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tv   Mad Money  CNBC  December 23, 2016 6:00pm-7:01pm EST

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>> i like the christmas tree. i think that's the tree we're going to use. >> dan. >> yeah. the xli put spread in february. >> carter. >> gold. >> all right. looks like our time has expired. have a wonderful holiday holida weekend. we'll see you back here next friday. have a great weekend. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach. so call me at 1-800-743-cnbc or tweet me @jimcramer. every night i come out here and tell you what happened during the day, why it happened, and what you can do with the information. i do it in order to help you be
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a better do it yourself investor or better client. i do it with a spectacular team of people headed by an executive producer, regina, who has been with me since inception is with the help of dozens of fabulous people who are responsible for the look and feel of the show to the research. we have a team that helps me with memos that back up the research. and we have a head writer who is really our only writer. he's been our only writer since inception when he was a freshman in high school. that's cliff mason. my sister and her husband's son, my nephew. the show has become a little bit of a labor of love. we've been doing it for so darn long we take for granted what we do. tonight i'm going to change that. i'm going to correct it. tonight i want to talk to you about the show, its evolution, and how you can best use it or, worse, misuse it. i'm doing so because there's so much we throw at you that you might not be able to use it as effectively as we would like. i know this because i talk to
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enough people about the show and interact with enough people through e-mail and callers as well as of course twitter, @jimcramer. i have a pretty good idea why you come here and what you really want. now, the show has evolved mightily from when we started. the show was an outgrowth of a radio show, it was called real money where we first heard booyah. i did it in conjunction with a company i called the street. still going strong. still write for it every day under the paid site. and i imagine my charitable trust from those offices. when we started the show, people were thirsting for specific investment ideas. i was happy to comply. but the stock market changed over time. we got hit with the great recession, which challenged what we call the entire asset class of stocks, meaning stocks as a way to save and make money. we had many companies, big companies, particularly in the financial world, destroyed by the downturn, mostly because they had lent a lot of money and didn't have enough money in the bank to handle the losses that came from a dramatic decline in economic activity. it was a credit crisis. i am proud of the fact that if
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you watched me, you might have avoided a lot of the downturn because i shouted from the rooftops that the feds was nuts. they were nuts and the situation was far worse than even realized. no matter. i always find it a tad ironic that the fed acknowledged in its minutes i was the only guy saying things were falling apart. i was the only vilified one for not telling people to sell. but that era has changed, and it changed me. it changed the show. it was more of a metamorphosis, nothing radical, although not imperceptible because i added some language at the top of the show which was meant to describe a new reason for being. i now say every night in some form or another that this show is meant to educate, to teach, and i say it different times and different ways each night. that's very important and very different from the original show. a total break in a lot of ways because i think that it's just not enough to give you stock ideas. in fact, we've deliberately minimized them over the last, well, decade. we want for you to be able to understand the process and to
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pick them for yourself or, more important, we want you to understand the stock market enough for you to make a judgment whether you can do it yourself. now, me, i love individual stocks, have for years and years and years. i think they can be tremendous vehicles that can lead to great wealth. our show's identification with certain stocks literally from the get-go, stocks like apple, chipotle, pepsico, salesforce, honeywell, starbucks, and yes, bristol-myers, hasn't gone unnoticed. but ever since we changed the show, we have tried to leave behind the so-called new ideas or the hot ideas and instead tried to give you themes that allow you to invest in more fertile sectors versus others. themes i hope i can make come alive with analogy, sports, movies, whatever so you can do the homework on them. things like the new frugality post the great recession or living longer through healthy eating habits, social, mobile, cloud. i've written many books over time. i'm proud of that. i know that confessions of a street addict, written four
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years ago before the show began, remains a fafrvorite. i think get rich carefully is designed to be this new show's companion. a lot of what i talk about in the show, if you're having trouble, get rich will do it. i'm cognizant that the market is hard. you've got time burdens. you've got demands. you may be bewildered despite my attempts to try to make things clearer. that's why i've emphasized i'm not just okay with index funds but i insist you use them. i would not own a single stock until i put at least $10,000 in an index fund either through your ira or your 401(k). while i have addressed saving for retirement in emergencies for many shows, i have never point blank warned you off individual stocks so let me do so tonight. i would vastly prefer you to invest in index funds. there are always individual cases where individual managers do acquit themselves. but records can change and past
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performance is no guarantee, all that jazz, which brings me to point number one of this show. i am not a shill or a snake oil salesman for individual stocks. i am a believer in the asset class of stocks as part of an overall way to save money for retirement, vacations, tuition, anything your heart desires. i do want you to have what is known as exposure to the stock market, and i try mightily to convince you that it is worth it to do so because stocks have indeed created so much wealth over time. if you don't read me, why don't you read warren buffett's report that describes why stocks are tremendous as an asset class to own. he makes a great read for them. why do they work? because they represent the sum prospect of business going forward. they represent the waelealth th companies create in aggregate and the sharing of that wealth. you get to be along for that ride, and i want you to be along for that ride in a responsible way, which is most definitely owning an index fund. i'm partial to the s&p 500.
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but i also like a fund offer -- if you aren't offered one, then of course go to the s&p 500. once again, for those who don't get it, here's my bottom line. this show has changed over time from when we picked stocks for you to one where we educate you about stocks so you can understand why an index fund of stocks might be worth investing in. there's only one problem. we know you like stocks too or you wouldn't be watching or need to watch, which is why when we come back, we will explain to you why we bother to delve in individual stocks at all after we have professed, i mean, such indying love these days for index funds at the first way to go go. jim. >> caller: i want to tell you how much your nightly focus sessions remind me of roosevelt's fire side chats. >> larry, thank you. sometimes my mom says just say thank you. thank you, larry. >> caller: we need you out here,
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jim. >> thank you. >> caller: here's the question for tonight. when does an investment turn into a trade? we don't chase a stock. we don't accumulate too many stocks to have to monitor. so how quickly and at what percentage gain do we unload a small position which has gotten out of control, high-quality problem, and conversely, how quickly and at what percentage loss do we admit that we got it wrong? >> okay. i have short hand for these. i like to take off now my rules have evolved. when you're up 50%, you take off 25%. and when you're up 100%, you take off, yes, all of your initial investment. then you play with the house's money, and you say thank you very much, and you got a good gain. investment into trade, we don't do that. if something's an investment and it's labeled an investment, it is an vecht. if you didn't get enough in when a stock came down and then moved up, you can kick that out for a trade. greg in new york, greg. >> caller: jim, i feel like we speak every day. how are you doing?
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>> i'm doing quite well, greg. how about you? >> caller: i'm doing well. i just got a quick question. we're pretty young investors. i just want to know you think it's worth taking more risk when you're younger and you don't have enough money to kind of put more -- you know, put more money on the line and try to sneak the higher profit? >> greg, listen to me. listen to me, greg. i didn't start with much money, but i took big risks because i had my whole life ahead of me. you've got your whole life ahead of you. buy some stocks and they go down big, you got that paycheck coming. it's only older people who don't have enough paychecks left. you take that big risk. that's what i want. chris in oregon, chris. >> caller: yes, jim. thank you for taking my question, and thank you very much for all the great advice you've given me. every position in my portfolio is captain cramer approved and doing very nicely. >> you're very kind, chris. thank you so much. how can i help?
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>> caller: my question is i have an ira equity portfolio that i don't plan to draw on for about five more years, and everything then is obviously reinvested into it. my question is about dividends. does it matter whether you reinvest those dividends back in the stock that generated them or just reinvest them in the fund in general? >> all right. i have -- anytime you can reinvest dividend, just reinvest dividend. it's a hard and fast rule. the power of compounding, one of the greatest single things that can happen to your money is the compounding of dividends. okay. teach a man to fish, sure, the show has evolved, but our mission remains the same. to make you the home gamer a better investor no matter what you invest in. i'm in your corner. plenty of "mad money" ahead including how to plug into one of the market's biggest sources of wealth over the last few decades. plus it can be a huge way to win but also a massive catastrophe if you're not careful. don't miss this important advice.
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and i'm taking your tweets. "mad money" will be back after the break. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to or give us a call at 1-800-743-cnbc. miss something? head to
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we've started the show explaining why we teach what we teach and why you want to own index funds to capture the profits and opportunities of stocks in aggregate. for those of you who come away from this show saying, we tout stocks every night and think index funds are a waste of time, what can i say? we aren't ever going to change you over. we're not going to win you. and we do know that you don't need to bother to watch. that's fine. we can live with it. so then why do we botter to do the show other than i like to be compensated for doing something if i like index funds so much? surely i could have retired by now. i did well in a previous life as
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a hedge fund manager, gave my investors compound return after all fees of 24% when the standard & poor's index gave you an 8% return during the same period. i will come back to that number, so hold on to it. i mention it now because i am lucky enough to be able to do what i want to do at this stage of my life. every now and then, again, i'm tempted into thinking maybe i should go back and be a hedge fund manager. whenever that occurs, i remember my late father thought i was much happier doing what i do now and he thought it would be a mistake to go back to that old life because he thought it was too hard. plus he thought the show was terrific and really helpful and was my biggest backer in what i was trying to accomplish here. thanks, pop. so why ever talk about individual stocks, then? first we know that someone must want the information or we wouldn't have lasted as long as we have. in the end, this is a commercial product, and the market has judged this commercial product to be worth something. second i do it because of sick stocks, national video. you don't have to write these down. this is history.
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national video, american ago row nommics. st technologies, giant foods, heinz, and gantos. these six stocks are at the core of why i think this show can play a role in your financial education and get you to the point where you make fewer errors and have more of a chance to make money longer term if you choose to invest in individual stocks as well as index funds. remember, index funds are preferable for the vast majority of you, but i know that you're going to want to buy individual stocks anyway or you wouldn't be watching "mad money," which brings me to the first of six stocks that are at the genesis of the show. national video. when i was growing up, my father's broker knew a -- i'm sorry, my father's brother new a broker, and his name was jack. i met jack once. i recall he played a lot of tennis. he had a really good backhand. my father worked hard. after the war he started at gym balances, a now defunct department store selling men's slacks. when it was clear he wasn't ever going to get promoted, he
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decided to strike out on his own with his brother, first selling carpet and then toy games and then ultimately boxes and bags, giftd boxes. you know what i mean? to retailers. those who have heard my father's eulogy delivered the day after he died november of 2014 know that my dad had a really hard business life. he and his brother started the national gift wrap and box company to supply merchants with everything they needed to box, wrap, and bag whatever they sold to their customers. well, he never had much competition. his customers were always going under, and he was on the road quite a bit, trying to find those new ones. i remember endless days of discouragement. i was growing up. you know, those were the days when mom would tell me, go to your room before pop got home because he had a hard day and didn't make any sales, or customers were cruel to him. it was tough for him to save. he had money in a bank account and savings and loan, but it didn't pay much interest, and i knew he was always deathly afraid he couldn't pay the bills. so one day pop said he knew what
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he was going to do. he was going to buy the stock of national video because pop's brother had heard from jack, the guy with the good backhand who was a broker, that it was the next big thing. the stock of the millennium so to speak, or at least of the roaring 1960s. at first the stock went up dramatically, and i could tell pop was elated and he bought more and more of it because it was going higher. yeah, in fact that was really about all pop knew about national video. pop didn't follow an interday. he found out how it was doing by reading the five star evening bulletin which came out at the close of the market or turn on the radio and they would list a lot of closing prices, including the heavily traded national video, and he'd cheer. he even encouraged me to follow it. i told you in the past how i kept the journal of stocks back in the fourth grade. i didn't know any more about the companies behind those stocks, but i wasn't playing with real money. he was. sure enough, after pop had put a
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sizeable amount of his life savings into national video on the way up, it started going down. like many people, pop didn't know what to do, so he would check in with his brother, who checked in with jack, who told his brother, who told pop that all was well, and he should keep buying national video, which he did. all i can say is that i'm glad for two things. one is that pop never borrowed money to buy national video, and two, stocks blessedly stop at zero on the way down. pop lost everything. everything. i didn't notice the changes back then, but let's put it this way. we didn't take much vacation, and we sure didn't stay at the ritz-carlton or the four seasons when we went away. i remember ritz mock apple pie made with the crackers. but there was an important takeaway from this national video incident that sufficient fuss the very fun dament of this show. people are going to be tempted to own individual stocks to save or augment their paycheck. it's just a fact. one of the precepts of "mad money" is to know how to invest in an individual stock if you're going to do so.
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think of the mistakes my father made with national video, and you will know why this show is set up the way it is. first he didn't know anything about it, so he had no idea how the company was doing, how risky it was, how it could go down as well as up, and how it could go under. he relied on a stockbroker friend of his brother. he had done no work on it at all, so he was at the mercy of the movement of the stock, and he only knew to continue to buy rather than to cut his losses. that's right. he had a tip. he bought the tip up and down after doing no work, and he lost everything. substantial chunk of his life savings. so let me give you the bottom line. here are the many takeaways from the national video story. tips, as i like to say, are for waiters. two, you must do homework if you're going to own individual stocks. three, if you can't do homework, then own an index fund. four, if you fear losing money, don't own stocks at all because they can go down as well as up, as was the case with national video, which by the way i still don't know what it does. yeah, i can google it, but
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that's for another chapter in tonight's story. after the break, i'll try to make you more money. ♪ we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person,
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on what matters to you. morgan stanley.
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welcome back to a real special show of shows, meaning a show describing what this show is about and why i do it to begin with. first we covered that i don't even want you to buy an individual stock until you own a diversified index fund and own enough to make it so it's always going to be the biggest part of your savings, never stocks. we don't call the show "mad money" for nothing. we are using "mad money" only to buy stocks. the rest goes into index funds. next learn how not to invest. buying a stock, national video, ignorantly through a trip from a bloker via a brother, and then r50 riding it all the way up and then all the way down. >> that was easy. >> that wouldn't happen with an
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index fund. but we respect the right everyone has to try to invest in individual stocks, even as we recognize that my father, had he diversified into an index fund if they existed back then might have had a lot more to show for it, which brings me to the second stock object lesson of the night. american agronomics. initially when i got out of school, i knocked around as a reporter covering sports and government in tal la has see, and then homicide in l.a. after winning some awards for my coverage of the ted bundy murders. i didn't make much money either there, but i knew to open an i.r.a. to save money. my dad told me to do it. so whatever little money i had automatically went to the fidelity magellan mutual fund, run by peter lynch. by like my dad, i was determined to try to augment that mutual fund and my paycheck by buying individual stocks for personal account. however, i was going to do it the right way, by researching the stocks, getting edged through the research, not through the brother, the broker, all that stuff.
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where was i going to get that edge? i figured why not read all the periodicals that covers stocks. i was helping to start a magazine called american lawyer, a trade publication devoted to the profession of the law, and because a kind sister let me crash in her studio apartment for a bit, i was actually able to save some money. in fact, i saved more than $200 beyond my contributions to my i.r.a. and decided to use that definition of mad money to buy the stock of american agronomics. why? because i read an article in "forbes" magazine which we got at work, and that article said that this orange grower was doing incredibly well and i would be on the ground floor if i bought it. so i picked up ten shares of this $9 stock. ten shares. oh, i was in on the ground floor all right. you know what ground floor i was in on? i was in on the cheap linoleum ground floor that i ended up sipping that cut ty sark on because a frost wiped out my
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investment. i should have given up there. i didn't. i just changed my m.o. what i didn't give up on was buying a stock on research and letting it ride. it didn't hit me about a better way to do it until i got an old high school friend of mine, who said our local steel mill, which made precision steel, calls sps at that point, was hiring if i was looking for a high paying job. they had a lot of orders and were desperate for workers. my friend knew i was struggling for extra money and knew i might want another job. hey, those calls in the middle of a recession from a friend for a job, they can be like gold. but i said, no, i was happy where i was. i decided why not look into sps and see how it was doing as a company, as a stock. so i went to the midtown library in new york and promptly read up anything and everything that was sps, which then changed to st technologies. they had everything at that library, business periodicals, value lines, some wall street research. you name it. and here's what i discovered. first theres wa nt much known or
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written about sps, and second, what was written was pretty darn negative. my first thought was to say, oh, well, it's not doing that well. bummer. but then i realized, hold it, my information is the most current possible. i got a guy telling me they can't handle the business they have and need to add additional shifts of unskilled labor like me, but the periodicals all read negatively about it. in other words, i had insight nobody else had. i was ahead of the story. these days it's hard to get that kind of edge. edges do exist, though, and we do our best to present them every night. interpretations of news and events can augment those edges and analysis is very important. but back then i had the pure play. i took everything i had, everything, everything i had saved, and i made a ton of money as the sps story unfolded. enough money that i decided i would look around the office for more ideas where i had an edge. i was writing about lawyers who were working on mergers and acquisitions back then. it was pretty clear that the hot field for m&a was always about oil and gas. one after another they were
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being gobbled up. i figured why don't i find one that hasn't been gobbled up yet. so back to that library to read about the industry. sure enough i found a company called na tow mus which had discovered a large find in indonesia. i took another chunk of money, remember we were talking about 300 bucks and bought that stock. i don't think i had to wait very long before i caught another takeover bid. i was hooked. changed everything for me. i put money into my mutual fund, but anything left went into individual stocks and i made enough money to pay for my first year of law school. now, i know already that there are people out there who will say wait a second, none of this is possible today. first the research which was so scanty back then is everywhere now courtesy of the web. secondly, anyone can google any company and know how it's doing in a nanosecond, and you would have known that sps, which was taken over, was hiring and doing well. third, there are now rules that make it regard to get any sort of edge because companies have to have full and fair disclosure of all news.
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that means some would say you can't possibly game stocks at all, and you might as well buy an index fund. you know i am not against that. i was investing in individual stocks right alongside a much bigger percentage of my savings in the best mutual fund of the time. still, though, i recognized that you can study and you can pick worth while stocks that might be doing better than the average stock and that can indeed augment your savings provided you do it right. have some edge and stay current on the company. so here's the bottom line. remember american agronomics and sps if you only know what one person says in the media, me, or the writer of forbes or anyone else and you buy, i'm telling you that's not good enough. it's a better start. better to have genuine insight that others might not have, especially if it's against the grain of the consensus. then you increase the odds of that investment succeeding. it is about the odds. any hard work and thinking you can do to increase those odds in your favor is going to make it more likely than not that you will succeed as a do it yourself investor, which in the end should be the exact reason why you watch this show.
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joe in new york, joe. >> caller: booyah, jim. this is joe from kings park, new york. thanks for taking my call. >> of course. >> caller: just a quick thank you for sharing your wisdom with your viewers. my question is this. if i want to diversify and add three or four companies to my portfolio for the long term, but by diversifying i would only be able to buy two or three shares of each company, or would it be better to buy ten shares of one of them? basically what is the least a of shares you would invest? >> ten shares is -- well, many times i've own ten shares. i've done two or three at various times. remember i do favor an index funds for your first investments. nobody said investing was evening. that's why i come here every night to put odds in your favor. it requires genuine insight, time and hard work on your part. but don't worry. you know what? we'll do it together. so stay with cramer.
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i we worked with pg&eof to save energy because wenie. wanted to help the school. they would put these signs on the door to let the teacher know you didn't cut off the light. the teachers, they would call us the energy patrol. so they would be like, here they come, turn off your lights! those three young ladies were teaching the whole school about energy efficiency. we actually saved $50,000. and that's just one school, two semesters, three girls. together, we're building a better california.
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tonight i'm telling you how to increase the odds of successful individual investing, using stocks from my personal history as a metaphor to tell the whole story. we have gone over why we start with index funds. we have seen the wrong way to invest by examining a failed investment of my dad's, national video. and we have seen the right way through a couple of stocks i bought before i went to law school, all of which were ahead of the publicly available data curve back then. now while at law school i managed to trade pretty much daily using personal insights and going to the harvard business school library which had research from pretty much every major brokerage house as well as what we call microfiche of sec filings of individual stocks. so what if it was about a month old when we got them? it was certainly better than nothing. during that time in law school, we saw the beginning of indexing
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of individual stocks. we saw the bundling followed by the value line company. that was an influential research firm at the time, still around. then ultimately the s&p 500. i didn't think much of the way they bundled the s&p 500 back then. i just didn't. i was interested in individual stocks and i had some big scores. but at no point did these changes cool the ardor for individual stocks. in fact, the heyday for stock was just beginning by the time i was at law school. hence why i put a stock a week on my answering machine and almost all made money thank heavens. we were coming out of a prolonged period of subpar performance with the treasury performance peaking in the low teens. interest rates were about four times, five times long data bonds are now, and money coming into the stocks and the fervor, let's say it was all beginning. how do i know this? simple. when i started on commission in 1984 at goldman sachs, i used to get a call every day from none other than my mother, who absolutely loved the stock market and would call for quotes on her favorite stocks. i had gotten her interested in stocks in the early '80s, and
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she chose to visinvest in the w peter lynch had taught us back then, buy who you know and stay on top of it. she had been buying in giant food, and she asked me if it were publicly traded. she had bought about 35 shares and was itching to buy more. what i would do is something i would often tell you to do. i would read up on the wall street research and marry her experiences at the chain, right? personal insight -- with the fundamentals of the grocery business. goldman had what was known at the time as the ax, the best analysts on the street on supermarkets, and i would read what he had to say about giant versus the other firms. he had the luxury in those days of having a friend from the lowe's corporation who send me a big gym bag of research from other firms, including firms that wrote about grocery stores pretty much every week. so here was the process of homework back then. you like an idea through personal experience, giant food. you read up about it with the best research. you match those insights with those of other firms.
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if the ax liked it more, you might have a slight imperfection as other analysts got on board and started recommending it. it's particularly helpful if the ax were to trace out the game plan because if there was terrific growth, especially regional going to national growth, that would mean investors would only pay out more than for other companies in its sector, meaning the multiple, which is the price we pay -- we are willing to pay for future earnings or the price to earnings multiple, the p.e. could go higher. these days, everything is so much easier. while giant food was subsequently bought by a dutch company, you could have gone to its web page and it would have had most likely everything you want. now, of course the negative here is everyone has got the same info. but the original insight by my mother was the starting point. you can't substitute for that. no. as an aside, my late mom never lost her interest in stocks. she took sick with cancer in 1985 and she would call me every day at 9:30 to get her quotes on
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giant. she did it to stay alert and to stay connected to me. goldman sachs ultimately gave me as much time off as i needed to spend with her before she died, but i never forgot how easy it was for a parent and a son or daughter to talk about stocks, which is a major reason some of you watch the show. and i pledged to my mom that one day i would do something more creative than just make money with money, something fulfilled years later by this show. now, it is important to know that despite all of these different inputs, the process of picking winning stocks can be upended by events as we know from the great recession or by execution of the company itself and the power of its competitors to knock it off in stride, which brings me to the fifth stock in our saga. gantos. anybody remember gantos? here was a woman's apparel chain that the goldman sachs research department loved and had a close relationship with. i tried to get my father to buy stock in the chain, but he would hear nothing of it. i asked him why because we had the best analysts on the street. he said, because no one goes there. i told him that was impossible.
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it was way too highly rated by goldman. my father said, all right, then let's take a trip to franklin mills, a giant outlet mall outside of philadelphia that my father used to go as he called on merchants to see if they needed any of his boxes and bags. there was a gantos in one of the malls, and my father said here's what we're going to do. we're going to camp out in front of gantos, busy saturday, and make a judgment ourselves whether anybody goes in and goes out and buys anything. we sat there for hours and hours talking and watching, and only about a dozen people entered the darn store, and i couldn't recall even if we saw one woman coming out with a bag. i shorted the company that monday and stayed short pretty much until the whole thing went to zero and got liquidated. another lesson learned. wall street research can be very wrong. gantos made me skeptical. i never forgot that exercise. now, to put all of this in perspective, i am offering a way that this show can bolster the process. i infuse the show with all the lessons here. i try to imagine my mother being a caller. i try to keep the skepticism of
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the gantos lesson my father taught me. i try to figure out how i can help through presenting you the giants and the gantoss so you can understand the process of good investing. most of all, i want to show you that it isn't reckless to try to pick individual stocks, and those who say it is just don't understand the process of first hand experience married with research, buttressed by skepticism. it all increases the odds of success individual stock investing while minimizing the risk of single stock ownership. so here's my bottom line. my mom was no genius at stocks, but she did have a genuine interest. my dad was a genius at retail, and i would like to think that some of that rubbed off on me. stay with cramer.
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we're talking tonight about the notion of individual investing and recognizing how i try to teach you how to analyze stocks you might pick if you have the time and inclination. again if you don't, you can keep watching, but i want you to invest in index funds, not individual stocks. why? because i can't have you buy a stock on a tip and do no research. i want you to have an edge or a catalyst or a personal
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experience where you can match that experience with homework, principally research, and the knowledge gleaned from the company's website, but recognizing you must be skeptical at all times. now, though, let's get to the final piece of the puzzle that eludes so many of you and make the process far more mystical than it seems. let's talk about heinz, the catchup company that was bought not that long ago by a consortium that includes warren buffett. when idy sided to leave goldman sachs to open my hedge fund, the first stock i bought was heinz. why? because i was looking to own a stock that represented a great management team that could deliver earnings through thick and thin. it was a classic growth stock moving from the first world to the third world, and therefore it had a clear growth path ahead for multiple years. plus in a time when the japanese were nipping at our companies and the chinese were just becoming a world power, i was confident that we would never have asian catchup on the picnic table. that proved to be right. but what i didn't count on were the performance demands on the hedge fund manager class.
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as long as i was at goldman sachs recommending stocks i needed to find those that i could always suggest my clients buy more of in case they went down. that way i wasn't wrong so to speak and would run the risk of losing a client. but a performance manager has its own set of rules, and it was learning them on the fly that really got me -- well, let's just say down on my luck. just buying stock because you knew it was terrific didn't matter to my new investors in my fund. they wanted performance, often daily performance, and i started my fund at a time when the economy was just beginning to heat up. heinz was a staple with a good dividend, and what i didn't understand at the time was when the economy heats up, people dump these kinds of stocks for something more cyclical, and they do it in the blink of an eye. i watched as heinz and other best of breed companies like bristol-myers that i owned drop and drop and drop some more. they were caught in what i didn't even realize. it was a rotation into stocks of companies that were diversified industrial machinery businesses
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with earnings that would heat up, start popping. i didn't get that if i wanted to perform daily. i realized i'd have to dump my heinz and my bristol-myers, start buying reynolds metals and phelps dodge. nevertheless i had this clause in my contract with my investors. it was a silly one in retrospect, was if my fund dropped by more than 10%, i would have to open the doors and let people out of their contract withmy. i noticed each day my fund sank and sank and sank because it was filmed with best of breed and not what was fashionable. final lip when i had fallen to 9%, we booted all my faves and started playing that rotation game, quickly got to even and then much more so. it was a sobering lesson i never forget. if i want to perform on a daily basis, as so many hedge funds have to do, you've got to take action. you can't just sit there and get your head handed to because you own best of breed companies. there's only one problem. this rotation game is not one you can play at home without
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being almost a full time professional. here's why. as that year progressed, the economy got hotter and hotter and hotter and these stocks kept getting higher and higher. at a certain point, though, things got too hot. people started worrying about interest rates going higher. don't we know all about that? the next thing you know, the stock market, it crashed. all the cyclical plays were decimated. so were bristol-myers and heinz initially. but you see they snapped right back, and that's what happens to the best of breed well-managed companies. so let's come back to the show itself. remember, i have now told you to use an index fund no matter what and then only buy individual stocks with mad money using the right way, not the wrong way. here, though, i have detailed how a rotation can derail the best of the best for a short period of time. what we do on "mad money" is try to explain right up top why your stocks might not be following the fortunes of the companies underneath because of things like rotations and so-called macro events. then i try to show you that as a home gamer you can use the flailings of the hedge fund performers to your own advantage
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by picking up best of breed companies. i do that basically through the longer pieces that use stocks as examples of what's happening and also by bringing on executives to learn about their stories, see if they fit into what's right or what's wrong in the "mad money" world view. i've seen the best of breed always does win out in the end, though, whether it be after the great crash of '87 or the great recession of 2007 to 2009. my job is to keep an eye on that prize for you and to explain why the market may not be reflecting accurately what's going on at actual companies, and that's your chance to get in them at reasonable prices. i augment these views with my other works and my writings. most notably my book, get rich carefully, as well as my block on real money, and my charitable trust, which you can follow along at that's a way to show you how big money works, by playing with an open hand. it's more of an exhibit with e-mails than a performance fund give my strict restrictions, i'm proud that i've given away more
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than $2.3 million since the charitable trust's inception. all along the way i've had your interest to be a better investor at the heart of the show. i want you to understand how it works and how the machinations of the pros intertwine with how a home gamer should invest, a product of my more than 35 years of trying to figure it out myself. i know the show is not perfect. i've made my share of mistakes. i've favored companies that didn't work out or didn't do my own homework correctly. i know i have a reputation not really deserved, i feel, for being too bombastic. all i'm trying to do is keep you informed in an entertaining way, knowing if i didn't try to make it a little bit of fun, it would have failed commercially years ago, and i would have let down my mother, my father, and all you home gamers years and years ago. the education is what it's about. as long as you know that the bottom line is that i'm doing my job and hopefully doing it right. stay with cramer.
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hey, everybody, i get your tweets all day, try to answer as many as i can. today i thought i'd give my hands a break, dig into some of your tweets right here on "mad money." @dirk syndrome wrote @jimcramer, in real money, he means the book, you said to be aware of firms financed heavily with debt. is there a certain debt ratio percentage to avoid? if you go to stay mad for life, i've got a lot of rules about that. but the main thing you have to do, you have to make sure the debt they have, the interest they have to pay, isn't overwhelmed -- doesn't overwhelm the company. in other words, can the cash flow pay for that interest? cash flow versus interest. here we have at number two, i @jimcramer, is there any virtue or merit possibility of returning to the gold standard? we don't want that. that pegs it in a way that we have no flexibility whatsoever. however, i do think that owning some gold is always a good idea. you can do it through the bu
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bullion or the gld. check this out. we have @dolan brian j who said, @jimcramer, great morning on the west coast. teaching my 5-day-old the value investing at early age on "mad money" on cnbc. what can i say? you know what that kid has? horse sense. @tram lynn wants to know, high quality companies, could you define precisely value good cash flow, low debt, momentum? what is the quality? everything gets sold. okay. it's best of breed. high quality companies, it is acknowledged to be the corporate leader in its sector. that's what i want, and if the sector is a good one, and this is the best of breed in the sector, i think you're going to have a good long-term investment. i prefer for you to wait until we get these periodic moves down that are caused by some sort of exogenous event. buy good call companies at prices you like. @norby wants to know we know
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money never sleeps. do you? we cannot stay asleep as long as we like. that's why you see me tweeting at 3:40. next, @chew which is wondering, who are some short sellers worth following and learning from? this is an industry where what i'm looking for is actually the best shorts, not the best short sellers because what i've found is that periodically the best short sellers are in the wrong stocks. they're all shorting the same stock. so i like to look at the companies case by case. here's @laz maniac. your 6:00 p.m. shows have replaced the nightly news. amazing coverage. i still like the nightly news, but i appreciate that. i'm glad you watch it when it's on air. you get the scoop on the people who tape it and watch if later. @cjp, professor, so glad you are helping us. i read every action alerts plus alert. very helpful. thank you for the extra tv hours as well. never miss one. thank you. is a
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companion newsletter to my charitable trust. it's my own money in a trust which i then send to a charity and write about it while i'm doing it to analyze it. stick with cramer. hey, i just finished get rich carefully as a birthday present to myself, and, man, it is the gift that keeps on giving. >> man, you are terrific. what's up? dr. cramer, a big woodstock, connecticut, booyah. >> wow. what's going on? >> you are simply the best, period. >> i saw loop at halftime. i get it. it's from chicago. the chicago loop. [ crickets ] >> part of the heart and soul of "mad money." come on out here. come on. i survived ten years with kyle, and all i got was this lousy
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t-shirt. see you later, chief. >> are we hugging? are we hugging? we're hugging. just forget entirely the holiday. i mean forget this. put up pictures of my tomato plants. like a coiled spring. ba boom, ba boom, ba boom. oh, and amazon prime doesn't offer stupendous hors d'oeuvres like costco. i go to costco after fasting and i eat every sample they offer. even the ones i don't like. i beat them at their own game. do not eat yellow snow either. it's not going to cut it. you can debate the merits of environmental policy all you want, but this show is "mad money," not mad meteorology. costarred as the daughter. gels oh, i think it was um... chris columbus was the director... it's called claymation... narwhals really exist... actually guys, it was the ghost of christmas past... never stick your tongue on a frozen flag pole... yukon cornelius... "die hard" is considered a christmas movie!
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that's the unlimited effect. stream your entertainment with unlimited data when you switch to at&t and have directv. what's critical thinking like? a basketball costs $14. what's team spirit worth? (cheers) what's it worth to talk to your mom? what's the value of a walk in the woods? the value of capital is to create, not just wealth, but things that matter. morgan stanley
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i like to say there's always a bull market somewhere, and i promise to try to find it just for you right here on "mad money." i'm jim cramer, and i will see you next time!
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>> narrator: in this episode of "american greed"... one man's bold scheme to get rich quick. >> the opportunity was there for them to make easy money. >> narrator: albert talton puts a modern twist on one of the nation's oldest crimes -- making counterfeit money. >> this one was different because it was just a computer and several printers that were utilized to print this large amount of counterfeit. >> narrator: talton circulates more than $7 million in phony cash around the globe... >> he was almost proud of what he'd done -- his perverted version of the american dream. >> narrator: ...and launches the u.s. secret service into the largest manhunt of its kind.


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