>> have a great day, everybody. -- captions by vitac -- www.vitac.com i'm jim cramer. welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to save you a little money. my job isn't just to entertain but to do some teaing here. call me at 1-800-743-cnbc. tonight i'm letting you in on something big -- the method to my madness. look, i know this show is the craziest, most random and frankly bizarre thing on television but i know you won't find investing advice this good anywhere else. you know that, too, or you wouldn't be watching unless you are a person who tunes in just to see if tonight is the night the show goes off the rails

which after multiple years of airing is always a possibility. sorry, guys, there is a tape delay. keep wishing. for those of you more interested in trying to make money than watching me traps around like a crazy man particularly on twitter, i believe you can do everything i do at home if you are willing to put in the time and effort. investing, specifically actively investing in stocks, running your own portfolio rather than dumping your money with some buy and forget index fund or worse fleeing for the fall safety of bond funds [ screaming ] particularly with record low interest rates is something everyone can do as long as you spend several hours a week doing the homework. i'm incluing watching the show to research the stocks. it's readily available, yahoo, cnbc.com or any of the websites of the companies which i love to check. anything you're thinking of keeping up on you can get info

on. actively managing your own portfolio is essential snaeshl the wake of 2008 which proved the uselessness of funds that try to mimic the market. the academics persist in telling you it's good. it didn't work. mimicking is not enough. especially if you want to get back to even. you have to do better. you have to pick your own stocks and manage your portfolio. how do you start? that's what we are talking about tonight. like i said, this show is about the method or methods to break from quickly quoting the bard to my madness. how do i pick stocks? that's what i'm always asked. tonight you will get a piece of that answer. the truth is i've got far too many methods, too many ways of picking great stocks to ever cover them all in one show. i want to give you some of the tools of my trade. that's so you can start to pick stocks like yours truly on your own or do better than uh i am because uh you don't have to follow as many stocks as i do to be successful.

i have to be a generalist to help uh you at home. you just have to research of what you own or are thinking of buying. at the bottom, the show is about educating you, giving you the insider's perspective on how the market works and how it can make you money. i'm not here to dole out stock picks like the fish you give a man if you're too lazy to shop at whole foods. i like to empower you. that starts with teaching you the tricks i use to pick great stocks and trade them like a pro. methods that served me well for over 30 years of investing that allowed me to generate a 24% annual return after fees at my old hedge fund. these skills refresh this show and guide me as i manage my own charitable trust which you can follow at actionownersplus.com where i tell you everything before i ever pull the trigger. [ gunshot ] so let's get rolling.

i identify cramerica names, the stocks that could but don't always end up on the show is by watching the stocks that appear on a new high list. stocks from the list, the highest of the high, have to have something going for them. that's especially true when the market is in difficult shape as only the best of the best hit new highs when the market is falling apart. what does it tell you when a stock is on the new high list. either that it's part of a bull market or maybe a cohort of it or the company itself has serious momentum. no matter how they get there, many stocks in the new high list keep going higher. in a great bull market like the one from the bottom of 2009 and any market that almost doubles has to be considered a great bull market, even a as we resist such labels. we saw the success of investing in the new high list over and over again. the same stock hit new high after new high. following them was a great way to make money. even as the bears claimed

endlessly that the bull market was false and couldn't be trusted. [ buzzer ] listening to the bears caused you to miss one of the greatest rallies in history. i have to keep you from doing that again. it's more like the exception to the rule but generally speaking things that have worked well continue to work well. i'm not saying you can chase stocks that are hitting highs because they will keep going higher. some of you will no doubt qualify that's what i'm saying. some of you will pickle me for that. that would be the ultimate in foolishness. this is subtle. i'm not a bozo the clown offering bozo behavior. if you want to identify stocks that will be winners in the future, looking at the winners of the present has tended to be a good place to start looking. that's the thing about the market. it's not alws that hard to play once you understand there is more continuity to it than change. things keep going the way they were going until something major shifts.

then yes, indeed, you have to alter your course. the course changes can be radical. you have to re-evaluate your ideas. please don't ever dig in your heels when the facts change. two important disciplines i stress in my book "getting back to even." it's a book about methodology, not about individual stocks that were working at the time. but you know what? when you're looking for stocks to invest in, hunting for the next bull market like i do every weeknight at 6:00 and 11:00 p.m. eastern, you have to start somewhere. looking at the new high list is a terrific place to begin. it's a terrific, already sorted through list. i don't just pluck names off the new high list because i think, hey, these stocks have been going up and they will keep going up. why don't i recommend them on the show? lazy, irresponsible chasing of momentum. i am many things, a lot of them negative. lazy and irresponsible?

i apply the same standards of rigor here when i was at my hedge fund. i rarely recommend stocks right off the new high list unless there are circumstances i will talk about later in the show. what i like to do and what you should do is wait for something to pull back from the new high list. that's a discount from something that's full priced and good. that's when you pounce at a retail store. that's when you pounce in my store. the pullback gives you a lower priced entry point in a stock that's probably got a lot of positives going for it. i'm not telling you to chase momentum. be conscious of price and try to buy on weakness like you want to sell on strength. i'm throwing in the caveats because i don't want you to look at the new high list as your shopping list -- big mistake -- and just buy something. poring over the new high list is a fabulous way to find potential stocks to buy. you only buy stocks that pulled back from the new high if you are confident they will make a comeback for a substantive reason, not having to do with

the market itself. you're not playing the market with these stocks. you have to do your homework. you must have conviction, even if it is a cynical conviction that the stock is going higher than it deserves to go. the biggest caveat of all when shopping for stocks that pulled back from their highs, make sure they pulled back for a good reason specific to the company. be certain you are dealing with the momentarily damaged stock and not a troubled company going down, down, down. how can you tell the difference? if the fundamentals haven't changed the stock probably has pulled back for mechanical reasons. profit-taking because someone has a gain. panic in general. macro issues, europe, that kind of thing. more than ever thanks to the fact that stocks are traded like commodities by causing huge sell-offs that make no sense in everything or double and triple related etfs that are more powerful than the stocks themselves. you will see stocks pull back for reasons that have nothing to do with the strength of underlying businesses.

those are the buys. of the fundamental picture changes, if whatever made the stock attractive as it made its way up the new high list goes away then the stock is no longer a canada data. the story has to be intact or this won't help you. it isn't a hard and fast rule but i like stocks that pull back between 5% and 8% from the high. write that down. between 5% and 8% from the new high list is the optimal level of pullback. less than that and you might be too early. more than that, maybe something is wrong with the stock. you just don't know. watch for stocks that have pulled back from the new high list, especially because of a broad market sell-off. some of my best picks for the show have come out of this process and hopefully some of yours can, too. let's take calls. let's go to nate in illinois. nate. >> caller: boo-yah, jim, from bloomington. how's it going today? >> real good.

how about you, partner? >> caller: pretty good. i've got a question for you. i'm 19 years old. i have a few thousand dollars and my question to you is how can i bring more growth to my portfolio as a young investor to continue with me? >> first of all, congratulations that you are interests interested. this is the right age to do it. you have your whole life. if you pick something dicey and it goes down you have time. first look at growth stocks i highlight on the show. you will hear me say growth stock, growth stock. listen up, write it down and pull the trigger. michael in new york, please. michael. >> caller: hi, jim. i enjoy the show. thank you for helping me make money more if i family. >> thank you for saying that to me. >> caller: what do you gain by getting a dividend, the share price is down but the amount of the dividend and then you have to pay taxes on the dividend. isn't comparing dividend-paying stocks to the yield not an apple

to apple comparison because the rate of volatility of stock prices has a greater risk of losing principal compared to the ten year? >> let's get empirical. what stocks have outperformed for the last 20, 30 years, stocks that pay good dividends. they have greatly outperformed stocks that don't. i am getting this from jeremy siegel's work. read his book and you will know why i think dividends are important. a pullback can be the market giving back. okay? i like stocks that pulled back from the new high list between 5% and 8%. do the homework. don't chase momentum. it's a starting point, not an ending point. "mad money" will be right back. >> announcer: build your future -- >> caller: happy boo-yah to you. thank you not just for the money but what the money translates into -- in my case a college education for my son. >> caller: boo-yah, thanks for your passion for stocks. "mad money" does work.

>> caller: "mad money" you're making me money for college, boo-yah, i love you. >> how many shows have kids calling in sand saying boo-yah . >> announcer: "mad money" only on cnbc. 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. [ snoring ] ♪ [ snoring ] [ male announcer ] introducing zzzquil sleep-aid. [ snoring ] [ snoring ] [ male announcer ] it's not for colds,

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welcome to the method to madness show. truly timeless investing wisdom for the ages. think of me as the penn & teller of this. more like teller than penn. let me pull back the curtain. no magic, no hidden talent. just a bunch of disciplines i know can make yo"mad money" if you master them. [ ka-ching ] you don't need to be that smart. just know what you're doing. that's where cramer the sad but

wise clown comes in. more like the fool from king lear, something to think about. enough of the bard. let's move on to how to find stocks that are great buys. i was talking about the new high list because uh you get a cheaper entry point and stocks that are proven a winner. say you didn't want to buy names off the new high list because you're paying too much. you can usually get a better deal if you are patient and wait for weakness. given how crazy the market has come there are few occasions when buying a stock off the new high list is okay. but sometimes a stock is so hot you have to -- [ buy, buy, buy ] -- whenever you can. but don't buy all at once. you want a hundred shares. think it's so much mojo you won't get a pullback? worse thing that happens, it goes higher and you don't get to

buy more. you grab a quick profit and find another stock. believe me, there is always another stock to find, another train coming into the station. i have one exception where i'm okay to buy stock hitting a new high. if you see insiders buying the stock at a 52-week high, that's a clear signal. it's rare to see happen. i have seen it and in my experience it's rare that this method of picking stocks doesn't make you money. i love it when i see insiders buying at the high. it's a sign of their confidence in the business. not the company buying high but the individuals. who knows better than the people running it? normally insider buying runs from meaningless to an unsufficient reason to buy a stock. a lot of times they want to give the impression of confidence to create an illusion that they are doing better than they are. insiders aren't stupd. they know if you see them buying their stock they know the market

will smile upon them. they play the system. that's fair, but it means we ignore most insider buying because it could be sketchy. that said, when you get colossal insider buying fw if it's not at the high you may want to look at the stock. it's a powerful endorsement when they buy a lot of stock. it's the volume of the insider buy that declares its sincerity. we are only focusing on buying all the way at the top now. there is nothing more arrogant than when an insider backs up the truck for his own stock at a 52-week high. they are saying we know we rock, we're so confident that it will go higher that we'll buy stock hand over fist. we're not even waiting for a pullback. we are buying what you think is the high. arrogant? sure. bankable. corporate insiders aren't fool with some notable exceptions on the "mad money" wall of shame. assume they know what they are doing. not everyone deserves the benefit of the doubt in this business. after the financial crisis at

the end of 2008 i know a lot of people think ceo execs are frauds, crooks, liars, especially those of you burned on the lehman brothers. as i tell you in "getting back to even" that's the wrong lesson to draw from the crash. healthy skepticism is one thing. if you're going to own stocks you have to extend trust to those who own the companies you have stock in. getting the stock to a 52-week high is a good reason to give the ceo the benefit of the doubt. they are not buying at a high unless ef conviction about the companies or perhaps they have been contacted by other companies for a potential purchase. they have spurned them betting they can go higher on their own. for us buying at the high seems

reckless and lazy. most investors wait for a pullback before pulling the trigger. insider buying tells me they don't think there will be a pullback. nothing more bullish than that. sure i want a pullback after they bought but that's the best of all possible worlds and it doesn't happen often. when you see insider buying at a stock with a 52-week high -- [ buy, buy, buy ] -- you may want to buy, too. after the break i will try to make you even more money. do you eve r wish you could make some things just disappear? ♪ [ ping! ] [ ping! ping! ] that's why i use new tampax radiant. it helps keep my period invisible, combing tampax's best-ever leak protection

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♪ can't read my poker face [ bull bellowing ] >> you're in luck. you caught cramer on a good night. i'm not going home to sip cheap scotch on my dirty floor. me at my best, i'm pretty darn productive when i'm in high gear revealing the methods to my madness. pull out your pencil and paper. i haven't used that line in a while. start jotting things down. what i'm going to tell you could be useful for your portfolio. better than stock picks. i'm giving you the best ways i know to pick stocks.

i'm teaching you to invest and trade like cramer. not to be like me. okay, i have emotional issues and frankly you would prefer not to emulate. that's off track. so far i have given you two of my tools i used in my hedge fund and still use for my charitable trust. unlike lady gaga, i play with an open hand, not a poker face allowing subscribers to see my trades before i make them. lady gaga is better than pink though i never mind raising a glass. the high list isn't a reason to buy but it's a great place to look for potential buys. i like to buy stocks around the new high list with substantial insider buying. it says the people running the company believe their stock has legs. if they believe it, there could be good reason for us to believe, too. again, this alone, not enough to recommend a stock. these are pieces of a puzzle.

you have to do the homework, check the fundamentals and websites to make sure you like the story behind the company before you dive in and buy. if the stock goes down you know to buy more rather than cut and run and lose. what i'm teaching you tonight are tells. they are signals the stock might be worth your time and evident to go through the often incredibly boring process of waiting through the transcripts of the conference call. there are thousands of stocks out there and any method to winnow, narrow down ones that are attractive, that's a method worth having. we have talked about insider buying at the high. i don't usually use insider buying as a way to determine whether or not a stock has got it going there's one other scenario where insider buying makes for an incredibly bullish tell. that's when you have a stock that has an incredibly heavy -- [ sell, sell, sell ] -- short position meaning a lot of bears out there -- [ bear growling ] -- have sold the shares and are waiting for the stock to go lower so they can buy them back. [ buy, buy, buy ]

and profit. collect the difference between the price they sold it first and bought it back at later. it's hard for people to understand. i want you to think of shorting as like regular investing only in reverse. we try to buy low and sell high. successful shorts turn that around. they try to sell stocks they think will go lower. they buy them back and collect the difference. when the stock has shorts in it, there are a lot of people with serious conviction that that stock is headed lower. maybe dramatically lower. in fact, it takes more conviction to start a stock than go long. that's wall street speak for buying a stock. when you're short the potential downside is infinite. when you own a stock a stock stops at zero, right? shorts lose money when stocks go higher. is there a lid to that? no. the other important note about short sellers is if there are a lot of them and a stock gets great news, we get what's known as a short squeeze.

it sounds exactly like it is. it's squeezed up. in order to bail on their positions the shorts have to buy. that's called covering. in other words, buying isn't just -- when you're buying a short back that's called covering the short. when a lot of shorts cover at the same time in a panic -- and that happens quite a bit. [ screaming ] the stock will surge like if everyone were to sell at once and the stock goes down hard. what you really have is a lot of people desperate to buy the stock, a lot of demand. they have to buy unless they want the years wiped out. many short sellers in 2010, hedge funds. when they got their years blown away -- [ shotgun ] -- when the market refused to quit. where does it fit? first you are looking for a high short interest. that means a giant percent of the float or what trades is shorted or sold short. when some of the people who run

the company start buying shares for themselves, bingo. that's your chance. it's almost like drawing a line in the sand for the short saying, come on. you can keep the short stock but we think it goes no lower. this is an explosive combination that often leads to a short squeeze that sends the stock higher. shorts are often smarter than regular long side buyers but they don't normally know more about a business than insiders who run it. if a lot of people are shorting a stock and management is buying in sizable amounts, not just hundreds of shares, you should do your homework. it's a great starting point. usually you want to side with management. believe me. then you can ride it higher and higher, true jackie wilson style. as they panic and put shares up big in the desperation to buy or cover positions. might be big losses. may be they want to ring the register all at once. when a company with a heavily shorted stock announces a gigundo buyback that's another line in the sand where management is contradicting the shorts.

companies often refuch shares. not all buybacks are bullish. some are a waste of money. i teach you to identify the bogus buybacks. a substantial new buyback that's active in the face of the shorts is often a good reason to take a closer look at the stock. you don't find out it's active until the end of the quarter is a reason i like to read the quarterly report. here's a note of caution. be careful when dealing with a company in the cross hairs of the shorts, especially when people are nervous and the market is in bad shape. the shorts do have the ability on their own -- legally or not -- to wreck a stock even if the underlying company is fantastic. these days the shorts -- [ shotgun ] -- they have tremendous firepower in part because of an s.e.c. democrats and republicans, it looks the under way when shorts raid stocks with bogus stories about accounting issues and management blunders. that's not allowed but it gets

done anyway. it's easy to drive stocks down as stock owners no longer have rules that slowed short selling and made it harder to create that like waiting for an up tick, something from the '30s. it was like waiting for a higher price before they could short a stock. that was a good rule. somehow the government got talked into apolishing it. it just made things more fair for the shorts. it is a reason why so many home gamers have left the building. the government doesn't seem care. we established the original rules, the up tick rule, in order to stop fomenting of panic which happened during the great depression. the government now in all ofs i wisdom thinks panics are no longer possible. of course we know they are more

prevalent than ever. we have to be more careful than ever not to succumb to panic orchestrated by short sellers who need prices to go lower. it's easier to panic people in a financial than in a regular business that doesn't involve credit. without those protections the shorts were able to run wild and practically assassinate the stocks and financial companies during the crash of 2008 up till the generational bottom in 2009 put the bulls back in control. the shorts came back with aggressive negativity in 2011 using stock destruction. when you are dealing with a shorted stock in one of the etfs like the financials, we have learned you've got to tread carefully. you can still find great opportunities in stock where is the insiders are buying and stocks overreached. but i have to warn you that the balance of power has shifted against you in recent years and in favor of the shorts. against the regular investor and in favor of the hedge funds that like to bang down stocks. even if the short sellers are wrong about a company's prospects they can still demolish the stock. please don't under estimate the amount of damage the shorts can do. remember, the best protection

against these raids is from stocks that pay good solid dividends. short sellers like to borrow to short. they have to pay dividends to the real owners. the borrower pays the dividend. that's terrific for those who are pernicious in the way they go about shorting. it's the best protection you can get against short sellers. bottom line, insider buying plus heavy short interests can equal good investing opportunities as long as you avoid situations where the shorts are determined to crush the stock at any cost. let's go to bart in georgia. bart. >> caller: a big boo-yah from clarksville, georgia. >> glad to have you on the show. how can i help? >> caller: i know there are obvious reasons why a company might change their stock's ticker symbol. >> right. >> caller: are there reasons not so obvious here in the u.s. or abroad and does this have any effect on stocks? >> no, not really.

when i was -- a couple years ago at street.com. i'll give you this example. the symbol was tscm and the ceo wanted a facelift. they changed it to tst. i picked the symbol. it seemed good. it was just a change of face. that happens a lot. companies want to change their names. it's really the fundamentals that matter. rich in new york, please. >> caller: hi, jim. for a beginning investor new to the stock market would you advise shorting stock and could you explain how one would make money trading in that manner? >> i do not advise shorting stocks. losses can be infinite. i would say buy puts protecting your down side. it's a mirror image. go to "getting back to even." i have a hundred pages about how it's better to buy puts than short stock outright. on the handy new high list we know the key things to look for and the quest for great stocks to buy.

insider buying is one of them, particularly when there is a heavy short position. that can be a combustible situation that can explode to the upside. stay with cramer. >> let's go to kentucky! >> caller: a hillbilly boo-yah! >> holy cow. >> caller: a big las vegas ding, ding, boo-yah! >> a big new york forget about it boo-yah! >> caller: nashville >> caller: michigan >> caller: california >> caller: alaska. >> announcer: boo-yahs come from all over america. "mad money" with jim cramer weeknights on cnbc.

welcome back to my method to the madness in the craziest show though i'm a complete crazy man if i say it myself. we are talking about the tricks i use to find you opportunities to pick stocks, to know when to sell. all the methods that made me a good money manager frankly and helps me put together the show every night. trying to enlighten you about what's behind the scenes to make you the most money. we are transcending the usual model. i want to teach you to do what i do so you can do it yourself. i want to teach you about a way to trade them now. we were investing and now trading. this is a discipline that's useful in volatile markets.

this is the thing i get the most about on twitter. it's called trading around a core position. i know the rap on me. at least among my critics is that i'm all about trading and i don't have advice for regular investors, that i'm all short term. that's untrue. this show is about long term investing. get dividends? you can't do that if you short term. to put aside humility i was a darn good trader but now i can only trade for action owners plus.com and that's more investing and longer term. much different from my hedge fund. i'm not allowed to use options or short sell. those are options i suggest you use but they are not for beginners. it pays to put trading disciplines into praks i 'tis so you can buy more shares of the stocks you like at lower prices. some when they are flying high. [ sell, sell, sell ] trading is about fluctuations in stock prices. sometimes they are caused by the catalyst.

sometimes it's a topsy turvy market. trading around a core position is one of the most useful and basic out there. especially in 2011. we were subject to gigantic swoons. i want you to profit from them when they come back. what does it mean to trade around a core position? first you need a stock. pick one you like. one you have an opinion about where you have a bias, a directional bias. buy a stock you believe will go higher over the long term. what you're looking for here is a great company with a stock that could get tossed around by market volatility and you think will be headed higher if you are patient. [ shotgun ] we know it's getting shot at. take advantage to buy. buying in increments, levels like i talk about because we know buying all at once is the height of arrogance. use amazon.com as an example.

over the longer term i like it. over the short term it's rocky. say you want to own 300 shares of amazon. the way to set up the position is to buy 100 shares three times over a period of weeks or months. that would be your core position as an investor. say you want to trade. i know many of you want to but you feel discouraged pause you remember how all the amateur day traders got blown out when the tech bubble burst. the key is amateur. the home gamer can make money trading if you do it like a professional in the old days when commissions were higher. it wasn't true then. the commissions would eat into your profits. it wasn't worthwhile to trade. that hasn't been the case for ages. let's go back to the core position. 300 shares of amazon trading at $100. it's nowhere near there now. every time it jumps three points you sell 50 shares to bring in profits. at 109 you would own 150 shares. you wait for something to happen to knock the stock down as long as it doesn't change the prospects.

in other words the market knocked it down. that shouldn't take long given that we are in a world where stocks get crushed by factors with nothing to do with the merchandise, selling the books, entertainment stuff. selling on the fundamentals. as the stock comes down and you buy it back in increments like you purchased it. we started with 300 shares. let's use increments of 50 to buy it back. if amazon comes back to 103 buy back 50 shares and so on. it might be small potatoes, up 3%, sell 50 shares. down 3%. sell them again. over time the profits add up. i have seen it happen. that's what trading around the core position is all about. a lot of people think trading is exciting and it can be. if you're good at trading in a core position, i want you to be bored. you're just watching the stock move and adding to your position or trimming accordingly. contrary to reckless trading trading around a core position is prudent portfolio adjustment

and discipline. we have rules to follow. in my example we start with t core position of 300 shares of amazon. if that was my core position, i don't know. i would want to own more than 300 shares or less than a hundred. trading around a position for less than 25 shares won't make you enough money to be worth it. obviously you can scale the numbers depending on how big your position is. avoid putting yourself in a spot where you have too much on the table if the stock gets swatted down or too little to take advantage of upside that comes your way. trading around a core position is an important basic trading strategy everyone can use. even those of you who find trading to be abhorrent compared to investing. to take trading to the ultimate level i recommend reading two chapters on how to use options in "getting back to even." the material is too sophisticated for "mad money." if you are willing to put in

extra homework, you have the time and inclination it's really worth the effort. the stock i use at google i would never do in common stock. always could do with stock replacement. a cheaper way to create a google at a price than it currently sells at. i think options are too risky for the majority of people. you know how to trade around a core position. another method to my madness, one that allows you to generate small gains to add up over time. stick with cramer. how much coffee are you fellows going to need today? three...four cups? [dumbfounded] well, we... doesn't last long does it? lten. 5-hour energy lasts a whole lot of hours. so you can get a lot done without refills. it's packed with b-vitamins and nutrients to make it last.

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[ bull bellowing ] >> i have one more method to my madness. this time i want to talk selling. along with when you buy may be the most important undervalued tool in your home arsenal. how do you know when to sell a hot stock? how do you get out before the party ends. this is a question that needs to be answered. there is a lot of money to be made owning hot stocks with momentum. when you play the momentum game you've got to know when it's time to leave the table. there are always nay sayers and they are almost always proven right as sooner or later virtually all steaming hot stocks implode. the process happened big in recent years with with stocks like netflix and research in motion. both have been amok my favorites. i made a lot of money for you, i hope. it usually happens later rather than sooner. all the negative talking heads

who kept you out of the stock with recklessness. people shy away from stocks because they don't know where they are going to top out. it's understandable and i would be afraid to buy them, too, if i didn't have the discipline to let me know when to get out. lucky for you i have one and you're about to learn it. when i'm talking about hot stocks i mean hot speculative stocks, not blue chips. stocks of companies that are tiny or tinier. usually the stocks begin with little research coverage from the brokerage houses. the names can go up for a long time, catch fire and stay on fire. for months, years even. the key to figuring out when interest has peaked and it's time to sell is by watch aing the analyst coverage of all things. you've got to use your judgment here. a good rule of thumb is once one of the hot stocks has a half dozen analysts covering it the run will peter out because it's too well known. it will no longer be the hot

little speculative stock. you can find out how many are looking it up on the internet. this has worked for me as long as i can remember. it works because the number of analysts on a stock is a good gauge of how much interest there is in a hot speculative stock. hot stocks get tapped out when there is nobody left to be attracted to them. when people interested in buying them have bought. they come out of nowhere attracting more attention and everyone who wants a piece of the stock has a piece of it. when that happens, sorry, the run is over. time to go home. one of the best examples of how it plays out is a company known as hanson natural, the hottest stock of 2004. the hottest in 2005. the hottest stock for the first half of 2006. number one. split adjustment went from $18 and change to $200 in july of 2006. the whole way up people telling you that hanson, a beverage company that got its momentum from the monster energy drink,

so much momentum that it renamed the company monster. it was ultimately a fad that would dry out and crash though. it did do that. but it took years for the momentum to run out. i called the top with hanson because i knew how stocks worked. it peaked in 2006 because they did a five for one split. splits respect supposed to do anything but it encouraged people who were in hanson for a long time to take something off the table. there was another reason i believed it would pick. it picked up its fourth analyst. goldman started covering the stock. you had two months to sell between goldman's initiation and the stock peak. there was upside left but prudence dictated to sell after four analysts. better to clear out with your winnings. hanson as with all hot small stocks started to cool off. after hanson fell off the radar screen and people stopped talking about it, the stock recharged and powered higher again. it was an amazing renaissance and a testament that when

analysts stop following a company and the earnings start percolating again as was the case with hanson in 2011 a lazarus like move can happen especially when the fad drink which was monster vang wished the competition from major soda brands everyone said would wipe out monster but didn't materialize. ultimately hanson took out the high in 2011 and never looked back. here's the bottom line. small speculative hot momentum stocks are worth owning but uh you have to know when to sell. that's when too many analysts are on the bandwagon. use four as a good number. six is when you definitely have to trim your position. stay with cramer. >> announcer: don't get mad, get even. more "mad money." catch cramer at 6:00 and 11:00 eastern on cnbc.

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let's do some mad mail and mad tweets. jim says i'm trying to understand when peg is at a level that means it is time to trim a stock. what about 1.7 to 1.9? i appreciate your teaching, oh wise one. it's a rule of thumb, a guideline. two is a red flag. if stocks enter 2.1 i don't like it. i have had too many mistakes made over 2. it's an oddscape. one from pennsylvania. jim, i'm a new home gamer and i have a question regarding take over bids. is there an adeal time to ring

the register? >> i like to ring it immediately. there is always a chance you will give back the gain. that's unforgiveable. we then look for the next big win let's take tweets from den doggie. is it better to buy one full position at a time or smaller amounts of all five at once? absolutely the latter. one thing i learned when you're just starting, it just happens to be the luck of the draw here. almost everybody knows immediately the first stock they bought went down big. this is an insurance plan against that happening to you. so, no, i don't want you buying all at once. buy in stages, all five. this one's from @motorrat. how do you determine target prices for your action alerts portfolio? that's my charitable trust. stephanie link and i talk about it constantly. we like to figure out where the

stock would be too expensive either oh a peg ratio or price to earnings multiple basis that we are afraid we'll start giving things back. if the fundamentals improve we can revise it up. we give it to people who subscribe to action owners plus.com because we always want you to have the move before we make it. that's what i like about that portfolio. another tweet. this is from paul sullivan. you were tweegt at 4:30 a.m. do you sleep? i have strange sleeping habits. i get very little sleep. i try to get four hours in a given night. believe me, i would like more. many of you ask me that, what are you doing up. the question s why can't i sleep? that's why i'm up. stick with cramer. sappear? ♪ [ ping! ] [ ping! ping! ] that's why i use new tampax radiant.

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>> i like to say there is always a bull market somewhere and i promise to try to find it just for you right here on "mad