>> there should be one in the yankees front office, but -- >> we like stability. devon energy. >> good luck with that. >> thank you for watching "fast money." we'll see you back here tomorrow night for more "fast money." meantime, a special series, "mad money" back to school, 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 to teach you to be a better investor. so call me at 1-800-743-cnbc or tweet me @jimcramer. tonight i want to share some of my accumulated wisdom, and there's a lot to accumulate in

this business. there are 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. now, a lot of this stuff is much more important than the day-to-day action and any particular session this stock went up, this stock went down. without the right discipline, the right framework, the right dare i say philosophy you're going to get yourself into trouble. and that's why we're all about discipline when we manage the charitable trust for the cnbc investing club. it's why we constantly fall back on the rules in our investing guide to guide our decision-making for every kind of market. and tonight i'm going to share some of them with you. but i know that the big picture financial fights can be hard to process. a lot of it's downright contradictory. that's a key word. we tell you to have conviction, to stick with the companies you believe in and then we say you need to be ready to change your mind on a dime if the facts change. >> sell sell sell md. >> you need to be cautious but you also need to be ready to

pounce on opportunities when they present themselves. 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 heading higher. believe me, i get it if you 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? can't resist. [ rimshot ] tonight we're going to take a step back, put all of this discipline stuff in perspective. now, if you pick your own stocks, which you know i love, in addition to having a healthy balance of index funds, which you know you need, the -- well, let's just say what you've got to have 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. that's why i try to help you build good habits. i try to teach you the 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. and why i focus on guiding you through the whole process more intensively in my investing club. now, all my best professors in college focused on teaching us how to think. not teaching us what to think. i've always tried to take my cue from them. i want to teach you how to be a better investor, not just tell you the stocks i think are good investments. or else i would have stopped doing this show years ago. the problem is it's a heck of a lot to process. so what have we got to do? we've got to try to put it in context. now, first and foremost, when you're managing some of your own money before any other consideration you need to know yourself. i've said this before and 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 objectives are. you need to build up your wealth to make a major life-changing purchase like a home. are you just trying to get a decent return as you save for retirement? do you have enough money to burn that while you're taking a risk

on more speculative positions it won't hurt you? so many people don't do that. they put all their money in speculative stocks hoping they'll hit a home run. and then -- the truth is there's no one size fits all approaching to investing and anybody who tells you different is either dangerously misinformed or they're flat out lying to you. probably in order to sell you something. but far too often people will invest in the stock market with the simple poorly defined goal of making money. that's right. poorly defined goal. we all want to make money. i want it. you want it. but how quickly do you want that return? what are you willing to risk in order to get there? how much can you even afford to risk in the first place? these are all the crucial questions you need to ask before you start picking any individual stocks. why? because without a clear hi defined goal you have no way to determine which stocks you should be buying. in other words, your 401(k) or i.r.a. or brokerage account do not exist in a vacuum. if you're trying to save up for retirement, a stock like tesla

might not be the most appropriate place to put your capital. on the other hand, if you've already got a decent size nest egg set aside for retirement and you just want some capital appreciation, then higher risk growth stocks all start to 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's going to look like. that's the foundation of good investing. judgment. knowing what you need so you can find stocks that suit those needs. it's called suitability, and it's important. may be one of the most important parts of investing. let me put it another way in case it doesn't get through to you. let's say i want to fly across the pacific ocean. you do it in an airplane like a boeing 747. you don't try to fly across the pacific in a ford fiesta. now, if you want to pick up your kids from school, taxiing down main street in a 747 would be impractical, wouldn't it? in that situation you are indeed better off with that fiesta. how about if you're renovating your home? do you need to go to home depot for a metric ton of lumber and tiles and paint and maybe some

power tools to get the job done? the ford fiesta's probably too small and there's no way you're going to take a 747 to i apacked home depot but a pickup truck, maybe a ford lightning, well, we hope because the charitable trust likes ford, maybe that can do it. now, 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 who don't have time to research any individual stocks you really can't go wrong with a basic low-cost s&p 500 index fund that mimics the performance of the broader market. look, i've recommended index funds endlessly and i'll keep doing it. because they are phenomenal at their best they help democratize the incredible engine of wealth creation that is the u.s. stock market. america remains a growth country that's very business-friendly compared to the rest of the developed world. and when you buy an s&p 500 index fund you're basically betting on the long-term performance of the u.s. economy. historically that's been a very good bet. that's why i always say you need

to invest your first ten grand in an index fund. don't bother trying to pick individual stocks until you have at least that much money in an index fund and preferably more. it's the most important bedrock of your portfolio. now, if you're looking to make slow and steady money over a period of decades, that's retirement investing in a nutshell, you also might consider certain kinds of individual stocks, especially consistent steady eddie companies with big dividends. a 4% dividend yield may not sound all that spectacular but even with the underlying stock goes nowhere that 4% annual return will double your money in 18 years thanks to the magic of compounding. of course you've got to reinvest that money. that is vital. you can get the same thing from treasury bonds but stocks tend to offer the possibility of more capital appreciation than you'll ever get from a bond. of course funding your 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 could have multiple objectives. you can and should have multiple pools of money.

i like to break things up into your retirement portfoliowhere 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 what the kids call 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 higher profits. but, and this is a mighty big but, for the vast majority of people your discretionary portfolio is going to be much less important than your retirement portfolio because it's not just retirement. if you want to pay for a house 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 your "mad money" portfolio. so please, get to know yourself before you jump down the rabbit hole of getting to know individual companies. something we always try to emphasize in the cnbc investing club, as you know. the bottom line, trust me, i get it. when you get excited about a

particular stock you often want to just dive right in. first, though, you need to consider wa you're trying to get out of the market. you need to know yourself. the answer to that question is not going to be the same for everyone. but everything else stems from it. you can't make judgments about stocks until you know what characteristics you actually are seeking. and you value. tony in washington. tony. >> caller: hey, cramer. thanks for taking my call. >> of course, tony, what's up? >> caller: you know, when i was working and contributing to my 401(k) the only choices i had were mutual funds. you know, i never made any real money until i started buying individual stocks. i don't understand why mutual funds are so popular. >> well, i mean, let's give mutual funds their due. there have been some that have outperformed the market. and the 401(k) plans tend to have an arave mutual funds you can pick so you can kind of tr craft your own portfolio. i happen to like individual stocks and i like the s&p 500

because i like a low-cost index fund that can continue to give me good returns and i'm a believer in that. so i understand. but i'm not going to knock the mutual funds. there are some very great companies that do a good job. let's go to rambo in california. rambo. >> caller: boo-yah, jim. this is rambo from san jose. >> how are you doing, rambo? >> caller: awesome. jim, i've got a question for you. one of the first metrics i look at when evaluating an investment opportunity is the company's debt enterprise valuate yue. although a company looks attractive on a price to earnings perspective it becomes far less attractive on an enterprise value to erin aings perspective especially in this high interest rate environment. can you give us a sense of how you factor in a company's debt and enterprise value when forming your investment thees snis. >> i think it's a great question. i'm going to be very cut and dry and very simple. i look at how much money the company has to pay in interest. i look at how much money they make. and i decide if they don't make enough money to cover that interest then it is a --

>> sell sell sell! >> and every time i violate that principle i go wrong. look, before you start investing you have to find out what you're trying to get out of the market. and then you set your goals for you. and once you know what you need, then you can pick stocks. but not before that. on "mad money" tonight, from being flexible to having the right attitude i'm sharing some more investing rules that might help you become a master of this market. and you want -- just can't miss this show. so i want you to stay with cramer. >> announcer: 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.

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regular viewers know that i've got a lot of rules. the result of more than four decades in the money management business ver first as a broker then a hedge fund manager then as a journalist and as a commentator. i've got rules for investing rules for trading rules for what to do in a rally or a sell-off. rules for winners, a& avoiding losers. all we stress constantly when we show you we run the charitable trust portfolio for the cnbc investing club. it will be a lot to take in. but 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 start buying individual stocks, enough to fill out a

diversified portfolio of five to ten names. that's what i want. 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. so i'll give you the quick version. 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 a company does. you need to know how it makes its money. you need to know how much money it makes. the internet has made this whole process much easier. you can go online and read the s.e.c. filings which contain a wealth of information. you can listen to or read the transcripts of the conference calls which i regard, by the way, as the best way to get familiar with a business and the key metrics that will drive the stock. feel free to read some journalism on top of that. just google it. listen to some opinions. anything to familiarize with both the company itself, the way its stock trades -- that can all be daunting. it's the kind of homework we do for you on our favorite names in the cnbc investing club. it is a must to join, people. join it, please. after tonight's show. just sign up so we can show you

the hard work that we do. and by the way, lately i've been starting with the website. i have to admit i used to not start with the conference call. but i like a company's website because they've gotten so much better. the actual research is part of doing the homework. after you learn what you can and developed a thesis about with why you think a stock is headed higher, one final step, you need to be able to explain that story to another human being. ideally an adult. to ensure it makes a level of sense. if you're walking down wall street, you see me, you're buying a stock, i'm going to say what does it do, you better know the answer. for those of you who are tuning me out because you can't stand to hear another word about homework, the craft as i call it, i'm done. that's all i'll say about the process of preparing to buy a stock here. because tonight i'm trying to focus on the big picture. so let's fast forward a little. once you've done homework you can build an individual portfolio of five to ten stocks to go with your index funds. if you pick five or ten from the

club, the idea is you should be able to do this in your spare time, not that you'll turn money management into a second or third job. let's assume you own shares in a bunch of companies you genuinely believe in. you now have a thesis for each one. you've got to have one. there's no sector overlap meaning you have five to ten companies in distinct industries that don't tend to trade together. of course if you know what a company does you can find out if it's too much like another company. and what you have in theory is an ideal portfolio. what's the most important thing for you to keep in mind? above and beyond everything else you need to know that your perfect portfolio won't stay perfect for long. those five to ten stocks you thought were winners, yeah, unless you're lucky not all of them will stay winners. some of them are going done losers. this-some will do nothing. and some of the companies you like best will inevitably disappoint you. what can i say? the game is full of heartbreak. which brings me to my next meta rule. always try to stay flexible.

you've got to stay flexible because business by its very nature is dynamic, not static. things change, markets change, new competitors will enter an industry and undercut existing players. take market share. previously well-run companies start executing poorly. 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. remember, you don't. they do. when something like this occurs, when the story of a company that you own shares in changes, you need to be willing to acknowledge that things are changing. that they're different. if your thesis is no longer intact, if the reason you gave for buying a stock in the first place is no longer valid, then you know what you have to do? >> sell sell sell. >> you have to. this is why you need to explain your pitch to another person so you can recognize when your original idea has stopped being workable. we get so many calls where people say they like the stock,

they bought it for x and x is no longer even the case. i don't like that. you need to be better than that. you can't afford to say i like it uz bbecause of x and x ain't there anymore. for decades so-called experts have peddled the idea that when you buy a stock you should be hold on to it until the heat death of the university. how many times have you heard someone say buy and hold? buy and hold'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 things just keeps going higher. but if the story doesn't pan out you've got to be willing to sell. the facts change. that's why i always tell you it's buy and homework, not buy and hold. there are only two stocks i've ever given my highest blessing, own it, don't trade it, and they're apple and nvidia, a pair of revolutionary companies with outstanding management. even then, though, you still need to do the homework or watch us do the homework in the cnbc investing club in case something drastically changes in those two companies. now, i bring this up because people hate, hate, hate

admitting when they've made a mistake. once we make up our minds that things are, say, great for coca-cola we don't like facts getting in the way of the story, we like coca-cola, so shut up. but you know what? you can't afford to fall in love with any stock. it's a piece of paper. when you buy shares of a publicly traded company you're not joining that stock in holy matrimony. you don't swear to stick with it in sickness and health forget, richer and poorer. you don't need to go to a judge to gept a divorce. it's just a piece of paper. all right. anyway, so acknowledge when something's changed. if you buy a stock because you believe the underlying company's going to take a ton of market share and then it fails to do so don't move the darn goalposts. don't search for new reasons to hang on. just get out of dodge. you must be willing to recognize that companies can take a turn for the worst. managements can make mistakes. ceos make preejt and tactical errors every day. here's one you probably know. bed bath sxw beyond. they spent $11.8 billion buying

back their own stock from 2004 to 2022. [ boos ] in an ill-fated attempt to boost their stock price. it didn't really work. the company kept losing market share to companies like amazon and the bottom line couldn't prevent bad bath from going bankrupt. they spent more than 11 billion on stock buybacks and the darn thing still went to zero? if someone had put that money in a mattress the company might still exist. you know what was their mistake? the guys running bed bath & beyond weren't flexible. they kept buying back their own stock in the mavgen belief it would help instead of, say, putting money into technology that would help them manage inventory, please customers, customer retention. and by the time they brought in new management to turn the situation around i think it was far too late. don't make the same error. when something goes on wrong with a company you own be willing to start selling. it almost always seems to lead to much larger losses than

you've already accrued. a wise person once said to me your first loss is your best loss. that's what we're talking about. the bottom line, before you buy a stock please 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 as we try to do for the club. don't keep bashing your head against the wall. just recognize that things don't always go your way and then move on. "mad money's" back after the break.

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tonight we're zooming out and talking about the big picture, the stuff you absolutely have to do if you want to manage your own money in the stock market. before i get back into it, let me just say that if you don't feel like reflecting on what you need from the stock market, if you don't want to do the homework, if you don't want to watch the underlying companies and give up on their stocks when something goes wrong, nobody's forcing you. there's 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. you have plenty of investment options. it's why we created the cnbc investing club, to help you understand the whole process. if you're going to play the stock market you should put in the effort to do it right. i think stocks are the greatest engine of wealth creation in history. and you can harness that engine, make it work for you, but only if you know what you're doing. now, a lot of this comes down to

discipline. the stuff i've been talking about all night. but there's another ultra competitive 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 it, they'll break you. see, this is a brutal game. and you need to make sure you're in the righthead 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 learning when to cut your losses. why? because the market is a harsh mistress. at times owning stocks can be like being in an abusive relationship. but we just keep coming back because long term it is a great way to try to make money. the thing is unless you can perfectly predict the future you're going to make lots and lots of mistakes. and when you make mistakes and you lose money it can be very hard to handle. it really is. you need the patience of the dalai lama to not get upset when you buy a stock and it falls off

a cliff. imagine what it was like for me at my hedge fund before i mellowed out. i was the opposite of the dalai lama. look, when i got something wrong i would flip out. i was not jimmy chill. you do not want to be around me on a down day, or at least back then. so i can tell you from experience this is not a productive attitude. i know better than anyone you need to try to remain calm because constantly getting mad at yourself isn't sustainable. you'll end up running out of patience and give up on the whole asset class. i'm not telling you you've got 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 this behavior. but you can't afford to punish yourself. the market's brutal enough on its own. in other words, your head matters in this game. you need to have it on right every day if you're going to spot opportunities. so much of you approach the market with let's say an inferior attitude, an interior state of mind. our heads are clouded by negative thoughts that throw us off target making us do the

wrong thing. and we won't pick good stocks this way. so let me be your stock market therapist for the moment, $300 an hour. 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 i, as in if only i'd acted sooner on electronic arts or if only i pulled the trigger on nvidia aed ha of that quarter or i could have made a fortune. don't get caught up on the woulda shoulda coulda. this is a wasting damaging emotion. it's destructive to the positive psychology you need when you're making investment decisions. for a long time i took it to the extreme. i would sit and be mesmerize bid a couple of big loss tz, by things i got wrong. i would be obsessed going over and over and over the big miss. this was the wrong thing to do. not anymore. it took me a long time but eventual liv i was able to see how destructive playing the wouldacouldashoulda game could be. and this is a key thing we always stress to members of the cnbc investing club where we highlight the messy parts of

money management and we do it not just in the e-mails. we also do it of course in the morning meetings and in the home stretch. 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 bring in all sorts of methods of tricking my mind into not playing this game, cleefly removing the stock's symbol from my desktop and mobile stock list when i get it wrong. just clear it out. mute the ticker on your social media. if you like it so much when you sold it then go back and buy it for heaven's sake. but don't tell me what you could have done or sthf done differently. you didn't. whether you walked into a big loss or missed out on a big gain it's irrelevant. stop beating yourself up about it. the 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 to curb that kind of destructive thinking go to that extreme, take the stocks off your monitor or your portfolio watch. you'll be surprised how much better your decision-making

becomes when you stop the would have should have could have and the obsession. it will not help you make money. let's go to joe in new jersey. joe! >> caller: mr. cramer, thank you for taking my call. >> you're welcome, joe. >> caller: i want to say that i have learned from you and i have earned from listening to you over the years. thank you so much for that. >> i like that. learned and earned. it's going to be adopted and used in tomorrow's show. what's going on? >> caller: okay. my portfolio has grown significantly thanks to you. >> thank you. >> caller: and there's a lot of qualified dividend-paying stocks in there. dividends that are being paid are being reinvested and it's almost equivalent to my earned income salary. i'm 68 years old but i can retire next year at 69 with a modest pension. do you think this would be a good move?

>> absolutely i think it would be a good move. and you've got the wherewithal to do it and that's what really matters. i will tell you, though, never bet against yourself. long life. and you're going to have to stay invested more than most people realize. i'm one of the few people in the world who feels a person 75, 80 should be 50% in equities. i need that. because i don't want people to bet against their long-term existence. all right. the stock market can be punishing enough. you don't need to make things harder by punishing yourself. you'd be surprised how much better your decision-making becomes when you stop the woulda shoulda couldas. there's much more "mad money" ahead. i'm giving you some tips i wish i had when i first started investing. plus my colleague from the club, jeff marks and i are going to be answering your questions about the stock market. so stay with cramer. to duckduckgo on all your devie

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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. this is some genuine sage investing wisdom from the late great maya angelou. quote, when someone shows you who they are believe them the first time. i know she wasn't talking about publicly traded companies. but man, if the shoe fits i say wear it. all night i've been trying to hammer home important bedrock principles of investing. principles we show you how to follow in the cnbc investing club all the time. 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 for

them. just get the check out. >> sell sell sell! >> at least until the smoke clears and you get a better assessment of the damage. let me read you the rest of that maya angelou quote because there's another valuable insight in here for forklifts. she continues, "people know themselves much better than you do. that's why it's important to stop expecting them to be something other than who they are." the same thing holds true in the corporate world. a company's executives are almost always going to know their business better than you are. unless they're being ridiculously negligent. that's why it's so important to listen to what these ceos or cfos have to say. whether on the quarterly conference call or when they come visit us on our show. or even someone else's show. high-level executives are your best resource. that's why we put them on all the time. don't get me wrong, you can't just take everything that comes out of a ceo's mouth as gospel. there are plenty of executives who are excessively promotional or who talk like they have rose-colored glasses welded

directly to their face. i try to ask skeptical questions whenever my cockeyed optimism alarm goes off during these inte interviews. i don't want to get snowed. i don't want to hurt you. that's what i did with most of the spacs and ipos in 2020 and 2021 when it felt like the whole market ran on hype and nothing else. lying about material information is what we call a crime. so sometimes you need to take what they say with a grain of salt if not a full carton of morton's ionized. but the more cynical among you might be surprised by how many straight shooters you find at the highest levels of corporate america. some of them are just plain honest. others don't want to go to prison. good call. either way, they tell the truth. and again, when we have someone on this show with the track record of being extremely candid or extremely reliable or both, i tried to point that out to you. it matters. when honest executives tell you something's going incredibly

well i think you should believe them. this can be an incredibly profitable strategist. i'll give you the best example. when jensen huang of nvidia came on the show in 2022 the stock had been eviscerated for the better part of the year. everyone was giving up on tech in the face of the federal reserve's relentless rate hikes. jensen's stock had been beaten down to the 120s. but he told an incredible story about nvidia's ability to reinvent itself including the motion of what artificial intelligence can really do if it's powered by the right engine. nvidia's engine. less than a month later the stock bottomed. four months later we witnessed the birth of the artificial intelligence boom. one that nvidia had been planning for ages. they had the best chips by far and they built them aggressively in advance. by the spring of 2023 nvidia was making new all-time highs. by the way, we told you to stick with this one for the charitable trust because jensen had earned the benefit of the doubt and nvidia was always able to rebuild itself in the past. even when things were ugly in the tech bear market of 2022.

something very similar happened with marc benioff, the bankable ceo of salesforce, during depths of the great recession. another important charitable trust name from pretty much the get-go. he explained his cloud software company would be fine. he said it's going to be the future of the industry. he said there had been no real slow down in his business even though it was slowing everywhere he is. he was right. and if you listened to him you made a killing. more importantly, if management tells you something is wrong, you've got to take a person's extra seriously. particularly when a company announced a shortfall. you need to wait at least 30 days before you even think of buying a stock, especially if they give you a preannouncement. a lot of people are tempted by these negative preannouncement names as they're getting pummeled on bad news. they figure bad news must be out already. wrong. in practice i found that other than rare exceptions the opposite is the case, when business is so ugly a business is forced to come out early and cut numbers that typically means there's even more bad news

ahead. especially because preannouncements these days are few and far between. companies are likely to slash their forecast on the next conference call if they go so bad as to forecast things are going to be terrible for a while. why? it all comes back again to maya angelou. when someone shows you who they are believe them the first time. that negative preannouncement is the first time. when management preannounces a bad quarter they're not just looking at the past. they're looking at their own order book for the future. believe me, if there were any hope the business would get better the company wouldn't have to cut numbers between its regularly scheduled quarterly reports. if they thought that maybe something could get better, not worse in the next 20 days they'd keep their mouths shut. yep, preannouncements or severe guidance cuts signal ongoing weakness that you can't be tempted by. that's why i recommend waiting at least 30 days to see if anything's improved before you even think about buying this kind of stock. that's another rule we try to follow relgs religiously for the cnbc investing club.

sure, you may miss some great opportunities every now and then when a stock bottoms ahead of time. that can happen. but evident month of the time, though, and i've studied this extensively, after 30 days you'll have sidestepped yet another brutal leg down. i know 30 days sounds arbitrary but i've done enough homework on the question and i found it usually takes at least a month for the bad news to finally get baked into the stock price and and the okay to start buying. 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 tore cut their forecast to well below what the analysts are looking for during the regularly scheduled quarterly report. trust me, these people don't like slashes on the numbers. they do so because they don't see much hope by the time the company's report nth second quarter. at the end of a shortfall you have to believe the stock isn't going to be bouncing back anytime soon.

for the next 30 days you should treat it as a falling knife. in short, if even if you're not a huge fan of maya angelou's poetry you should trust her investment advice. "mad money's" back after the break.

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market. contrary what so many of the gray beards claim the market makes mistakes every single day. this is my next big picture lesson for you. don't just assume the action makes sense. so many do. a lot of times stocks go down for the wrong reason or a stupid reason. it's something we try to walk through with you in the charitable trust at the cnbc investing club because so many times the market -- people try to come up with theses that just don't exist. when a company reports earnings and the stock goes down there's a natural impulse to believe the company disappointed. correct? must have been a bad quarter, right? why else is the stock going down? often that will be true but it's not always true. sometimes there are other forces at work. stocks will go down in the initial earnings release then bounce right back when management explains things on the conference call. how many times does that happen? or vice versa. which is why i'm always telling you ton jump to conclusions until after you've listened to the call. especially when eyre in the middle of earnings season with hundreds of companies reporting every day. the market makes a ton of mistakes. but it's not just about errors in judgment. the truth is the stock prices do

not always reflect the underlying fundamentals. the actual facts and figures about how business is doing. the fundamentals are a big part of it. oaf the long term i say the most important part, which is why i spend so much time focusing on them. but they're not the whole picture. you have to understand a stock market is first and foremost a market. just like any other market it's prone to all sorts of distortions. when adam smith wrote about the invisible hand of free market capitalism he forgot to mention it's the hand of someone with bad reflexes, lousy coordination and possibly some kind of neurological disorder. [ rimshot ] the poor guy needs to see a doctor. in short stock prices do not reflect reality as if by magic. they're as much a product of perception on wall street and the mechanics of the money management business as they are a product of the fundamentals. i tell you all the time about short squeezes it's the mechanics of the market. it can't haenld v handle short

sellers. if the market worked perfectly you'd never be able to exploit any opportunity because the whole point of the game is you can spot stocks that are mispriced. because there are stocks that are mispriced every day. why do i bring this up? because when the action is irrational as i find it often it can be 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 gifgs up on the whole enterprise because nothing seems to make sense to you. let me go over some of the larger distortions of my time. i spent a lot of time talking about what i call the etfization of stocks. for most of my investing career you could bank on the fact that half of a stock's performance, half came from its sector, meaning how the sector was doing and how wall street felt about it. and the other half came from the actual fortunes of the company itself. it was never 100% of the company's fortunes. unless there's a takeover. in other words, your average company was in control of half of its own destiny. this was a good situation for

stock pickers as long as you made sure to avoid sectors out of favor with the wall street fashion show. researching companies trying to predict which ones do better than its competitors in the sectors that are in favor. but the rise of etfs changed the equation. especially sector etfs. but also gimmicky ones like the dozen or so that exclusively own faang. my old ak roh film for facebook now meta platforms, google and alphabet. when netflix catches a cold, the other three stocks sneeze, even if the streaming business of netflix has nothing to do whatsoever watt business of meta. strange. a lot of times you get situations where the sellers throw the baby out with the bathwater. if the worst company in the industry reports bad numbers the whole group tends to go down. even if everyone else is doing well. these are opportunities.

we saw them with the cybersecurity stocks in april 2023. one of the worst operators in the industry a company called tennebul, reported bad numbers. the whole group sold off. turned out to be a great buying opportunity. one of the greatest opportunities ever to buy the stock of palo alto networks, pp panw. sometimes a can p will report no good quarters and suddenly a money manager will go hold it just a second things are really going well there, so the next time time the business reports a strong number the stock soars. in most cases you need to be patient because the market didn't get -- i keep saying the market gets it wrong all the time. your ancient people who come on tv and tell you that's not true, they're not true. the caveat here is sometimes when the market makes a mistake it's not worth trying to fight it because while the markets are often irrational they can remain irrational for longer than you can remain solvent. to borrow a fries from the late

john maynard keynes, who was a great money manager, your goal is not necessarily to be right. it's to make money. sometimes it means being cynical about other people's expectations. i often hear people saying i was right, that guy made money but i was right. no, you were wrong, that guy was right. here's the bottom line. don't just assume that stocks go down. don't presume they deserve it. in the immortal words of clint eastwood in "unforgiven," clint made a point. he says "deserve's got nothing to do with it." the market's going to make mistakes. your job is to recognize when it's doing something wrong, then try to take advantage of it. >> sell sell sell! >> buy buy buy! >> stick with cramer. th social t help you find and unlock opportunities in the market. e*trade from morgan stanley. with powerful, easy-to-use tools, power e*trade makes complex trading easier. react to fast-moving markets with dynamic charting

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i always say my favorite part of the show is answering questions directly from you. tonight i'm bringing in jeff marks, my portfolio analyst and partner in crime, to help me answer some of your most burning questions. and we're even going to take a look at some of your mad tweets. for those of you that are part of the investing club he'll need no introduction. for those of you who aren't members, which it's really a shame if you're not, i hope you will join and i would say that jeff's insights are back and forth help me do a great job for all "mad money" viewers. you see a lot of the stuff that jeff and i talk about in the show. now you're going to get to see it in real time. we do this sort of thing during our monthly meetings where we give you an in-depth look at our

portfolio decisions for the club. and answer the burning questions too. if you like this then join the club for heaven's sake. what we're going to do first is we're just going to go right to the questions. john in arizona asks, when profit is taken or there is a sizable cash on the sidelines how would you pick a stock to add to my portfolio? >> okay. i want to start out by talking about the oscillator here. because if there's a lot of cash on the sidelines, jeff, i'm not that interested in putting money to work if we're overbought. >> absolutely. but if you are looking for new ideas a couple ways you can go. one, sell stock in one area, look in the same industry but a better-run company. you could buy that. we call that high-grading the portfolio. or if you're looking at something completely new, maybe it's something -- an industry up on the rise or just a good location of value. but at the end of the da i we're looking for high value companies to buy. >> let's say med tech. well, people may like medtronic but we have ge health care.

we go back and forth. it could be netflix versus tesla. we do everything. but the main thing i want to point out is if the markets really flying it's okay to have the cash. cash does not hurt you. next we're taking a question from mike in maryland who asked how can an investor choose which is more likely when the narrative flip-flops back and forth between recession and a strengthening economy so often?" here we're not traders. we have a lot of special situations that are not dependent upon a recession, dependent upon strengthening the economy. when we have it, we like to look at our sector and figure out whether that sector -- for instance, let's say we're picking just something we don't o own. an air-conditioning company. but if there is a secular case for an air-conditioning company, i'm thinking of carriers, i like it very much, then it really doesn't matter because there's such a huge amount of money from

the infrastructure plan. i'm saying that those words, expansion and contraction, usually do not play that much of a role in our stock pick. >> i think that's such a great point that you just made, and that's something you taught me, that if you're willing to get your hands dirty, study a company, you can create your own narrative of what's happening in the market. >> right. and that's what i really want to emphasize, is we in the club do a lot of special situations. we're not hostage to the whims, slings and arrows of the economy. now we're heading to twitter. take a look at some of your tweets. let's look at ivan on twitter who says, "i'm starting to think that jim cramer is a time traveler from the depression era." that's photoshopped. there's no way. because i was in the philadelphia line. this is the new york line. so immediately i know this isn't right. and by the way, just so you know, jpmorgan had his pictures, he was the first ever to be photoshopped because he had what was known as a cauliflower notice. it was really hideous. and he had no pictures.

one spontaneous one which happened to be taken right about here. all i can tell you is if he was photoshopped i'm photoshopped. >> is that back when they used to call it corner at the stock exchange? >> corner. i don't know. all right. this is it. i like to say there's always a bull market somewhere and i promise to try to find it for you right right now unless call. investigating catastrophe the house opened a probe into mao's deadly wildfires. one of the congressmen leading it is here. soon loan payments are set to roll back. are they a form of aggressive text. we will debated. >> the quest for the internet. elon musk with the big next steps for ex. >> walmart hit a milestone in the making all the way back since 1972