>> you haven't mentioned air in a long time. >> that's old school. >> fast money. fast money. >> molybdenum. molybdenum. yeah. remember that one. >> there do. >> kweb bearish to bullish reversal. >> thank you for watching fast money. see you back here tomorrow at five for more fast 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 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 make friends. i'm just trying to make you a little money. my job is not just to entertain, but to educate and teach you. so call me at one 800 703 cnbc or tweet me jimcramer. you want to know the single most useless thing you can do in this business. oh that's easy. the most useless thing you can do as an investor is to worry about

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

managers are on the same page about something, you can be pretty darn confident that it's baked into the averages. >> this is. >> basic economics 101 stuff. now, i don't have a ton of use for economists as a professional on this show. they tend to take a totally ivory tower approach to this discipline, meaning they have all sorts of models for how the world is supposed to work. the economy is supposed to work often very boring models, by the way, but they rarely let the empirical facts get in the way of a good theory if the data conflicts with the model. economists have a bad habit of throwing away the data and not the model. however, as long as you keep that caveat in mind, some basic economics is incredibly useful when you're trying to manage your own money. for example, let's take somebody a little bit difficult, but we're going to get get this together what's known as the efficient markets hypothesis. this theory says that at any given moment, stock p already reflect all the relevant information that's out there. and when some new piece of data comes out, stocks immediately adjust to reflect the new reality. you'll often hear index fund purists citing this theory

to explain why it's impossible for stock pickers to get any kind of edge. because whatever you know about a company should already be baked into its share price. as far as they're concerned, markets are so efficient that investing in individual stocks is basically the same as gambling. if everything you could possibly know is already priced into the stock, that means your homework is meaningless, and the only thing that can push the stock higher or lower is some random new piece of information nobody knows about. it has to be something totally unknown, because if anyone did know, they would have acted on it already, ergo it would be baked into the share price. that means under the extreme version of the efficient market hypothesis, the only thing that can move stocks are unknown unknowns. to use the parlance of former defense secretary donald rumsfeld. and if you're merely betting on unknown unknowns, you might as well just be playing roulette. it's more fun. again, that's why index funds advocates adore the efficient markets hypothesis. this theory tells them that it's impossible for individual investors to consistently beat the averages. so if you want equity exposure, the only smart way to do it is putting your money into a nice low cost index

fund that mirrors the s&p 500. now, has anyone who watched the show regularly knows i have no beef with index funds? in fact, i think they're the best way for the vast majority of people to invest in the market. i've held that that position since the year 2000. even if you got the time and the inclination to pick individual stocks and manage your own portfolio, you should still direct a big chunk of your savings, if not the plurality of it, into some cheap s&p 500 index fund. it's the safest way to give yourself equity exposure. it's perfect for your retirement accounts. think of it like this it's not that easy to be a good individual stock investor. it takes real work. which is why, of course, we try to help you if you join the cnbc investing club. but it's an incredibly easy thing to be an index fund investor. putting money in a 401 k or an ira. oh, that's index fund territory. you can gradually contribute over time with every paycheck, and as long as you believe the us economy can keep growing over the long haul, you can park that money in an index fund and check in on it maybe once or twice a month. but to get back on track, this idea that you can can't possibly beat the averages

because of the efficient market hypothesis tells us stocks are always perfectly valued. and you know what? that's just totally bogus. putting aside the fact that i did consistently beat the averages nearly every year at my old hedge fund, giving my clients a 24% compounded annual return after all fees over the course of 14 years, versus 8% for the s&p. the simple truth is that markets are not perfectly efficient. in fact, frankly, they're often irrational. they ignore things, make mistakes, miss valuable information every day. and that's a major reason why anyone can make money picking individual stocks. these anomalies are everywhere, and they can be great for your portfolio. ironically, this core dogma of free market economics is a lot like communism. it makes a lot of sense in theory. it doesn't necessarily work in life. so why the heck did i bring up the efficient markets hypothesis in the first place? is it such a boneheaded idea? because even if the most extreme form of this theory isn't true and it's not empirically, we know for a fact that markets are all kinds of inefficient. it's still a very useful idea as an

ironclad law of the universe. the efficient markets hypothesis can't help us, but as a rough guideline, it can lead us in the right direction. markets try to be efficient. they aspire to be to efficiency. when a company reports a fantastic quarter, its stock spikes immediately because that's the kind of data that can get baked in very quickly when the federal reserve changes its policy, telling us it's probably done raising interest rates like we saw in late 2023. that's huge news, and it takes longer to get reflected in the average banking. that can take months. even when the fed abruptly changed course at the end of 2018, that kind, it took weeks to work in through the averages. stocks that benefit from lower rates will instantly soar, but it can take days or weeks or even months for the average to fully reflect the new normal, because it takes time for portfolio managers to reposition. we're talking about huge slugs of stock here. no hedge or mutual fund is going to buy or sell them all at once. sooner or later, though, we do reach a new equilibrium. so let me give you the mad money version of the efficient markets hypothesis. call it the kind of sort of efficient markets

corollary when there's a widely held consensus view about something, anything, be it positive or negative, you have to assume that view is already being discounted by the stock market. so when everyone's feeling euphoric about the strong job market, that's probably baked into stock prices already, when everybody's worried about a temporary fed mandated slowdown is probably baked in when investors are hunkering down in fear of bad earnings season, don't expect the stocks to get slammed with disappointing numbers. people are already anticipating a disappointment. in short, when all the talking heads and journalists and media friendly money managers are telling you to be afraid of the same thing, that might be the one thing you don't actually need to be worried about. let everybody else worry for you. from the stock market's perspective, the fact that most investors believe something is going to happen means that wall street's already treating it as a reality, yet it's so easy to fall prey to groupthink when you're managing your own money. emotions are infectious, like a communicable disease. frankly, when you see all sorts of experts coming on television and saying the same thing, while the newspapers print similar stories and your friends echo this stuff back to

you, it's only natural to assume it must be true. and you know what? very often it is true. but that doesn't mean it's going to move stock prices by the time we get any kind of real consensus on an issue, that move is probably over. you missed it. the bottom line if you want to be a better investor, don't tear your hair out fretting about the same things as everybody else. instead, you should worry about the things other people don't seem to care about, because the real threat is the one that you don't see coming. let's take questions. let's go to mary in idaho. mary. >> hi, jim. >> nice to talk to you again. i have a comment and a question for you. >> the comment. >> is regarding when you were talking about the conventional stupidity. >> yes. >> i sent you an email on that and i hope you'll have an opportunity to read it. i thought you'd enjoy it and. >> thank you. >> the question the question is

at what percent of increase in the stock should a person consider taking some or all of their profit, either to reinvest immediately or to just hold back as cash to buy something down the road? >> okay. >> let's take this from the point of view of that. you need to sell something in order to be able to buy something. what i like to do, and we talk about this cnbc investing club, is that if a stock has changed, if there are fundamental differences from what happened when i bought it, in other words, let's say i bought a stock and then subsequently it has two bad quarters. well, that's what i want to sell. i ranked the stocks i lower stocks ranking if they've missed a couple of quarters. and then i boot that to buy something i think is better. there are going to be moments where third quarter turns out to be good, and i didn't get it and i kicked myself when that happens. but what i've done is create a level of discipline that that's what you should do. mary, and thank

you for your email too. let's go to dave in colorado. dave. >> hi, jim. >> dave, how are you? >> colorado. >> booyah to you sir. booyah. >> long time. >> listener first time caller. >> thank you for all you do. >> a side note my mom got me into investing decades ago and. had me watch wall street week in review with louis rukeyser, marty. >> zweig. >> and you are carrying on their legacy. >> so well. that's how i got involved too. so we're in the same boat. let's go to work. >> all right. let's go to work. >> here's the setup. >> i'm calling on behalf of my girlfriend. >> who is in. >> her early 60s. >> she's retired. >> with a state pension. she has an investment management firm managing 600,000 in stocks and etfs in tax deferred accounts. but they're charging her 1% per year. >> okay. >> they haven't kept pace with the s&p 500 and have actually avoided the mag seven and growth stocks almost completely. she wants to manage her money on on her own. two questions. how should she construct a portfolio of her own? and over what time frame should she make. >> the changes? >> okay, so i would put two

thirds of it in an s&p index fund. obviously, if they can't beat it, just go for it and join it. then one third i would structure around what you've been saying, a portfolio of say, 6 to 10 stocks, of which 2 or 3 can be overweighted and large, mostly mag seven. i should add stocks that we think are really great. cnbc investing club can help you pick those ten, because we have a portfolio of around more than 30, and you just take the ten that you're most excited about and no more 1%. you're now free to move. and well, she is. and tell her congratulations for having saved up that much money. that's terrific. all right. the most useless thing you can do as an investor is to worry about what everybody else is worried about. remember, the real threat is the one you didn't see coming. made money tonight. i'm giving you my mad and ominous 401 course and giving you all my best practices for investing. sometimes you need to take a step back and evaluate what's not just what you're investing in, but how. so if you want to better your investing skills, i say yes indeed. stick with

cramer. >> don't miss a second of mad money follow jimcramer on x. have a question. tweet cramer hashtag mad mentions. send jim an email to madmoney.cnbc.com. or give us a call at one 800 743 cnbc. miss something. head to madmoney.cnbc.com. cnbc live. >> ambitiously. >> in the world of investing. a beast lurks between the numbers. some watch from the safety of the sidelines, but others saddle up and ride that one ton rowdy ribeye for all he's got. if that's you, join us on tastytrade. named best online broker for options trading. genius loves company.

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reminder. >> smart buy. >> got it, got it. boss otter, you got this. >> like i told you before the break, when you pack into a crowded trade, you're playing with fire. if everybody's on the same page about a stock or even a whole sector. that usually means the easy money's already been made. doesn't mean you can't profit from something obvious, but when you're late to the party, you're going to have lower returns and higher risk. look, that's just the nature of the beast. fortunately, nobody's putting a gun to your head and forcing you to follow the hedge fund herd. in fact, you don't

even have to think about spotting tops and bottoms by gauging sentiment if you don't want to. there are lots of different ways to invest. some of them take less work than others. for example, there's timing. you could try to call every gyration in the averages, buying stocks when they look poised for near term bottom, then selling them when they look toppy. you can trade around a core position. you can take a large holding, then you lighten up on part of your position when it gets overextended to the upside, and buy it back when the stock sells off. you can keep your bat on your shoulder, waiting for the perfect moment where the whole market sells off dramatically, giving you a chance to pick up your favorite stocks for much less than they're worth. my fave palmetto hedge fund. i love doing this stuff if you've got the time. and of course you need the inclination and the right resources, it is a terrific way to make money, but if you've got a full time job, this whole approach is just nuts. and i say that as someone with a terrifying extended family history of mental illness. regular people who work. come on. that's funny. regular people who work for a living don't have time to stare at the tape all day. even if you work the night shift, it's just not a good use

of your precious free time. more importantly, trading this actively just isn't worth the agitation. that's why i come here every night to do the show. i focus on the market like a hawk, so that you can take a less intense approach to investing, one that lets you go to work and have a personal life. it's why we help walk you through all these different things with our charitable trust. when you join the cnbc investing club, which you know i really want you to do. so how should you approach the market if you're not prepared to devote your entire waking life to watching stocks? what's the safest way to handle individual stocks? part time? for starters, let me say once again that index funds are a wonderful thing. if at any point when i'm describing sounds too daunting to you or just too time consuming, please do not hesitate to say individual stocks are not for me and just put most of your mad money. that's the cash investment that's not part of your retirement portfolio into a nice low cost index fund or etf. they have very low fees that mirrors the s&p 500. i said this before the break too, but that's because it's good advice. being a savvy stock investor takes

work. being a savvy index fund investor well, let's just say it's relatively easy. sure, if you manage your portfolio well, if you do the homework and stay disciplined, i think you can beat the s&p 500 with a diversified group of individual stocks. and i do like 1 or 2 overweighted just, you know. but not everybody has that kind of time. not everybody has that temperament. not everyone is comfortable taking on more risk to chase a higher return. and that's perfectly fine too. so you've got to do what's right for you. call that suitability what suits you. so keep that index fund option in your back pocket. now, assuming you really do want to try to profit from individual stocks, let's talk about how you can do that without the stock market taking total control of your life. first, from the get go, you need to accept that the best is the enemy of the good. there's no point in trying to buy or sell stocks at the perfect moment. nobody's that talented. even making the attempt will drive you nuts. you need to accept results that are good enough rather than trying to chase perfection. for example, if a stock you like gets hammered down from $60 to $50 and you pull the trigger, but then it

goes down another couple of points before it bottoms and rebounds to $60. please don't kick yourself for making a mistake. you didn't screw up. you made a good pick. okay. yeah, you could have made a couple extra points if your timing had been flawless, but a win's a win. second, regular viewers know that i don't believe in the concept of buy and hold. i believe in the concept of buy and homework. meaning you need to keep researching your companies after you own a piece of them. and if something goes terribly wrong, well, you may have to bail. i think it's a good idea to buy stocks slowly on the way down and sell them gradually on the way up. all of this requires a certain amount of active management. please don't feel compelled to be too active though. now, the last thing you need is to be flitting in and out of stocks with every gyration in the broader market. you want to be an investor, not a trader. you think you can time things perfectly and flit in and out, but most gains occur in concentrated bursts, so you're liable to miss them if you're on the sidelines. thank you. the great peter lynch for putting that in my head. again, if you've got the time and the inclination to trade, that's great. however, most people don't. when you've got a full

time job and you're trying to manage your own portfolio, you need to be willing to sit tight with the stocks you believe in. there will be sell offs. there will be rotations out of one group and into another. there will be crazy action on a week to week and even day to day basis. you don't have to constantly adjust your holdings based on these moves. if you believe in the stocks you own, and you shouldn't own anything that you don't believe in, then you should be willing to stick with them. when the backdrop gets tough. ideally, you'd be able to trade in and out, but like i told you, the best is the enemy of the good. in reality, when everybody's panicking over the latest crisis, you're going to be tempted to panic too and just sell everything. get out now. you might even avoid a substantial decline by bailing on the whole stock market. sooner or later, you're going to need to get back in. the whole point of sidestepping into decline is to sell high and buy your favorite stocks back at a lower level. unfortunately, again, it's really hard to nail the timing here. do you see my theme? i don't want you to do the impossible. if you dump everything, there's no guarantee you'll be able to buy your stocks back for something. changes in the market comes

roaring back. witness when the market bottomed in october of 2023, when long term interest rates peaked and started heading lower. well, something almost nobody saw coming. what's the solution? if you don't want to give yourself a panic attack every day, keep doing the homework so you know what you own. when your stocks surge higher, use that opportunity to ring the register just on part of your position. raise a little cash. after 20%, move or more. you need to take something off the table. that's my limit these days. when you stop, when your stocks get hit, put that cash to work. buying more shares at lower prices. but you don't have to nail every short term top and bottom. let me give you the bottom line here. to trade or not to trade, that is the question. if you're trying to be an investor who doesn't need to stare at the tape all day long, it's nobler in the mind to suffer the slings and arrows of outrageous fortune. you don't need to be perfect at managing your money. you just need to be good enough. and that means you shouldn't waste your time trying to anticipate every little gyration in the market. take a page from jimmy choo and relax their money back into the.

>> huia. for the emperor of cramerica, honorable james jay cramer. >> you got me. >> jumping around my. >> office right now. >> thank you. >> so much for. >> all you. >> do for us. >> i enjoy. >> your show and find it. >> very entertaining. >> and informative. >> i was your first ever episode of mad money back in 2005, and i've been watching every single episode ever since. >> don't miss mad money every night at 6 p.m. eastern. plus join the cnbc investing club and stick with cramer around the clock. >> this is my. legacy. >> we love teaching club members how to manage their own portfolios. we teach you the right way to develop your own investment strategy. >> i think it's very important to teach your kids. about financial awareness. >> and. >> investing in the market is a wonderful place. >> to start. >> i've learned to save my money and act decisions through my portfolio. and save for retirement. >> we teach club members how to invest the right.

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zero artificial. >> sweeteners. >> liquid iv. >> sugar free. >> most power. >> players on wall street rate nvidia a strong buy today. yet why, then, are so many legendary investors quietly ignoring that advice and instead selling the stock hand over fist? every billionaire on your screen has recently sold nvidia. some have offloaded millions of shares. and mark my words, this is bigger than nvidia. hedge funds are quietly selling all of their tech stocks at the fastest rate we've seen since 2016. it begs the question what do they know that you don't? my name is mark chaikin. i help build three indices for the nasdaq during my 50 years on wall street. that means i know how to recognize these signals from the tech market and exactly what they mean for you and your money. i explain everything in my new market briefing, including the truth of what's going on with

nvidia today and the specific stock i recommend you buy. instead, i'll give you its name and ticker when you visit the website below. nvidia has been the most talked about stock in the market, and for good reason. it's led the ai revolution that has taken the us stock market by storm since they announced their ai powered computer chip in 2023, nvidia's stock has been on a history making tear, officially surpassing microsoft to become the world's most valuable company. today, however, many investors are worried the tide is changing. nvidia's day in the sun may soon be coming to a dramatic end, and as a result, i predict a different, under-the-radar stock is primed for big potential gains from this moment on. to get its name and ticker 100% free, simply visit the website below.

>> the stock market talks to me, and i mean that figuratively, not literally. contrary to what you may have read on x, formerly known as twitter, i do not hear voices. so periodically i think that my left molar crown does indeed play music. but that's not what we're talking about here. i'm constantly listening to the tape, not music, to get a read on what the big institutional money managers are up to. and to do that, i need to separate the signal from the noise. what do i mean by that? okay, on any given day, there might be monster moves in individual stocks. it's tempting to assume that all these swings are equally significant, but some are a lot more meaningful than others. so when you see the cloud stocks versus getting killed, for example, the natural conclusion to draw is that something must be wrong with the cloud. when i really loathe group balances, it's not much of a stretch to assume that the

pain must be over. >> the house of pain. >> but that's too easy. the truth is, some of these moves are a signal and some of them are noise. signal means something. it tells you that the stock will probably keep moving in the same direction. noise, on the other hand, is noise. to borrow my favorite line from macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more. it is a tale told by an idiot, full of sound and fury, signifying nothing. in short, while signal carries a message, there's no real takeaway from noise in another life, shakespeare would have been a dynamite investor. distinguishing the signal from the noise is as much an art as a science. so how do you tell when a major stock swing heralds something larger? before we get into what makes a move meaningful, you need to understand that we get major single day advances and declines with no real significance all the time. good stocks can get ahead of themselves, rallying too far too fast before selling off. the technical term for this is overbought, and chartists measure it with the slow stochastic oscillator or the

williams percentage. r oscillator, named after the legendary larry williams. we talk about it a lot when we go off the charts. when something's overbought, it means pretty much everybody who wanted the stock at a given level has already purchased it. even the highest quality company can have an overbought stock. and when you run out of buyers, you almost always get a pullback. but this kind of overbought sell off doesn't tell you anything, except that the stocks in question need to take a breather and digest its gains. at the same time, even bad stocks can rally, and for similar reasons, if they get oversold because they've come down too quickly, you tend to get a nice oversold bounce. once again, though, this is the sort of rally that doesn't convey much information. it's noise. a stock gets oversold, it bounces, and unless something else changes, it can go right back down. once the work's off the bounce. i bring this up because when you see dramatic swings in individual stocks, your mind will try to draw a connection to the fundamentals, the real world facts about how the underlying companies actually doing. sometimes that connection genuinely exists. other times the action in the stock is noise, not a signal, and you'll

end up feeling very foolish if you take your cue from that kind of action. those who want to know more about this can go back to the cannon on stock markets. and that's confessions of a street addict, where i describe how easy it is to see a stock move a point and convince yourself something's really happening underneath. it's a really funny part of the book. all that really happens is that you had more buyers and sellers at a given moment, in a way that might be totally unrelated to the actual company. i demonstrate that with a long time ago with a stock called strider. it's pretty funny. hey, by the way, this is something we're constantly walking you through with the cnbc investing club. of course, it's not just the technicals. there are plenty of other reasons why a stock might explode higher or melt down that have nothing to do with the fundamentals. sometimes the market simply makes a mistake and then the mistake gets rolled back. no greater significance. maybe people misinterpret a good quarter as a bad one, something that happens quite often during earnings season because there's so many things happening at once. maybe money managers are dumping stocks in one group purely to raise money so they can buy it in another. yeah, one that's hotter. so what kind of action

carries real significance? how do you know when a big move is foreshadowing something even bigger down the line? all right. there's a lot of signal that's pretty obvious. a company reports a blowout quarter and his stock roars obvious and analyst cuts estimates and the stock plummets. obvious. that's just business as usual. now i prefer to look for the unusual. a company catches an analyst downgrade and its stock goes up. interesting signal. counterintuitive in my experience. when a stock refuses to go lower on bad news, it often means that's putting in a bottom and it's ready to rocket higher. by the same token, when a company reports a fantastic quarter, it gives you great guidance, a bullish conference, and the stock gets slammed. well, look, that's the kind of signal i'm looking for too. it means wall street believes this company is looking at its last great quarter. when your stock falls on positive news. well, you may be looking at the top for the most part, though, you can't decipher hidden messages in the way stocks are trading, except in some rare cases you

probably shouldn't even try. it's important to know what's working and what's not working in any given market, but you can't let your money management decisions be completely guided by what's in or out of style in the wall street fashion show. otherwise, you end up owning stocks just because they're going higher. and that is a terrible place to be, because you won't know what the heck to do with them once they inevitably start coming down. here's the bottom line when you're evaluating a stock, take your cue from the fundamentals of the underlying company. don't put too much significance on day to day gyrations in the share price. sometimes you can extrapolate a great deal from a big move in an individual stock, but more often it's telling you something you already know or it's just noise that means nothing. let's take calls. let's go to howard in new york howard. booyah jim, this. >> is howie. from the bronx. first time caller and club member. >> excellent. thank you, my friend. thank you. howie, what's going on? >> every time i visit with my. >> grandson, he. >> looks at my portfolio because he. >> knows i'm always. >> watching mad money. every day.

>> and thanks to. >> your 10. >> a.m. conference. >> calls and. >> your intraday alerts, he sees. >> gains of anywhere from. 60 to 200% for some of. >> my stocks. >> now my grandson. >> he wants to be an investor too. >> i hope. here are my. questions okay threefold. when do i start to trim? how much should i trim? and more importantly, because i. >> like these. >> stocks so much and i believe in them. when can i. >> get back in? >> okay, these are really great questions. and they're fundamentals. because what happens is, is that we believe in discipline and we believe in conviction. discipline must always trump conviction. that means that we like to start trimming 20%. at 20% up. we'll trim between 5 and 10%, another 20%. same thing. if we really want to be able to be in shape, to be able to buy some back, we must do that. and that's how we play it. otherwise we let it run after we got our cash out. holy cow. ned in ohio, ned. >> five star. >> professor cramer. >> it's good to. >> talk to you. >> today, sir. >> how are you? >> i am good, ned. thank you for

calling in. how can i help you? >> yes, sir. >> well, a couple of. >> months ago, i was listening to warren buffett. and he talked. >> about high. >> growth rate. companies that eventually forge. >> their own anchor. >> he said the company keeps expanding and its. >> shares kept rising. >> would you explain that to me? and does it is nvidia an example of that? >> well, okay. nvidia is a really great example. let me tell you why. because when you look at nvidia on forward earnings, the estimates it always looks expensive. and then it's so far trumps those estimates that when you look backward, it turns out that the stock was selling at a remarkably low price to earnings multiple. and that's been the secret to nvidia literally since 2012. incredible. it just keeps doing that. please don't put too much significance on day to day gyrations in the stock share price. you have to know when something is a signal and when it's all just sound and noise signifying nothing. much more

mad money at. i'm highlighting one of the key pitfalls that many investors falsely think of as an opportunity. i'll explain why you should be more cautious than you think, and i'm taking all your investing questions with my investing club partner, jeff marx. so stay with cramer. >> booyah jim i. >> love you man i've. been watching. >> you. >> from day one. >> thank you for all. >> the wonderful. >> advice that you provide us. >> i'm learning so. >> much watching your show. >> what's your. >> program every day? >> love it. i always wanted to say booyah on your show. >> thank you for being the greatest. >> in the world. >> we consider. >> you the. >> money market maker and we thank you. >> for all. >> you do. >> i love your show. >> long time. fans of. >> your show. >> and we think it's the most. >> entertaining program on tv. >> celebrating 50. >> years of. >> music live featuring arcade fire 352 backstreet boys, bad bunny, bonnie raitt, brandi carlile, chris martin, dave grohl, david byrne, devo, eddie vedder, jack white, jelly roll, lady gaga, miley cyrus, mumford lady gaga, miley cyrus, mumford prime, it's me. i mean, you.

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>> all night, i've been warning you about the dangers of being a follower, and everybody expects the same outcome in the stock market. there's a very good chance it won't play out as expected because it's already priced in. that's what we call priced in, and that's why you need to be extra wary of the ipo cycle. let's go over this. we've seen this pattern over and over again. we get this deluge of new deals. at first, many of them explode higher, but at the same time they're flooding the market with new stock supply. and that supply ultimately drags us down. i've said it a million times. the stock market is like any other market. it's all about supply and demand. too much supply and prices are going to be lower. the problem is, when ipos are making people fortunes, you tend to get a palpable sense of exuberance. and then when the deals start attracting less interest, the exuberance turns into hostility. and then the whole market, not just the ipos, tends to get slammed. we've seen this happen so many times in

2020 and 2021. we got this wave of new ipos and spac mergers as many people invested their government stimulus checks in the hottest looking stocks in the market just in 2021. get this we had roughly 400 traditional ipos and another 200 spac mergers, which originally were meant to be blank check companies that would make a bunch of acquisitions over time. but in 2020, lots of startups began to use spac mergers as a way to become public, while evading the strict regulations that the sec you know, the securities exchange commission places on ipos. now, initially, there were some very exciting ones that really caught fire. for example, zoom video, this one came public in 2019 and then soared to the stratosphere in 2020 once the pandemic made its platform essential, at least during the covid era. at first, you get a bunch of hot deals to get people excited. 2020 we also had a ton of electric vehicles and charging station related ipos and spac mergers. at first, these stocks were unstoppable, although most of that was because this was a period of high risk speculation where people were willing to give anything with the right buzzwords. the benefit of the

doubt mistakenly, of course, reminiscent of the.com era in the late 90s when anything connected with the internet was beloved until the market was flooded with excess supply and the whole group collapsed in the year 2000. i'm going to give you a really concrete example from 2020. it's a company called quantum space. quantum space, which in retrospect was basically a science experiment looking to develop better battery technology for electric vehicles. anyone can develop better, more efficient batteries with the ability to charge very quickly. and you can make a killing. even in a world where electric cars have lost some of their luster. but quantumscape was a long way from having anything they could actually commercialize. then they could sell. even four years later, these guys still didn't have any meaningful revenue. back in 2020 and early 2021, wall street was still giving the benefit of the doubt to anything connected to electric vehicles. quantumscape came public via spac deal and you have to be you remember, you have to be really skeptical of those. and when that merger was announced, the spac it was merging with saw its stock more than double in just two trading

sessions, putting it in the 20s. now, during this initial period of maximum hype, the stock i know this is going to be crazy, but the stock shot up to nearly $132, and that's where it peaked in december of 2020. then we started seeing short sellers come out of the woodwork arguing it was a scam. and wall street gradually lost interest in companies with zero profitability, let alone super speculative names like quantumscape. no revenue. in the end, the stock got obliterated. by late 2022, it was the single digits, and it's only been able to bounce above those levels at times, thanks to what i regard as an occasional short squeeze. and look, quantumscape is hardly alone. i don't mean to pick on it. all sorts of electric vehicle players that came public during the ipo frenzy of 20 and 21 got crushed. rivian, although it ended up coming back, but lucid. nikola canoo, the lion electric, lightning motors, lordstown motors, faraday future, intelligent electrics all saw their stocks plunged more than 90% from peak to trough. many, like nikola, turned out to be well, had some fraudulence. their founder and ceo was even sentenced to prison

again, though we had roughly 600 companies come public just in 2021, and by the second half of that year, many of these deals were blowing up in your face because we already had far too many newly minted stocks. the moment the fed started talking tough about raising interest rates in november of 2021, the entire edifice collapsed. and these new issues spent pretty much the entirety of 2022 getting eviscerated. and that's why i came out here to warn you about the dangers of the ipo mania in late 2021, i said there was one surefire way to wound a bull market, and that's by flooding it with lots of supply, new supply. again, when tons of companies start coming public, we basically get a supply glut in the stock market. i also warn you that eventually the ipo bubble would burst and then you might be left holding the bag. don't forget hundreds of really low quality companies that came public in the 2000 era ultimately went bankrupt. 2021 was just as bad. in fact, you could argue it was worse because so many of these were spac mergers, and that could make absurdly overconfident long term forecasts that the sec would never allow in a traditional ipo. the other big problem when

portfolio managers get excited about putting a lot of money to work in new ipos, they often need to raise that money by selling something else. and when there are a lot of large deals they need to do a lot of selling. 2021 was a little different, thanks to the fed's zero interest rate policy and all the stimulus checks that people got from the government. but in a normal ipo cycle, the new tends to trot out the old. that's what happens. you sell to buy. remember, the bulk of the new money that comes into the market goes into index funds, and they can't participate in ipos because those stocks aren't in the indices yet. the actively managed funds that participate in these deals in the aggregate don't have enough cash coming in to get in on a bunch of big deals without selling something else. there's the mechanics of it. so the next time we have a big wave of upcoming initial public offerings, i need you to remember that it pays to be cautious when the ipos are coming hot and heavy. the bottom line as much as i love anything that generates enthusiasm for the stock market, of course nothing does that. like a few massively successful ipos. >> that have to be careful. >> when we get a whole wave of

new issues. the ipo cycle tends to start out strong, generate a lot of euphoria, then it burns out and all the new stock supply can really weigh on the market. please just keep in mind that concept the next time you get excited about a bunch of red hot deals. and mad money is back after. >> the break. >> good evening. >> mr. cramer. >> thank you. >> thank you for everything you do. >> you've been. >> such a wonderful. >> source of. >> information with your teachings. >> i have to say thanks. >> thank you for all your. advice and. >> saving us. >> from ourselves. >> your advice? let me quit a job that i hated. >> i love you to death. thank you for everything you do. >> thanks for making us. >> money and more importantly, thanks for keeping us from losing money. >> we know he wants to hold on to the nba. how much more will he have to pay? >> a lot of the revenue streams are guaranteed. >> the countdown is on. cnbc

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>> cnbc live. >> ambitiously. >> when you're picking stocks, you need to be very careful about doing the right thing for the wrong reasons. this happens more often than you expect. let's say you find a great company well-managed, strong fundamentals, good dividend. you buy that company's stock and it goes up. it's only natural to conclude that this stock is rallying for all the reasons that you liked it in the first place. that's not always true. you might think a win is a win, but sometimes it's more complicated than that. if you don't understand why a stock is moving up or down, you're probably going to be very confused when it stops doing that and goes in the opposite direction. and when we're confused, well, guess what happens? we make really lousy decisions. for example, there are a bunch of excellent, well-run consumer packaged goods. they call them cpg companies. maybe you want to buy procter and gamble a longtime favorite. there are lots of logical reasons to like them. but like i told you earlier,

logic is rarely what drives the stock market on a day to day basis. so let's follow through here. suppose you pick up some procter and gamble because you really believe in management. or you like the dividend, or you think that plastic and fuel costs are going down, which will boost the company's gross margins. that's a huge part of the expense. so you buy the stock and then explodes higher. what's next? well, you have to ask yourself, why is it rallying? it's very easy to tell yourself, i nailed it. this market is finally giving procter the credit it deserves. when you buy a stock and it goes up, that means you were right. why would you second guess yourself when you're right? well, the answer is simple, because maybe you were just lucky. as i've told you before, it's better to be lucky than good. but either way, you need to be able to tell the difference. so when you pack, let's say you rack up a nice win in procter. you should ask yourself if you were right or if you simply happened to be in the right place at the right time. what do i mean by right place? right time? rotation, rotation, rotation. there are times when the consumer packaged goods stocks roar higher for reasons that have nothing to do with the

underlying companies. procter, like all the consumer packaged goods place, is a recession stock because its earnings tend to hold up during a slowing economy. its stock roars when we get lousy economic data. if you buy these stocks because you believe in the business, but then they go higher as part of a sector rotation that has nothing to do with the business. you've still got to win. the bank isn't going to tell you that they can't take that money because they don't accept profits from rotations, but you don't want to get caught with your pants down because the market suckered you into believing that procter and gamble was going up based on the fundamentals, when really it was benefiting from rotation into the whole consumer packaged goods stock sector. you know, the colgate j&j. this is what i meant earlier about filtering out the signal from the noise. and it is hard to do. why? because there's something called confirmation bias. when you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you were right all along. you should approach that feeling with skepticism. maybe you're right. people are right about stocks every day, but maybe it's just a coincidence, darn it. and you should ring the register

before that coincidence goes away. okay, let me give you a concrete example. the residential solar stocks soared in 2020 and 2021 and kept running into 2022, even when most growth plays were getting pulverized. if you owned it, maybe you thought you were winning because people were embracing renewable energy and the government was subsidizing it heavily. but in 2023, the residential solar stocks, they got obliterated. why do you kno? it had nothing to do with the popularity of renewable energy, and it couldn't be stopped by generous federal subsidies. instead, it turned out that people can't really afford residential solar systems without borrowing money, meaning the whole industry was actually built not on solar, but on financing. and once people realize long term interest rates would remain elevated for quite some time, the residential solar stocks, they all got crushed. it's not a coincidence something like enphase was roaring in 2020 and 2021, when people could borrow money for next to nothing. so let me give you the bottom line on this. it's very helpful to understand why a stock you like is going up or

down, and you have a win. don't lazily assume that you simply got it right. think about what it means. if you were merely in the right place at the right time, and please proceed with caution. caution. >> stick with cramer. it all started with a small business idea. it's a pillow with a speaker in it! that's right craig. pulling in the perfect team to get the job done. i'm just here for the internets. at&t, it's super-fast! you locked us out?! and when thrown a curveball... arrggghh! ahhhh! [crashing sounds] we had everything we needed. is the internet out? don't worry, we have at&t internet back-up. the next level network for small business. ♪♪ i sold a pillow!

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on shark tank and. >> we did it. >> i followed my dreams. >> yes. >> shark tank coming up next, cnbc take the bull by the horns every morning with jim's top ten. the biggest headlines, earnings reports and jim's hot stocks right to your inbox. sign up now for free at cnbc.com/top ten. >> tonight i thought you were all about metromix 101, but now it's time to turn to you. my viewers are smart, which is why my favorite part of the show, as i always tell you, is answering questions directly from you. now, tonight, i'm bringing in jeff marx, my portfolio analyst partner in crime at the cnbc investing club, to answer some of your questions. and jeff, you don't get a swelled head. some of these callers have been calling in saying you do a pretty great job. you know, keep your head so we can get through

the door here. thank you. for those of you who are in the club, jeff will need no introduction. for those of you who aren't members. and soon i hope you will be. jeff's insight and our and our back and forth really are what we think is a major part of being part of the investing club. thank you very much. all right. now let's get started. first up, we have a question from jimmy who asks, how can we best identify the best companies within an industry? now i have a way that i like to do. i like to see who has the highest gross margins, because that means they've got the biggest moat. that means they can make the most money, and it's something that people don't look at enough. the gross margin. >> yeah, that's a great way to do it. you could also look at who's growing the fastest as well revenues. but another. way i think is. >> really important is read the conference calls. >> of the. companies and. >> their peers and. >> their. >> customers, see who's partnering. >> with who. >> that will give you a good tell about who's best of breed. >> who has the best products. who's doing the best by their customers. >> that's a really good point, because i find that in the conference call, you get a real sense of, by the way, whether the analysts hated it or like

it, you can often see by their questions whether they are in awe or they think that there's something that's suboptimal. so it's great. great point to the conference calls. now next up we have a question from ian in pennsylvania who asks. you've stressed the importance of being diversified and also doing your homework. is there a point where one individual can have too many different stocks to be able to keep up with the homework while staying diversified? i used to discuss this question with pop, my father. he had usually like to have 40 or 50 stocks, and i would say to him, dad, why do you have 40, 50 stocks? because, you know, jimmy, i work a couple hours a day and then i spend a lot of time just looking at the market. so i like to look at a lot of stocks. now. he had time on his hands. most people don't. that's why i usually say that. try to keep it to ten. don't be a mutual fund on yourself. >> yeah i think the benefits. >> of diversification. >> they start to diminish. >> at a. certain point if you keep adding and. >> adding and adding stocks, but. that's 5 to 10. that's what we generally say. >> for the club. start with the best handle. >> pick the ones you like. use your power of observation, curiosity.

>> and as you can, do more of the homework, that's. >> when you can start. adding more. >> yeah, and i think that's a perfect, perfect situation. next up we have a question from dean, also from pennsylvania, who asks. i'm considering either an s&p 500 index fund or a total stock market index fund for purchase. both seem to have very similar expense ratios and historical returns. what is the primary difference between the two? which she feels better? do you know that john bogle personally told me, jim, i want you to put in your 401 k. i want it to be in the total stock market return fund of vanguard. and that's what i did. and i wanted to know why did he want me to do it? he said, over the long term, you'll get a little bit better performance because you'll be diversified away from the s&p and you'll end up picking some really good young growth stocks that are in the total stock market return. >> yeah, that's. >> exactly the difference right s&p 500. that's going to be more. >> of the large caps. the total stock is you'll. >> have the mid caps some of the smaller caps as well. but i think if you look over the long run the returns the returns aren't going to there's not going to be. >> much difference between the. >> two. and i did. >> find it either. >> right. but i ended up doing it because the father of the

index fund is john bogle. i know, and he jack said, jim, this total stock return will beat it. now, there was a very long period where it did, but it's really kind of. anyway, i'm just doing it out of homage to the to the late john bogle, who was an amazing guy. all right. now let's go to myles in new york who asks, what are your stages in cutting bait? now i'm presuming cutting bait means when are we doing some selling up 20%. we like to do a little sale, then up another 20%. we've been very, let's say, diligent about letting our great stocks run and cutting off the ones that aren't. that's the key thing. you let your great stocks run. but if you can minimize your losses and be more aggressive in cutting, you will outperform the market, right? >> and you always have to remember when your original thesis, when it's not playing out as as expected, that's when you may have to make an adjustment. and i know in some of those cases, we've often learned that our first sale is the. >> best sale. >> when trying to. >> get out of. >> a struggling game. >> yeah, and i think that there's nothing wrong with admitting that you have a loss. what matters, as we were talking

about the other day with roger federer, is you just win more than you lose. that's what you need to do right now. oh, you know what? we're going to have to save the rest of the questions for next time. so all i can say is i like to say there's always a bull market somewhere. and i promise you, i somewhere. anarrator:ise you, i ftonight, global business tycoon peter jones returns to the tank. i could take this product and sell it all over the world. pour yourself a glass, and let's get down to business. we are disrupting conventional thinking. help me create the next great worldwide brand. which one of you wants to join the nana king? bananas to the moon, baby! you think you've got the dream ticket. the reality is, this could go out of fashion. it's not worth $7.5 million. it's worth $20 million. it's cool. mark brought it up. i wasn't even thinking royalty. yes, you were. you're taking me seriously now. i've got a feeling that one day you're going to regret this moment. if either one of us don't do this deal, our lives are not gonna change. we're still gonna be [bleep] rich. ♪♪ narrator: first in the tank