anyway, i went to the new orleans jazz fest and got hammered! i'm jim cramer, welcome to my world. >> you need to get in the game. >> going out of business and they're nuts, they know nothing. >> i always like to say there is a bull market somewhere. >> "mad money," you can't afford to miss it. >> hey, i'm cramer. welcome to "mad money." people want to make friends, i'm trying to save you money. call me tonight. tonight i'm letting you in on something big. the method to my madness. i know this show is the craziest, most random, bizarre thing on television, and i also know that you won't find investing advice this good anywhere else.

if you're tuning in just to see if tonight is the night the show goes off the rails, which it is always a possibility on any given night. sorry, there is a tape delay, keep wishing. for those of you interested in trying to make money, some say i'm a crazy man, particularly on twitter @jimcramer. i think you can do everything i do at home if you're willing to put in the time and the 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, fling for the false safety of bond funds particularly record low interest rates. it's something that anyone can do as long as you spend several hours a week doing the homework, and i'm including watching the show to do research on the stocks.

just play -- playing on websites with the actual companies which i lo to check, anything you're thinking of buying or keeping up on. i think managing your own portfolio is essential. index funds try to mimic the market, and the academics persist in telling you it's good. mimicking the market return social security not enough. you have to do better. and the only way to do that is by picking your own stocks and managing your portfolio. how do you start? that's what we're talking about tonight. like i said this show is all about the method or methods to my madness, how do i pick stocks. that's what i'm always asked. tonight you will get a piece of that answer. i have far too many methods to cover all of them in one show, but i want to give you some of

the tools of my trade, and you can pick yours on your own, or you can do better than i am. i have to be a generalist on mad money and try to cover as many stocks as i can to help you at home. you can just research what you own or are thinking of buying. at the bottom of the show, it's about educating you, giving you the ultimate insider's perspective, i'm not here to just dole out stock picks about the perverbal fish that you buy a man at whole foods. i'll show you the tricks that i use to pick out great stocks, and trade them like a pro. methods that allowed me to generate a 24% return after fees at my old hedge fund. these skills are what refresh this show and guide me as i manage my own charitable trust. i tell you everything before i

ever pull the tricker. now let's get rolling. one of the easiest ways is stocks that could, but won't necessarily, end up on the show is by watching the stocks that appear on the new high list. stocks from that list, the highest of the high, obviously have something going for them, right? that's especially true in the market. if only the best of the best can hit new highs when the market is falling apart. what's it tell you when they're on the new high list, or the company itself has some serious momentum. no matter how they get there, many stocks on the new high list often just keep going higher. a great bull market like the one we had at the bottom of 2009, and any market that almost doubles that though be considered a bull market even as we resist the labels. we saw the same stock hit new high after new high, and following them was a great way to make money.

even as the bears claimed endlessly that the bull market was false and could not be trusted, listening to the bears caused you to miss out on one of the greatest rallies in history. the rally is more like the exception than the rule. generally things have worked well, and things that work well continue to work well. i'm not saying you can chase stocks hitting your highs because they will keep going higher. i'm sure some of you will no doubt qualify, that's what i'm saying. some of you will pickle me. that would be the ultimate in foolishness. this is subtle. i'm not bozo the clown. i'm saying that if you identify stocks, there will be winners in the future, and looking at the biggest winners of the presents have tended to be a good place to stark looks. that's the thing about the market. once you understand there is often more couldn't knewty to it

than change, things pretty much keep going the way they were going until something major shifts, and then, yes indeed, you have to alter your course. they can be pretty radical. and that's why you always have to reevaluate your idea, and please don't dig in your heels when the facts change. two important dispolitics that i stress in my book "getting back to even." it's a book at methodology not just individual stocks working at the time. when you're looking for stocks to investment, hunting for the next bull market, between 6:00 and 11:00 p.m., eastern of course, you have to start somewhere. the new high list is a terrific place to begin, a terrific already sorted through list. i don't just pluck names off the new high list because i think they have been going up, they'll keep going up. why don't i recommend them on the show? lazy, irresponsible chasing of momentum.

i'm a lot of things, lazy and irresponsibility i'm not. i apply the same things to this show as i did at my hedge fund. what i like to do when i'm hunting for stocks, 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 would pass at a retail store, that's when you pounce in my store. the pullback gives you a good lower priced entry point in a stock with a lot of positives going for it. i'm not telling you to chase momentum, you should be conscious of price and buy on weakness and sell on a strength. i don't want you to look at the new high list as your shopping list tomorrow and just buy something. not like that. pouring over the new high list is a good way to see potential

stocks to buy. you only buy if you're confident they'll make a comeback for a substantive reason, not having to do with the market itself. you're not trying to play the market. you do the homework you would before buying any stock. you must have conviction, even if it is cynical. and the biggest caveat of all, make sure they didn't pull back for a good reason specific to the company. be certain you're dealing with -- not dealing with a damaged stock. it could be because of profit taking, panic in the market in general, macro issues, now more than ever, now they they're tried like commodities, it makes to sense in anything.

there are more powerful in the stocks themselves, you're going to see stocks of good companies pull back from highs that have nothing to do with their underlying businesses. if the fundamental picture changes, whatever made that stock attractive goes away, the stock is no longer a viable candidate, the story has to be in tact or this method be not help you one bit. i like stocks that pulled back between 5% and 8% from the high when they're on the new high list is my tweet spot. i discovered that to be the optimal level of a pullback. less than that you may be too early, more than that something may be wrong with the stock, you just don't know. here is the bottom line, that's the first method of cramer's madness. 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 and go to nate in illinois. >> caller: boo-yah, jim. i have a question for you, i'm 19 years old, and 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? >> first of all, congratulate you that you interested and this is the right age to do it. if you pick something dicey and it goes down, that's okay. second, i want to encourage you to try to find the companies that are growth stocks that i highlight over and over again on the show. you will hear me say growth stock, growth stock, listen up and pull the trigger if you like it. michael in new york. >> caller: hi, jim. i enjoy the show, thank you for helping me make money for my family. >> i appreciate that. >> caller: i have two questions. what do you gain by getting a

dividend if the share price goes down by the amount of the dividend and then you have to pay taxes to the dividend, and isn't comparing dividend stocks to a yield not a apples to apples comparison because of the greatest risk of losing your risk with stock as compared to the ten-year? >> let's get empirical, what stocks have outperformed for the last 20 or 30 years? that's reinvested dividend. i'm getting this from jeremy seagal's work. go read his book and you will know exactly why i think dividends are so important. a pullback can be the market giving back. i like stocks that have pulled back from the new high list between 5% and 8%. don't chase momentum, it's a starting point, not an ending point. don't miss a second of "mad money." follow @jimcramer.

send him an e-mail, or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com. i played a round of golf.id in the last five hours? then i read a book while teaching myself how to play guitar; ran ten miles while knitting myself a sweater; jumped out of a plane. finally, i became a ping pong master while recording my debut album. how you ask? with 5-hour energy. i get hours of energy now -- no crash later. wait to see the next five hours.

[ woman #2 ] it's the real deal! [ man #1 ] turn it around! turn it around! [ woman #1 ] over here! over here! [ woman #2 ] turn around! turn around! [ woman #1 ] i love you! i can't believe it's not butter! neither can i. turn the tub around! show us the back! [ man #1 ] turn the tub around! [ female announcer ] with zero grams of trans fat per serving, i can't believe it's not butter is a superstar! ♪ turn the tub around, and become a believer. ♪ i've got two tickets to paradise!l set? pack your bags, we'll leave tonight.

uhh, it's next month, actually... eddie continues singing: to tickets to... paradiiiiiise! no four. remember? whoooa whooaa whooo! you know ronny, folks who save hundreds of dollars by switching to geico sure are happy. and how happy are they jimmy? happier than eddie money running a travel agency. get happy. get geico. fifteen minutes could save you fifteen percent or more.

welcome back to tonight's methods to madness show. some of my best tricks for buying and selling stocks. truly, this is wisdom for the ages. think of me as penn and teller for the stock market. if that resonates at all for this group. pull back the curtain. how it looks for stocks to buy and stocks to sell, sell, sell. no magic, no hidden talent. disciplines that can make you "mad money" if you master them. you don't have to be a genius, you don't have to be that smart. you just need to know what you are doing and put in some homework. that's where cramer, the sad, but wise clown comes in. more like the fool from king lear, something to think about. let's move on to more important things, how to find stocks that are great buys, i am talking about stocks that have pulled back from the new high list. it is proven a winner, five-day optimum.

you can usually get a better deal if you are patient and wait for weakness. there are very few occasions when buying a stock off the new high list is just. sometimes a stock is so sizzling so hot, you have to buy, buy, buy, whenever you can. as soon as you can. you won't find these often and they are very rare, but when you find them, you got to remember not to buy all at once, 100 shares of stock, lunch to me. so much mojo you won't get a pullback from the high. i'll bless buying 25 shares at the high lest. worst thing that happens, it goes higher, and you don't get to buy more, and you find another stock. believe me, there is always another stock to find. another train coming to the station. one exception where i'm okay to buy stock that is hitting a new high. and if you see insiders buying a stock at 52-week high, that's a clear signal. rare thing to see happen, but i have seen it, and in my

experience, it's rarer still this method of picking stock doesn't make you money. i love when i see insiders buying at the high. great confidence in the business. who knows better than people running it, right? it means from meaningless to a small, but insufficient reason to buy stock. a lot of times you will catch it because they want to create an illusion of confidence. insiders aren't stupid. if if they see you buying their own stocks, they know the market will smile upon them, so they play the system. that's fair, but it means we ignore most insider buying it could be sketchy. that said, when you get truly colossal insider buying at the high, well, you might want to take another look at the stock. a pretty powerful endorsement when insiders buy a whole lot of stock. it's really the volume of the insider buy that declares its sincere steve. we're focusing on buying at the top.

nothing more arrogant than when an insider backs up a truck for his own stock, sitting at a 52-week high. they are saying we know we rock, and we're so confident it will keep going higher, we'll buy stock hand over fist, not waiting for a pullback. buying what looks like to be the high. arrogant, sure, but bankable uverse, and there are notable exceptions occupying the wall of shame. let's assume they know what they are doing. not everyone deserves the benefit of the doubt in this business, and after the financial crisis at the end of 2008, i know a lot of people think ceo execs are fraud, crooks, liars, especially those of you who got burned on lehmann brothers. that's the wrong lesson to draw from the crash. healthy skepticism is one thing. a total unwillingness to believe anything positive is something entirely different. if you are going to own stocks, you need to be willing to extend some measure of trust to those who run the companies.

getting their stock to a 52-week high and buying a bunch of shares is pretty darn good reason to give the ceo benefit of doubt. they won't buy at the high unless they have unshakeable convictions about their companies ork perhaps they have been contacted for potential purchase. and they have spurned them. and most investors are smart enough to wait for pullback. insider buying at the high says these guys don't think there will be a pullback. i want to wait for a pullback after they bought. that's the betts of all possible worlds and here is the bottom line. one more method of cramer's madness, the stock that is 52-week high, you might want to be buying too. after the break, i'll try to make you more money. ♪ ooh baby, looks like you need a little help there ♪

♪ ooh baby, can i do for you today? ♪ [ female announcer ] need help keeping your digestive balance? align can help. only align has bifantis, a patented probiotic that naturally helps maintain your digestive balance. try align to help retain a balanced digestive system. try the #1 gastroenterologist recommended probiotic. align.

i have a cold, and i took nyquil, but i'm still "stubbed" up. [ male announcer ] truth is, nyquil doesn't unstuff your nose. what? [ male announcer ] it doesn't have a decongestant. no way. [ male announcer ] sorry. alka-seltzer plus fights your worst cold symptoms plus has a fast acting decongestant to relieve your stuffy nose. [ sighs ] thanks! [ male announcer ] you're welcome. that's the cold truth! [ male announcer ] alka-seltzer plus. ♪ oh what a relief it is! ♪ [ male announcer ] to learn more about the cold truth and save $1 visit alka-seltzer on facebook.

you're in luck. you caught cramer on a real good night. i'm not going home tonight to sip that cheap scotch on my dirty linoleum floor. i'm in a great mood, a manic mood even. me at my best. i'm pretty darn productive when i'm in high gear. revealing many secrets and methods to my madness. pullout our pencils and some paper, start jotting things down. what i'm about to tell you could be incredibly useful. better than giving you stock picks, giving you some of the best ways i know to pick stocks. teaching you to invest and trade like cramer. not to be like me, because -- i got some emotional issues, frankly, you would probably not to emulate. is that is off track. so far, i've given away two precious secrets. two i used at my hedge fund. and charitable trust, unlike lady gaga, i play with an open

hand, not a poker face, allowing viewers to see my trades before i make them. lady gaga is better than pink. am i raising a glass when i'm stock picking. i like to buy stocks around the new high list and have substantial insider buying, it says people in the company believe their stocks still have legs and if they believe, there could be good reason for to us believe too. this is not enough to recommend a stock. pieces, okay? pieces of a puzzle. have to do the homework, check the fundamentals and websites, make sure you like the story behind the company, and if the stock goes down, you know to buy more, rather than cut and run and lose. what i'm teaching you tonight are really tells. signals that it might be worth your time and efforts to reading through the transcript and quarterly filings. thousands of stocks out there, any method we can use to winnow,

to narrow down ones that might be attractive, that's a method worth having. we talked about insider buying at the high. i don't use it to determine if that's the way to determine if the stock has it going. one other scenario, where insider buying makes for an incredibly bullish tail, and that's when you have a stock that's an incredibly heavy sell, sell, sell. a lot of bears out there. they are waiting for the stock to go lower to buy them back. >> buy, buy, buy. >> and profit by returning the stock to the bank they borrowed it from and collective difference between the price they sold it first and bought it back later. hard for people to understand. i want you to think of shorting as like regular investing, only in reverse. what do we try to do? buy low and sell high?

successful shorts turn that around. try to sell stocks they think will go lower and then they buy them back and they collect that difference. when the stock has a lot of shorts in it, that means a lot of people have serious conviction that stock is headed lower. maybe dramatically lower. it takes more conviction to short a stock than go long. that's wall street speak for buying a stock. when are you short, potential downside is infinite. a stock does stop at zero, right? shorts lose money when stocks go higher, is there really a lid to that? no. the other important note is if there is a lot of it, and the stock all of a sudden gets great news, we get what is known as a short squeeze. and it sounds exactly like it is. squeezed up. the shorts have to buy. that's called covering. in other words, buying isn't just -- when you are 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, the stock will surge, just like if

everyone were to sell, 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 their years wiped out. remember, many short sellers in 2010 got their years blown away when the market refused to quit. where does insider buying fit in the short selling equation? you are looking for a high short interest. a giant percentage that will float or trade is shorted or sold short. when some of the people who sold the company start buying shares for themselves, bingo. that's your chance. almost like drawing a line in the sand for the short's sake. we think it goes no lower, and i'm hear nothing lower. this is an explosive conversation. one that often sends the stock much higher. shorts are smart. they tend to be smarter than long side buyers, but don't know more about the business than

insiders who run it. if management is buying in sizable amounts, do homework. it's a great starting point. and usually you want to side th management, and ride higher and higher through jackie wilson style. and as shorts panic and push it up big in the desperation to buy or cover positioned. it may be to cover losses or want to ring registers all at once, when a company begins a buy back, another line in the sand situation where management is contradicting the shorts. companies repurchase their own shares, and not all buy backs are just wastes of money, i teach you to identify the bogus buybacks, and actionalertsplus.com, and an active look at the stock, you don't find out it's active until the end of the quarter, that's why i like to read the quarterly report.

a note of caution, you have to be careful in dealing with a company in the crosshairs of the shorts. especially when people are nervous and the markets are in bad shape. the shorts have the ability, legally or not, to wreck a stock, even if the fundamentals of the company are fantastic. these days, the shorts, they got tremendous firepower and more -- i think in part because of the s.e.c., both the democrats and republicans, that looks the other way when shorts raid stocks with bogus stories with accounting issues and management blunders. that's cold fomenting a decline. not allowed, but it debts done anyway. pretty easy to thrive stocks down. it slows short selling and makes it harder to create bears. an up tick, something from the 30s. waiting for a higher price before they could short a stock. that was a good rule. but somehow the government got talked into abolishing it to make things quicker, it just

made things easier for the shorts. a lot of good that did it. the reason a lot of home gamers left the building. the government doesn't seem to care. we established the original rules, the uptick rules, to stop the fomenting panic. something that happened in the great depression. the government seems to think panics are no longer possible. actually, we know they are more prevalent than ever. we have to be careful not to succumb to panics who are orchestrated by short sellers. much easier to panic people in a financial than a regular business that doesn't involve credit. without those protections, the shorts were able to run wild and pratt particularly assassinate the stocks during the crash of 2008, until in 2009, the bulls were back in control. in 2011, using weapons of mass stock destruction. dealing with a heavily shorted

stock in one of the etfs, like the financials, we leashed you have to tread very carefully. you can still find great opportunities in stocks where shorts have overreached and insiders are buying, before going into situations, i got to warn you that the balance of power has shifted against you in recent years. against the regular investor and in fair of the hedge funds that like to bang down stocks. that means even if the short sellers are wrong about a company's prospects, they can still demolish it, demolish the stock. don't understatement the amount of damage the shorts can do. the best protection against these raids is often from stocks that pay good solid dividends. they have to pay dividends to the real owners. a terrific deterrent for those who are pernicious in the way they go about shorting. the best protection you can get against short sellers. insider buy, and heavy shortages can equal good investing opportunities where you can

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 booyah from clarksville, georgia. >> how can i help? >> caller: there are obvious reasons why a company might change the stock ticker symbol. are there reasons that are not so obvious here in the u.s. or abroad? and does this have any affect on stocks? >> no, not really. when i was a couple years ago at thestreet.com, the symbol was tsem and the ceo wanted to a symbol face lift and i picked tst. it was just a change of face. companies want to change their names. really the fundamentals that matter. let's go to rich in new york. >> 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? >> no, i do not advise shorting stock. losses can be infinite. i would prefer you to buy puts and you protect your upside sales call. and you protect your down side, and go back to getting even. i describe in 100 pages how it's better to buy puts. we know the key things to look for. great stocks to buy, insider buying is one of them, particularly when there is a heavy short position. that can often be a combustible situation that can explode to the upside. stay with cramer. nobody is more passionate about the market than i am. nobody in the whole country. >> i want to thank you. you have you saved my retirement. >> you are why i come out here and do this show. thank you so much. >> the stuff that are you doing

for all of us, is so important. i want to say thank you. >> my husband and i watch every day, and we count on your help for small investors like us. >> put cramer's 30 plus years of experience to work for you. "mad money," weeknights on cnbc.

welcome back to my methods to the madness of the craziest and most entertaining show, even

though i'm a maniacal crazy man, even if i do say myself. all of the tricks that made me a pretty darn good money manager. trying to enlighten you what is behind the scenes and try to make you the most money. today, transcending the usual model, though. i want to teach to you do what i do so you can do it yourself. so far, let's look at the interesting methods to pick stocks. a way to trade them now. we were doing investing, now trading. discipline incredibly useful, and this is the thing i get the most about @jimcramer, trading around a core position. i'm all about trading, don't have advice for regular investors, entirely untrue. this show is mostly about long-term investing. get dividends, can't do that in short term. to put whatever humility i have

left, i was a darn good trader. now i can only trade for the charitable trust, really longer term. much different from my hedge fund and i can't short sell or use options and those are two weapons i advocate you use. be careful, not for beginners, and if you want to be a good investor, pays to put trading disciplines into practice. trading is about profiting from short-term fluctuations in stock prices. sometimes these moves are caused by a catalyst, sometimes the result of a topsy turvy market. knowing how to trade makes awe a better investor. one of the most useful disciplines out there. and remember when we were subject to the gigantic swoons. intraday swoons, and i want to profit from them when they come back. what's it mean to trade around the core position. let's go through it step by step. first, you need a stock.

one have you an opinion about. one where you have a directional bias. buy a stock you need over the higher term. what you are really looking for is a great company with a stock that gets tossed around by market volatility, which you think will ultimately be headed higher if you are patient. so we know getting shot at, we'll take advantage of the to buy. if you were just in vesting, set a position in the stock, buying in increments, levels like we're talking about. buying all at once is the height of arrogance. let's use amazon.com, over the short term i like it. let's say you want to earn 300 shares of amazon. the way to be set up 100 shares three times over a period of weeks or months. that's the core position. let's say you want to trade. many of you want to but feel discouraged because of the amateur daytraders got blown out when the tech bubble burst, the

key word is amateur. you can make money trading if you do it right, like a professional. in the old days when commissioners were higher, it wasn't true then. the commissioners, it would eat up your profit. had has not been the case forages. 300 shares for amazon, trading at 100 bucks per share for the purpose of the show. i know it's nowhere near that. every time it jumps 3%, you sell 50 shares. 109, you share 50 shares, and then you wait for something to knock the stock down, as long as it doesn't change the company's prospects. that shouldn't take long given we're in a world where stocks can get crushed by factors that have nothing to do with the merchandise to selling the books, entertainment stuff, selling fundamentals. you buy it back in increments, just like you purchased it. we started 500 shares, let's

keep using increments 560. when it comes back to 103, buy 50 shares. and so on. up 3%, sell 50 shares, down 3%, buy 50 shares, but over time, profits do add up and i've seen it happen. that's what trading around a core position is all about. a lot of people think trading is really exciting, and it can be, but if you are beginning, i want you to be board. contra the image of trading as reckless and irresponsible. trading around the core position is the height of prudent portfolio adjustment and discipline. we have some rules to follow. in my example, we started with the core position, 300 shares of amazon. if i were trading around that i don't know. i would want to own more than 300 shares or less than 100. trading around a position for less than 25 shares won't make you enough money to be worth it you can scale these numbers, but

avoid putting yourself in a spot where you have too much on the table in case the stock gets squatted down or too little to take advantage of any upside that comes your way. trading around a core position is an important basic trading strategy everyone can use, even those who find the notion of trading versus investing to be abhorrent. want to take it to the ultimate level, i recommend reading the two chapters on how to use options for getting back to even. the strategy i used at hedge fund. the only place i talked to them. too sophisticated for "mad money" if have you time and inclination and want to put in more homework, it's worth the effort. google it, i would never do it in common stock, but do it with stock replacement. a cheaper and less risky way to do it. i want to talk about options on the show. too risky for vast majority of people out there. another method to my madness,

one that allows you to generate lots of small games that add up over time. stick with cramer. sitting on the sidelines because of all the uncertainty in the market? >> thanks for taking my portfolio from mean to green. >> that's what i want to hear. >> with over 25 years of experience in bull and bear markets, let coach cramer show you how to play to win. >> thank you for keeping us in the game. >> "mad money," weeknights on cnbc. have to ask you to power down your little word game. i think your friends will understand. oh no, it's actually my geico app...see? ...i just uh paid my bill. did you really? from the plane? yeah, i can manage my policy, get roadside assistance, pretty much access geico 24/7. sounds a little too good to be true sir. i'll believe that when pigs fly. ok, did she seriously just say that? geico. just click away with our free mobile app.

[ sniffs ] i took dayquil but my nose is still runny. [ male announcer ] truth is, dayquil doesn't treat that. really? [ male announcer ] alka-seltzer plus fights your worst cold symptoms, plus it relieves your runny nose. [ breathes deeply ] awesome. [ male announcer ] yes, it is. that's the cold truth!

i got one more trick to teach you tonight. one more method to my madness,

and i want to talk selling, along with when you buy, maybe the most important undervalued tool in the whole home arsenal. how do you know when to sell a hot stock? how do you get out before the party ends? so you don't get stuck cleaning up the mess? this is the question to be answered. a lot money to own hot stocks. but you have to know when it's time to leave the table. always naysayers and they are almost always proven right, and virtually almost all steaming hot stocks implode. this happened big in recent years with stocks netflix and research in motion. at one time, they were both on my favorites. made a lot of money for you i hope. and this recklessness could be described as prudence. people shy away, because they don't know where they will top out. 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 do have one and you're about to learn it. when i talk about hot stocks, i mean hot speculative stocks. companies with low market capitalizations who are tiny or tinier. they have very little research coverage and these names can go up and up and up for a long time. they can catch fire and stay on fire. more months, years, and the key to figuring out when interest is peaked and time to sell is by watching the analyst coverage of all things. you have to use your own judgment here. a good rule of thumb, once one of the hot stocks a half dozen analysts cover it, the run will peter out. too big, too well known. no longer the hot little speculative stock. you can find out how many guys on the stock by looking up on the internet. this formula has worked for me for as long as i can remember. it works because the number of analysts on the stock is a good

gauge of how much awareness and interest on the hot speculative stock. hot stocks get tapped out when nobody is left to be attracted to them. when all of the people have already bought. come out of nowhere, tracking more and more attention, more and more backers and everyone who has a piece of the stock has a piece of it. when that happens, sorry, guys, time to go home. one of the best examples a company formerly known as hansen national. one of the hottest stocks in 2004, hottest stock in 2005, hottest stock in 2006, and it went from $18 in 2005 to 205 in 2006. the whole way up, hansen, a beverage company that got momentum from monster energy drink, so much momentum with this energy drink it renamed the company monster. ultimately, it was a fad that would dry out and crash. it took years for the momentum to top out. i knew how stocks worked.

peaked in july 2006, in part because they did a 5-1 split. even though they weren't supposed to do anything this encouraged people who had been in hansen a long time to take it off the table. and it picked up its fourth analyst, may 10, 2006 when goldman started covering the stock. two months to sell between goldman's initiation and the stock peak. prudence dictated we sell once the stock had four analysts. better to clear out early with inning than to wait for them to fade away. hansen and all other hot stocks started to cool off. and incredibly after hansen fell off the radar screen, and the active analyst coverage dwindled, the stock dwindled. an amazing ren nance, and when analysts stop following the company, but the company's earnings start speculating as the case with hansen in 2011, a storied lazarus like move can happen.

especially when monster ended up vanquishing the competition, when everyone said would wipe out monster, but didn't materialize, after the dramatic fall from grace, they renamed the company monster. you must know when to sell and that comes when you see too many analysts jumping on the bandwagon. and use four as a good rule of thumb and start trimming the position. stay with cramer. >> it's a brutal, full contact sport. >> from the time the whistle blows -- >> traders bracing for a wild session. >> to the last play of the game. >> markets absolutely getting hammered today. >> i know it's not easy, but i promise to keep fighting for you. >> jim cramer, leveling the playing field for all.

>> the road is a tough one, but the payoff can be your greatest win of all. >> join "mad money" training camp, weeknights. ♪ ♪ [ male announcer ] everyone deserves the gift of all day pain relief. this season, discover aleve. all day pain relief with just two pills.

this season, discover aleve. i played a round of golf.id in the last five hours? then i read a book while teaching myself how to play guitar; ran ten miles while knitting myself a sweater; jumped out of a plane. finally, i became a ping pong master while recording my debut album. how you ask? with 5-hour energy. i get hours of energy now -- no crash later. wait to see the next five hours.

let's do some mad mail and mad tweets. jim says jen in texas, i'm trying to understand when peg is level when it's time to trim a stock. i know 2 is too high. i appreciate your teaching, oh, wise one. >> a rueful thumb, guideline. i think 2 is a red flag. for the stock that is 2.1 that people want to own, i don't like it. i've had too many mistakes made over 2. an odds game.

ben in pennsylvania. jim, i'm a new home gamer and a question regarding takeover bids. an i deal time when a company gets a takeover bid? i like to ring it immediately. immediately. because i am not an arbiter, and you shouldn't be either. we need to look for the next big win. tweets, this one from @kendoggie. i'm just starting a portfolio, better to buy one full position at a time or smaller amounts of all five at once? absolutely the latter, one of the things when are you just starting, i mean, it just happens to be the luck of the draw here. everybody just started immediately the first thought, went down very 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. okay, this one from @motorrat. how do you determine target prices for action alerts.com portfolio. my charitable trust.

stephanie link and i talk about it constantly. we try to figure out where we think the stock would be too expensive. peg ratio or price to earnings mobile ratio, and we are afraid we'll start giving things back. if the fundamentals improve, we can advise our price target up. we want to give them a sense of why we would take something off the table. we want you to have the move before we make it that's part of what i like about the charitable trust. this @paulsullivan. j.c., tweeting at 4:30 a.m. when do you sleep? i have strange sleeping habits, i admit to that. i usually get four hours of sleep on a given night. i would like to get more sleep. many of you ask me @jimcramer, the answer is why can't i sleep? that's why i'm up. stick with jim cramer. in the last five hours? i played a round of golf.

then i read a book while teaching myself how to play guitar; ran ten miles while knitting myself a sweater; jumped out of a plane. finally, i became a ping pong master while recording my debut album. how you ask? with 5-hour energy. i get hours of energy now -- no crash later. wait to see the next five hours. anyone have occasional constipation, diarrhea, gas, bloating? yeah. one phillips' colon health probiotic cap each day helps defend against these digestive issues with three strains of good bacteria. approved! [ phillips' lady ] live the regular life. phillips'.