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tv   Mad Money  CNBC  August 7, 2015 6:00pm-7:01pm EDT

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low of 4 and think where it is now after five, six years. >> starbucks, put spreads, that's the way to do it. >> dan. >> twitter it's contrarian. define your risk give yourself some >> my in addition is simple -- to make you money. i'm here to level the playing field for all the investors. i there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey i'm cramerment welcome to "mad money." welcome to cramerica. other people want to make friends, i'm trying to make you money. my job is to teach you and coach you. call me or tweet me @jimcramer. it's not often we see a wholesale revision in entire sectors of the stock market but we saw commodity and media
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stocks bad and consumer stocks great as institutions made new judgment about their growth rates in a world with a little inflation and potential federal reserve hikes. i don't know about the latter but inflation rates coming down. that changes the picture for many, many companies that report next week. as we near the end at last thank heavens of earnings season. let's start our game plan with what might be the most telling statistic out there -- next week's producer price index. why that? everything from your cable bill to copper coming down. i think we're seeing prices for all sorts of things plummet. this fact will make it very difficult for the fed to raise rates to september like so many are chattering. we expect a decline in the market immediately aof any rate hike. we'll probably get one. stay tuned it will show deflation is upon us which means no fear of inflation from job growth alone and thus no reason for the fed to tighten when it's upcoming meeting. how about earnings? well, you got a couple you can
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really sink your teeth into that i like here. i love the combination of kraft and heinz put together by warren buffett. the acquisition of craft has created a powerhouse and i think you want to own this company. even if you believe many brands are out of stek with the national organic times. or east coast used to be a part of craft. we have to expect more mergers and acquisition, craft heinz suggested it's opening to reuniting with its old sibling. either way i like kraft and heinze. we recently had live nation ceo michael rapino talking about his concert business and i liked what i heard. obviously other people didn't. i that could be due for a bounce after it reports monday night.
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we want to hear what shake shack has to say. the brain child of noted restaurantteur danny meyer has come down from its short squeeze $96 highs. if you like the burgers -- and if you're like me you'll like them a plenty -- the stock is really expensive. we talked about themes that hold up under any weakness because they're so powerful. i would be remiss if i didn't include keeping your old car much longer than you did because that's what's been behind one of the greatest bull markets of this year, one i flagged endlessly, the bull market in auto parts and the stores o'reilly automotive has stock that's climbed 140 points from less than a year ago totally under the radar screen still has lots of room to run. here's an idea if o'reilly talks a good game at that meeting why don't you consider buying advanced auto parts, or
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maybe even cramer fave autozone the one i repeatedly told you had the best buyback i have ever seen and has it let you down? not at all. you need backstop. earlier i said fresh pet is expensive. rhett's see how close they are. i know it could be an attractive candidate. you told me that at jim cramer. we can't recommend stocks on a takeover basis. think about how many people have been hurt speculating on a takeover of twitter. next week we hear from a lot of retailers, i have to tell you with gasoline on the way down it hasn't worked yet but you might want to consider some retailers. how about macys, before and after it reports on wednesday. why both before and after? why not just after or before? lately this stock has tended to sell off when it reports so i want to keep powder dry. i want you to miss the possibility of the company addressing the idea of going private, something that was suggested by the savvy jeff
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smith from cnbc's recent conference. macy's pulled back nicely since that presentation. it spiked on that day and i like the idea of a transaction or better earnings they have gang buster real estate. alibaba reports wednesday. and i know that i haven't been a big fan of this company. yahoo owns a huge chunk of alibaba and it's the way to play the company if you so insist on doing so. and after alibaba and yahoo japan are broken out, yahoo is voted at next to nothing. that makes no sense to me. after the close wednesday we hear from cisco. this will be the first quarter the new ceo leads the call. i like cisco's long-term prospects but if you want to you can hear the call and make up your own mind. finally rounding up to retail earnings season with nordstrom and kohl's on thursday and j.c.
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penney on friday. of these -- well if you stk a gun to my head and asked which i would buy i would say "please get that gun away from my head" then i'd say to pick nordstrom. bottom line be prepared for another wild one next week as this unfathomly difficult earnings period continues to confound individuals and institutions alike. let's go to bob in illinois. bob? >> caller: yes, sir, i was wondering with the weak commodity prices are you suggesting to have about 1510-% to 15% of your assets in gold? >> i think that's right. i regard it as insurance against what i hear people telling me about what's going to have to happen because the fed printed so much money. how about linda in florida, please. linda? >> yes, jim. happy to talk to you. i'd like your opinion on what do you think of the pipeline index? >> yeah, that's a way to go because you don't want to have individual product, individual risk.
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as we saw the other day from plains, which was a disaster paa. so if you put them together, that's a much much better idea. so, all right, brace yourself for another wild weakek. you know what kind of a week it is, it's a week of earnings but it's also got the producer price index. much more "mad money" ahead, including my number one rule for investing in any market. bulls and bears make money, but i'll protect you from being a hog. and nobody likes to pay uncle sam. don't put a wrench into your portfolio. how taxes should play into your investment strategy. plus my guide from separating broken stocks versus broken companies. stick with cramer!
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i've gotten older. you probably can't tell that because we have excellent makeup people who daily make me into brad pitt -- if they have the time. otherwise they go all bradley cooper on me. i'm fine we they are. i don't want the girl i want the stock. but along with my aging has come a change in the way i look at things. a change in the way we talk about stocks on "mad money." we still like the highlight stocks pretty much every night, but we do so now within the broader framework of how to analyze stocks. how they fit in. how that can make you money and how they can hurt you. despite the terrific run stocks have had from the bottom we've developed tremendous respect for the down side on "mad money." oh we've seen huge gains wiped out since the show began. we've seen stocks that were hot grow colder or even vanish.
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we've seen businesses that were smoking like the food business grow frozen only to turn hot again when a wave of mergers and acquisitions swept through their world. throughout this long run, however, i've tried not to deviate from the rules that have served me well as a personal investor, as an advisor to wealthy families at goldman sachs, as a hedge fund manager and the manager of a charitable trust with strict rules that keep me from doing as well as i would like candidly but have allowed investors to see how professional money management works. which brings me to tonight's show where i want to reexamine some of the most important investing rules i've learned the hard way. investing rules that involve trumping human nature that can often be so count intuitive to building great wealth. now i've often weaved these rules into the show and many of them have been with me for a long time but they badly need updating from this environment. so that's exactly what i'm going to do tonight, i'm going to
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reopen the canon that gave me years and years of outperformance where i was beat out the market consistently. now i want to augment the rules to take into account all that has happened since i penned them more than a decade ago and they were the rules i lived by before i penned them. so without further ado, rule number one. bulls and bears make money. pigs get slaughtered. now, close viewers of this show know why i have this hog sound and why, yes, i have traded in the term "pig" for "hog" because so many of you have told me hogs are worse than pigs when it comes to greed. and of course after this often you hear this, the guillotine sound. it's because i never want to forget that taking a gain is a good thing. and you can't ever kick yourself from making the money. you should kick yourself for
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losing money. look, this show me all about common sense, frankly, which, unfortunately, in a world dominated by political people and ideologues masking themselves as market mavens well my love for stocks marks me as an endangered species. i don't mind. look, i have to stand by my investing principles even though i think politics can be far more important to your money than it was when i started the show. it makes sense that a bull can make money when the market moves up and it makes sense a bear can make money when the market goes down while going long and buying stock or going short and betting against the stock. these are noble endeavors, both of them. i believe people should be able to profit from the down side as much as they can from the up side. it's when you act piggish. when you refuse to take anything off the table after a huge run that you get hurt. now, this style has its doubters mainly the people who
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have made so much none a handful of the generation's best stocks. but let's understand each other, not all stocks are created equal. also, i am not saying take them all off the table and go home. i am saying take some of it off the table. my style of investing -- and it is a style -- one this permeates the show and is quite different if what you might hear or read all day is to buy when stocks go down because i believe when i'm investing that i'm buying shares in an enterprise and unless that enterprise has faltered in the interim between my decision to buy and my buying i stick it with. i use the markets in rationality and randomness that i talk about endlessly. remember how i say the market can be stupid over short period of times to accumulate my favorite stocks. i am willing to be very big if the overall market takes a downturn. we have seen totally domestic stocks like retailers brought down because of european weakness. i come out here and urge you to use that weakness to buy.
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i know the markets are inherently irrationally valuing these domestic retailers because they're part of the s&p 500, they're homogenized and the futures drive everything down at once including retailers, but i recognize the other side of the trade, too just as the market can take the down down irrational, it can take a some upper rationally, but far too few investors think this way. the difference is when a stock goes down irrationally it's getting cheaper and cheaper but when it goes up it's getting more expensive and yes the hot stocks on the hour are getting more expensive when they go higher unless it turns out their earnings are growing at a pace faster than the stocks move itself and that's rarely the case. in any walk of life other than investing in stocks there comes a price we should not be willing to pay and a price where we would turn seller of goods. only in stocks do we feel we should hang on regardless. that's playing against common sense. when you're a hog, therefore, i
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do expect you to be slaughtered. people ask me how i knew to take money off the table before the crash of 1987 or in march of 2000 before the dot bomb went off. and in the fall of 2007 and 2008 ahead of the great recession. i say it's because i simply was not willing to be a hog. i had made enough money during the bull runs that preceded these crashes. i made a ton of money none a straight line and watched my favorite stocks go to absurd valuations that could no longer be justified by any stretch of the imagination and i didn't want to give back those gains, people. of course at the time many pundits had plenty of justifications -- intelligent, rational sounding justifications -- for staying in the park. but my bulls make money, bears make money. hogs get slaughters philosophy got me out in time. every time. now, did i leave some money on the table? absolutely. in almost every single case except '87. there was a little more to gain particularly in 2007. i saw stocks go up without me it was thorbly painful.
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but i had gains and reservations and i had to ring are the "register" because i couldn't justify owning those stocks anymore. again, no you don't have to sell everything. that's been the way i hear people talk all the time as if the big crash is around the corner. but when things get crazy expensive and you have a lot of gains, you will hear me say you were being a hog and the bottom line is i don't want your head knob the guillotine when the party ends and the big wins turn into losses. steve in california. steve? >> caller: booyah cramer. i've been a fan since the first day of cramer. >> holy cow, you're talking about 19 887. thank you for calling. >> caller: jim, clarify a few things. first, the limited risk of selling a naked put versus the unlimited risk of selling a naked call. and, second can you please clarify that buying a stock and
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selling a call -- also known as a buy right -- is equal to selling naked oar same-strike put. thank you, jim, you've made a difference for so many. >> first, i do not like selling puts. why? in the crash of 50e8 7 i saw firms go out of business because think never thought stocks would go out. i don't like selling calls, if i don't like the stock i can't bring the call back in i don't do it. i do neither of those strategies and i don't recommend them for viewers. let's go to paul in tennessee. paul. >> caller: booyah. this is paul. thank you for taking my call. >> of course. >> caller: i wish you would come to vanderbilt sometimes. we love you here we will eat you for w a spoon. i have 15 friends who opened separate accounts just to follow you. >> that's a lot of pressure but thank you. what's up? >> caller: your advice i bought -- you know i have good portfolio and i made real money. good money for me.
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and i would skim the milk so to speak, would take any initial investment. so i have free lunches, so to speak, i have the house money. there's no house of pain when i lose. but still, what do i do with this free lunch? do i use it -- >> no never touch it. never touch it. you have it for the rest of your life. it's free. you're not going to give it back. you can give it away whatever, but, no you're not taking it off the table once you've taken it off your cash. let that run. if you need the capital, of course reach for it but otherwise let it run because you've been given the opportunity of a lifetime. you've taken out your investment. let the rest run. phil in florida, phil? unless, of course, the companies change. >> caller: jim, thanks for taking my call. i'm a big fan and i enjoyed your book "getting back to even." >> thank you very much. >> caller: you're welcome. i have a general question here on stock market orders of 5%. i guess some people call them
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stop loss. i'm wondering if in your opinion is that a good way to protect myself and second part of my question is somebody mentioned that after hours you have no protection and i just want your opinion on it. >> in getting back to even i don't recommend stop-loss orders. why? i never want to take it out of your hands. if you're going to actively manage your money, you have to actively manage it. you could have a flash crash and end up being crushed. we don't do that. it's another no-no that i have preached where there will be days where it will be right -- many days wrong, days it's right it's going to save you. that's what i've liked to do. i've learned things the hard way but let me make it easy on you. there are basics you can't ignore if you want to prosper in the market. so, remember bulls make money, bears make money, hogs get slaughter and "mad money" will be right back.
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for a closer shave with zero redness. get an incredible experience shave after shave after shave. gillette. the best a man can get. welcome back to a very special edition of "mad money" where i'm going back to my original play book, the rules i live by as a professional money manager that i sat down and put them on the print after i retired and i'm revising them before your eyes for the present day conditions. you know what i'm discovering? most of them work better than ever. take my second rule -- it's okay to pay taxes. in our first rule we went over the concept that bulls make money, bears make money and hogs
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get slaughtered. i don't like people turning profits into losses and i don't like greedy people with big gains and taking nothing off the table. in the two decades, there have been only two periods where i said this market is going down and i want you to take a serious chunk of capital out of stocks. back in march of 2000 i told people at my hedge fund -- i hadn't retired yet -- i was selling out of most of my common stocks if not all of them including ones i liked a month ago at lower levels and was going to go by bonds. i have never said anything like that. startup people it was a controversial call going right against the grain of the moment. i was viewed by many as hypocritical. even a month before that i made a call think that i had been encouraging people to buy the very same stocks i was now telling them to sell. i had two answers. the stocks had in many cases jumped 20% in a number of weeks.
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look at the composite index, that sucker was up pretty much everyday. second the insiders were bailing out, selling all over the place as if indeed a bell had gone off. i was reviled everywhere you could be reviled those days before twitter and so many other social media outlets. you could still be trolled believe me. when i made that take the money off the table call i received close to a thousand e-mails from people saying if they took the profits that i was advising them to do they would have to pay a tremendous amount of tax on those gains. federal tax. i felt so intensely about my view i was running my hedge fund almost 100% shorter with bonds being the place to be that i wrote back almost each person. i really did. saying if you don't take profits, you won't have profits. the least of your worries is the tax man. i had limited read erership back then. plus the rules are different, i
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run a public trust not a private fund. so i don't advise individuals anymore but it didn't matter any way. the abhorns of taxes transcend it had judgment of most of my readers. years later i'm getting e-mails of apology from people bemoaning the fact they cared more about paying taxes and taking their profits and that their portfolios had subsequently shifted from being deeply in the black to dripping with red ink. i am sure a lot of those people subsequently left the stock market entirely. can't blame them. i made a second series of widely reviled calls in september and october of 2008 on "mad money" and the "today" show. again i heard the same chatter, people sat back and enjoyed the big run in 2000 they didn't want to listen to some guy saying reserve your capital and take out what you need for the next five years. they were more concerned that so much of it will go to the u.s. government if they took the money off the table. even as the feds subsequently slashed the tax rate for capital gains from 2000 they just wanted to stay the course. i get that. in both cases you would have
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saved at least 40% to 57% of your capital if you had listened to the sell and the subsequent buy calls me made on this show. at that point the by call after listening to late great mark hanes nailed what we call the hanes bottom. mark and i were great friends. he originally put me on tv and we duke it out about the markets but when he made big calls there was no duking you just listened and i did. sure you could have written it out as a handful of people people suggested, and judging by the volume most people abandoned the market near the bottom. many of them never came back. a simple strategy of taking gain paying taxes and coming in at a more propitious time was simply mathematically and empirically the way you had to go. so i say never consider taxes as a reason to hold a stock if the stock is going up too far too fast and can head back down hard as was the case in 2000 especially when the insiders were bailing out hand over fist. never hold on to something not
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worth holding on to or something that has gotten dangerously overvalued so you can wait until the gain goes long term and the rates come down and never hold on to stocks when systemic risk is at fate. okay? meaning risk too the whole system like it was staring you in the face in 2008. i don't expect any time soon to have to make another one of those big calls again. but when i do take them seriously, as i have made only two of them in the last two decades. so don't invoke the tax man defense when i do. it's way too risky and often down right profligate and don't forget to trim stocks back if they go up too far too fast and go from being undervalued to overvalued. when the stock market got overheated in the beginning of 2014, for example, and the cloud in biotech stocks seemed to be ramping day after day and more and more companies of questionable orientation were becoming public it was again another instance where it was okay to pay the tax man after outside gains doubles in a matter of months. it was especially okay when you
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saw the insiders ring the register in aggressive fashion as we did with internet security and e-commerce place. not wanting to pay the tax man on outside gains is the biggest mistake people have made in our generation and despite the trillions lost in the bear market in the censure the century and 2008 and a couple dips in 2014 i see people making this error constantly. here's the bottom line -- taxes don't trump fundamental, stocks can be dangerous whether they are owned long or short term if the companies underneath are faltering or evaluations have gone to extremes. during those times promise me please, you can't base investment decisions on the tax man. pay it! barbara in new york brash? >> caller: hello, mr. cramer how are you? >> fine, barbara, how are you? >> caller: excellent. my question today is about i.r.a.s, if i were to convert my traditional i.r.a. which has been funded through aftertax
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money through a roth i.r.a. do i make subsequent yearly contributions to this new roth i.r.a. or do i need to open a new traditional i.r.a.? >> okay for roth i.r.a. in questions, these are personal decisions that you must make in consultation with your tax advisors which is exactly what i do so i am not going to make a broad generalization because it's not the right thing for everybody. that's really important. personal decisions, accountants and advisors i like them. all right, give cesar what belongs to cesar. listen you've got to pay the tax man. but remember your investment decisions don't depend on them. they depend on the companies and the price of the stocks. after the break i'll try to make you even more money.
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now it's time to tell you how to separate a stock from a company from a rule which might have heard me say now and again. look for broken stocks not
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broken companiesyiescompanies. stocks now divorce themselves from the fundamentals even more than when i wrote "real money" more than a decade ago. something i comment on in my latest book "get rich carefully." there are lots of bad companies with very bad stocks but there are good companies with very bad stocks. your job is to know the difference between the former and the latter because the former is no bargain: the latter define asbar gain. after every selloff of every magnitude, there will be stocks that have been crushed and crushed unfairly. people use these moments to find stocks that look cheap because they've fallen under $10 which is somehow the level that draw moths to the light. or they go after the stocks that have fallen the most from their highs. you've got to get a bounce right? wrong! i go after the stocks with the best fundamentals that happen to have been beaten up even as
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nothing's wrong at all at the companies. i spot these stocks by circling back to companies that just reported earnings so we know the fundamentals are intact. i like the stocks of companies that have just given you numbers that cause wall street analysts to take up their estimates and that may have increased their dividends or added to their already voluminous buybacks. periodically -- get this -- periodically you can find stocks that have done all three and then there's insider buying on top of it. that's the true holy grail of stocks. don't buy damaged goods. buy damaged stocks of companies that are strong this is where the home work does come into play. if you're not following the stock, you're interested in buying during the selloff you are going to be too unsure of yourself and if this continues, you know what happens?
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you're more likely to blow out of this stock than do this, buy more, because you've done the home work and now it's gotten cheaper. before selloffs and during them i've told people build a shopping list of what you want to buy and then stick to that shopping list. you must stay on top of these companies on the shopping list to be sure that break isn't because they just reported weak numbers or the events that drove the stock down aren't directly related to the company itself. many banks, for example, during the great recession were intimately involved with the selloff. they were no bargain at all. no matter how much they were marked down. cloud stocks a little bit different. biotech had nothing do with it. they bounced back hard. at the same time others -- i mean, really if you want to know what to buy in the down turns that -- without having to do too much work on a difficult kind of situation like a biotech, how about dividends? right? the ones that have dif dhaends are producing ever-greater yields on the way down. these are really like. accidental higher yields.
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they should move to the top of your shopping list. it's tough to figure out the difference between broken stocks and broken companies in the fog of battle against a tough market. that's why i like to rank my stocks. rank my shopping list and the stock i already own, each one on a one to four basis. something we use and update every week on the web site. the number two category is the most relevant. a two stocks is my classification for a stock that would look good for me if its price came down. well voila, selloff, the price comes down. the stock market is one big store where inventory has to be moved. sometimes the markdown merchandise at a department store or supermarket is indeed broken. an imperfect sweater that may not hold up days old items that can't stay fresh. don't waste your time feeling spoiled fruits here. there are other situations where the store ordered too much of good merchandise and it has to discount it so it can clear the space for more seasonable items. when people wore hats we used to
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call the buy straw hats in winter. now days just think of it as the clearance of warm weather goods come -- well let's say a different season. when it's spring you can't have heavy jackets, right? you can afford to wait to use them again, but the stores can't. they'll have terrible quarters if they do. take advantage of their clearances. please, please don't waste your time speculating on broken companies. the ones with the bad balance sheets that suddenly need to raise money or the ones with outmoded technology or failed phase three drug trials that were the only thing they had going for them. there are enough healthy companies throughout whose stocks have been knocked down for unfair reasons that you don't need to buy the stocks of rotted companies that are crummy at any price. don't forget no company wants to fall down to single digit levels. that's definitely a sign of weaker merchandise, not more exciting and enticing. chances are, most companies deserve those low prices and won't go up unless you get real
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lucky. don't forget luck or hope don't make them part of the equation. of course, we keep a list of stocks we tall threes at action alert, part of our one, two, three and four stage rating system. these are stwrox the fundamentals seem to be on the edge, not just that great -- just not that great but also not that bad. and we want that capital to be better deployed elsewhere with stocks we really like. when the market gives you a big run up because of events that have nothing to do with questionable companies themselves, that's often your chance to unload the stocks at better prices than you deserve. remember, always stocks and fundamentals underneath can diverge wildly in stressful or euphoric times. so have your shopping list ready and your discard list ready, too. i need you to buy the broken stocks of solid company when the market goes to sale and unloading so it stocks of companies that may not be solid at all when the market has an animal spirited rally.
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it takes up with all the rest. here's your bottom line. use the occasional swings in the market to buy or trim the stocks of companies you know are good or immediatemediocre. that's how the best investors work and that's what i want you to become and, believe me i know you can do it. stick with cramer.
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investing history. we are doing so to make you a better investor in good and, more importantly, bad times. that's why i want to spend time on the phrase that has inspired the game we play every wednesday around here, you know what it is am i diversified. i call it the diversification rule which is that it's the only free lunch in the stock market. we're going to have to combat our natural instincts. nobody wants to be diversified in real life. come on, we want to be 100% in tesla when tesla is roaring and own as much netflix as possible when that stock is flying but we don't want to own a shore of either when they're going on one of their periodic swoons. such is the nature of our own infallibility. what's the point of stocks that do nothing when we can have rocket ships all the time? the answer? rocket ships can crash and they can burn. but portfolio life is not like that. you have to be diversified to spread the risk. i always explain this in the common sense way that takes you back to the supermarket. would you put all of your eggs
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in one basket? would you let all the chips ride on one number roulette to use a gambling analogy? because i wouldn't want to have any chips on roulette as i am an inveterate blackjack player. but how can you make such a big bet on one stock? of course it's not just about one stock, you can have your eggs in one sector and may not know it and that may be equally as egregious. think of those who had the hottesthot hottest dote com stocks in 2000. of course the government forced many of these companies to slash or eliminate their dividends all together. a portfolio of high yielding mortgage trusts like someone called in with not that long ago when we were planning on being diversified seemed like a great idea to the individual but one big swing in interest rates and portfolios that are related to oil to take advantage the nation's energy boom well they can get slaughtered if oil goes on a protracted retreat.
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why do we still have to play the semidiversified game? there's a simple reason. most people don't process the down side effectively. they don't understand that you can lose everything if you're concentrated. you know that the same people buying nothing but tech would quickly realize a dinner made up of four beef dishes is unheld healthy. some people like to double down where they work taking in stock. another bad idea. talk to the people who worked at enron or nortel or any of the huge flameouts of the dotcom era. these are just pieces of paper some will turn out to be worthless or near there even ones you think are worth a lot. some, indeed, go go zero. at least that stop at zero. the only way to make sure you're not destroying your nest egg is to diversify the cartons you place them in. the toughest thing about diversification? it's a party spoiler when the
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cloud stocks rally or every biotech jumps up during a period of froth. no one wants to hear diversification is the only free lunch. they think it's costly. ask yourself would you be afraid to call in on wednesday's "am i diversified" because you know you would hear this? [ buzzer sounding ] and then be the but of many jokes at jim cramer on twitter? although i will spare you that indignity having eviscerated you ever so gently on the show. so let me give you the bottom line. i know you will hate me when the market is going straight up and you're stuck with defensive stocks i recommended. you will despite me when you don't have every dollar in a stock that goes on an historic run but believe me you will love me when the market gets clobbered or the sector you own gets decimated or the individual stock that looks so amazing to you turns out to be worth far less than you ever could have imagined. stick with cramer.
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one more be able to explain your stock pick to someone else. one of the worst things that ever had to solid stock picking was the internet. you know why? it took away one of the most important breaks on the process -- talking to someone about what you're going to buy. buying stocks now is often a solitary event, too solitary, in my book. as i love to say, we're all
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prone to make mistakes sometimes big ones. one way to cut down these mistakes is to force yourself to articulate why you would like to buy something to someone else. when i was at my hedge fund i always made every portfolio manager who work for me sell me the stock idea. literally sell it to me like a salesperson before i would ever buy it. if you are in a position where you're picking stocks by yourself, get someone to listen to you. go articulate your reasoning to them, the philosophy, why, why, why? the simple selling of that idea the notion of flusheshing it out in a coherent fashion often reveals the flaws. what's the most obvious one? you may not understand what the company does. how many of you have bought rocket fuel at the high can explain what it is? do you know my micron is different from intel? can you explain what the company's main products are? who they're sold to? how they're doing. when we play these roles on my firm, i ask people the following eight questions. yes, eight questions. first, what's going to make the
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stock go up besides the stock market itself? second why is it going to go up? what is your thinking behind it? is there something that's time sensitive that will go up now? third, is this really the best time to buy a stock? shouldn't be we waiting for an unemployment number to be reported or maybe dice yee vent that could occur? fourth haven't we missed the move? how much has the darn thing gone up already without us? is it extended on a technical basis? shouldn't we wait until it comes down? what's the harm? sixth, what do you know about this stock that others aren't aware or haven't been thinking about? is everything you just -- you know, just generally accepted knowledge and you're working in a herd mentality? have you read all the conference calls and dwoursed the research or are you flying blind and you just think it's going higher? seventh, what's your actual edge? your own personal insight and knowledge of the company? do you know how the cloud works? do you know which stock this
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stock trades with or why it's better than the others even as many other participants may not realize it? finally, do you like this stock any more than any of the others you own and why? the there something we ought to get rid of before we buy this new one knowing it adds to our task level to keep ever more securities on our sheets as we call them and sometimes -- maybe something else might be superior to it or inferior to it? let's get rid of something if we have to buy this. the last one is crucial because we never like to add a stock without subtracting one in parts because it's impossible that dozens of good ideas at once don't exist. you can't have an edge on them or know them so well that you have stocks you own or are following. that's valuable advice. without a sounding board you aren't big rug rouse enough you can be impulsive. we know that. we flow this whole show that impulsiveness is a real profit killer. if you're in a jam, call me on the lightning round.
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ultimate oral test of your conviction. i'll try to give you a straight up or down answer about it but the exercise is about your knowledge and conviction not mine. buying a stock should be bike buying a car. there's a lot to that goes goo into it. don't short circuit the process or as we always would say, look for reasons not to do it because believe me they will certainly surface soon after you buy the stock. stick with cramer. a new season brings a new look. a chance to try something different. this summer, challenge your preconceptions and experience a cadillac for yourself. ♪
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the 2015 cadillac srx. lease this from around $339 per month, or purchase with 0% apr financing. (vo) me? i don't just wait for a moment. i watch for the perfect moment. the one nobody else sees. and when i find it- i go for it. (announcer) at scottrade, we share your passion for trading. that's why we give you the edge, with innovative charting and trading features, plus powerful mobile apps so you're always connected, wherever you are. because at scottrade, our passion is to power yours.
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everyone loves the picture i posted of you. at&t reminds you it can wait. why should over two hundred years of citi history matter to you? well, because it tells us something powerful about progress: that whether times are good or bad, people and their ideas will continue to move the world forward. as long as they have someone to believe in them. citi financed the transatlantic cable that connected continents. and the panama canal, that made our world a smaller place. we backed the marshall plan that helped europe regain its strength. and pioneered the atm, for cash, anytime. for over two centuries we've supported dreams like these, and the people and companies behind them. so why should that matter to you?
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because, today, we are still helping progress makers turn their ideas into reality. and the next great idea could be yours. follow the rules or be humble. there's always a bull market somewhere and i'll try to find it for you on "mad money." i'm jim cramer and i'll see you next time.
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>> narrator: in this episode of "american greed"... in the city of brotherly love, car wrecks are piling up. and auto-insurance policies are treated like atm machines. >> what a great way to make $5,000 just by going to the doctor's. >> narrator: it's a multimillion-dollar underground business, and everybody gets a piece of the action. >> the lawyers are in on it, the doctors are in on it, the body shops are in on it, the tow-truck operators are in on it. >> narrator: but when the outfit begins to crack, the game turns deadly. >> "pop! pop! pop! pop! pop! pop!" gunshots to the back of the head. looking directly at me. >> narrator: and the promise of easy money for the participants proves as phony as the car wrecks themselves. >> and i'm getting crumbs and end up in


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