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tv   Mad Money  CNBC  August 27, 2012 11:00pm-12:00am EDT

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i'm jim cramer. welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to teach you how to make a little money. my job isn't just to entertain but to coach and educate you about the stock market. call me at 1-800-743-cnbc. up day, down day, flat day. there's something you need to understand. investing is a lot like comedy. in both disciplines, timing is everything. perhaps that similarity is why
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so many people call me a clown and a joker if not a midnight toker. [ rim shot ] maybe they are complimenting my sense of timing when they compare me to bozo or krusty. either way, joke's on them. when it comes to stock, getting the timing correct, knowing the right moment to buy and the right moment to sell is among the most important yet difficult, frustrating parts of managing your money. that's why you always hear so many commentators say it's impossible to time the market. in fact, there is a cottage industry of naysayers who make a livinging telling you that there is no way a regular investor can do it. you might as well give up on trying to trade, give up on picking your stocks. put them in an index fund and leave it there for all eternity. i have nothing against index funds per se. they can be a decent way to make money in the market when you don't have the time or inclination to manage individual stocks. the argument that they are the only way to go is totally bogus. with an index fund, timing is crucial. if you bought it in october 2007
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when the s&p was in the 1500s you got annihilated. if you bought in march 2009 when the s&p was below 700 you made out like a bandit. how important is timing? if you bought the s&p at the top in 2007, you ended up losing your money in 18 months. eventually you made a chunk back. that brutal loss takes ages to recover from. if you bought the s&p at the bottom, you doubled your money in less than two years. if you bought the dow jones average before europe ruled the roost in april 11 and panicked in the twilight of the summer of '11. these are extreme examples but they get the point across. timing is everything. unfortunately timing your buys and sells is maybe the single most difficult way to manage your own money. it is my mission to make you a better investor. tonight i will teach you to time your moves by taking mistakes you have made and learn from my mistakes.
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let me make them. i have made them. let's get to one. one of the reasons timing the market is so tough is the moments of greatest opportunity when you should be buying stocks hand over fist are often also the most -- the greatest moments of terror and angst when everyone's telling you to get out. and your instincts are screaming that you should panic. more important, the most frightening moments when you were freaking out those days are never the right time to sell. the right thing to do in a horrifying sell-off, the right move has been to buy virtually every single time in my 30-plus years of investing. that's why i come out here and say nobody ever made a dime panicking. it's an awful strategy, if you call it a strategy. let me put it another way.
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often just because you don't like a market doesn't mean it's the right move to sell it. only once in my career was it ever right to blow out of your stocks trade into a sell program while others panicked left and right. every other time selling was wrong. buying almost brilliant. whether it's the sell-off during the japanese nuclear crisis, the flash crash, the '87 crash. yeah, i'm that old. panic selling is stupid. prudent buying worked big. the only time the panic made sense was to sell in 2008. the financial system was on the brink of collapse. that was a systemic crisis, not a temporary crisis. panic, even in the midst of a nightmare sell-off made sense which is why i told you to sell when i went on "today" on october 6 of 2008. >> what is your advice today? >> okay. whatever money you may need for the next five years, please, take it out of the stock market
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right now. >> ooh, doctor. buying hurt you. stocks kept falling and falling. you never got a chance to unload the merchandise you bought on the dip at a higher price. that's the only time -- just once in over 30 years. look, i know the rule and its exception. in 2008 i was heavily criticized for what i said on the "today" show. i was chided for yelling fire in a crowded theater. my response was succinct. i said if the theater is burning you need to get some people out even as you know others may not make it. in 2008 only panic was the right move. the theater was on fire. the market headed down huge, almost in a straight line. it was smart to sell when we were several hundred points down. basically the market kept falling. getting back in was tough. you managed to side step the decline of more than 35% if you took action when i told you to get out now.
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it was better to heed the september of 2008 sell call. that was done in a less dire moment. every other time, crash or sell-off you can either afford to wait or you should have bought in the panic. on the day of a vicious sell-off hold your horses. if you want to sell you will likely get a better chance at higher prices. likely, okay? you have to be patient. as uh recognize patience doesn't come easy when the market is eviscerated because panicked selling isn't a strategy. that's a fact borne out of decades of experience. it's called impir call. i have only seen it work once. when our entire financial system was on the brirng. i'm not betting it will happen again. no matter how many things are going wrong, no matter how much it looks like the end of the world, dumping your stocks is the wrong move. even in an awful market there will be intraday rallies or up days you can use to sell into strength. i have seen what happens when you proclaim sell, sell, sell. when you proclaim it's time to panic. [ sell, sell, sell ]
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and then you get it wrong. when long-term capital was collapsing in october of 1998 i wrote a column for the online publication i founded, the street.com titled "get out now." advising people to sell into an intraday downturn because the fed didn't understand the gravity of the moment. within an hour the fed held an emergency moment and the market rallied in my face. it was a terrible moment for my hedge fund magnified by the time stamped article. a moment i wrote about. cautionary exercise in the perils of panicking. it's embarrassing to talk about it. but i want you to do better than me. in 1998, i was dead wrong. if you took the other side of the panic you made a fortune. i reversed my stance after that. but it was too late. i had to pay up for the same stocks i hold in the morning. embarrassing and not lucrative. do not sell in the midst of an awful decline. no matter how much you might
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want to. that's just bad timing. keep your head. you will get a better moment to sell. in all my years of trading panic has been the right response to a huge sell-off once. every other time, the right move was to buy into weakness. keep that in mind next time we have a horrible pull-back. paul in new hampshire, please. paul. >> caller: hi, jim. >> hey, paul, what's up? >> caller: boo-yah from new hampshire. >> nice. boo-yah back at you. >> caller: i just finished reading your book, "getting back to even." thank you for accurately capturing the sentiments of the home investor during the 2008 time. >> thank you. >> caller: i found the concept of a whisper number to be frustrating. >> mm-hmm. >> caller: what i would like to know is why does it exist, who is doing the whispering and why don't the analysts come out and say what the earnings are expected to be? >> look, first of all, it's a great question. do you know why? it's common sense. if they know that xyz corp. will earn ten cents why use nine? they are recommending the stock
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a lot of times and they don't want the company to report an inline number so they say nine cents and they hope for ten. but that's the whisper number. sometimes if you get the whisper number, ten cents you sell anyway. i think they should cut out that nonsense, use a number. i'm in agreement with you, paul. that's how they play it. they want an upside surprise. nord in washington, please. >> caller: jim, i have a question about p.e.g. and figuring out the p.e.g., which eps growth figure do i use and what about one of the negative figure touches verizon or cisco? >> the price to earnings versus growth, i like the normalized earnings power. if you have a loss, try to see how smooth it is starting to pass and project it or use the analyst numbers. go to yahoo!. they have the estimates. use the estimates to figure out the p.e.g. rates t. future numbers are better because we invest in the future, not the
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past. bob in minnesota, please. bob. >> caller: boo-yah, jim. my question is on a yield you have to be in on x date in order to get a yield. if you missed that date, how long do you wait until the next yield comes up? >> well, it depends. some are monthly dividends and some are quarterly. don't fret. take a long-term view. you will get plenty of dividends. reinvest them. if you don't understand that, go to enbridge's annual report and the website. it gives you the succinct depiction of the power of compounding if you reinvest the dividends. that's the way to go. time after time i tell you not to panic. your starting on the way down, you won't get a profit. no one made a dime panicking. don't you be one who does that.
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"mad money" will be back. >> 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 madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com. like the elephant on my chest... well, i had all the classic symptoms... he thought he was having a heart attack. she said, "take an aspirin, we need to go to the hospital." i'm on a bayer aspirin regimen. [ male announcer ] be sure to talk to your doctor before you begin an aspirin regimen. i'm very grateful to be alive. aspirin really made a difference. [ wife ] your dad's really giving him the business... the designated hitter's the best thing to happen to baseball! but it's not the same game! [ wife ] wow, he's really gonna get us a good deal. it's better! no it's not! the pitcher comes up and he's out! [ dealer h he can bunt! whatever. but we're good with 0% apr for 60 months?
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♪ time is on my side ♪ yes, it is >> you can have the best stock picks in the world and it won't mean a thing for your portfolio if you don't also have a good sense of timing. i'm a big believer in the notion that ordinary people, nonprofessionals can manage their money as well as the pros or better. that's why i come out every night to coach and teach you. in spite what you may have heard from the nay sayers it's possible for a regular person with no wall street background to beat the market and
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outperform the s&p as long as you think like a disciplined investor rather than a gambler. a huge part of it is having decent timing or knowing enough not to make bone headed mistakes about when to buy and when to sell. i'm going over frequent errors made, the ones i have made so i can steer you to the right track. it's easy not to make mistakes when things are going your way. when everything looks like it the pressure is on, that's when people screw up. for example, let's say your portfolio gets stuck with its pants down and you own too much stock. you have too much exposure. i have been there. what a nightmare. it's horrible. the worst part is not knowing what to do. not knowing whether you should blow out of your stocks or hold tight. i explained why selling into the teeth of a brutal decline is the wrong move. do you know what else is dangerous in this super ugly market? the propensity to take sweeping, drastic action. when it seems everything is going wrong. when you just know the economy and market are getting worse. when you are dead certain
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nothing good can happen, take a breath, hold it. don't do anything crazy. what's crazy? i'll tell you. what's crazy is selling everything. [ sell, sell, sell ] even if you own too much stock and you want to lighten up in a bearish moment you have to resist the urge to sell everything. that's bad timing. [ buzzer ] i always tell you never to buy or sell all at once because it's arrogance to assume you can time trade that well. if a stock you like goes down; buy more at a lower price. if it goes higher, you can sell more to take advantage of the higher price rather than feeling like a chump. that rule applies to more than just individual stocks. it applies to the whole portfolio. never sell all at once. what's the right move then? here's your crisis playbook for dealing with awful moments in the market, moments where the fundamentals are deteriorating
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before your eyes and you feel like it's the last train out of the station. first, you can't sell everything. you have to sell something. not everything you own is equally good and some of it might be equally bad. here's my rubric for what can be sold during a nasty pullback. you have big profits, don't give them back. that's a cardinal sin. as i say in all my books. you have to ring the register. you have something where the fundamentals changed and the story is now going against you? blow it out. you have something that you think is going lower, even short term -- [ sell, sell, sell ] -- some of it. do it. you can always buy it back lower when the risk-reward is more in your favor. do not sell it all. that's just plain stupid. don't ever blow out of everything. don't give up on stocks entirely that you like and hide in treasury bonds or certificates of due positive with puny yields. instead, get ready to redeploy capital into stocks selling off though they don't deserve to.
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use the money to buy something you like. this is why not in the heat of battle but the calm in the end of the week i rate all my stocks in my charitable trust. actionownersplus.com. you can follow along. i rate them one to four. we sell out a bulletin on friday. the ones being the best that i want more of and the fours, time to get rid of them. the ones are the names you begin to buy more of right in the moments of chaos. you have already decided, they're ones. i like them. fours are expendables. threes are stocks you wish were higher before you sell them. they can be sacrificed if you need to raise cash for the ones. don't wait for them to get back to even if you could own something else that will go up more. some company that's doing better. you should switch. but why not just sell it all when it seems like the market's turning against you? why not? american stores. don't know it? don't remember it? american stores is the old acme, my favorite sturp market.
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the one where my mom was friendly with all the checkers. i owned american stores through the '90s betting they would be taken over. that it was worth more than it was selling for and time would be on my side. then one day we got a brutal sell-off and i couldn't stand the pain. i was so at this address it was driving me crazy. [ house of pain ] i got goldman sachs to buy my book. meaning they simply took me out of all my positions, stock down 2% from where they were. you could do that then. you could offer every stock you had and they would buy it if you were an institutional customer. boy, i tell you what it was. >> that was easy. >> yeah, including in the package i sold to goldman was american stores. it was so ugly i didn't want to own anything. two weeks after i sold all my positions, albertson's bought american stores. big premium. huge. would have made my year. i couldn't believe it. i held onto american stores and like a chump i sold it because i couldn't take pain. if i added to the position, the
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company was fine. i could have made my year. i remember that moment because it caused me to rethink how i felt about blowing out of my portfolio when i think stocks are going lower. the bid took me out down 2%. do you know what? stock market bottomed down 2%. i didn't have the guts to go back in. i was adamant we were gown down, 4%, 5%, 6%, 7%, 8%! what did i do wrong? selling something wasn't bad. the pain sometimes is too unbearable when you are all in meaning you have little to no cash on the sidelines. selling everything was a massive mistake. it's always good to use a topnotch s&p futures-led sell-off to pick at, not load up on, but pick at your ones. like i do for action alerts, my charitable trust. your favorite stocks after the sell-off ends. they always end at some point. not all your stocks will bottom at the same time. but if you rank them you probably won't care when they bottom. the best ones will be put on
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sale along with the other merchandise. the good with the bad. the wheat with the chafe. but getting out of everything at the same time doesn't leave room for the next american stores. just takes you out of some of the best stocks out there. in addition to the bad ones. it's awful timing. here's the bottom line. not every big decline is the end of the world. so never trade like it's the apocalypse. never trade anything all at once. instead, go to the supermarket of stocks and find out what you want to buy on weakness and remember, i checked out of the most important stock i liked in my zeal to get into that ten items or less line. because of my haste, my overwhelming bearishness i missed the huge american stores buyout along with a magnificent stock market rally that followed after i left the store. please, please, do not repeat my mistake. after the break i'll try to save you more money. [ male announcer ] the perfect photo... [ man ] nice!
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♪ it's too late baby ♪ now it's too late >> you cannot time your moves correctly unless you know what to own. that's why i'm telling you to do the homework one hour per week per stock if you can. because only by being familiar with the companies in your portfolio can you know when it makes sense to buy them or sell their stocks. although, again, i accept that you might not be able to keep up like that. if that's the case you can still be good to go if you follow on this show and check in your stocks on a regular basis. knowing what you own is more important than ever now. we live in a world where the media never met a disaster it didn't like. if there is a negative story, a bear case, right, then you can absolutely bet that the press will go into total hurricane mode day after day after day. the more sensationalistic and frightening the better.
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this is simply a fact of investing life, ladies and gentlemen. the media takes every weather issue, every story of crime and punishme punishment, and they fan the flames of panic. portraying them as huge catastrophes and even genuine catastrophes are treated like apocalypse now. take it as a given. every negative story will be exaggerated to make it seem like we're at the end of the world as we know it. we simply have to accept that this overreaction is part of the sea canning. sea change in the way the business media and the market work. a sea change that can shake you out of anything you own or might want to buy. how many times have we seen it happen? think about it. the market has sold off based on instability in egypt, typhoon in
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japan that prompted a crisis and the lates sovereign debt crisis in europe. what should you do during these scares? what's the right way to react to this kind of crisis? these crisis moments make terrific buy opportunities if it's in the right stocks. not all stocks. some of it's not a buying opportunity. how? using the method i would employ at my hedge fund. stock futures overwhelmed the market. we know that. first we have to put the event in perspective and ask, okay, the news is pogtly dangerous, terrifying. what effect does it have on earnings per share, the numbers. let me give you an example. in the 20 years i have invested other people's money there were a slew of events that hit the
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stock market. i used the bristol-myers theorem named after the company i felt had the most consistent earnings imaginable. here's how it would play out. we used to have morning meetings at 6:00 a.m. i thought if you came in at 6:01 you might as well go home since the opportunity to make money passed. i sent you home if you were a minute late. i didn't throw water bottles at you or electrical appliances at their backs. well, once. i saved it for when people lost you money. at the morning meeting someone would say, oh, oh, what are we going to do? this nuclear power plant in chernobyl melted down. iraq invaded kuwait. what do we do? i would scream back, dripping with sarcasm and arrogance, sardonically, what does that
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have to do with the earnings of bristol-myers? nothing. the first thing i did was to make a list of the equivalents of bristol-myers. of course bristol-myers is still on the list. the companies that wouldn't be hurt by the event even if it was worse than expected. given that the 24-hour news cycle blows things out of proportion and we get terrifying crisis every week you have to develop your own names. maybe kindermorgan. maybe verizon, another steady eddie with a big dividend. just be ready to buy them with a market wide sell-off based on a crisis that won't hurt the earnings of southern or kindermorgan. step two, ask yourself, is this event really bad for all of the earnings out there? for example, when the egyptians were demonstrating in the streets, early 2011, trying to kick out the dictator, there was a moment when even oil stocks got knocked down along with everything else. what a tremendous buying opportunity.
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if you bought the oils down. oh, man, you made a killing. remember, when there is a big scary crisis that threatens to knock down the market like the sovereign debt crisis in europe remember the bristol-myers theorem. ask what does this have to do with my stocks before you do any selling. put it in perspective. maybe you might feel like [ buy, buy, buy ] buying. bottom line. there will never be a shortage of terrifying events around the world to bring down the market, especially after they are magnified by the media. don't run away next time. there might be ab opportunity for you to make a big profit. randall in california. randall. >> caller: hi, jim. frequently i have heard you make reference to buying deep in the option calls. >> right. >> caller: i'm trying to get a definition around what is meant when you say go deep in the money. >> first in the getting back to
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even book i have a hundred page description of it. keeping the money call out a couple months is a stock replacement thee rhode island you have a $600 stock. you buy a $550 call. that's less money. that way you are cut off from the down side. say the call is $40. a $40 premium it could work. that's the one i describe in the book. you have to get the book. it's about stock replacement. not having the big risk. ted in florida. >> how you doing, jim? >> good. what's up? >> caller: if i had a portfolio hypothetically of $100,000, wanted to invest in precious metals what percentage would you recommend is the portion to invest in gold or silver and if you go silver would you go with the smaller commodities rather than larger bullion? >> look, take sul server off the equation. -- silver. i say it on twitter. it's a junk metal. junk.
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we're going to buy gold, up to 20%. we do not buy at once. buy on the way down. if you put on 25 or 30% of the position we missed it. that's what you want. you want 20% gold. use the gld and it does fine as a proxy. not the gold stocks. they don't work. when the next terrifying event shakes you out of your investing bed, i promise there will be more. take a deep breath. make a list and do some buying. stay with cramer. i don't spend money on gasoline.
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i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands and never ever have to fill up gas in the city. i very rarely put gas in my chevy volt. last time i was at a gas station was about...i would say... two months ago. the last time i went to the gas station must have been about three months ago. i go to the gas station such a small amount that i forget how to put gas in my car. ♪ two years ago, the people of bp made aand every day since,ulf. we've worked hard to keep it. bp has paid over twenty-three billion dollars to help people and businesses who were affected, and to cover cleanup costs. today, the beaches and gulf are open for everyone to enjoy -- and many areas are reporting their best tourism seasons in years. we've shared what we've learned with governments and across the industry so we can all produce energy more safely.
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i want you to know, there's another commitment bp takes just as seriously: our commitment to america. bp supports nearly two-hundred-fifty thousand jobs in communities across the country. we hired three thousand people just last year. bp invests more in america than in any other country. in fact, over the last five years, no other energy company has invested more in the us than bp. we're working to fuel america for generations to come. today, our commitment to the gulf, and to america, has never been stronger.
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>> announcer: lightning round is sponsored by td ameritrade. ♪ no time to kill welcome back to my timing is everything show where i teach and those who say it's impossible, they want to keep you in your collective chains.
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ah consider me a bolt cutter, setting you free. i want to talk to you about a particular kind of chain you need to be unshackled from called the ipo chain. first, i like ipos. we do our best to analyze them for you all the time on "mad money." it they are not easy to do. often you will call and say, jim, will xyz ipo be good? how the heck should i know? might then it depends where they bring the deal. authentic gibberish for the amount of the offering and the amount of shares. say there are 50 million shares outstanding. at eighth conine $1 billion hot l are hoff if they talk about 20, yeah, $1 billion. $20 price times 50 million shares. the bankers can do a lot of will it does what were their real things. there are more variables than you realize. first they don't offer all the stock there is. venture capitalists might own a lot. whoever seeded the company will
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family it won a high heels have a lot of shares left. secondly the $20 ipo price may be just what's called the price talk. meaning what the initial price they are thinking of, not the last price the way the deal comes. half if demand accelerates you can hear the price move up over time from 20 to 25, 25 to 30. i may like the ipo at 20 and not like it at 30. that's not much different from liking a stock at 20 and it's already trading and it's a sale at 30. because it's gotten too expensive. layer on a third variable if the bankers want the stock to pop or generate a hot deal one that immediately goes to a premium from where it opened after it opens, premium from where it is priced after it opens they can hold back stock. this is crucial. say xyz has 50 million shares. the bankers after canvassing the buyers, talking to clients, getting indications of interest might sense that while the company has 50 million shares
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there is only demand on this ipo for ten million shares to be sold if it is $20 per share. they issue 50 million and the stock might wallow. but the opposite is true, too. if they cut back the number of shares offered. these bankers are experienced. the syndicate managers can figure out how to make a pop and how much they want. simply by severely cutting back the number of shares they offer. it's all done give and take with the issuer. say the bankers say, hm, we have demand for ten million shares at $20. that's where it's oversubscribed. that's the parlance. they may not be hot enough for a real hot deal though. maybe instead of ten million shares, they cut back. half the demand out there. that cut back would generate real excitement when people get the allocation or the numbers of shares given versus what they asked for. that makes for a hot deal.
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if bankers have demand for ten million and they offer 5 million, everyone who wants in will be cut back. the deal will be over subscribed and the allocations will be well below what you are hoping for. that's how hot deals are made. then you have to scramble, buy the rest of it in the after market. that's what drives it up. i call these offerings sliver offerings. they create a pop because the bankers chose to make the deal hot. perhaps to reward customers, put it on the deal. perhaps to create excitement for company stock. if they offered more stock on the deal there would be a risk that the price wouldn't hold. nothing is worse than the broken deal that goes below the offering price. it hurts shareholders who bought. it hurts the company. better to offer a sliver and get people excited and six months down the road when what's known as the lockup expires hopefully the stock will be well above where the ipo is priced. they will still get a big profit.
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i don't care about the insiders though. i care about you. i want you in on sliver deals. any deal where a new company offers less than 10% is one i want you in on, even if i don't like the company. take groupon, the online social media company. i'm not a fan in general and this one in particular. i'm not sure they have staying power. they have done great things for retailers but i have already tired of my daily groupon e-mail offering. i don't want to go ten miles out of my way to save money on tooth whitening, or brazilian waxing whatever that is. groupon let me in. there are 640 million shares of grpn but the bankers offered only 40 million shares. sure enough, it opened at 28 and traded to 30. company raised $700 million received a giant valuation and the buyers made out like bandits if you got in at the 20. how about the buyers in what's known as the after market.
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the price of the stock once it starts trading. you bought it at 28 you didn't have much room for error. you could have made two bucks. what was the right thing to do here? follow steve miller's edict and take the money and run. while the brokers don't like to encourage flipping which is putting in for a hot deal and banging it out when the stock opens for trading, i'm not your broker. they may not condone the practice. i say, why not? you do commission business. you do fee business. you put in for a sliver deal designed to pop. why can't you take advantage? sometimes there are only two decisions here. put in for a sliver deal and sell it for the pop. time the sell to the open and don't stick around for one hot minute longer. never, never buy in the after market. the vast majority of the time, buying on a sliver deal in the after market is for suckers. be smart.
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♪ under pressure >> not every stock can be owned forever. there are very few stocks you should own all the time. year after year, decade after decade. the fact is if you don't know what would make you sell a stock then it's not okay for you to buy that stock. lots of people end up selling at the wrong time. they never anticipated selling at all. they thought about when to buy. they didn't have an exit strategy. as your investing coach i need you to make sure you don't make that same mistake. how do you time your sells? okay. there are many stocks where when you buy them you need to understand some day, possibly
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soon, you will have to [ sell, sell, sell ] with tech stocks it's not safe to own them unless you recognize they can't be owned forever. you need to eventually ring the register to take your profits when you have them before they slip away. same goes for smokestack industrial companies that make money only when the economy is healthy because they are hostage to the business cycle and gdp growth. you have to sell them eight ways to sunday at the first real sign of a slow down. a lot of this comes down to understanding what you own and being willing to change your mind. a tech stock like skyworks solutions is not the same as pepsico. nvidia is not hershey. sandisk is definitely not general mills. arm holdings is not altria. micra is not mcdonald's. the first half of the pairs, tech names, they are what i call trading vehicles that can fly and then crash. the second ones are staples. they plod along step by step,
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inch by inch, slowly but surely. training vehicles can make you money in not a lot of time. you have to take money off the table because if you let it ride, that vehicle will eventually crash. potentially dropping 10 to 30% or more in days or even hours. >> all aboard! [ train wreck ] >> a staple like altria can be owned long term. that doesn't mean nothing will go wrong. price of tobacco could go too high. they have to cut it. business can under perform but it is very likely the stock will fall off a cliff. when it comes to trading vehicles you have to change your mind. sell when it's time. tech stocks that are winners when a product cycle is strong are also losers when the cycle is weak. a stock like skyworks solutions which makes components in all kind of mobile devices, smartphones, can make you money when times are good but it can
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be annihilated when business isn't so hot. the exception is if there is no cycle. no cheerios cycle. no hershey bar cycle. people don't use more heinz ketchup in the fall than the spring. take the dotcom boom. it was so fantastic you had to catch it. if you bought and sold when you had to you made money. perhaps a lot. you had to buy all the parts and equipment makers. dotcoms and telco carriers big and small, independent and expansive were buying equipment like mad. if you didn't sell by march of 2000 you were blown out. but if you did buy between 1998 and january of 2000 we made more money than you ever made again in the stock market. at least in the last ten years. i try to teach you to change your view when the facts change. i don't want you to end up like victims of the dotcom bomb, people who got wiped out.
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sometimes you have to sell even though you bought it at a higher price. the facts have changed. often the shooting star tech stocks will get hammered. don't say it's too late to sell. out's not. they can go lower than you ever believed. your first loss is your best loss. like i tell you in "real money" sane investing in an insane world. discipline makes a difference. i'm tireless in saying you have to take something off the table and play with the house's money. i tell you it doesn't matter where a stock has been. only where it's going to. it's going down, down, down. sell the darn thing. you can always buy it back and lower when business is improving. the bottom line, don't treat risky trading vehicles like shooting star tech stocks like staples that could be owned for ages. handle them with care, with caution.
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you can do very well for yourself. remember to take profits on the way up and get out on the way down. we don't have to call the top to make money in these names. you just have to be willing to jump ship when it's clear the stock has peaked and it's ready to head down for the count. dale in iowa. dale. >> caller: a hawkeye boo-yah to you. >> oh man. done your way with the hawkeyes. >> caller: i'm a retired investor. my advice is to listen to cramer. read his books. i have done all that. >> thank you. >> caller: i have two questions. >> sure. >> caller: i'm using preferred stocks as income. how much of my portfolio do you think should be in preferred stock at my age and how do you evaluate preferred stock as to their ratings? >> this is a great question. i have been trying to figure out
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the worth of the different bank preferreds where you get good profits. i am nervous. i don't like to have my income being from a situation where i'm reaching for income. that's a lot of the preferreds in the banking business. away from banking a lot of preferreds are really good. it's actually an issuer issue. i wouldn't put any more than 20% of your money in one issuer and i wouldn't put more than 20% of your money in preferreds. there's not enough good preferreds to get that much in. be careful. selling for a profit doesn't make you a sell-out. it makes you a smart investor. timing is everything. choosing the right time to buy and the right time to sell is the only way to make profits forever. leave that to the diamonds. "mad money" is back after the break.
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catch up with some mad mail. here's one from brian. dear jim, i'm curious why the chart of the eur/usd seems to move in lockstep with the chart of the spy. what's the connection? this is probably the most important question of the era.
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we look at the etf that measures euro versus the dollar. the euro is a universal crisis. it goes around the world to create havoc. if we knew it is busting apart we know the whole brilliant hope to make it so there is one world over in europe is falling apart. then it's every man for himself. this is from karen in indianapolis. professor cramer, thanks for your brilliant insight and guidance. you have no peer after the years you have been doing "mad money." thank you. there are a lot. how does seeing a high level of short interest affect your view of a stock? could you give a step by step to evaluate a company with high interest? doesn't the stock have to rally tremendously at some point as the shorts cover? i don't make that decision. i look to see if there is short selling. they have been wrong as much as they have been right. it's the perception that it's smart money. there is a big argument against
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the stock or chicanery. i have seen a lot of short interest positions in my lifetime that are great places to buy. not just to bust the shorts but because the shorts have been wrong. that happens frequently. let's discount it as a tool in our arsenal. brandon. hi, mr. cramer. as a 24-year-old young professional who was fortunate to get a full time job in my major three months after graduating college and bought a home on my own within ten months of graduating i feel it would be a good time to get into the stock market. for a beginner how many stocks do you recommend owning to create a diverse portfolio? first of all, put away money for an index fund. the first $10,000 is in an index fund. then start picking stocks. if you have $2500 you can start buying $500 in five positions. that's the amount of leeway to do it. first the index fund. we need ultimate diversification. then with "mad money" start
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doing some investing.
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