twitter doesn't seem that bullish here. i would not be a buyer. >> great guests. >> i like his rock paper notes. my kind of gold. >> gold. agnico-eagle mines. >> thank y fouor joining us on "fast money." you back here tom 5:00 for more "fast." "mad money" with jim cramer starts now. my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you money. my job is not just to entertain but to eblth and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. the stock market isn't always a friendly place. it can be volatile. it can be painful.

and just downright difficult. [ boos ] there are tons of big picture problems that can derail any rally. problems you might not have any idea about until they hit us smack in the face. that's why i'm so adamant about trying to make you a better investor. i want to teach the tricks of the trade so that when the market gets negative, which it always does, when it becomes hostile you'll be prepared and you'll know what to do. the same tricks i teach you about constantly when you join the cnbc investing club. now, i've spent my entire career analyzing the way stocks trade, searching for patterns of what's worked for me and what hasn't. and from those observations i put together a set of rules. rules that are designed to help protect you from the worst mistakes you can make in both good markets and bad. rules that now make up the investing club's -- really the guidebook. and i'm sharing that with you.

as much as i sometimes might seem like an unhinged lunatic, maybe not as much as before, the truth is that i'm all about discipline. you're going to make mistakes in this business. it's inevitable. but if you stick to your discipline, if you stick to the rules, that should help you minimize your losses and maximize your gains. ♪ hallelujah ♪ so let's talk about this. i'm always telling you to buy best of breed companies even if you have to pay up for their stocks. i use that phrase constantly. why should you try to identify the stocks of the best-run companies with the best prospects in each industry? let me flip that on its head. why is it even a question? when you're shopping for a car you buy best of breed. or the best you can afford. we pay out for the highest quality brand because we know that a brand and a good brand signifies reliability. it tells us that we can expect a higher level of service. a quality of ownership that will make your drive safer and easier for years to come.

nobody ever set out to buy a worst of breed car, would they? there are simple ways to put your life in danger. so why is it that so many people seem to feel differently about the stock market? why aren't we drawn to the penny stocks that are constantly being talked about on twitter? it's the same reason people throw their money away buying garbage cryptocurrencies. there are a couple of good ones. why not stick with those? many of us can't resist what we perceive as a bargain. emphasis on the word perceive. here's the thing. if you go hunting for cheap stocks of low-quality companies it's more likely to lead to losses than to gains. now, let me be clear. i love bargain hunting. but i only want genuine bargains where the underlying merchandise is actually worth something. you know what's not a real bargain? buying junk merchandise just because it seems to have a low dollar price. that's why whenever i get asked about a low-quality stock in the lightning round you'll hear me say something about hey

skee-daddy if you love blah, blah, blah you'll love procter & gamble because that's the best of breed. it's not going to give you any pyrotechnics but it's the kind of long-term story you can count on. an industry leader with a great balance sheet a long history of dividends and it's got some of the best brands on earth. what makes a country best of breed? like the late great supreme court justice potter stewart, what he once said about pornography, i know it when i see it. but to put it into words, when i say best of breed i'm talking about well-managed high-quality companies with great balance sheets like a procter & gamble. if you can get procter & gamble on sale that's fantastic. if you can't get it on sale, though, i'd still prefer you pay up for something similarly great rather than try to pick up some penny stocks just because they seem cheaper but they're not. remember at the end of the day there are very few genuine bargains out there when it comes to second or third-tier players. their stocks may look cheaper than the top dogs, but that's because they deserve to be cheaper. the businesses are worth less. don't worry about paying a higher price to earnings

multiple for a best of breed business. it may seem more expensive but in addition to usually being the better investment you're also buying peace of mind. a great company like nvidia, for instance, almost always looks super expensive, doesn't it? but the stock just keeps charging steadily higher as it has for more than a decade with only an occasional detour because nvidia's best of breed too. once you find yourself in a best of breed company, the kind of company with a story you believe in, i've got another important move for you. high-quality companies represent value. and giving up on value is a sin just because the stock doesn't act so well for the moment. i see so many people throwing in the towel on companies that have realized some real worth just because their stocks aren't working right now. it's driving me nuts. look, patience is a virtue in this business. if you have a reason to believe in a business don't dump its stock just because it's not getting any traction for the moment. >> sell sell sell! >> you're not a hedge fund manager for heaven's sakes. you don't need your positions to show a gain every quarter or every month or even every day. you don't have any investors who

are going to pull their money out from you because one position's taking too long to pay off. so just indulge yourself. you can afford to wait for these stories to play out. i say this because you will be tempted to sell even best of breed stocks if they don't do something in a short period of time. you may correctly identify value, but this mark canmake it very difficult to stick to your guns even with something you truly believe in. when you own a stock that's going down, you're going to feel compelled to give up on it. but in many cases if you've done your homework and you have conviction in the underlying business that urge to sell will be a mistake! and look, it happens to the best of us. for instance, in 2016 i did an interview with tim cook the ceo of apple after his stock had plummeted from split adjusted $31 to 23 in a fairly short period of time. everybody was giving up on apple. i looked at the stock which was seg at an incredibly low price to erin aings multiple. i looked at the customer loyalty, the service revenue stream, and yes, the cash position balance sheet, and i said what the heck is the point of selling a stock of a company

that makes the greatest product in history? that may sound like a no-brainer but there are a ton of apple skeptics at all time and they're always constantly arguing -- they're always out there saying oh, the company's best days are behind them. any surveys of apple's components suppliers as evidence that their business is in decline. time after time they've been proven wrong. yet they don't give up. they don't go away. in '23 turned out to be a fabulous call because the insane amount of negativity gave you a wonderful opportunity to pick up the stock at a major discount. the key is that apple is a high-quality company, a best of breed company. so when the stock goes down, you know that it's getting cheaper. selling apple 23 as so many of the great minds told you to do at 23 would have been a classic example of giving up on value and you would have missed one of the biggest moves of our lives. oh, and of course there's no apologies from those who downgraded then. at least that i know of. and look, in may 2022 many were tempted to make the same mistake with nvidia as all things tech had gone through a miserable

year. but i learned my lesson from apple. so we stuck with nvidia and the stock eventually tripled in a little more than seven months. here's the bottom line. don't be afraid to pay for best of breed stocks. they may have higher price to earnings multiple than the stocks of lower quality companies but they're also much less likely to blow up in your face. the best of breed premium is worth it. oh, and once you find a company that's best of breed with a story you believe in, don't let the bears scare you away. even if the stock is temporarily broken. because patience is a virtue. and giving up on a value stock is a sin. let's go to mandy in maryland. mandy! >> caller: professor cramer, how are you? >> i'm fine, mandy. how are you doing? >> caller: i'm hanging in there. thank you so much for taking my call. love your show. i watch it. i read it every day. i really appreciate all you do. my question is if you have $5,000 how do you invest? >> okay. i have said, and i will

reiterate, that for your first $10,000 and not before then you should put that money in an s&p index fund, preferably a low cost one. only after, that because i care about diversification more than anything else, only after that can you start buying individual stocks. how about jerry in missouri? jerry! >> caller: hey, jim. thanks for taking my call. >> of course, jerry, how can i help? >> caller: you stress diversification all the time. >> all the time. >> caller: but my investment strategy is mainly growth. things like gold, recessionproof stocks and dividend stocks have all backfired for me. i prefer mega cap tech stops and i've been enjoying the ride in my tech-heavy portfolio lately. i currently have about 20% in cash and i'm waiting for a downturn so i can buy some more. i feel like i can have a fairly diversified portfolio even though it's technology dominated. what are your thoughts? >> okay. look, i think that we have to understand that there have been

times in our careers where that strategy has been very bad. so that's why you can have a couple tech stocks. but i think to be that tech heavy if we get something like a 2000 or we've had a couple others, even 2008, or in 2021 where we then began to roll over, i am worried about your position. so let's be a little more careful, a little less concentrated. please don't be afraid to pay out for best of breed stocks. and once you find them, don't let the bears scare you away. patience is a virtue. giving up on value is a sin. on "mad money" tonight if you're trying to get a handle of any take i like to look at one corner of the market to get a sense of where we're headed. i'll reveal what it is and how you can learn from it too. then pullbacks are inevitable. but how do you prepare for one? i'll give you my strategy for handling whatever the market throws at your portfolio. and i'll reveal a rule for investing that may seem obvious. but it's an easy deposition that could help you design a more high-quality portfolio. so 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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how can you keep track of a confusing market? let me give you some advice that rarely ever steered me wrong. there are only two things you really need to watch. one, macro. that's the big picture. and one micro, company specific. why don't we start with the big picture? if you want to know where the stock market might be headed you know what you have to do? you have to keep your eye on bonds. look, i know the bond market is boring as all get out. but it's much smarter than the stock market. more importantly it's very important to the overall direction of stocks. back in the day when i was running my old hedge fund i'd always call in from the road and i'd start the same way. i had to be away from my desk, so i'd begin the phone conversation by saying hey, where are the bonds? that's how much it mattered to me on a day-to-day basis. didn't ask for the stocks. where the bond market is. yet stock market investors seemingly forget the bond market rules all the time. they forgot in 2000, even though

the bond market told us the economy was softening right near the dotcom peak. they forgot when the fed raised interest rates 17 times in lock-step fashion, the worst downturn since the great depression. little attention to when interest rates peaked in 2022 even though it became the best time in years to buy the industrials and even the home builders. it should come -- never come as a surprise to you that long-term interest rates are rising and falling. you've got to know that. you simply must know what the bonds are doing at all times. now, bonds can punch your portfolio in the face if you aren't paying attention. hence the yield curve. yes, where the two-year is, five-year, the 10, the 20, the 30. that's why i say don't forget bonds. always keep those bond prices and interest rates in front of you if you want to know what might be happening in the future. now, when i was coming up in goldman sachs i was trained to focused on bonds because bonds are the true competition to stocks. the competition i most fear. when short-term interest rates, the ones set by the fed, go sky high, you have to expect that the dividend stocks, i'm talking

about companies like high yields, like american electric power, southern, will sell off because the dividends can't give you yields big enough to compete with their fixed income alternatives. unless of course they sell off big enough that they are once again legitimate competition. but who wants to endure horrible capital losses for a measly 5 or 6% yield and then not even be able to sleep well like you can with bonds? when long-term interest rates rise, the ones to watch is the yield on the 10-year treasury. then you have to start being wary that the entire stock market might be worth less when rates rise. it's simple. if the bond market competition gets more attractive than and the stock market gets less attractive, this can become a giant zero sum game. of course you should be especially worried about rising long-term rates caused by a pickup in inflation like we saw during the great bear market of 2022. inflation eats away at the value of long dated assets like equities because the future earnings streams have less purchasing power. and that's really especially true for growth stocks. higher interest rates don't just make bonds more attractive.

they also make it more expensive for banks to lend. and of course that puts a damper on the whole economy. for a long time we had an ideal environment for stocks, we had low inflation and low interest rates. that is just fantastic. but then the pandemic hit and the world turned upside down. with the worst inflation in 40-odd years, which led to a hideous marketwide meltdown as the federal reserve lowered the boom on us. let me put this another way. let's say i'm playing basketball. i'd be saying that if you just watch the man with the ball -- let's call the name of the ball citigroup. and you don't watch what the other team is doing on defense and let's call that the bonds. there's no way you're going to get the basket. the man without the ball the bond market can determine the direction of the stock market. so keep the eye on the ball and the bond market. you need to be cautious when you see unexplained resignations by key executives. to put it bluntly, when the chiefs resign, you should too. >> sell sell sell!

>> yet when you see a ceo step down for no discernible reason you have to presume something is wrong and do some selling. i say shoot first, ask questions later. i've sold stocks simply because the ceo or cfo resigned. and if i turn out to have jumped the gun, well, i simply buy back the stock. but in my whole investing career do you know how many times i can recall that a ceo left for undisclosed personal reasons and the stock was still worth buying right then? off the top of my head i have one. visa. i racked my brains to come up with other examples. i just can't think of them because they're that uncommon. why? simple. ceos don't quit for personal reasons. not if they want to quit their bonuses. cfos don't quit for personal reasons either. these are fabulous jobs. you don't get to be a chief executive of a publicly traded company by being devoted to your family. nobody gets one of these jobs without giving up a great deal of what most people enjoy about life. things like family, friends, nights out. vacation. competition for these positions

is so serious, so fierce that when you finally land one you don't up and leave. not for no reason. when c suite executives leave for undisclosed personal reasons it's almost always because there's something wrong at the company. even if it's something that they did. hence my rule. when high-level people quit a company is to sell. a high you say. i know a ceo who quit because he had an epiphany of climbing k-2 or a cfo who left because she really did want to spend more time with her family. fine. you know, there are exceptions. at some point somewhere a ceo really does step down just to spend more time with the kids. but here's the thing. when you're investing in the stock market, it's not the exception that matters, it's the rule. always the rule. there will always be situations where it's a mistake to sell a stock when senior execs leave. i don't care. because most of the time selling will be the right decision. this is the kind of rule that helped keep me in the game at my old hedge fund. it's all about helping you avoid losses. and one way you do that is by not taking unnecessary risk.

like betting on companies where the ceo just resigned for undisclosed personal reasons. the bottom line, if you want to get a handle on the stock market you need to watch out what's going on with the bonds. that should be obvious at this point. but it's something people quickly forget once the economy regains some semblance of normalcy. and when you're looking at individual companies remember that unexplained high-level executive resignations equal -- >> sell sell sell! >> sell. "mad money" is back after the break. >> announcer: coming up, not too hot, not too cold. keep that attitude just right. be your own best friend in the markets. next.

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our networks, and to get our free decision guide. there's no obligation, just good information. humana - a more human way to healthcare. before you can be a good investor you need to be a realistic investor. there are far too many people in this game who are not realistic. either they allow their emotions

to cloud their judgment or they allow themselves to be surprised by the inevitable. so let's start with the inevitable. you think people get comfortable with the idea that stocks can indeed go down. >> sell sell sell! >> after the dozens of corrections, meaning sizable pullbacks we've had over the past 20 years, you'd think we'd get used to the process and expect that watching your stocks drop in price is something that can happen and will happen. if people are reasonable, if we were a realistic species you might assume we'd say something like let's prepare for the inevitable correction because it could be right around the corner. yet aside from the permanent bears who think we're always due for a pullback most people act like every correction is a total shock, the type of thing that never happens. so every time the stock market goes down there's a huge contingent of people who seem stunned, just caught totally by surprise. to me corrections are like the rain. i know that rain is inevitable. so do you. i expect it to rain. i prepare for it. when the rain comes, i'm ready. i have an umbrella or a coat. or i stay indoors. that's how you need to approach

the possibility of a pullback in the market. sooner or later we're going to get one. so best have some cash ready on the sidelines just in case that time turns out to be now. of course plenty of corrections happen at allegedly unexpected times. in recent years we've had a lot of major declines that were preceded by terrific up days during which we made lots of money and everything looked peachy. in january of 2018 the stock market roared higher. people were acting like we had this unstoppable rally. but in february the averages, they got obliterated. >> sell sell sell! >> in the fall of 2021 we were coming off a magnificent year and a half long rally where practically everybody was making money because picking winners was just so darn easy. then the whole market rolled over and it took months for people to realize that no, it th was not some temporary get, it was a bear market that lasted most of the year. but there were some terrific days in 2021 before everything falling apart. why did i mention this? because the time to be most worried about a looming correction is the most when nobody else is concerned. that's when we get these brutal supposedly unexpected declines

when everyone is so euphoric. now, i used to have a rule at my hedge fund. when i made 2% in a day on the upside, 2%, i knew i was too exposed. i knew i was too long, as we say. i knew that my portfolio would kill me if we got caught in a storm. i simply had made too much money all at once. so as the market lifted or if my performance was swinging too much to the upside, i'd pull back. sometimes furiously. >> sell sell sell! >> to prepare for that big down day just around the corner. and it does prove to be just around the corner. sometimes the corrections never came and i had to swallow my pride days later and maybe even buy everything back that i sold. but when we did get hit with a major sell-off my hedge fund outperformed by so much that my clients said i was a genius. i wasn't a genius, though. it was discipline. it was preparation. plus, because i'd taken something off the table in order to raise cash, i'd been able to use that money to buy all sorts of high-quality stocks into weakness. look, we may not be able to predict when a storm is going to strike, but we do have barometric readings that can

help us immensely. yet if corrections are like rain, then where should you get your weather report? well, i've got one. i like to follow the proprietary market edge oscillator. that's a terrific indicator. i pay for it. that tells us when the market is getting overbought or oversold. whenever this oscillator, which you can subscribe to through the investing club, pretty good deal, registers plus 5 or above, that tells me we've come up too far too fast. 5 or above. to a point where it's gotten dangerous. so to me a plus 5 reading means you need to pull back aggressively and then wait for that correction to occur before you buy anything. what do i mean by pull back aggressively? well, if you're nimble, admittedly a big if, you might want to ring the register on a nice part of your portfolio. as we always, always, always advise you if you remember the club. we spend hours teaching you how to sell discipline. that way you have a ton of cash on the sidelines that you can use to buy back your favorite stocks at lower levels when the storm hits. even if you're not at all nimble you should be selling something to raise some cash when the oscillator that we talk about

all the time hits plus 5. by the same token when the oscillator hits minus 5 it means the market's incredibly oversold and it's time to -- >> buy buy buy buy buy buy buy! >> yeah, it's time to buy. we usually come down so far so fast that at least we're due for a short-term to be trading in. it's a good place to put your cash to work if you haven't already. and some of our best work with the chasertable trust has come when we tiptoe in down 5 on the oscillator. and when the oscillator hits minus 10, where it was about a week before the market bottomed in october 2022, you often get massive moves higher. so again we hold our noses and -- >> buy buy buy! >> so this tool can help you spot bottoms and avoid tops. worst case scenario you -- you underperform the averages because you have too much cash on the sidelines. i will take that risk. i'd admit it is a real risk. but look at it this way, using the same methodology i described at my hedge fund, admittedly

trading far more, i gave my investors a 24% compounded annual return after all fees, about three times what the s&p 500 would have given them over the same period. as i see it that's pretty strong evidence that avoiding losses on big down days more than makes up for the possibility of missing some partial gains on the big up days. now, let's talk about the other component of realistic investing. you need to stop yourself from making investment decisions based on misleading emotions and the worst of those emotions is hope. whenever i hear the word hope as in i hope that doomed stock du jour will come back so i can sell it without taking a loss, i get angry. always remember, hope should never be mart of the equation. don't hope for anything. hope is emotion, pure and simple. and this is not a game of emotion. or at least not your emotions. every stock you own because you hope it goes higher is another position in your portfolio that's not being filled by a stock that you believe will go higher as opposed to hope. yet i hear hope constantly. that's fine if we're talking about religion.

it's good if we're talking about sports. you know some of those come-from-behind ncaa men's basketball teams, they keep their players motivated through h h hope. but in the stock business shown a mistake because hope supplants reason. especially when we are talking about stocks to trade in the single digits. you tell yourself i bought this stock, it's at 5, now it's at 4, i hope it goes back to 5 and then i'll sell. how hard could it be to go from 4 to 5, right? wrong. no company ever sets out to have a single-digit stock. most companies will fight tooth and nail to keep their stocks to going into single-digit territory. so when you find something that sells for just a few bucks, the market has already rendered a very harsh judgment indeed. when you let hope become part of the equation you can end up holding these low-quality pieces of paper waiting for something that will never likely occur. forget hoping and wait for higher prices. cut your losses and move on to a stock you can actually see that could go higher under its own

power. not because of hope. because hope cannot be the reason. of course when there are times when hope pays off like 2020 and early 2021, where all sorts of garbage could roar higher because there was so much easy money and so many credulous investors looking for easy wins. but the moment the fed took away the easy money, that whole playbook blew up in your face. and anyone who kept buying stocks, especially on margin or with borrowed money basically got eaten alive. >> the house of pain! >> bottom line, it pays to be realistic in this business. so prepare yourself for corrections. bill pullbacks are like rain. they're inevitable. and whatever you do, don't make stock picking decisions based on hope. you need to invest in the real world, not in the fantasy land. let's go to denise in massachusetts. dennis. >> caller: dennis, dennis, yes. >> dennis, how are you doing? >> caller: i'm fine. i'm glad to talk to you over

here. >> you're very kind, dennis. thank you. >> caller: i have a question real quick if there are any common mistakes or pitfalls that people should avoid when managing their 401(k) accounts? >> i think that what people do is they take too many -- based on thinking that oh, it's for the long term, they take flyers. now, i think it's fine if you take flyers when you're in the teens or low 20s because you've got your whole life to make it back. but when it comes to 401(k), we want standard strict discipline. good dividend, good balance sheet. good growth stocks. that's what i believe is right. being realistic is key. expect corrections and don't rely on hope. please. no hope as an investing strategy because it's not. much more "mad money" ahead. do you know what's wrong? i'm sharing why having a thesis for each of your holdings can be a winning strategy. then when it's time to raise cash how do you determine what to sell? i'll give you my plan. and one of my favorite aspects of the show is getting to hear

from you. so i'm bringing my investing club partner jeff marks to answer some of your most burning questions. so stay 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?

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you have all sorts of information available at the push of a button in your fingertips, something that was unimaginable when i got started in this business. it was much harder to do the homework in the old days. it took real effort. these days everything is searchable. hey, and then there's chatgpt. so the internet's great for investing. but it also creates tons of new problems. and when we have new problems we need new rules to help contain them. for example, you absolutely have to be able to explain your stock picks to another human being. if you can't explain it you don't understand the story well enough to justify buying the stock in question. right? here's the thing. in the old days this rarely came up but the rise of the internet took away one of the most important brakes on the process, one of the most important warning systems, which is talking to another human being about what you want to buy. it used to be that you had to talk to a broker to buy anything. now with the stroke of a key you can buy the stock of skyworks solution or an al bemaher without ever having to tell another person why you're doing it. then it's lithium. even that -- you don't even have to pay a commission. to me i'd much rather have the

commission and a real person. but it might not happen. why is this an issue? why do you need to explain this stuff to someone, to anyone else? it doesn't have to be a professional, by the way. it could be anybody. preferably an adult. but you can fall back on explaining it to your kid. if you can't find an adult who's willing to listen to you babble about the market. buying stocks is solitary, too solitary, but we're prone to making mistakes. if you want to cut down on these mistakes you should force yourself to articulate to someone else why you like that stock. do you know how they make their money? do you know how their earnings are supposed to look? if you don't, then you're setting yourself up for trouble. you won't know what you're looking for. i always see this problem in biotech. so many people own biotech stocks without even the vaguest -- they have no idea of what the underlying company does or how it could possibly turn a profit. they don't keven know the drug pipeline. they just know that it's hot. and that is a real bad reason to

buy. i urge you to be able to articulate a thesis for owning every stock in your portfolio. think of it as a test to make sure you've actually done the homework. that way if the stock gets slammed you'll know whether to cut and run or maybe buy more. if you don't actually know what you own, believe me, you're going to get slaughtered on the next sideline. you are going to sell at the bottom. and there's always a next decline. when i was at my old hedge fund i always made my employees sell me the stock before we pulled the trigger, literally sell it to me as a salesperson before i'd buy it. pitch it to the boss. if you're in a position where you're picking stocks yourself, get someone to listen to you and let you articulate your reasoning. it will always help. i always like to say hey, what's going to make this dog go up? what's the catalyst? that's the keyword, catalyst. or have we missed the move in this overvalued stock that's up 100% already? this year. and of course what's your edge? these are all important questions. if you can't answer them, you shouldn't be buying. and look, the ability to make hasty decisions is not the only thing you need to be wary of on the web.

there's smog else you need to watch out for. the internet has vastly increased the power of the wall street promotion machine. people say we don't have enough respect for the promotion machine. you don't have to like it. but you have to acknowledge its power. and you have to know what it is. when wall street falls in love with a stock, it will go much further than anyone expects in its efforts to hype that stock to high heaven. think about all of the garbage spac stocks. 2021, 2022 by merging with special purpose acquisition vehicles. basically big pools of money that exist to make big acquisitions. originally they were meant to make lots of little acquisitions but in 2020 some geniuses realized they can use spac mergers to bring hot start-ups public while skirting all the intense regulatory scrutiny you get when you actually do an ipo, which is what they should have been doing. we had so many of these. like the electric vehicles. the electric vehicle adjacent spac deals in '20 and '21 with totally made up forecasts that went out many years into the future. if you tried to pull something

like this with a real ipo you might end up in prison. the s.e.c. would never sanction this stuff. if if you went to i abank to borrow money with these projections they'd laugh you out of the room. yet wall street let these spac deals happen because the investment bankers wanted the fees of course. meanwhile the securities and exchange commission was asleep at the wheel. you couldn't count on them. wall street's a strange place. there's no one around who says you know what, we shouldn't crush people with made up estimates and impossible to meet projections, we shouldn't close our eyes to what we know can't work. because they want the money. they didn't care that you, that the people running the spac targets were charlatans. they didn't tell us. they didn't police themselves because the regulators didn't seem to care. we couldn't even spot it. eventually the most egregious of these spac operators got prosecuted but not until they lost people fortunes. and the level of hype was ridiculous. the whole spac boom started with nikola. and that was an electric vehicle play with a stock that soared to the stratosphere and then we

found out that it made outrageous claims that couldn't be backed up by the facts. nikola is one where they doctored the video of the electric truck. they made it roll down the hill. i watched it. i thought the thing was just incredible. it's just the dumbest fraud imaginable. so i want you to do this. the next time you see this kind of enthusiasm for potentially dubious merchandise, take your cue from public enemy. don't believe the hype. one last thing. and this is really true of all media. both online and off. whether you're watching tv like watching me or scrolling through tweets, please be skeptical. it pays to be a skeptic. my general approach is that when you hear on tv is possibly right and if you're not fraudulent but no more than that. same goes for the web, except you have to be a lot more skafl because there's a ton of junk information and uninformed commentary. that's just the world we live in. and chatgpt, google it after. okay? so repeat after me.

just because someone says it's on tv, that doesn't mean it's true. you can't believe everything you hear. that's one reason we mostly just talk to high-level executives on the show. mostly ceos. right? you never see us -- a couple of cfos now and then. they can still mislead you. but if the public company's ceo outright lies about how the business is doing, let's just say their legal bills will really start to add up. get me? but generally speaking, you see a lot of money managers coming on television and for a variety of legitimate reasons these guys aren't well vetted. and often managers can't help themselves when it comes to being promotional. so here's a good rule of thumb for you. if a money manager's on tv and he's moving his lips, he might be talking, presume he's bunk. when someone comes on and says that some plunging stock is a buy, do you think mm, that sounds like a good opportunity? no. ins instead you should wonder he must really be stuck in that

pig. is he bailing when i'm buying? you know, it's awfully hard to tell. here's the bottom line. please, always be able to explain your stock picks to another human being. and never take anything on faith in this business. not gospel. not from the wall street promotion machine. and especially not from money managers who love to come on tv and tell you they are right 100% of the time. "mad money's" back after this break. >> announcer: coming up, let your flowers blossom. let your winners win. cramer reveals a key tenet to keep your stocks smiling. next.

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no matter how smart you are, no matter how well informed, no matter how lucky, sooner or later you're going to make some suboptimal stock picks. it happens to the best of us. every portfolio manager has a few dozen. the true difference between a good investor and a bad investor is how you handle your losses. people seem to have a natural aversion to selling your losers. i don't know. professionals and amateurs alike hate doing it. i know. believe me, i sure hate selling them for the charitable trust. but it has to be done. still, somehow we just keep hoping, operating under the assumption that a sinking stock is somehow wrong and everything will be just fine if we just hold it on long enough. they've rationalized the weakness they see will be fleeting and others will soon recognize the value of the stock in question. hope, home, hope. that's all well and good. until you need money. maybe you want to raise some cash because your portfolio's gotten a little too stock-heavy. maybe you have some real life

expenses that require you to put together a lot of cash in a hurry. maybe you're a money manager with some investors who want their money back. redemptions. well, then how do you sell? this is where the tendency to hold on to our losers shows its sinister side. a lot of investors would prefer to sell their best-performing holdings rather than their worst performers. they'll sell their winners to subsidize the losers. that's where it's wrong. you then get a self-fulfilling spiral as the bad stocks stay bad. they usually keep going down. and with fewer winners your performance will get even worse. this is particularly dangerous for a hedge fund because bad performers triggers yet more redemptions from your client. vicious circle. and if you keep selling winners to give them their money back it becomes a nightmare. vicious. individuals do the same thing. you only have a finite amount of capital to invest. rather than taking your medicine the loss far too many people prefer to remain in denial and pretend the losers aren't losing. you've done it. i've done it. thus my rule. never subsidize losers with winners. my advice to anyone who's stuck

in this position is simple. sell the losers and wait a day. if you really want them, go back the next day and buy them. i bet you won't want to. once they're out of your portfolio, i doubt you'll be tempted to bring them back. by the same token you can't keep holding on to low-quality stocks just because you're hoping for a takeover. look, i get it. nothing's more exciting than a takeover. nothing's as lucrative. a lifetime's worth of gains in a day from a takeover. it feels so good. so you go to great lengths to try to capture these moves. i don't blame them. these include buying a lot of bad companies in the hope they might catch a bid. funny thing about bad companies. they rarely get bids. in reality what gets acquired are great companies with cheap stocks, not crummy companies with stocks that seem cheap but in fact are pretty expensive. yet so many people buy this junk merchandise because they think oh, a takeover's going to save me, which brings me to my next rule. never speculate on takeovers of companies with bad fundamentals. the odds are you'll end up earning something that could go down much more than you thought.

even if a bad company gets a takeover it might end up coming at a much lower price than what you initially paid for the stock. and that's the thing about bad companies. their stocks tend to go lower. as they should. you can do better buying a well-run company that's in good shape and still get a takeover bid from buying a company that's doing poorly. it makes sense. not many bad companies get acquired because not many ceos can turn bad companies into good ones. so don't wait around for a company with lousy fundamentals to be taken over. you could be waiting forever. especially in a world where some regulators have gotten more aggressive about blocking mergers. if you're betting on well-run companies only, because even if a deal doesn't happen a good business has other ways to win. plus when the stock of a good company goes down you can confidently buy more into weakness. that's not something you can do with a company that's gone from bad to worse while you're waiting irrationally for lightning to strike. the bottom line, please, please, please never sell your winners

to subsidize your losers. if you need to raise money for whatever reason, just take the darn loss and sell something that's underperforming. and absolutely do not on companies that have deteriorating fundamentals. if a possible takeover is the only reason you like a stock you shouldn't like it in the first place. stick with cramer. >> announcer: coming up, the wise man and the whiz kid have your back. we bring to bear the power of the cnbc investing club to answer your questions. next. there are some things that go better... together.

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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. for those of you who are part of the investing club he'll need no introduction. but those of you who aren't, i hope you will be soon, i would say that jeff's insight and our back and forth help me do a better job for you and for all "mad money" viewers. and of course for members of the club. jeff and i do this sort of thing during all our monthly meetings where we give you are our in-depth look at our portfolio decisions for the club and answer your burning questions. if you like -- we would love you to be joining the investing club. so let's take some questions. first we're going to nancy, who asks, when you advise people to take out their cost basis and play with the house's money and let it run, at what point do you

suggest people taking profits? i obviously want people to take their cost basis out. i also don't want them to miss out on a big move. cross disciplines. but i also favorite making sure they don't give back the gain. take the cost basis out and then let it run. but i don't know. you're a little more conservative. >> absolutely. no one ever got broke taking a profit. i think if eli lilly oftentimes in '22, a stock that we own for the charitable trust, was a big outperformer in what was a really tough year. but because it was doing so well a lot of new drugs were being approved, good trial results, we were taking profits, you know, every 20% or so higher. i think that's a good way to look at it. >> it's a great -- it's an art, not a science, but i think that worked -- that staircase worked well for us. all right. now, here we're taking a question from herm, who wants to know, jim has been talking about battling the stocks that are down. what exactly does that mean?

trading a particular stock for a while, doubling down on a stock that is down from its cost basis, finding a good exit point to sell the stock? thank you. okay. this one is so tough because when i say battling, yes, it's a stock that's down that we like and & we want to try to get your cost basis lower by buying some but we also want to scale out if it goes up rapidly. this is again, jeff, i think you and i go back and forth because when we're battling that means we're playing a little too much defense but sometimes we're just stuck. >> and the whole time we're trying to understand do we have a broken stock where the company's fundamentals are still good but maybe it's not being fully recognized by its value in the market or is it a broken company where there's something really fundamentally wrong? and i think that's all part of the battling process. broken stock, got to have patience. >> yes. and broken company you've got to sell. let's go to michael who asks can you recommend a few stocks specifically when you're investing for young children? many of us invest for our children or grandchildren, so that would be helpful.

now, there used to be a time when i would have said look, we've got to go buy some disney. i find disney troubling. i would say that look, you've got to go buy some of the like cereal stocks because you might be doing some -- put something on the dinner, going to the breakfast table or dinner table, campbell's soup. but i think a younger person should own technology, a really super growth stock. so i'm thinking maybe drug stocks, high growth drug stocks or maybe what you do is try to find some new kind of technology that would be really exciting years from now. that might be a way to look at it. >> i think you want to use companies with a lot of products and services that the young children will use every single day because that's a great way for them to learn not only about the company but if they have an investment in that company it's a great way to get started with investing too. and it's never too early to get started with investing. >> i think that's terrific advice. i do think this is fine. it's just that it's no longer the way i like to --

>> apple, amazon, alphabet, people use these products every single day. they're going to get acclimated to it when they're quite young. so all great companies. >> i totally agree. absolutely. i like to say there's always a bull market somewhere. i promise to try to find it just for you right here on "mad money." i'm jim cramer. see you next time! i'm brian sullivan, and tonight president biden set to call for more spending on the two wars going on, ukraine, russia, and israel against hamas. we're going to bring you that presidential address live and also what it means for the market and your money. the white house also easing sanctions on venezuela. we want more of their oil, but will it matter for prices? crowded airports and packed planes everywhere, so why are airline stocks sagging? no end in strike, and now an urgent plea for the former ceo of ford to end the uaw walkout. markfi fields is ere. >>