>> got football tonight, mel. and you were talking about the bengals, boomer, congratulations, ring of honor. >> he watches the show. >> he does. >> rig. >> thank you for watching "fast money." see you back here tomorrow at 5:00. "mad money" with jim cramer 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. i promise to help you find it. "mad money" starts now. >> my job is not just to entertain, but to teach. tough days do not last forever. but when they come along, you

need to know how to respond. you need a game plan ready to figure out what kind of selloff we're dealing with. the early days of the client are never easy to navigate. you need all the help you can get. all happy rallies are alike. each selloff is unhappy in its own way. it's true. bull markets, stocks higher, it seems so darn easy. big declines, much harder. they could be the start of a bear market or maybe something else, or they maybe a buyable glitch. that's why tonight we're turning to history to illustrate some of the common qualities to selloffs. there have only be two truly horrifying selloffs since i started investing in over four decades ago, 1987 and 2008-2009.

even the covid crash wasn't nearly as bad as these two. let's deal with the two big ones head on because they make for great examples, 1987 and the financial crisis are polar opposites. on october 19th, 1987, also known as black monday, the dow fell 508 points or more than 22% in a single session. i was trading that day. the previous week had been one of the worst weeks in previous history. it kept tumbling right into the close. i remember thinking saved by the bell, except there wasn't that much money left to be saved. most people don't remember that the week before was horrendous.

the dow had already plunged. that's only a 10% decline. that encouraged bargain hunters who thought they could flip into some strength, except the strength never showed up and they got badly burned. the next day became known as trouble tuesday where the dow broke down entirely. i was there and i was actually able to calculate that bottom. the bottom turned out to be about dow 1400. that was down another 122 points or 7% from where we closed on black monday at the end of the day. i pieced them together one by one. then the fed chairman alan g greenspan stopped it in its tracks when he said he would provide all the liquidity necessary. the market staged a remarkable

two-day rally that took the dow up 400 points from its lows. the crash lasted just three months. it took until mid 1989 for the averages to return to where they were trading before this big breakdown. the bear market of 2007 was a totally different animal. the dow fell from 1198. it didn't bottom until march 6th of 2009 when it landed at a staggering 6,470. we didn't return until march of 2013. why did one selloff end so quickly while the other took six years to unwind? black monday was a mechanical selloff, the first one i can remember where the averages melted down because of pure market dysfunction.

the flash crash of 2010 and 2015, both times when the markets simply failed to work. now, all three of these started with the s&p 500 futures pitch in chicago. chicago overwhelmed wall street in new york where the stocks are traded. black monday happened because they doesn't understand the power of the futures market. no one was ready for it. they were relatively new instruments created about five years before the crash and no one knew the power they had. they were initially a much smaller market than stocks themselves. it could go in easily and out easily and became the most powerful drivers of stock prices particularly with hedge funds. underlying corporate earnings used to be much more to the day to day action of the stock. even with the relatively new

impact of futures, black monday was highly unusual. we had a big run going into the crash of 1987. i left goldman sachs in 1987 to start my own hedge fund. the rally in the mid to late '80s created such stupendous games that a group started offering big funds what they claimed for insurers policies that would lock out losses after their funds had gone up so much. in dynamic hedging specialists said they could use futures like a stop loss. the idea was that these policies would let you sidestep the losses. it's mpossible to do that, but they had such a great sales pitch. people believed them because the stock futures were so novel.

it didn't work. it accelerated the decline of the stock market, causing massive losses for the client whclients who bought these things. the people who sold these policies were charlatans. there's no magic trick that you can get you returns from investing in the stock market without much risk. the two go hand in hand. don't believe anyone who tells you differently. those people are charlatans. we didn't know the power of the futures would cause the crash. we figured where there's smoke, there's fire. we had a recession lurking. how would the dow plummet 22% in a single day after falling 10% the week before. i say it turned out wrong. the economy was strong going

into the crash and it was strong coming out of it. it was the interplay between chicago and new york. the treasury department concluded the futures set off immense selling while some brokerage houses failed to step up and stabilize the tape. the latter had no duty to stabilize things, but the former were supposed to do so. i was important enough to be in cash on black monday, having liquidated my portfolio in the previous week.itidn't make my c. i looked like a true genius. the truth is i was frightened of the market and wanted to regroup. i say it's better to be lucky than good. that's why we spend so much time teaching discipline in the cnbc investing club.

sometimes crashes have nothing to do with the economy. they're caused by the mechanics of the market. stay tuned for the bear market of 2007-2009 so you can figure out what to do when they really roar. irma in new york. >> yes. good evening, mr. kramer. i'm planning to open a nondeductible roth iras for my grandchildren who are all in their 20s. growth or index? >> growth, growth,growth, because they're young. you can switch to index in their 30s. i really want you to hit it big. i am alone in that, but i don't care. i really want risk taken when they're younger. tony in florida. >> just want to let you know i'm a member from day one who will

be a lifetime member. i love you. i want to ask you when we like a stock or love a stock and it reports good earnings but then for some reason the market buys it down, should we buy it day one or do we have to use that rule like everybody says, wait three days before you buy a stock that goes down? >> no, no. you buy it at your prices. you buy a little bit at the beginning. then like we teach at the club, you buy it on the way down. we may have a real battle on our hands. you know we've been very successful in most of our battles. some of them have been tougher. that's how you make it so your battle won't be too hard. tough days don't last forever. but when they come along you need to know how to respond. tonight i'm giving you a crash course in crashes. get the best possible outcome

from the worst possible situations. stay with us.

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i already covered the crash of 1987, how it wasn't really related to the economy. it made sense to buy stocks when the smoke cleared.

1987 was a rare opportunity that took a little time to reveal itself. it was also the first instance of the s&p 500 futures kex exercising power over individual stocks, sadly the first of many. it brings me to the flash crash of 2010, one of those negative moments that put off so many investors who never came back to stocks. who wants to keep their live savings in instruments that can blow up in the blink of an eye. what happened that afternoon was pretty much the same deal as black monday of '87. futures overwhelmed the stock market and buyers walked away, betting there had to be something substantive behind the breakdown. the crash started on may 6th of 2010. it lasted for 36 minutes. in that time the dow fell almost 1,000 points. i had to be on air at the time. immediately money managers tried

to play the pin the tail on the selloff. everyone was focused on southern europe and sovereign debt crisis. others pinned it on the newfound weakness of the american economy. i recognized it for what it was, another situation where the machines were breaking when the futures overwhelmed the stocks. we didn't know it at the time but a sell order caused it to spread like wildfire. many buyers just walked away. on air i called it a phony selloff because the decline had no basis in economic reality, which made for a tremendous buying opportunity. >> that is not a real thing. the system broke down.

it was a glitch in the tape. the machines failed. [indiscernible] the market didn't work. it broke down. the machines broke down. that's what happened. >> that's exactly what happened. nothing to do with the fundamentals. just more of this nonsense. some listened and bought on what i had to say. many didn't believe equities could be that fragile and they left. it was shocking. i hope i've taught you stocks are not hard assets. they are subject to all sorts of whims that can reduce their value in a heartbeat. they're just not perfect enough and people think they are. anyway the market quickly regained its equilibrium. august 2015 the dow fell 1,000 points right at the opening. that was related to fears that the federal reserve was positioned to raise interest rates after one more story about

the china market collapsing. the chinese market has been collapsing for ages. it was the most dominant story out there. the whole economic edifice could collapse from too much leverage at any digiven time. that friday before the selloff has been an ugly day as a fed official suggested it was time to raise rates despite the chinese selloff. it was an aggressive statement that demonstrated a cavalier attitude toward the market's ugly but fragile mood. august 24th we heard some sell orders in place for major stocks. we weren't ready there. there were hundreds of billions of dollars of value, many down 20% as the market opened. we had no ability to tell why. like the crash of 87 it was tough to see what the real priceswere.

the confusion was that horrific. it was like trading the fog of war. some common stocks were down 50%. it was crazy town. as th i and my partners were stymied. i return shouting about the selloff. his reaction was priceless. >> i got to make a phone call. [indiscernible] these are enormous moves. >> i got to make some phone calls. that's how confused we were. that's how wrong we knew it was. you can't just go out and say it's wrong. we figured there had to be something very bad in the economy, somebody knew something we didn't, something mysterious. we assumed there would be a good reason for that decline. i was suspicious, though, because some of the hardest-hit

were recession proof names especially the biotechs. that's what is people buy when the economy softens up. once again the futured overwhelmed the stocks and the computers had gone haywire, just like 2010. by mid-morning we learned that was exactly the case. and then the stock market rallied. sym strong buyers took advantage of the opportunity. the federal reserve wasn't reall really -- why was there such confusion at the time in 2010 and 2015? i think informervestors weren't for the crash. they were supposed to cool these declines by stopping trading

momentarily. but the circuit breakers created a false sense of security. they did very little to stop the destruction of your nest egg. when you hear talk of circuit breakers protecting you from fast declines, don't believe it. fear can't be regulated out of the market. there will always be people who react horribly after an initial event even if that event is mechanical and not substantive. there have been worse crashes. i can think of three days during the covid crash when we were down from 7.8% to almost 13% in a single session. the covid crash was straightforward. if you taught my commentary was useful in 2010 and 2015, that's more reason to join the cnbc investing club. these moves are never going to

go away. i always anticipate the next one. if you can figure out when a selloff is caused by the mechanics of the market breaking down, then you might have an incredible buying opportunity. stay tuned.

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not all days are winners in the market. knowing how to handle down days is key. there are lessons in the bad days that can help. back in october of 2007 the dow peek ed peaked at 14,000. the fed raised rates 17 times. the economy fell off a cliff, took the stock market with it. you could have seen it coming if you paid attention, specifically if you paid attention to me back on august 3rd of 2007. >> i have talked to the heads of almost every single one of these firms in the last 72 hours and they have no idea what it's like

out there! none! bill pool has no idea what it's like out there! my people have been in this game for 25 years and they are losing their jobs and these firms are going to go out of business. they're nuts! they know nothing! >> what did i mean by that? shortly before i came out that moment with my old friend aaeri burnett i had been talked about the mortgage market. everyone follows the mortgage market. there were a lot of unsound practices occurring. still, it was jarring when i was told by this executive that he couldn't believe how many people defaulted on his mortgages. he talked about how many mortgages of the 2005 vintage just weren't money good. something that only happened once in our country's history and was never supposed to happen again. that was the great depression. i had a lot of friends at the

firm. years later i found out that my rant was put up but only as a joke. soon after we had a series of failures. i did my best to try to get people out even on the "today" show to urge anyone who needed money near term to take it out of the stock market before it was all lost. >> for investors, what is your advice? >> whatever money you may need

for the next five years, please take it out of the stock market right now. >> very dramatic statement. >> i thought about it all weekend. i do not want to say these things on tv. >> sure enough, the market fell another 30% before it bottomed. it was a good call. it was cut more than in half by march 9th of 2009. you lost a fortune, probably never came back in stocks, probably gave up. how do you avoid buying this kind of dip? first, you have to ask yourself about the state of the economy. is employment falling off hard? is the fed raising rates for signs of cracks? are there runs of multiple financial opportunities around the country. if the answer is question, it is

systemic risk. it means the entire country could collapse. that's how it was during the financial crisis. it's why i got some angry when people say it's going to be as bad as 2007 or 2009 when there's nothing like that occurring. even the covid recession wasn't as bad. the moment we got a viable vaccine, everything went back to normal. s if you're worried about systemic risk, the odds are you're worrying too much. second, you wonder if there's anything in place to save the economy. our elected leaders did very little to soften the blow. what made a difference was a statement by the fed chair. the fed was sitting on its hands. the moment he decided something

needed to be done, the stock market bottomed. what are ways to spot the bottom? there's a proprietary oscillator i watch for the cnbc investing club. it measures buying or selling pressure. when you get a minus five, there's most likely too much selling. when you get a minus ten, you've got to do some buying even if everything is horrible. we were getting signals that things were much worse in 2009. i like to see who's been pessimistic or concerned about stocks but is reluctant to say anything positive who then changes his tune. the best example of that big switch came from the late great mark haines who had this to say back then. >> i'm going to step out on a limb here. >> hold on. >> i think we're at a bottom i really do. i think we're going to have a rally.

>> a man not afraid to make a call. >> i think today this is for real. >> what a call. look at that. march 10th of 2009. you eventually got back to even and went onto make a killing. yes it would have been better to take something off the table in 2008 like i told you to. a lot of people got burnt out of the whole asset class. the financial crisis gave us a once in a lifetime bear market with true systemic risk. but that's the exception, not

the rule. let's take questions. >> what's going on with you? >> i'm trying to have a cup of water. we got a lot of bad weather out here. i could definitely give a big shoutout to you from the great northwest. you're doing a great job. >> thank you. i'll take it. >> what i want to say is i'm curious on how you feel about dividend stocks as a form of investment. is it too risky? [indiscernible] >> i love it. i love it. i don't want to reach. i don't want dividends that are so high yielding that something's fishy. what i want are solid companies

with good balance sheets to pay dividends that we reinvest constantly. that is nirvana and that's the way i would love to invest if i could own individual stocks. the 2008 crisis gave us a bear market with true systemic risk. you have to remember that's the exception not the rule. i'm giving you a survival guide with take-aways from the crashes of 2010 and 2015 . then i'm answering all your questions with my colleague jeb marks. stay with cramer.

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in tonight's special survival guide edition, we're discussing how to do a brutal selloff. how to defend against them, take advantage of them even. i told you not to be glib about the systemic risk selloffs and potential traps in the u.s. economy. but those are easy to spot. it will seem like the world is falling apart like in 2008. you don't need me for that. i want to help you game out the mechanical kind of crash caused by a broken market in a healthy economy. the best way to deal with these is to recognize there's a bottoming process you can spot. what should you do? i have a solution that's worked in even the toughest of times. i like something i call the accidental high yielders. i actually call them ahys on the

show. those are stocks that are doing fine, have good balance sheets, but their share prices have fallen so slow the dividends are starting to give good yield. how do you spot these? the yield at 2% suddenly pays double because the market is in decline. you're probably looking at an accidentally high yield. that's why you should go with some companies that aren't sensitive to the economy and have very good balance sheets. i'd use a mechanical selloff to pick stocks you like. you can begin buying them used what's known as wide scale. t pick one of your best stocks out there and buy some using limit orders only. don't use market orders because you might end up getting

terrible prices. frankly you should never use market orders especially during a crash. the market does come right back as it did after the two flash crashes, you picked up some terrific merchandise at amazing prices. then flip big stocks or hold onto them for the long haul. i demonstrated exactly how this works during an appearance on tv when the flash crash happened in 2010. >> tnt is now down 25%. >> that's true. if that stock is there, go and buy it. that is not a real price. it's at 47. that's a different security entirely. you have to use limit orders because proctor just jumped seven points. >> the market was down 900 points. it's now down 688. >> i buy at 49 and flip it at 59. i just made 500 gs. >> a lot of people ended up

doing that proctor trade. i've been trank thanked a dozen. we talked about meltdowns and true systemic risk and gut churning risks. how about the pullbacks we experience all the time? you've got selloffs caused by the federal reserve. there's a reason businesses talk about the fed. with when the economy is weakening, it's the federal reserve's job to restore growth which they did with covid. almost every decline is a buyable one. it's been like that since i got in the business. when the economy is strengthening, the fed has a different mandate, stamping out inflation. in late 2021 the market started rolling over getting eviscerated. nobody wants persistently high inflation. those of you who missed the '70s

and '80s now know from the post covid experience. we also don't want the fed to break the economy. it caused the great recession. there are plenty of times when the fed is tightening. that's how we got the incredible bull market in the first half of 2023. when the fed tightens, some will come out and tell you the market is going to crash. when you hear these comments, don't panic. fed raid te hikes don't necessay lead to crashes. there are rational reasons why the stock market deserves to go down when the fed tightens. i'm not ignoring them. stocks are only one of the assets available. there's gold, there's real estate and bonds. gold is a safe haven. every person should hold some gold. it's a hedge against check

economic chaos. finally we have bonds as an investment alternative. you see it yourself when short-term treasuries give you more than 5% risk free, lots of people cash out and park their money in treasuries. as the fed tightens bonds become more competitive with stocks. you'll notice as the fed jacks up rates, stocks are going to be among the worst performers because they have serious competition from fixed income. please be careful of these stocks and safe havens when you're dealing with a selloff caused by the fed. they're different from high yielders. the second reason stocks can go down when the fed raises rates is because the fed isn't perfect. they've raised rates when they shouldn't have or even been cutting rates because the

economy was slowing rapidly. in recent years jay powell has been much more responsible about not pushing us off a clip. pullbacks can be gains as long as there's no systemic risk involved. the fed racing rates are trickier. as long as you stay away from the high yielders and stick with the accidentally high yielders that might give you a delicious bounce when the fed is done tightening.

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tonight we're talking selloffs. many times the problem is indeed the fed as i mentioned. sometimes there are other issues. there's the issue of margins. as a former hedge fund guy i'm well aware there are many times when money managers borrow more cash than they should. when the stock market goes down funds that had borrowed money to bet against stock market volatility got their heads handed to them. they were short the vix but the market remained calm. at the same time they bought the s&p 500 used borrowed money. real stupid. these managers were forced to dump their positions and unwind their trades. there were so many managers doing this at once that their selling ended up causing severe market-wide losses.

these margins used breakdowns after the market is down for several days. that's why we tell you to be aggressive in the first few days of a big decline. there will be margin clerks who buy stock with borrowed money. how do use spot these margin call declines? i use the clock. margin clerks don't want their firms to be on the hooks for overstated individuals. they want the get out. they demand the collateral be put up, raise cash or sell you out of your positions without your say-so. it occurs between 1:00 and 2:00. it's that specific. i think you have a decent chance to buy safety stocks. stocks that tend not to need the economy like the health cares, also mega cap talks.

i talk about them all the time especially members of the cnbc investing club. what else can create buyable opportunities? selloffs from overseas. i can't tell you how often i've heard commentators scare us. i always tell you to ask yourself do any of those woes truly impact the stocks of the american companies in your portfolio? do they make you want to pay less for individual u.s. stock? usually the answer is no. unfortunately, though, you can't just start buying stocks for an overseas driven selloff. always assume people don't understand how important these are in the vast scheme. those people are going to panic and sell after you would have thought they would have known better. that's why these international declines often last for three days. the best way to figure out if they're done is to watch the

clock. the sellers usually need to be margined out against their will if there's going to be a bottom. another kind of selloff the ipo related decline. stock markets are markets first and foremost. markets are controlled by supply and demand. if bankers roll out lots of new ipos and then sell more shares, you could end up in a situation where there's much too much supply and not enough demand. we saw this in 2021. after we had 600 ipos. avoid the blasts on the air when most new ipos are concentrated and focus on stocks down due to collateral damage especially ones with yield protection. sometimes we get multiple earnings shortfalls. if you want to buy stocks after earnings induced pullback

isolate the sectors where the shortfalls are occurring and avoid them like the plague. there's no reason to stick your neck out. instead buy unrelated stocks hit by the s&p 500 futures. then there's the trimmtrickiest of risk, political risk. it's tremendously overblown whether it's because of strike or trade parties or all-out war risk. i'm not a political guy and i hate talking about this stuff on air and off air. with every stock ask does this company have a direct earnings risk when it comes to washington? if not, you've got nothing to worry about. however, if you own something. affected by a trade dispute by sc china or a government shutdown, think these guys want to scare you. my suggestion tune it all out. instead look for companies that have nothing to do with the political fray.

every time there's a debt ceiling standoff, i can't tell you how many times i've seen politics used to sell stocks. rarely has nothing in washington been enough to sell everything. here's the bottom line. there are all sorts of selloffs but unless they involve systemic risk which is increasingly rare, they're going to prove to be buying opportunities long-term. you just need to recognize what's driving the decline. note the signs that it might sub subsiding, then take action to buy, not sell and never panic. stick with cramer. ♪ ♪ every day, businesses everywhere are asking: is it possible? with comcast business... it is. is it possible to help keep our online platform

safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too. with the advanced connectivity and intelligence of global secure networking from comcast business. it's not just possible. it's happening.

i always say the 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 answer your most burning questions. for those of you who have part of the investing club, he'll need no introduction. if you haven't members, i would hope you will be soon. jeff helps me do a great job for all mad money viewers and members of the club. if you like this, be surto join the club. first up, peter asks as a younger investor who is able to add funds to the market weekly and a trust having a set amount of funds, how do you recommend putting your money in?

i remember when my late father would look at the list and say i'm not going to buy all these. i'm going to pick six of my favorites. my suggestion is every two weeks pick six of your favorites and invest, invest, invest. if it's down, invest. if it's up, invest. don't miss it. >> i love this for a young investor. they should be doing this too through their 401(k) and ira. by doing this on a regularly scheduled investing program, it's completely unemotional. block out headlines from the noise and take advantage of when the market is down and when it's up. it's a great thing to do to regularly invest. >> try to time it when it's down. we have a question from rochelle in california how do you know when to break your cost basis? we almost never do this.

when we do it, what's happened is they come down a lot. when they come down, you want to buy it. we've had stocks that have come down, then come up. when the market got over sold we feel tempted but we do it very rarely. >> general rule of thumb as the stock is down 10% but the story has gotten better and the stock is down due to market forces, that would be a good time to -- >> right. it goes up and then it goes down less, you want to be in there. we don't do it very often. go to one of your mad mentions. jim, are you sure you're not a fellow italian? the best sauce not gravy starts with tomato jars. let's eat. i've got some irish, not some italian. i will point out it's almost 40 years now i'm doing gardens.

that is something my mom got me to do. the saucing came from the fact that my tomato yield was so great i had no choice but to sauce. next up, we're taking a question from jeff in florida who asks if a stock has been in the red for a couple years and i average down during that time, when do i sell some, when it gets back to even or do i risk it? this is a really important question. what you find is that at the same time that you see when it gets back to even and you want to sell it is precisely when there are a lot of people who start getting interested in it. i've always found when it finally gets out of the mud, people get very excited to sell. what you should think is no. a stock is out of the mud, people want to buy. the answer is hold on. >> something that i learned from you is we don't care where stocks came from, we care where they're going. if the outlook is still strong,

you want to hold on, absolutely. >> definitely. i always like to say there's a bull market somewhere. thank you. great to have you on the show. try to find new ideas that are good for you right here on "mad" i'm jim cramer, see you next time. ♪ hello, everybody. i'm contessa brewer in for brian sullivan. right now on "last call," the biggest day yet for the striking uaw. president biden enters the fray in detroit tomorrow. and we have a special preview. now, tens of thousands of hospitality workers may be next to strike. and that could bring las vegas to its knees. has the relentless march higher for oil prices peaked? the chairman and ceo of chevron joins "last call" with answers. blue origin ceo suddenly steps down. we have the breaking developments. and make it mondays. a side