance. i want you to consider from the cloud computing stocks after salesforce the most majestic told us it was acquiring safety data. at first the pin action from the deem was very positive investors figured that all the other cloud plays might be potential take over targets now. trulio, okta, zendesk, they all roared higher on rampant speculation. however, the very next day the cloud stocks came right back down i mean, they were really obliterated. because surprise, surprise, the salesforce tie-up was more of a one-off transaction. salesforce needed a data analytics platform and they had a unique opportunity which is why they destroyed groid to pay such a huge premium. salesforce wanted them when wall street realized the other plays weren't going to be

bought any time soon, their stocks just plummeted. oh, a brutal day and once again, it meant nothing. the only take away from the include pullback is they never should have been up in the first place because the tabloid news was sui generous as we would say in law coschool how do you know when a big move is foreshadowing something even bigger there is a lot of signal that is obvious. the company reports a blowout quarter and analysts cuts estimates. the stock plummets, obvious. that's just business as usual. and it's why i like to look for the unusual. the company catches a downgrade and the stock goes up? interesting signal counterintuitive in my view, when a stock refuses to go lower on bad news, it's putting in a significant bottom and is ready to rocket higher. yet the stock gets slammed, oh, boy. >> sell, sell, sell, sell, sell, sell it means wall street believes this company is a looking at its last good quarter that happens

very often when your stock falls on positive news, i got to tell you something, that is the definition of a possible top for the most part, you can't decipher hidden messages in the way stocks are trading except for rare cases you shouldn't try. it's important to know what's working and what is not working in any given matter and market but you can't let your money management decision be completely guided by what's in or out of style on the wall street fashion show. i always tell you that otherwise, you end up owning stocks just because they're going higher that's a terrible place to be because you don't know what to do when they inevitably start coming down. the bottom line, when you're evaluating a stock, take your cue from the fundamentals of the underlying company don't put too much significance on day to day gyrations in the share price. sometimes you can extrapolate a great deal from a big move in an individual stock but more often, it's telling you something you already know, or it's just noise. it means nothing

let's go to del in familiar, del? >> boo-yah, cramer first time/longtime from the university of florida. >> whoa, love that go gators! >> caller: in your book real money you say a company doing it in the hole secondary is not one you want to be invested in are there circumstances where it's okay for a not yet profitable company to do a secondary offering and expand while they can >> if there is a particular piece of news that is driving the stock up and it's a secondary i might get behind it on a little case by case, but i'm suspicious i'm critical and that's the way to play it. how about aditya >> caller: boo-yah, jim. >> boo-yah. >> caller: i'm a long-time listener i appreciate you taking my call. >> i love it what's going on? >> caller: you always suggest owning index funds in a portfolio. >> absolutely. >> caller: my question for you is two part.

one, what percentage of my portfolio should be an index funds versus individual equities, and number two, you also suggest owning index funds that track the s&p do you also suggest that you should own sector-related index funds in addition to general s&p, for example, in health care >> no, i definitely don't want sector-related i think those are wrong. i want the full panoply. that's why i like the s&p 500. i think it should be 85 to 90% in an index fund the rest is your mad money for individual stocks that you can still make a lot of money in but no index funds are the bedrock. i wish it weren't the case, but you know what? i got to be worried too. i do think individual stocks with a lot of homework can make you more money fundamentals matter. there is much more "mad money" ahead. i'm offering a word of warning for the next time we see a big wave of ipos you're not going to want to miss this and then you may do the right thing, but if it's for the wrong reason, it will cost you

i'll explain and i'm taking your question, tweet by tweet send them my way with #madtweets and stay with cramer

♪ all night i've been warning you about the dangers of being a follower when everybody expects the same outcome in the stock market, there is a very good chance it won't play out as expected because it's already priced in that's why you need to be extra wary of the ipo seib cycle. we've seen this over and over again.

they're flooding the market with new stock supply and that supply ultimately drags us down. i've said it a million times the stock market is like any other market it's all about supply and demand too much supply and prices are going to go lower. the problem is when ipos are making people fortunes, well, you know what? you tend to get a palpable sense of exuberance. then when the deals start attracting less interest, the deal turns to hostility and then we get slammed >> sell, sell, sell! >> we've seen this happen so many times look, 2019, the latest ipo crash. one that was spearheaded by levi's, a deal that worked very well but then gave way to the likes of lyft and uber, that burned their initial public investors. once people started souring on ipos, the market sold off hard that was a brutal month. it didn't help that the president ratcheted up his trade war with china and while the pain didn't last, it's something you could have avoided if you listened to me ranting and raving about how the

massive uber deal would be like an albatross around the market's neck what makes the ipo cycle so dangerous? let's look at 2014 in the first quarter of 202014, the market was overwhelmed with a wave of new deals in two particular industries, the cloud-based software stocks, and the biotechs now in january and february 2014, these newly minted software as a service stocks and biotechs kept roaring higher and higher but as the ipo floodgates opened, i started to get concerned. you see, in a real bubble, the kind that can devastate a decent portion of your portfolio, you often get a slew of initial public offerings as people try to cash in on the euphoria it's natural but as this process goes on, the companies coming public tend to decline in quality until the end of the move we're scraping the bottom of the barrel that's what we saw play thought the big one, the technology stocks of 2000 as tons of profitless .comes

rushed to come public. and as the service companies did the same thing we had a loft secondaries. those were bad that's why i came out here and warned you about the dangers of ipo mania. i said there was one sure way to wound a bull market and that's by flooding with lots of new supply you get a supply glut in the stock market at the time i told you money managers were selling the older more established software in order to raise cash to keep participating in these fresh faced ipos and i also warned you that eventually this ipo bubble would burst. sure enough, the bulk of the stocks that came public in 2014 with huge spikes ended up losing fortunes in the after market and it took many of them years to recover you. had to be very selective at the time because most of those stocks were coming public with incredibly stretch valuations. even as they didn't have any earnings, and in some cases didn't even have any revenue the actual winners were few and far between. the dross vastly outweighed the

rare nuggets of gold it always happens like that. even the best class stocks that came public in 2014, even ones that are now cloudy royalty took a long time to bounce back from that ipo overload. hundreds of companies that came public in the 2000 year ultimately went bankrupt 2014 wasn't nearly as bad, but it still caused a brutal downturn in the cloud and biotech stocks sure there were winners like beyond meat, zoom video. but for every ipo worked, there was another one that quickly fell out of style, the ubers and lyfts and of course most of the chinese ipos, which are always risky because china doesn't have the same rigorous corporat governance standards that we do. the other problem, when portfolio managers get excited about putting work, they need to raise that money by selling something else when there are lots of large deals, they need to do a loft selling. companies in related industries tend to become sources of funds. if you believe you're going to make a killing in an ipo, you don't really care how you raise

that money this leads to fund managers who are desperate to raise cash which means they don't care about being disciplined with their selling because prices are irrelevant to them that's what helped fuel the market wide weakness in may of 2019, right around the huge uber ipo. remember, the bulk of the new money that comes into the market goes into index funds now, and they can't participate in ipos because these stocks aren't in the indices yet. the actively managed funds that participate in these deals in the aggregate, they don't have enough cash coming in over the transom to get into all these big deals without selling something first. so the next time you have a big wave of initial public offering coming, i need you to remember it pays to be cautious the bottom line, as much as i love anything that generates enthusiasm for the stock market, and you know that, and nothing does like ipos, you have to be extra careful when we get a whole wave of new issues the ipo cycle tends to start out strong and generate a lot of euphoria, but then it burns out, and all the new stock supply can

weigh on the market. keep that in mind the next time you get excited about a bunch of red-hot deals. and stick with cramer. >> what's better than "mad money" how about more "mad money. follow "mad money" on facebook, twitter, and instagram to go one-on-one with cramer >> what other questions do we have i always tell people you got to start with an index fund because i need you to be diversified >> get more with guests. and go behind the scenes with the most interactive show on television >> if you can't explain in three bullets why you're buying a certain stock, don't buy it. >> follow "mad money" today. - at southern new hampshire university,

we believe in education built for all people.

- [woman] snhu was the best experience of my life. - [man] without snhu, i wouldn't be the leader i am today. - [woman] i graduated high school 19 years ago. i still finished. - [man] in the military, you feel that sense of accomplishment. that's what snhu is. - you will march from this arena and say to the world.. i did it. - [woman] you did it. i love you. - [graduate] i love you too. when you're picking stocks, you need to be careful about doing the right thing for the wrong reasons. this happens more than you expect let's say you find a great company, well managed, strong fundamentals, good dividend. you buy that company's stock and the stock goes up. it's only natural to conclude

it's going up for all the reasons you liked about it in the first place. but you see that's not always true you might think a win is a win, but it's nor complicated than that if you don't understand why a stock is moving up or down, you're probably going to be very confused when it stops doing that and goes in the opposite direction. and when we're confused, we make really lousy decisions for example, there is a bunch of well run consumer package good companies. maybe you want to buy some clorox or procter & gamble there are lots of reasons to like them both but logic is rarely what drives the stock market on a day to day or minute by minute basis. suppose you pick up clorox because you really believe in the ceo and his team, or you like the dividend and the growth of the dividend. or you think that plastic and fuel costs are going to go down which will boost margins you buy the stock and it explodes higher. what next? you have to ask yourself why it's rallying. it's very easy to tell yourself i nailed it. when you buy a stock and it goes

up, that means you were right. why would you second guess yourself when you're right because maybe you were just lucky. as i told you before, it's better to be lucky than good so when you wrack up a nice win in a clorox or proctor, you have to ask yourself if you were right or happened to be in the right place at the right time. what do i mean by right place, right time rotation, rotation, rotation there are times when the consumer packaged good stocks roar higher that have nothing to do with the underlying companies. proctor is a recession stock their stocks roar when we get lousy economic data. if you buy the stocks because you believe in the business but then they go higher as part of the sector rotation, that has nothing to do with the business but you still have a win the bank isn't going to tell you can't take that money because they don't accept money from rotations. you don't want to be caught with your pants down because the market was benefits from rotation in the consumer packaged good sector this is what i meant about

filtering out the signal from the noise. i know it's really hard to do. why? because of confirmation bias when you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you were right all along. you should approach that feeling with skepticism. maybe you're right people are right about stocks every day. but maybe it's just a coincidence, and you should ring the darn register before the coincidence goes away. here is the bottom line. it's very helpful to understand why a stock you like is going up or down. when you a win, don't lazily assume that he simply got it right. think about what it means if you're merely in the right place at the right time, and proceed with caution 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, i have learned and earned (classical c playing throughout)

if you see wires down, treat them all as if they are hot and energized. stay away from any downed wire, call 911 and call pg&e right after so we can both respond out and keep the public safe.

you know i love hearing from you, cramerica so let's take some tweets. first up we have a tweet from @amy and she says thanks for shout out on the show tonight @jimcramer

what is the first thing we should invest in for our first college? some say a college savings plan is first would you agree? #future mad money fan on the way. a future gift to minors, people. it's a great way to put money away and look, add a stock to the mix only to teach a child what a stock is here is a tweet from steve radley 3 who says hey, jim cramer, what if i start buying into your position but the stock jumps before you've bought your target position. do you still keep buying no that's what is called you missed it, but it's a high quality problem you. bought some stock, and now as it goes up, you sell it it's a shame i know we don't want to buy and then have it run away from us. that's the big flaw in my plan of buying down in pyramid style. if that's the flaw that you made money, count me guilty

next from mikey arch 61 who says jim, huge fan. our first grand chile declan ryan was born in november, and we continue to buy gold bullion on his behalf, but would love one or two long-term growth stocks do you remember? start with an index fund, but also say look, mcdonald's, disney, some people don't like the fast food, it's where you're going to take him. and that's where i think it happens to be the case maybe you're the vegan that never lets it happen i want kids to understand what stocks are you have to buy them something that resonates in their life hey, maybe pizza domino's here we have a tweet from bender forest who says i have heard you talk about your father many a time over the years, mr. cramer, and the love in your heart for him is always evident. i'm sure he was a very proud father my father worked very hard all his life he worked until he was 92 when

he passed away he worked even the last month before he died he instilled in me an attitude of toward -- as long as you're honest, things paid off in this country. that's what he said over and over and over again. honest and hardworking people get paid off in this country i believe that i know that such a thing is luck, but he instilled in me a desire to work really hard, and here i am. next up, i have a tweet from john who says that "mad money" on cnbc i'm a grandfather of four, you lucky guy. have i the ability to do this. is it a good investment idea to give my grandkids, all under 10, about 5k and solid broad-based funds? you are the man. that's exactly what you should do and you're very thoughtful and that's going to pay off in spades for your grandchildren. my tweet says cramerica gets a call out in every show, but

don't forget the loyal canadians who follow from the great white north. i tried to buy land in canada once i was not able to. it drives me crazy to this day because i love canada so much, and you are our best friends and we americans will never forget it. stick with cramer. >> take control of your financial future with the new madmoney.cnbc.com. cramer's exclusive ceo introduce. 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 is -- >> it's everything you need right when you need it the new madmoney.cnbc.com. lower calories. ♪ higher expectations. ♪ the light beer you've been waiting for has arrived.

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to take care of yourself. but nature's bounty has innovative ways to help you maintain balance and help keep you active and well-rested. because hey, tomorrow's coming up fast. nature's bounty. because you're better off healthy. i like to say there is always a bull market somewhere i promise to try to find it for you right here on "mad money." i'm jim cramer and i will see you next time.

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