who cares. who cares. 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." lc other people want to make friends. i'm just trying to make you money. my jobs not just to entertain but to educate and teach you. so call me at 1-800-743-cnbc or of course tweet me @jimcramer. tonight i'm letting you in on something real big, the method of my madness. i know this is the craziest, most random, and frankly bizarre thing on not just business tv but television in general. i mean think about it. a one-man show about business? but i also know that you won't find investing advice this good
you know that too, or else you wouldn't be watching, unless you're one of those people who tunes in to see if tonight's the night that i actually do go off the rails, which after multiple years of airing, is always a possibility on any given night. sorry, guys. there's a tape delay, but keep wishing. bound to happen one day although i do my best so it doesn't. this show is all about the method -- or methods, to break from strictly quoting the bard -- to my madness. how do i pick stocks? what gets on the show? you always ask me that. on the dip instead of just like, hey, you know what, tomorrow? that's the question everybody would like to know. tonight i'm going to give you pieces of the answer. let's get rolling. one of the easiest ways to identify potential cramer names from "mad money," the stocks that could but won't necessarily always end up on the show, is by watching my favorite list from when i was frankly a little boy in fifth grade. i used to look at the new high list.
stocks on that illustrious list, the highest of the high, obviously have something going for them, and that's especially true when the market's in bad shape as only the best of the best can hit new highs when the market's falling apart. so what's it tell you when a stock hits the new high? either that it's part of a genuine bull market, or the company itself has some serious earnings or sales momentum, or maybe its sector does, which is so often responsible for a stock's increase. no matter how they get there, many stocks on the new high list often keep going higher because it's really a list of "a" investing in. the "a" students tend to repeat themselves in the process every quarter just like the really smart kids in school. in a great bull market like we've had from the bottom in 2009 -- and any market, by the way, that doubles from the bottom has to be considered a great bull market even as i know so many resist such labels. we saw this new high list phenomenon over and over again. the same stock would hit new high after new high after new high, and following them was a great way to make money even as
couldn't be trusted. listening to the bears caused you to miss out on one of the greatest rallies in history. obviously, the rally since the bottom is more like the exception than the rule over time in all the years i've followed the market. but generally speaking things have worked -- have continued to work because these stocks typically represent companies that are best of breed. always remember that phrase because it's integral to "mad money." i am not saying that just so you can chase stocks that are hitting their new highs because they'll keep that would be the ultimate foolishness, true bozo the clown behavior when i used to have hair. i'm saying if you want to identify stockers that will be winner in the future, unless there's been a big sea change in the market caused by maybe a gigantic political shift or a radical shift dramatically higher in interest rates, looking at the biggest winners of the present is a pretty good place to try to figure out the future. let this list do it for you. it's already been scrutinized and scrubbed. that's the thing about the market. it's not always that hard to play once you understand there's
things pretty much keep going the way they're going until something major shifts, and then you do have to alter course. those course changes can be pretty radical, though, and that's why you always have to be re-evaluating your ideas and should never dig in your heels when the facts change. something we emphasize over and over here, and it also infuses my columns in "real money" and all my books i've written save my autobiography, "confessions of a street addict," which is more of a score-settling tome, settling scores with myself, of co hey, it isn't called "mad money" for nothing. but you know what? when you're looking for stocks to invest in, when you're hunting for the bull market like i always do here, looking at the new high list is a terrific way to begin. now, i don't just pluck names off the high list because i think, hey, these stocks have gone up, so they're going to keep going up. that's a little lazy and responsible. i am many things, a lot of them negative, but lazy and irresponsible? i don't know. anyone that sees my insane tweets at 5:04 @jimcramer knows,
some people say, hey, is that someone else tweeting for you? who else would get up that early? you can't do that. i mean and then of course the obligatory, do you ever sleep? i mean, well, no. i mean at least not for any long stretch. i apply the same standards of rigor to this show that i used at my old hedge fund. so i rarely recommend buying stocks that trade off the new high list unless there's some special circumstances. i'll talk about those later in tonight's show. what i do like to do, though, when i'm hunting for stocks and what you need to do is wait for the fabled pullback from the new high list because that is the best place to put money. the pullback -- and there i'm thinking about something that could be 2% or 3% and preferably 5% -- that gives you a good lower price entry on something that's on that list. remember, i am not telling you to chase momentum. you should always be conscious of price and therefore try to buy on weakness just like you want to sell into strength. most people can't pull the trigger when a stock's going down because they think something's wrong. i'm telling you if it's on the new high list and comes down, that would be your man. i'm throwing these caveats in, though, because i don't want you
it's a jumping off point albeit a very important one for those tries to get starts. poring over the new high list is a fabulous way to identify potential -- and i stress that word. it's potential stocks to buy. you only buy stocks that have pulled back from the new high list if you're confident they'll make a comeback for substantive reasons having nothing to do with the market. you have to do all the same homework you ordinarily do before buying a stock. it's not a -- you don't get a pass there. you absolutely must have conviction even if it's a and i do that for a lot of the ipos i go crazy about where i'm really saying, listen, cynically i know the buyers go crazy about it. me, i accept they're just pieces of paper meaning, you know, the big boys can't resist growth stocks, right? and they will always come to the support on down days. the biggest caveat of all when you're shopping for stocks that have pulled back from their new highs, make sure they haven't pulled back for a good reason, that the selloff is extraneous to their business. don't go buying a home builder that's down if interest rates flew up because they could at least initially get hurt with
independent oil stock when oil goes down for three straight days because that probably doesn't belong on the new high list anymore. i always like to say that you're looking for a stock that has bristol-myers like in strength because almost nothing has to do with bristol-myers. be certain you're dealing with a momentarily damaged stock and not a troubled company that is going down and down. how do you tell the difference? another key part of my philosophy. if the fundamentals haven't changed, the stock probably hasn't fallen from grace. it's pulled back for largely mechanical reasons, profit taking or some panic in the i now more than ever, thanks to the fact that stocks are traded like commodities by ultra-levered hedge funds, causing huge selloffs that make no sense in everything or doubling and tripling related etfs that are more powerful than the stocks themselves, you see the stocks of good companies pull back from their highs for nothing that happened to do at the company. nothing to do with the company or the strength of the underlying businesses. those are the buys.
stock attractive as it climbed its way up to the new high list goes away, then that stock is no longer a candidate. the story has to be intact, or this method will let you down. while it isn't a hard and fast rule, i tend to like stocks that have pulled back just enough but not too much. i have to tell you 8% is the historical optimal level of a pullback that i've made a lot of money in. less than that, you're going to be early for some of them. more than that, and maybe something is indeed wrong with the stock. you just don't know. 3%, 5%, 8%, those are all important levels. that 8% level, man, i've made a killing when i buy them down 8%. bottom line, that's the first method of cramer's madness. watch for stocks that have pulled back from the new high list, especially because of a broad market selloff. some of my best picks have come out of this process. it's my getting to work shopping list. hopefully some of yours can too. why don't we start with arzella in ohio? arzella. >> caller: hi, jim, and booyah to you. >> booyah right back. >> caller: i'm trying to get a
and i'd like to know are they a good way to diversify? >> well, you know what? i got to tell you, arzella, here's the problem. a lot of people have 401(k)s where you have to have mutual funds and you can't pick individual stocks, and for that they are. what i like to do is have, say, 20% international, 50% growth, the rest will be kind of a balance situation, maybe a fund that has some bonds. you have to depend on your outlook and your age. but, yes, mutual funds are fine. try to look at some of the pe star. that's what i use. stuart in florida, stuart. >> caller: jim, what's the best time to use stop orders after you purchase a position? >> no, we're not going to do that because, you see, if we're going to trade actively, we're going to have to pay attention to it. and if we're not going to trade, we're going to invest. we don't need stop orders because the market could be down 10% in a flash day. you'll have sold the stock, and then it bounces right back. you'll say what the heck happened. we don't play it that way. we invest on "mad money." we're not traders. we invest.
madness, and tonight i'm revealing it all. the first method, look for stocks that have pulled back from new highs, especially because of a broader market selloff having nothing to do with the individual stock that you want to pull the trigger on. stay with cramer. >> 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 firstname.lastname@example.org or give us a call at 1-800-743-cnbc. miss something?
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welcome back to tonight's methods to madness special where i'm revealing some of my best tricks for buying and selling stocks, truly timeless investing wisdom for the ages, i hope. next up, how do you find stocks that are great buys? earlier i was talking about picking off stocks that have pulled back from the new high list because you get a cheaper entry point on a stock that's been a proven winner. i said you didn't necessarily want to buy names right off the new high list because you're paying too much for them. you us for some weakness, maybe down 5%, 7%. given how volatile and downright crazy the market has become, there are very few occasions when buying a stock right off the new high list or that close to it is justified. but sometimes the stock is so hot, you just got to buy it whenever you can, as soon as you can, because it may not be going lower anytime soon. you won't find these often, but when you find them, you have to remember not to buy all at once. if you want to buy 100 shares of stock, you think it's got so much mojo that it won't get a pullback from the high, then go
worse that happens, it goes higher. you don't get to buy more, and you grab a quick profit and find another stock. believe me, there is always another stock to find. i've got an exception where it's okay to buy a stock right around its high. if you see insiders buying the stock when stock's up a lot already, i'm going to give you a total green light. now, it is a rare thing to see happen. but in my experience, it's rarer still that this method of picking stocks doesn't work out. see, i love it when insiders buy after a decent run because that's a great sign of confidence that they think the run's just beginning or there's a big runway ahead, and they are sure that it's long-lasting. remember, you can't flip a stock immediately if you're an insider buyer. you have to wait six months. the government takes away the gains otherwise. it's the law. so these people are seeing things they like that aren't going to disappear in six months. if anything, they haven't appeared yet. normally insider buying ranges from being meaningless to a
a lot of times you're going to catch insiders buying their stock because they want to give the impression of confidence, create an illusion they're doing better than they really are. insiders aren't stupid. they know if they're seen buying their own stocks, even small amounts, then the market will smile upon them, so they play the system. hey, that's fair. but it means we ignore most tiny insider buying because it could be kind of flim flam. what a word. we also used to call it painting the tape. it kind of makes it look better than it is. that said, when you get truly colossal insider buying, even if want to take another look at the stock in question because it's a pretty powerful endorsement when the insiders buy a whole lot of stock. it's really the volume of the insider buying that declares its sincerity. but we're only focusing on one sort of insider buying right now, stocks that have been running and aren't perceived as being historically cheap or low-dollar amount plays. these are not value stocks. there's nothing more arrogant and yet telling than when an insider backs up the truck for his own stock when it's been rolling along at a pretty good clip. they're saying, yeah, we know we
our stock's been en fuego, and we're so darn confident it will keep going higher that we're going to buy some shares hand over fist right now. we're not waiting for a pullback, no. we're buying right here. arrogant, sure, but this is bankable hubris. i've seen it time and again. corporate insiders aren't fools with some notable exceptions occuping, of course, the "mad money" wall of shame. if their stocks are on a tear, let's assume if they're buying, they probably do know something. not everyone deserves the benefit of the doubt in this business. after the financial crisis and the market meltdown at the end of 2008, i know that a lot of executives for that matter are a bunch of crooks, frauds, and mountebanks, especially those who got burned owning the old, say, fannie mae or lehman brothers. look, that's the wrong lesson to draw from the crash. healthy skepticism is one thing. a total unwillingness to believe in anything positive is something else entirely. if you're going to own stocks, you need to be willing to extend some measure of trust to people
spur buying? we've had a massive amount of consolidation in a host of industries of late. we've seen it in airlines, rental cars, foods, telecommuncations, entertainment. perhaps these executives are buying stock because they hear the footsteps. maybe they've been contacted by some other company and turned that company down. spurt overtures happen all the time, and if executives expect that they may be next, it could be a healthy and honest reason to buy. of course they have to disclose anything that's a serious bid. but a lot of times you just get a phone call and say, no, bye. company is worth more than they thought. maybe they think the company could be broken up like the old tyco or fortune brands or gannett. maybe they see the ability to create value, and they just want in on it themselves, or maybe the stock has run just a bit, but they don't think the run is over because they recognize how much better the company will be when it's divvied up. for us, buying after big runs can be a bit reckless and lazy. most investors are smart enough to wait for a pullback before they pull the trigger. insider buying after decent runs tells me these guys don't think
than that. sure i want to wait for a pullback after they've bought, but that's the best of all possible worlds, and you usually don't get that scenario. bottom line, one more method of cramer's madness. when you see insider buying on a stock that's already had a solid run, you probably want to be buying too. bob in new york, bob. >> caller: jim, a steeler booyah to you. >> steelers from new york? all right. well, why not? what's up? >> caller: jim, i have a question about interest rates. when the fed raises interest ra g attractive dividend yields and growth prospects suddenly rapidly go out of favor. can you add some clarity to why? >> well, because people extrapolate, bob. once they see rates start to go up, they figure they're going to go up for a while. if that's the case, they want to get out of what they perceive as being a risky yield, which is a stock yield, and go into what's a certainty, which is a bond yield. so it's all relative basis. rick in california, rick. >> caller: booyah, jim.
down to the average -- >> no, you can't. i'd say the vast majority, not just a few times, not just the majority, but the vast majority of times, we pay up above our basis. well, i got to tell you. >> sell, sell, sell. >> you got the picture. remember, here's another method to my madness. when you see insider buying in a stock that's already had a big run, think to yourself i might want to be buying here too. after the break, i'll try to
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you're in luck because you called cramer on a good night. i'm not going home to sip that cheap scotch on my dirty linoleum floor. by the way, i got to apologize to dewars, which i once suggested was the linoleum floor scotch of choice. it's actually pretty good stuff, especially the boutique 18-year-old. have you had any of the 18-yol don't waste that one on the dirty linoleum floor, no. tonight i'm obviously in a great mood, maybe a manic mood even, which is me at my absolute best. let's just say i'm pretty darn productive and prescient when i'm in high gear. so revved that i'm revealing many secret methods to my madness. so pull out your pencil and some paper and start jotting some things down because i got to tell you something that could be incredibly useful. better than giving you some stock picks, i'm giving you some of the best ways i know to pick
i'm teaching you how to invest and trade like cramer if not to be like me, because i've got some kind of emotional things cooking here, but at least to emulate me. so far i've given away two of my precious secrets, two of the tools i used at my hedge fund, still use for my charitable trust, actionalertsplus.com, where i play with an open hand, allowing subscribers to see all my trades before they happen. i look for stocks that have pulled back from the new high list. that's not a reason to buy in in itself, but it's a great place to look for potential buys. and i like to buy stocks that have had big runs and yet still have substantial insider buying because it says the people running the company really believe their stock has legs. and if they believe, there could be a good reason for us to believe too. but, again, this alone not enough to recommend a stock. you still need to do the homework, to check the fundamentals, to make sure you like the story behind the company before you dive in and buy. what i'm teaching you tonight are really what i call tells. that's right, they're tells. they're signals that a stock might be worth owning, that it's worth your time and effort to go through the often boring process
conference call transcripts and quarterly filings. there are thousands of stocks out there, and any method we can use to narrow down the ones that might be attractive is a method worth having. we've talked about insider buying at the high, and while i don't usually use insider buying as the only way to determine whether a stock has got it going or not, there's one other scenario where insider buying makes for an incredibly bullish tell. that's when a stock has a heavy short position, meaning a lot of people out there have borrowed shares, sold those shares, and are now waiting for the k go lower before they buy back the shares, return them to the bank they borrowed them from, and collect the difference between the price they sold it first and the price they bought the stock back later. hopefully they sold it high and bought it low. you can think of shorting as like regular investing, but it's in reverse. we try to buy low and sell high, right? shorts just turn that around. they sell high and try to buy low. when a stock has a lot of shorts in it, that means there are a lot of people have conviction the stock is ultimately going lower. in fact, it takes more conviction to short a stock than
because when you're short, the potential downside is infinite. when you're long, the stock stops losing money at zero. shorts lose money when stocks go higher and higher. there's no lid. the other important note about short sellers is if there's a lot of them and a stock all of a sudden gets some good news, we get what's called a short squeeze, and it sounds exactly like what it is. in order to bail or close out their positions, the shorts have to buy. this is what's called covering. when a lot of shorts cover at the same time in a panic, the stock willge people desperate to buy the stock, a lot of demand. they have to buy unless they want their years wiped out, as so many short sellers had in the last few swoons when the market refused to quit and then went right back up and the shorts hadn't covered or bought the shorts. so where does insider buying fit into the short selling equation? you have a stock with a high short interest. that's a sign that much of the float has sold short. then some of the people who run the company start buying shares for themselves, or an outsider like coca-cola with the keurig,
regeneron takes more than a 10% stake and indicates it wants more. those were three situations where the shorts kept shorting and they got crushed. they should have done buying, not shorting. it's almost like drawing a line in the sand for the shorts. they say our stock goes this low and no lower. this is an explosive combination of that insider buying and a stock that is heavily shorted, one that often leads to a short squeeze that sends the stocks much higher. shorts are smart. in fact, a lot of the time they tend to be real smart, much smarter for the most part, i have found, than what we call long side investors. but they usually don't know more about a business than the insiders who run it. if a lot of people are shorting a stock and management is buying it in sizeable amounts, not just in hundred shares' worth, then you should start doing some homework. and usually you're going to want to side with management. and then you can ride it higher and higher and higher in true jackie wilson style. and i regard the sanofi and coca-cola buys particularly of the keurig and of monster as being inside-like buys.
desperation to cover their positions, and you make money. similarly, when a company with a heavily shorted stock announces a gigundo buyback, bigger than any previous one, that's another line in the sand situation where management is contradicting the shorts. companies often repurchase their own shares. and while not all buybacks are bullish -- some of them are outright wastes of money -- i teach you how to identify the bogus buybacks in my charitable trust bulletins at actionalertsplus.com that i issue multiple times each day. a substantial new buyback in the face of shorts is often a good reason to take a closer look at the stoc now, a note of caution here. you have to be very careful when dealing with a company that's in the crosshairs of the shorts, especially when people are nervous and the market is in bad shape. the shorts have the ability to wreck a stock even if the fundamentals of the underlying company are fantastic. these days the shorts have more fire power than ever, i believe thanks in part to an s.e.c. that now, under both democrats and republicans, looks the other way when shorts raid stocks with bogus stories about accounting issue and management blunders. plus, it's pretty easy to do as
the benefit of rules that slowed short selling down and made it harder to create bear raids. rules like waiting for what was known as an uptick or a higher price before you could sell short stock. that was a good rule that somehow the government got talked into abolishing in order to make trading quicker and more fair for the shorts. a lot of good that did for us. it's a leading reason why so many home gamers have left the building. we established these rules in order to stop the fomenting of panic, something that happened during the great depression. wisdom seems to think the panics are no longer possible. so we have to be more careful than ever not to succumb to panic that's been orchestrated by short sellers, who need prices to go lower. without those protections, the shorts were able to run wild and practically assassinate the stocks of many financial companies during the crash of 2008 until the generational bottom in march of 2009 put the bulls back in control. but the shorts came back with aggressive negativity after many of the big runs in the last few years, this time using methods of mass destruction like double
when you're dealing with a heavily shorted stock that's in one of those etfs like the financials, you have to learn to tread carefully. you can still find great opportunities in stocks where the shorts have overreached and the insiders are buying. but before going into one of these situations, i have to warn you that the balance of power has shifted in recent years in favor of the shorts against regular individual investors. that means even if the short sellers are wrong short term about a company's prospects or even long term, they can still demolish the stock, especially if they mount campaigns against the stock like with herbalife and bill ackman, the hedge fund manager who was taking on the company. just don't underestimate the amount of damage the shorts can do. although remember the best protection against these raids is offered from stocks that pay good solid dividends. short sellers have to borrow stock to short the stock, and that means they have to pay the dividends to the real owners.
way they go about shorting. when you see a stock with a big dividend that's being attacked by shorts and the dividend is going higher, what a terrific place to be, especially if the insiders are snapping up stocks too. that would be thrice blessed. bottom line, insider buying plus heavy short interest can equal raging buy as long as you avoid situations where the shorts are determined to crush the stock at any cost. think herbalife. speaking of herbalife, let's go to herb in florida, herb. >> caller: jim, great to talk to you. i'm an action alerts follower for at past few years. i wish i had gotten on board a lot sooner. >> you're very kind. some tough days. i like that, that you support us. what's going on? >> caller: i'm recently retired. i've saved up well over my lifetime, and i've looked at what the longevity of my savings. as long as i manage things well, i'm in good shape. >> good. >> caller: my concern right now is in allocation.
halfway between what i follow you with and the other in index funds. >> okay. >> caller: and then the remainder is split between bond funds and cash. you know, the cash fluctuates up and down. >> sure. you're doing it exactly right, just like we teach you in action alerts. >> caller: well, i've been paying attention, then. >> thank you. >> caller: thank you. >> you've got it dead right. i have no criticisms. all right. trying to spot a raging buy? here's a tip, when you see insider buying plus heavy short interest and then a buyback and a dividend, wow, you got something. just be careful to avoid situations where the shorts are simply determined no matter what to crush not just the stock, but the business itself.
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i know the rep on me, at least among my critics. it's that i'm all about trading. >> sell, sell, sell. buy, buy, buy. >> that i don't have any advice that's worthwhile for regular investors. that i'm all short term. that's entirely untrue. this show has adjusted over time. it's morphed so to speak. it's really about longer term ve if you've watched it anytime in the last five years, you know that. however, knowing how to trade can make you a better investor, and trading around the core position is one of the most basic and useful disciplines out there. many people have asked me what do i mean by it? well, in markets like this one that have periodic swoons after very big considered runs like we've had since the generational bottom in 2009, it does help to trade around. what's it mean to trade around a core position? let's go through it step by step.
that you really want to buy as it goes down. finding a stock that you believe will be going higher over the long term is what matters even as you accept the fact it could go down in the near term. what you're really looking for is a great company with a stock that could get tossed around by market volatility but that you ultimately believe will get higher if you're patient. so if you were just investing, you'd set up a position in the stock, buying in increments because we all know that buying all at once is arrogance, and that's not going to be allowed ma why don't we use google as an example because i like that stock very much, have since it came public. although only over the long term will i tell you i like it because it's very volatile short term and given to quick pitfalls and declines. let's say you want to own 100 shares of google over time. the way to set up that position would be to buy 25 shares four times over a period of weeks or even months. that would be your core position as an investor. let's say you want to trade. i know many of you want to, but you feel discouraged because you
tech bubble burst. the key word was "amateur." you home gamers can make money trading if you do it right like a professional. in the old days when commissions were higher, that wasn't true. the commissions would eat into your profits and it wasn't worthwhile to trade. that hasn't been the case for ages. let's come back to our core long term position strategy were you own 100 shares of google, and you want to own it long term. let's say it's trading at $500 a share for the purposes of this show. every time the stock jumps 25 points, or 5%, if you want to trade around position to preserve capital, you might want to sell 25 shares. you shave a little off to bring in some profits. once google reaches $525, you would own 75 shares. you keep scaling out the same way although always i love the stock. i like to keep that last 25 shares. then you wait until something happens to knock the stock down to where you bought it as long as the news isn't specific to google, thereby damaging google's prospects. it shouldn't be unreasonable given we're in a world where stocks can get crushed by all
as the stock comes down, you buy it back in increments. since we started with 100 shares, let's keep using increments of 25 to buy it back. so if google comes back to $500 from $575, you buy 25 shares, then another 25 down 5%, that is if you had sold the 50, not just 25 on the way up. you could even take your winnings this way and help buy 25 more if it keeps going lower, and you only got to swell 25 before the swoon. this might appear to be small potatoes, up 5% to sell 25 shares, down where you started, buy s process up on the way back. but over time, your profits can add up. remember, you don't have to do anything. you can just hold it. that is fine with me. but people ask me what trading around the core position is, and that's what it's about. a lot of people think trading is incredibly exciting, and it can be. but if you're good at trading around a core position, it's right to be bored. there's nothing exciting about the plan i just laid out. all you're doing is watching the stock move, trimming up or adding to your position. conjure the image of trading as
is the height of prudent portfolio adjustment. boring, by the way, is good. of course this whole trading around the core position tactic works best with stocks at lower prices where you can buy more stock and have more room to buy more. but i wanted to show you that it can work even with google, with a $500 stock. again, if you own a stock and you like it, you don't need to do anything. this is in response to many questions on twitter and in my career about how i used to trade when i was at my hedge fund. trading around a core. obviously you can scale these your position is. the basic idea is to avoid putting yourself in a spot where you have too much on the table in case the stock gets swatted down or too little on the table to take advantage of any upside that comes your way. trading around a core position is a basic trading strategy that you can use, even those of you who find the notion of trading as opposed to investing to be abhorrent. if you want to take your trading to the ultimate level, i recommend you read two chapters on options in "getting back to even" for the strategy i used at
action," the tv program, that some of this material was too sophisticated for tv. i no longer think that, and you have to be willing to put in some extra homework. but if you have the time and inclination, it's more than worth the effort. the stock i used to demonstrate it happens to be google, and you can see how my strategy of what i call stock replacement in "getting back to even" works better with options than with the common stock. it's kind of like a cheaper and less risky way to what i call creating a google at a more reasonable dollar amount price this stuff is hard. but i am reacting to the requests i get all the time @jimcramer on twitter as many want to know about the options strategies i favor. we can't use options for actionalertsplus.com, so i'm old time on this stuff. they are all there for you to use. by the way, if you don't understand options at all, let alone the sophisticated strategies i lay out in "getting back to even," in my first handbook, "real money," that's a handbook of what i taught people who went to work at my hedge fund, i have what an option is.
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i've got one more trick to teach you tonight, one more method to my madness. this time i want to talk selling. >> sell, sell, sell. >> which along with when you buy, what price you buy, may be the most important and definitely the most undervalued tool in your home arsenal. hot stock? how do you get out before the party ends so that you're not one of the last people around who gets stuck cleaning up the mess? this is a question that needs to be answered because there's a lot of money to be made owning hot stocks with lots of momentum. but when you play the momentum game, you have to know when it's time to leave the table. that's what's crucial. there are always naysayers, and eventually the naysayers are almost always proven right sooner or later. virtually all hot stocks implode except for the ones that over
this topping process happened big in recent years with stocks as diverse as chipotle and intuitive surgical or the cloud, e-commerce, smaller biotech stocks. they kept blowing up. but it usually occurs later rather than sooner. and all negative talking heads that kept you out of the stock with their recklessness, disguised of course as prudence, actually cost you a great opportunity to make money. people shy away from these stocks because they don't know where they're going to top out. that's understandable. i'd be afraid to buy them too if i didn't have a discipline that let me know when to get out. lucky for you i do you're about to learn it. first when i'm talking about hot stocks, i really mean hot speculative stocks, stocks of companies with low market capitalizations. usually these stocks begin with very little research coverage from the major wall street brokerage houses. these names can go up for a very long time. they can catch fire and stay on fire for years without sponsorship. the key to figuring out when interest has peaked and it's time to sell is by watching the analyst coverage being rolled out. you have to use your own judgment here, but a good rule of thumb is once one of these hot stocks gets discovered and
analysts -- that's right, six analysts covering it -- then the run is going to begin to peter out, not get stronger, because it is going to be too big and too well known to continue to go up the way it has. it's the rare stock that doesn't behave this way. you can find out how many guys are on a stock by looking at it anywhere on the internet. this isn't hard to find information. it was at one time, not anymore. this formula has worked for me for as long as i can remember. as far as i can tell, it works because the number of analysts on a stock is a good gauge of how much awareness and interest there really is in a name, and names don't get pushed by everybody. they get hot because they get discovered by everybody. hot stocks get tapped out when there's nobody left to be attracted to them, when all the people who would be interested in buying them have already bought. they came out of nowhere, attracting more and more attention, more and more backers, and eventually everyone who wants a piece of the stock has a piece of it. when that happens, the run is over, people, and then you must ring the register and go home. let me give you a great example. hansen natural, the old monster
that was the name it used to be before it became mnst, which was one of the hottest stocks in 2004, hottest stock in 2005, hottest stock for the first half of 2006.. hansen went from $18 and change at the beginning of 2005, to $200 when it peaked in july of 2006. the whole way up, there were people telling you that hansen, a beverage company that got its momentum from its monster energy drink, was a fad, had to dry out, had to crash. well, it did do that. but as often is the case, it took years for the momentum to not weeks. years. i called the top at hansen back then because i know how these stocks worked. it peaked in july of 2006, and this was in part because of the fact that the company did a five for one split. and even though splits aren't supposed to do anything, this encouraged people who had been in hansen for a long time to take something off the table. but there was another reason i believed it would peak, and that was it picked up its fourth analyst on may 10 of 2006, when goldman sachs started covering it. you had two months to sell
there was still some upside left after goldman started its coverage, but prudence dictated that we sell once the stock had four analysts on it. better to clear out early with your winnings than wait for them to fade away. and hansen, as with pretty much all of the other stocks, hot stocks started to cool off once it hit that critical mass of analyst coverage. incredibly, after hansen fell off the radar screen, people stopped talking about it, and analyst coverage dwindled again. the stock recharged, powered higher, and ultimatea- bought a huge stake in its equity, which sent it up even further, a stock i still like. it was an amazing renaissance. but, again, it was really a testament that when analysts stop following a company or do so on a desultory basis, the company's earnings started percolating again as was the case with monster. it turns out that the fad drink ended up vanquishing the competition from major soda brands that failed to materialize, and ultimately the biggest one joined it rather
gained, there's so many analysts started covering it, the stock peaked. when they dropped it, the stock bottomed. that's how it works. small speculative, steamy-hot momentum stocks are often worth owning. but you most know when to sell, and that moment comes when you see too many analysts jumping on the bandwagon. use four as a good rule of thumb, letting you know when to start selling. stay with cramer. many people clean their dentures with toothpaste or plain water. and even though their dentures look clean, in reality they're not. if a denture were to be put under a microscope, we can see all the bacteria that still exists on the denture, and that bacteria multiplies very rapidly. that's why dentists recommend cleaning with polident everyday. polident's unique micro clean formula works in just 3 minutes,
for a cleaner, fresher, brighter denture every day. we're going to prove just how wet and sticky your current gel antiperspirant is. how degree dry spray is different. degree dry spray. degree. it won't let you down. cathy's gotten used to the smell of lingering garbage in her kitchen yup, she's gone noseblind. she thinks it smells fine, but her guests smell this... sfx: ding, flies, meow (after cat lands) music starts febreze air effects heavy duty has up to... ...two times the odor-eliminating power to remove odors you've done noseblind to [inhales] mmm.
times the odors for 30 days. febreze small spaces and air effects, two more ways [inhale + exhale mnemonic] to breathe happy. we've got to get to some of the tweets you've been sending me @jimcramer, #madtweets. here we go. our first tweet is from @jasoninvesto, who asks, looking to use technicals more. what are some resources you recommend for technical analysis and indicators for the novice? i get most of my technical analysis from realmoney.com, and that's one of the things that i did in "get rich carefully" was pick the best technicians who explain what these terms mean
action, and that's what i did in that book. next, a tweet from @redsquare27, #getaplan. if i am actively trading in my roth, should i have my money in an index fund or stocks or both? stocks, my friend. by the way, let's be very clear. that's not the case with a 401(k), which is why i like the ira option so much more. next, @hallgthall8957 tweets, jim, i've watched you daily for over ten years. daily! u you have helped massive amounts of people. thank you. i cannot tell you there are so many people who come up to me and they apologize that they want to tell me that they like the show. they say, excuse me, jim. i don't want to bother you, but i like the show. no. when you say "excuse me," i usually think you're about to say, boom. no. don't excuse yourself. i am absolutely thrilled that you say you like the show. it means the world to me. i sometimes figure what the heck do i come out here every night for other than the fact that you
@clearbaffles? i mean @obfuscatebaffles? okay. tweets the following. please discuss balance between adding to a position and selling your cost basis. same applies to etfs or cost average, #getaplan. i like to lower my basis by selling. what i do is as the stock goes down, i buy, and then as the stock goes up, i like to sell the higher basis. i run a charitable trust, so i don't have to worry about taxes. typically what i'm trying to do is lower my basis as an owner. why do i want to lower my basis? and i do like buying at a discount. and lowering my basis is the equivalent of getting a stock i like of a company at a cheaper price than i got it before. that means i'm getting a bargain in the fundamentals are still good. next, @jdoll tweets the following. @jimcramer has more followers than wyoming has people. i like his stock advice better too. wyoming has more oil than i have. wyoming wins. @mos_jeff asks our next
companies i like to invest in but don't have money for all of them. how do i narrow my list? #getaplan. this is very easy. what you got to do is you got to figure out, okay, which are the best at which levels? if you like them all, try to figure out what level would be the one where you'd really want to buy something, and then stick by it because once stock's coming down, people run from their levels instead of to them. stay with cramer. whatcha' doin?
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>> i like to say there's always a bull market somewhere. i promise to try and find it just for you right here on "mad money." i'm jim cramer, and i will see you next time. election sprinlt, with just four weeks to november 8th, donald trump plans vicious attacks on bill and hillary clinton if more damning tapes of him emerge. >> john mccain says he's not voting for either major candidate, but we'll tell you who he likes. >> massive flooding. at least 30 killed t. worst isn't over yet as the remnants of hurricane matthew continue. turn them off. that's the warning for anyone using a samsung galaxy note 7. >> beware of extremes, a new study on exercise and heart attacks. "early today" starts right now. >> it's great being with you this morning.