kari and "us weekly" contributor and author jill martin. >> hi kiddos. we've been putting shout-outs to women to come. >> and they came. they use the word reinvention. who doesn't want a rebooting, a restarting? >> i saw her with the hat on this morning. >> up first julie mccarthy, 48 years old from oak park, illinois. after being laid off from her job of 14 years she decided to reinvent herself by receiving a doctorate degree. so she begged us to help her shine on her new career path. >> this is going to be a good one. leah, break it down why mom needs a makeover. >> the hat, she just graduated so that's okay. we have the biking sunglasses which need to go. we have the fannie pack which i know you're a fan of, but personally, not my thing. lastly, look at the shoes. we're in new york. not for here. >> i love you.

are you ready for a whole new look? >> whole new? i'm kind of scared. >> she's ready. she's ready! >> she looks beautiful. >> she's gorgeous. >> her daughter leah is holding the microphone. sit tight until i tell you to take off your blindfold. here is julie mccarthy before. julie, let's see the new you! oh, oh, oh! are you ready, leah? take off your blindfold, girlfriend. >> oh, my god! >> hold on. mom has to see herself. julie, you ready? >> oh, my god. >> you look sensational. >> dr. mccarthy! >> you look great. >> thank you so much. >> do me a favor. look right in camera 12. >> tell us about the hair. you look so good. >> the first thing i did, her hair -- the new trend is bold, brown, dark hair. her hair was a little bit

blackish so i evened it out, made it a little bit softer. myiki trimmed it up. gave it a more controlled look. >> did you use kerotin? >> he didn't have time for that. >> leah, are you freaking? >> i'm freaking. she looks like a new person. >> oh, my gosh, jill, that body. >> i have to say, she said i never wore spanx before. i said, look at this body. everything looks fabulous. she wanted to impress her daughter which was so nice. this is from andrew mark and the hearings are h&m. >> beautiful. >> julie, join your daughter. >> our second lady is joan jellison. she is from canton, ohio, where you can visit frank's bust at the football hall of fame. she's always felt like a plain jane. after 27 years of the same look, she asked us to help her feel revitalized, renewed and reenergized about life. let's listen to her story. >> well, mom has cried. she sobbed. she's crying again. you tell me why you want this for her.

>> she just works really hard for us and she is a great mom overall. >> i can tell you are going to be beyond gorgeous and hot. are you ready? >> yes, i'm so ready. >> are you going to stop crying? >> yes, i will. promise. >> she's here with her daughter madeline, sister karen and her mother martha. >> the gang's here. >> they're beautiful. a last look at joan before and now let's bring out the new and regenerated joan jellison! >> oh, my god! wow. >> take them off, baby. >> oh, my god! >> she is a blonde! >> you look awesome. turn around and look at yourself. >> ah! >> she looks hot. >> oh, i love it. i love it. >> the shrshoes and everything! >> you look sensational. >> look right at camera 12. you look awesome. look at the difference.

>> forget about plain jane. she left the building. right on trend to the lighter, brighter hair, more monochromatic. natural looking, but believable. her haircut gave her fullness and body. if you notice, both ladies have this new icy lip color, perfect for summer. >> i like that. >> i love it. >> look at everyone crying. >> what do you think? come on, come on. >> terrific. >> i thought she was beautiful before, but you do look like a different person. >> she looks like a movie star. >> you look gorgeous. >> thank you. i love it. >> tell us about the hot little dress. >> i'm crazy about this dress. it's from maggie london. she put it on and said my daughter is going to love this. >> let's bring julie out. julie, step out. big round of applause. >> everybody's awesome. >> thank you guys for coming. next week we have a star-studded lineup. we just don't know who's coming. >> they haven't gotten back to

us yet, but i'm sure they're going to show up. bye-bye, everybody. going to show up. bye-bye, everybody. god bless. tions by vitac -- www.vitac.com i'm jim cramer and welcome to my world. you need to get in the game. they're going to go out of business and they're 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 money. my job is not just to entertain i'm trying to educate and teach. call me at 1-800-743-cnbc. tonight's show is devoted to helping you avoid some of the most common and money-losing mistakes that investors continue to make. and recognizing misinformation when you see it. the best way to do this is with discipline. and so night, i'm laying out these rules to help make money

in what can be an incredibly bewildering, confusing and even infuriating, certainly irritating market. if you low my rules you should recognize an opportunity when you can see it and to manage not losing money if you don't have to, no matter what the circumstances. including a collapsing euro or a slowing giant or even skyrocketing oil prices. let's get down to business. here's the first one. i don't want you digging in your heels anymore when you're wrong. or in the immortal words op john manor canes, when the facts change, i change my mind. what do you do, sir? one of the easiest mistakes to make, i refuse to change my stance after the facts are in and i've been proven wrong. it's natural to dig in your heels and refuse to change in your mind when you think you're right but the market is going

against you. it's also a quick and easy way to lose money. yet mad mailers, and particularly twitter followers @jimcramer refuse to believe this principle. i have been blasted into reality over and over and over again, whenever i dug in my heels on either side. you're always angry when you get run over and you're always willing to take it out on people own the other side. i am open about this whole process and i actually read the angry e-mails. oh, boy, in those tweets and i engage with people, sometimes in a cranky way, helps me to learn how to invest better. but it's also been an exercise in pain. >> the house of pain. >> when the e-mails and tweets are the most hurtful, that's when i know i'm the most right. >> for example, i got incredibly heavy volume of hate mail after the market bottomed in 2009. when the dow jones industrial average was down to 6,500, pretty close to bottom there, i

came out and said the down side was minimal. i didn't say the down side was done. i said it was minimal. i knew there couldn't be that much more down side. basically a model where the market would go in case the worst was in hand. but an honest to goodness depression. bottoms up, i tallied all the members of the dow jones have average. i calculated all the averages would go to zero. people considered this one a financial because of its big g.e. commercial division, citigroup and jpmorgan. on top of that, i also look into the total of 3m and added in alcoa, all pretty dire assumptions to say the least. and even under these incredibly ghastly conditions, i still couldn't see a low that took us down signicantly from where prices already were. from the moment i made that call, there were people telling

me i was crazy and i had no idea what i was talking about. a month later, it was the dow 1,500 points higher. these people, what were they doing? they were still there. still sending me e-mails that were impassioned and claiming that it was still too soon to tell. telling me i had lost my rigor, i was no longer with a hedge fund and i didn't know what i was doing. if you find yourself making that kind of argument, you know what you're doing. you're digging in your heels when you should be changing your mind. this is something that's hard for the most emotional investors and traders to come to terms with. believe me. i know. but it's also crucial if you want to be a better investor than you are. people do this all the time with stocks. we would never let ourselves make the same analogy about sports. could you claim that your favorite basketball team still had a chance of coming back from behind to win an hour after the game ended? what about a week?

how about a month? of course not. if anyone did that, they would think you're insane. i'm just urging you to apply the same level of rigor to stocks as you would to sports. the facts are always changing in this business and at some point you should be willing to acknowledge the game is over and you were wrong. i'm not trying to be glib about this. it's part of the emotional side of training while difficult to measure justice as important as financial side. most people are embarrassed by this stuff. swallowing your pride is never easy. but the more time you spend digging in your heels the less time you have a chance to take advantage of the new situation and profit from it. if you try to come up with more and more excuses for things to go your way, maybe it's a good time to ponder why they haven't 37 and you've got this huge edge on me. i have a national tv show, calling the market's direction. i mean, i try. it's so much easier to say just you wait and see and not have to

eat any crow than it is to admit defeat. look, you don't have to worry about publicly embarrassing yourself. so focus on those potential profits and not your ego. also, i'm not a politician either. they can't change their mind without ridicule. if i don't change my mind, i lose money. that's a far higher judgment to worry about. here's the bottom line, when the facts are in and you' been proven wrong, don't dig in your heels. simply change your mind. >> ray in georgia. >> yes, sir. i have a question on stocks. i think i heard you one time say that you didn't like to use stops. and i'm just trying to figure for us home gamers, how do you protect yourself if you don't use stops or stops with limits? what do you think? >> okay. first thing about the flash crash, okay? you're stopped out at some horrible price, who knows what you got then the market comes right back, you got hurt. more importantly, what are you doing here? come on, this is real money.

you've got to stay close to your money. you're putting in some machine's hand when you do that. i want you to be able to say hey, how is the market doing? i want to be able to stay close to it. i don't want to go on auto pilot. putting in these stop losses in are auto pilot. i don't like it. stick with the facts. is it a buy or a sell. skip in new jersey. skip? >> caller: hey, jim. big boo-yah to you. >> i'm around the block from you in the summer. what's going on? >> caller: hey. i would like to know, national aluminum partnerships, an appropriate investment for i.r.a. retirement accounts? >> you have got to speak to your accountant for this. there's a penalty that can be paid if you have too much income from these in your i.r.a. you do not want to run afoul of that penalty. let's go to anoup in california.

>> caller: how you doing? >> real, good, man. how are you doing? >> caller: good. you mentioned that it's valuable to track a group of fundamentally good stocks and buy when prices are down, much like you microscope out a fancy watch at macy's and buy during the after christmas sale. as long as it's working. >> caller: i was wondering if charting the inflated price to earnings per share ratio for an equity could help to more appropriately time approaches? secondly, would tracking the inflation adjusted price to cash flow ratio be an even better method. >> we don't have a lot of inflation. i totally like that idea. that's really, truly rigorous. however, in the end what's going to tell you to buy whether or not is if a market brings a stock down, not the company's fundamentals but the fundamentals are intact. if it pulls back 5% to 8%, that's when i want you to strike.

okay, don't be stubborn when it comes to your money in this market. when the facts change, i'm urging you. don't dig in your heels. have some discipline. change your mind. "mad money" will be right back. taking control of your financial destiny is smart. but why would you go it alone? >> something that has a much larger bearing on you and the stock market as a whole. >> let "mad money" be your guide, your sounding board. >> i know you can beat these professionals. >> and your coach on the road to financial independence. "mad money" weeknights on cnbc. don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer. #madtweets. or give us a call at 1-800-743-cnbc.

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to get through a workout. it keeps me alert for a long period of time, and keeps me going. on or off the course, play with energy, 5-hour energy. welcome back to "mad money." welcome back to disciplinary version. investing discipline, rules that can help you make money in an incredibly befuddling stock market like this one. based on 31 years of investing insights, among the most important, price matters. i know, it seems obvious but

bear with me because it's anything but. price matters so much, you can buy the stocks of companies you don't like. that's right, ones you don't like, provided they go low enough. in fact, at the right price, even inferior merchandise is worth purchasing unless it's deteriorating. in the first place, just because they've become so darn cheap. now, i will never endorse a stock when i think the fundamentals of the underlying company are deteriorating. and i won't go near anything that could be headed towards bankruptcy because of a hardball lance sheet. you need to always look at the balance sheet. but there's a whole lot of space between a best of breed company and one that's uninvestable. okay? this is really important. in normal circumstances, the stocks of the lowliest companies that still pass the smell test sellor much n i would ever be willing to pay for them.

there are some hopeful investors speculating unwisely and buying barely adequate merchandise because it appears cheap when, in fact, it's just selling for the appropriate discount. however, if the price drops far enough, then it's perfectly okay to buy a stock when you merely have a low opinion of the underlying company. that's how much price matters. i get vicious tweets on this particular subject. normally i recommend selling a company that i previously said i like. hey, cramer, how could you not like it now? it's hot. there are levels when worst of breed companies are cheap enough worth buying, even companies i slammed a the a high price. worst of breed is different than just plane worse. a worst of breed business may not look like much compared to its best of breed business. but at least it can get into the dog show. how do you know when the price is right on something you wouldn't otherwise buy?

obviously there's a sliding scale here. the better the company, the more you should be willing to pay for it. if you're speculating, it's worth looking for companies that have been left for dead, even though they perfectly have a pulse closer on npsing. there's no price you should pay for a company if it looks like it's going under. never, never, never. but if the street has it wrong, buying an unattractive company at an attractive price makes a whole lot of sense. at the bottom of the barrel, at the end of 2011, the regional banks, they began to break away from the international banks that were hostage to europe. i disliked these banks. banks like u.s. bancorp and wells fargo. but i had to warm up to them because employment was coming back. housing market was getting better. i held my nose and told you to buy it. it worked. even though i was blasted for flip flopping on the bank group. i would leave the show, go to twitter and there it was.

people just say may, i thought you hated the banks. at certain prices, can't hate. it's harder to find situations where something that doesn't interest you suddenly becomes worth buying simply because there aren't many times when a halfway decent stock will get hit that hard. but if you keep your eyes peeled on companies raising money through equity offerings, it doesn't take much effort in an environment where so many try to raise capital through secondaries. i'm finding this in some european situations. you can often find great deals on merchandise you never would have looked at once, let alone twice. these deals happen all the time. i try to get you attuned to them on the show so you can pounce when they come up. just in terms on price, one day, may 13 of 2009. i'll never forget this. both ford and bb&t, a southern regional bank that had a lot of bad loans on its books but i

thought looked like a survivor, sold stock at a radically discounted prices. ford secondary priced at a 5% discount to the previous day's close. and a 24% discount to the previous week's. and bbt sold at a 10% discount at the previous close and a 27% discount to the close a week before. before bb&t got the deal done the stock softened. they were worth a heck of a lot more after than before, the secondary offering was a steal. even if you had no prior experience before in ford or bb&t and thought they were mediocre at best. at discounts that steep, both stocks, the stock price changed my mind. those were great buys. i want you to always keep your eye on the price. because even less than stellar companies can turn out to be big winners if you get a chance to

buy them low enough. the ultimate example came at the bottom of 2008 with amd. a stock i've hated for more than 22 years i hated it when jerry sanders ran it. but when after its graphic chip division began to take share from market leaders like intel and nvidia, two much better companies, the opportunity was too great. i called this one a hold your nose and buy situation. if you listen to me, you could have caught a double in a matter of months. yeah, sure, you had to trade out of it because it got too expensive, but the trade was made, the money was booked. here's the bottom line. price forces you to make new judgments about bad merchandise, just as some fixer-uppers have a price you wouldn't want to pay in at another time, stocks get so cheap they become diamonds, rough diamonds, but diamonds nonetheless. stay with cramer.

sitting on the sidelines because of all the uncertainty in the market? >> thanks for turning my portfolio from mean to green. >> that's what i want to hear. >> with over 25 years with experience in bull and bear markets, let coach cramer show you how to play to win. >> thanks for keeping us in the game. "mad money" weeknights on cnbc. [ snoring ] ♪ [ snoring ] [ male announcer ] introducing zzzquil sleep-aid. [ snoring ] [ snoring ] [ male announcer ] it's not for colds, it's not for pain, it's just for sleep. [ snoring ] [ male announcer ] because sleep is a beautiful thing. [ birds chirping ] introducing zzzquil, the non-habit forming sleep-aid from the makers of nyquil. ♪

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tonight's show is all about helping you better understand the new stock market environment and teach you how to analyze stocks so you know when they're it willing the truth. and you know when you're being misled. how can stocks, inanimate pieces of paper be honest or misleading? they can't, but the companies behind them can, which brings me to the subject of my next rule. don't take your cue from an inferior company. when a worst of breed player says things are bad for the whole industry -- >> the house of pain. >> -- i don't want you to take it on faith anymore. there are strong and weak players in every sector. the weak will blame their failings on the stock market. when intel things are bad you shouldn't necessarily sell the computer hardware or semiconductor stocks based on that. because their competitors and suppliers.

you shouldn't sell apple and ibm, which have little to do with dell and intel other than the fact that they are all considered tech. this is typical worst of breed behavior and you can't generalize from it. let's with honest, you will never hear a company say we're doing poorly because our companies have better execution, they're grabbing our market share and generally eating our lunch. no ceo in his right mind are going to come out on the quarterly conference call and say it's not in our stars but in ourselves style revelation. they would get fired in an instant. shareholders don't always respond well to that level of honesty. you need to be able to recognize an excuse when you see it. bad news for hewlett-packard, for example, can sometimes be only bad news for hewlett-packard. if they tell you it's raining the odds are pretty good when you hear from apple or ibm they'll likely tell you that it must be only be raining on hewlett-packard's side of the street. business is just fine where they're standi. kohl's, it's only raining on their side of the street versus macy's.

you can't assume all companies in the same industry are equivalent. sometimes there isn't any pen action, which is why i keep my pen sounds. you can't extrapolate one company's results to the rest of the industry. that was frequently the case when that company is one of the losers. hey, it happens in every industry. it's not just tech stocks that hide behind other sectors when the ball drops. avon, when its business faltered, even direct sellers flourished, they were talking about the business model not being any good. that's great tupperware and herbalife hitting it out of the park. we saw this phenomenon pay out in fast food. wendy's saying the consumers can't afford a hamburger today, but it could tomorrow, the day when mcdonald's told us they were selling them by the billions. safeway and super value keep

complaining the consumer was moribund while costco stole food shoppers away from traditional supermarkets. when a company with a bad track record blames poor performance on a tough environment, it's probably just making excuses, not telling you something that applies to its stronger competitors, which are likely running circles around it. don't believe the hype. patrick in arizona. patrick. let's go to della in california to start. >> caller: boo-yah, jim. thank you for helping my husband and i with our investing. and our question is, would reinstating the uptick rule help stop the volatility of this market? >> okay. i think della, the answer to that is quite simply yes. but the institutions that are involved with trading are far more powerful than the little guys and the institutions want to see quick trading because the fees are good for the companies that trade, and also because, you know, these guys want to be

able to short with impunity. i think the marks are created to be able to raise capital and as places to invest for regular people. and they've been driven out by this and that makes it so the market can go up and down very quickly because the little guy doesn't trade like that. only the hedge funds do and they need to see that up tick rule be -- staying away from our market. they liked it abolished. i didn't. now let's go to patrick in arizona. patrick? >> caller: hi, jim. >> what's up? >> caller: let's talk about diversification. there are three factors. sectors, industry and classes. can you tell us about which are the most important, which ones are the least important that we should use in making a diversified portfolio? >> i use the s&p groupings. financials, 15 mrs., 16%, 17%, that takes care of that group. that's banks, insurers, tech, 15%. that's hardware, software, industrials is, companies that

are cyclical in nature, that's another one. obviously the health care, drugs, the foods. i like to use the s&p groups. those are the ones that make it so i can say point blank empirically, this is diversified from that group. sweet little lies, a good craftsman never blames his tool. when a company blames a tough environment, it's your excuse not to buy. stay with cramer. we know a place where tossing and turning

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welcome back to this disciplinary edition of "mad money" where i'moing everything i can to beef up the disciplines to make you into a great investor. this is a market that's full of misdirection. they fake this way, they go that way. if you trust what people on television are saying, you're going to get burned.

this next phrase is all about helping you to not believe the hype. all the headlines describe it as an upside surprise. what the headlines call an upside surprise and what truly impresses the professionals are often two different things. this distinction can get confusing. sometimes when a company supports the upside surprise for the wrong reasons, its stock can go down. look at the coverage for the quarter. the market probably seems totally arbitrary and capricious. an upside surprise can't reliably send a stock higher. at the same time, we deliver higher than expected earnings.

the stock will go down then. when we buy shares in a company we care about, not what it's already earned in the past that matters. i'm talking about the confusion that results from the headline writers not drawing a serious distinction between a high quality upside surprise, a real one, and a low quality losery, almost slight of hand upside surprise. we like companies that can deliver the first kind. but a low quality slight of upside surprise doesn't attract much difference. how do you tell the difference? simple. remember this word. one is organic. the other is manufacture. the higher upside surprise is generated by higher than expected sales, organic, which then leads to better than expected earnings per share. stronger sales could mean a few different things but they're all good. the industry similar proving. more people are buying the company's product, or it could

be the company is taking market share from its competitors or it has growth coming from an entirely new business. so a real upside surprise tells you the environment has improved or the company has improved. since both indicate it should be able to grow its sales and earnings at a faster clip in the future and that's a reason to buy. as the big boys in wall street ultimately value stocks based on growth, revenue growth. look, even when we were in the depths of our garden variety great depression, these revenue upside surprise stories advanced. as you can see by looking back at apple's phenomenal run. upside after upside on almost entirely better than expected sales of the iphone and ipod and then the ipad. and then of course as we preach incessantly, a high quality earnings beat can often be accompanied by a dividend increase. particularly one of a great magnitude. hey, that's a terrific tell of the future. perhaps the best of all, because once the dividend increased it

is not easily cut without tremendous embarrassment. much better than the announcement of a buy back. what about the low quality slight of hand kind? it's easy to tell the two apart, even if the press rarely bothers to draw any real distinction. the earnings per share, then the top line, the sales number. here, the outside surprise is generated not by improved business but because management cut costs. maybe they manipulated the tax rate through aggressive or illegal accounting treatment. or then again, they bought back stock. the latter, the bought back stock earning surprises is considered losery by is earnings professionals. the increased earnings per share only indicated a small share cap. almost all the food and drug companies generate what i'm calling a slight of hand upside

surprise. they don't have real growth. the reason the boys don't care about the upside surprises, any large company with a good cfo that's in a predictable line of business can almost ensure they beat the street's expectations, as long as the quarter isn't a bad one. the food and drug names use buy backs to generate earnings per share based on upside surprise or they repatriate as much upside. that's how they beat the estimates. it doesn't indicate that things are better. it just says management is shrewd enough in making sure its earnings per sha number doesn't disappoint anyone. believe me, it's not a surprise to the big boys. here's the bottom line. now you can tell what the big

boys in the wall street fashion show want to see in a quarter. and you won't make a confused assumption as the press often does the headlines earnings per share number is all that matters. the company delivered better than expected sales which then turns into a better bottom line counts for a whole lot more. i need to start with ron in north carolina. ron? >> caller: ron. good evening, jim. thank you for taking my call. boo-yah. >> what's on your mind? >> caller: the multiple ipos that some companies are issuing, does that diminish the common stock price? >> the ipo sets the common stock price. the secondary? >> caller: yeah. >> the secondary can depress. the stock will shoot up. then the brokers soften it. they announce there could be a secondary. then boom, they slap it on and often times that's a buy of a lifetime. i often like to buy secondaries after the market is softened.

omaha beach, they soften it up with gunpowder and the navy. and that's a buy. let's go to vincent in colorado, please. >> hi, jim. i'm a business and economic student here at the university of denver in tivo land. i'm wondering if the yuan goes up, there should be a way to take advantage of that. i think their firms will be pleasantly surprised if they switch from exports to their internal market. is that true? and if it is, what are the best picks? who's going to be able to have advantage of the new middle class? >> how about cpfl energia. utility companies are particularly growth companies when your country was growing. i think that makes sense. i would recommend a bank stock, but that's diceyer. i think a utility is the way to go.

>> caller: i'm philadelphia born and bred. i live in tucson, arizona. >> good for you. you got out. >> caller: thank you for recommending to get into good, high quality stocks paying big dividends. did well by me. it's gravy time. >> particularly when the stock market was down 19% and we didn't get hit much at all with our strategy. so go ahead. >> no, they were great stocks. >> my question is, encapsulating the p.e.g. ratio from getting back to even, how do you calculate the growth rate? is it current year divided by prior year? >> yeah. well, i like future year estimates -- you know, i look at -- i look at the step function. last year, this year, and next year. and it's between this year and next year that i care most about. what i do frankly is i honestly do use the street estimates to calculate what the p.e.g. ratio is.

with the exception of apple over the course of the last few years, i'm satisfied using street estimates as a way to go. upside surprise can sometimes lead you into a major down side. don't believe the hype. check the sales before you check the earnings to make sure it's a real not a manufactured surprise. stay with cramer. [♪...] >> i've been training all year for the big race in chicago, but i can only afford one trip. and i just found out my best friend is getting married in l.a.

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one of the most natural, misleading mistakes people make is that people on tv are telling you to sell or avoid stocks have to be telling you the truth. wrong. don't assume that commentators who dpis like the market are any more honest or self-interested than those who talk up the market or who talk up individual stocks. whenever we hear someone touting a stock on television, we accept the idea that they own it and treat everything they say with a healthy dose of skepticism, of suspicion. at least we have learned that much after the viciously volatile last decade in the market, but we hardly ever reserve that skepticism for people who bad mouth the market. more often than not,s in tors

will assume that people who criticize the market either don't have an agenda or must not be pushing one. they've got to be the right guys, right? nay eve got the ethic. to most people expressing a negative view on the market is automatically bolstering your credibility. to me, bringing in half my money by shorting stocks, that's right, betting against stocks, this attitude is totally surreal. people who criticize the market on television or in print or on the web. aren't necessarily trying to help you. when someone says they like the stock, they're branded a tout. but when someone says they hate the market, how often do you say wait a second. this person might be shorting the market and hoping to knock stocks down in order photo buy them at a lore price. it's easy to recognize that many investors need stocks to go higher, but perhaps the idea of shorting stocks is less familiar to many home gamer, it's much less common to make the connection that some people need

markets down. some people need markets to go lower in order to outperform their averages. in fact, in my professional opinion, there's probably more chicanery and disonestly from short sellers than the longs. that's right. you have to remember that there are people out there who want to push prices down every bit as much at the touts who want to drive them up. the ones who want to drive them up are touts. both sides can be misleading. sure. they can be doing rigorous work, the shorts. they can also be pressing their truce, though, when it is most convenient. meaning when a short is going against them. tt other issue is when money managers come on television anticipate have to disclose positions, they never have to tell you, i'm underinvested. w i'm getting dusted by my competitors, so it's vital i knock the market down in order to give myself a decent entry point. if they don't own anything and

they're not short anything, there's nothing to disdloez close, but they still might have an interest in knocking stocks lower because of how they're positioned. it's just -- you're just never going to hear about it. and believe me, there are people who benefit from a broad stock market decline and are more than happy to go on television and make the case that the decline is going to happen and encourage you to get out while you still can. if stocks become stronger, all the hedge funds who were either net short, they were betting on stocks to go down with more short positions than long ones, or simply underinvested, meaning they have much less in stock and much more in cash are nou underperforming and they are becoming more and more desperate. money managers who have been left behind by the market and their competitors start to feel like cornered rats getting ready to be butchered by a fer ril feline. see a lot of hedge funds can't afford even one year of underperformance. i was in this business for 14 years. i know it.

no one else has a show. it takes a lot of build up, good will with your clients. you have to have a good record and ix plain how you barely made any money when stocks everywhere were soaring. by the time you're through with that explanation. you have to be careful. many with the few hedge fund managers will happily plant negative stories in the press and try to take advantage of the immediate yach to spread as much negativity as possible to get stocks down so they can buy or because their shorts need to be able to work for them. saw this a lot in 2008-2009. since that's not the world we live in, the best way i know how to protect you from this kind of chicanery is shining a light on it and making sure you know what to watch out for. the bottom line, remember to always be on your guard. the people bad mouthing the market aren't one bit more

altruistic or honest than the people who come on tv shows and tout stocks also for their own benefit. "mad money" is back after the break. >> let's go to kentucky. >> here's a big las vegas ding, ding, ding, ding, ding boo-yah. >> statten island, new york. forget about it boo-yah! >> boston, nashville -- >> michigan. >> how are you? >> boo-yahs come from all across america. "mad money" with jim cramer. ♪ ♪ moving along ♪ new beginnings and new ends ♪ spending our time with our family and our friends ♪ ♪ celebrate with the cool autumn air ♪ ♪ ♪ and we're livin' out our lives ♪ ♪ as we dance without a care ♪ oh we were made

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let's catch up with some "mad mail" and do some mad tweets. this one is from beehive 15. jim, you mentioned tracking stocks with recent 52-week highs and buying them with pullbacks. what are the exception? i got this deal in leon cooperman, running research when i worked at goldman sachs. at the time, he said stocks that are 5% to 8% back on a pullback because of the market going down, not the fundamentals of a stock. stocks at new high list, hard to come by. but as long as they're going down, not because of fundamentals of the company but because of the market, you might have a real good buy. some stocks pull back, again, because they've run up too much.

those are interesting, too. i want you to be sure, the easy way is to make sure the market brought it down, not the stock itself with a press release or analyst downgrade. >> all right, here's one from txu 9937 are dividend stocks a crded trade? this drives me crazy. one of the greatest investors ever, professor at wharton. dividends are responsible for 40% to 50% of a stock's price increase. it's only people who trade and trade ridiculously and high frequency. these are the people who are worried about this kind of nonsense, okay? they are the ones who are trying to gain short-term trades. i don't want you doing that. i want you to buy the dividend and i want you to reinvest the dividend. take a look at the performance of the dow in 2011. 5.5%, why? the yields were much higher for

the dow stocks than anybody else. if you reinvested those dif depds, you got an 8% return. how can that ever be considered crowded? how about smart. okay, here's "mad mail." i have had a chance selling stocks. but i sell call options. it takes it out of my hands. am i crazy? yes, you are. any strategy that cuts off your upside but does not limit your down side is a stupid strategy. i know a lot of people like to have covered call. i say no. if something really great happen 20s your stock and i wouldn't have bought it unless you thought something great was going to happen, you're not going to be able to participate. you're short the call, can't even take action. you're afraid of a takeover. i've got to tell you, i know very smart people who sell covered calls. it's a sucker strategy to me. i buy stocks because they're going to go higher.

i don't want to cap my upside when they do. hey, shultz. jim, how much gold should i hold as a percent of my portfolio. ever since i started the show, i felt that 10% to 20% should be your benchmark. when gold blew up all the way to 1,800 in 2011, i felt, you know what, let it pull back and you can even sell some. but you've got to keep that core position. why? because i don't regard gold as a stock. i guard it as a currency. it's an alternative currency to the fiat currency, the printed currency that we have in the united states and they have in europe. i've got to tell you, i trust gold, i don't trust paper. that's why between 10% to 20% makes sense. hello, mr. cramer. i'm a new investor and would love to make big gains. first of all, we're only going to have one speculative stock out of every five. two out of every ten.