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tv   Mad Money  CNBC  December 28, 2012 6:00pm-7:00pm EST

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know how this squares with that or if this would not considerably necessaried a revenue matter per se and mass constitutional muster. i think you have nailed it. the other thing we were just talking about, as the president describes the so-called bush tax rates to be maintained for the middle class, he was not clear i think by intention of saying exactly what that dollar threshold was. is it the $250,000 number that's been out there for months? the $400,000 number that he apparently put on the table as late as last weekend? some other number? >> i think eamon presumed he was referring to $250,000. so you would raise taxes above $250,000, and talk about spending cuts later. i don't see how that will ever
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get through the house. isn't that where we started? >> at this point, who is going to vote for that? once you as a republican vote for that, how do you have leverage later on ever in the negotiations? >> i think that sets up if they get the basic plan through the senate on democratic votes only and send that plan to the house, what that sets up is a failure of the plan in the house, because that's not something republicans said they could support in the past. what that would do you do is set up a situation where democrats are daring republicans on the last day of the deadline to vote against a solution. that could be tricky for them. a lot of republicans say we are not going to give in on the issue of raising taxes without the equivalent spending cuts on the other side of the deal. >> to not bring one face-saving -- one face-saving bone when it comes to spending cuts, i don't see how you get
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there. >> presumably, they are trying to hammer out that detail along with others in the potential agreement between reid and mcconnell. the first track two of the that the president just laid out. the other would be a total plan "b," that would presumably die in the house and we'd go over the fiscal cliff. >> spending cuts this is based on good intentions, a framework or agree to agree to spending cuts down the road and this is the criticism that historically, sort of ad nauseam, that there are those good intentions that never through. >> all of the republicans will hear grover norquist recite over and over, every time they promise spending cuts in exchange for tax hikes, the tax hikes came, the spending cuts never came. >> and how long will the road be in terms of what the subpoenaing cuts might or might not be? that will prolong the uncertainty in the market. and with the ceo conference call
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in the 6:00 hour, that should be very interesting. will we feel the effect of this in the first quarter earnings and gdp, other economic data points. >> it puts republican caucus in the house in the position of having to decide whether no deal is better than a bad deal. >> you know, melissa, if i could chime in, one thing, you didn't hear the president talking about the debt ceiling, and the treasury secretary says we'll start running up against the debt ceiling on monday. that's a very controversial piece of the whole deal. they are talking about leaving that aside and revisiting it when we run out of the extraordinary measures that the treasury can put in place to keep us from hitting the debt ceiling. >> let's welcome in deutsche bank's chief u.s. economist. thank you for joining us. you take a look at the potential prolonged uncertainty.
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at what point do you say my long-term forecast for the united states, it may have been ratcheted down? >> melissa, thank you for having me. we never thought that odds were that high that cliff would be dealt with. our base case is that it would be, but only 60/40, and as we've seen over the past few weeks, the dialog has broken down and i think obviously, a very good chance to go over. i don't have gdp around 1% in the first quarter. it could be a lot worse, depending on how this thing evolves. they could do a patch here. maybe on amt, the medicare doc fix, and as markets hemorrhage under january, which i guess they would under what i've seen so far, maybe it brings both parties back to the bargaining table. i think you are exactly right. all things are up in the air, and the outlook for growth is much more uncertainty for hiring
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spending, all things, it's a real mess. >> in terms of ratcheting corporate earnings efforts, the president is very aware of it. the white house is having conversation calls with ceos and a lot of the ceos have been walking the halls of congress, trying to get something done. in the corporate world when there are deadlines, deadlines are met or there are consequences of the markets. in washington, apparently, deadlines come and go and there aren't any consequences? >> melissa, two things. one, i think that on the corporate side, largely companies want tax reform, but small businesses, conceivably much more at risk because of the cliff, their voice perhaps isn't being heard as well as at the ceo level. i'm worried at the smaller level, where the majority of the job creation occurs. that's really what concerns me,
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and i think on the cliff, the fact that -- the other point i wanted to make. the fact that neither side really is making any headwind. we've known about this for such a long time. it's just in credibly disconcerting. >> all right. joe, thank you for phoning in. we appreciate your analysis. tyler and michelle, joe makes a good point about the pain being felt. you are the job creators, and here we are. the impact most borne by them. >> well, i think that's true, and the real paralysis, the hostage quality of the whole debate over the past few months has been disconcerting. we've had so many people come on the air and say give us the level of certainty in taxing policy, spending policy, we will be able to make decisions and move forward, do the projects, hire the people. as long as this is hanging over
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the economy, it's the great overhang, and who can plan? people can't plan. on estate tax alone as of tuesday, the estate tax she thresholds go from 5,000 exclusion to 30% tax rate. to $1 million and 50% tax rate who can do estate planning. >> and neither side can make any headway. over and over again. you ask the one side, say democrats. if the republicans gave you everything you wanted on tax hikes, do you could any entitlement reform? and the vast majority said no. and you turn to republicans, what if they embraced representative ryan's plans? would you raise taxes on anybody and a lot of them say no. so neither side will give that little bit that we know each side has to have because they
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want to have something, what do you get? i don't see how harry reid who hasn't passed a budget in years manages to come up with something by sunday night. >> we look at how monday will turn out. a lot of developments over the weekend will determine that. guys, it's not going to be an easy open, that's for sure, on monday. >> i'm wondering what it will look like. at the same time, when you ask the question, maybe it's better -- it's a bad deal worse than no deal? president obama keeps talking about half a trillion in cuts, over ten years, we're doing that every five months when it comes to the deficit. $100 billion more person month that we spend over what we take in. you have to have bigger cuts on the table to get republicans to come along. >> we're only paying for 40% of
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what we spend today. it's interesting to see and what the futures are doing right now. very thinly traded at this hour on a friday evening it would be interesting to see and what they signal in terms of where we stand, now that we've heard from the president and some sort of modest optimism from both leader reid and minority leader mitch mcconnell. >> tyler, we want to go back to eamon javers. >> you just said when will we hear now from the president again? nbc news is tweeting that barack obama will appear as a guest on "meet the press" this weekend. when we will hear from the president again will be sunday morning. something to watch out for over the weekend. presumably, we'll get incremental details on what this deal is. as this is negotiated throughout friday night, into saturday and the president's appearance into sunday morning. >> president obama to appear on "meet the press" on nbc on
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sunday. the nail biter of a weekend. you have to wonder if there will we any deal, mini deal, half caff deal, any sort of deal. >> i just want them to get it done before the redskins play the cowboys. that's what matters to me, and what matters to most people in washington by the way. >> i hope it's an exclusive on "meet the press." it is an exclusive. well, he's smart on that. >> the press guys are already here setting up. >> just joining us, so much has happened in the past couple of hours. president obama met with congressional leaders at 3:00. no offer on the part of the president. the leaders came out with very different messages. senator mcconnell said we had a good meeting down at the white house. hopeful and optimistic. senator reid says the meeting was constructive. the president just came out from a statement about 20 minutes ago from the briefing room of the
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white house saying the time for immediate action is here and is now. he's urging senators reid and mcconnell to come up with some sort of a plan. if that does not work and they don't many up with a plan, his next option is to urge senator reid to put to the senate a simple up-or-down vote on a slimmed down plan that will prevent taxes from rising on middle class americans and based on unemployment insurance benefits. there you have it. that's the very latest at this point, again, senatored reid and mcconnell hard at work hopefully on some sort of a deal. and the next time we'll hear from the president will be on the "meet the press" on nbc. a lot could happen in the next 24/48 hours. >> this is a typical pattern of the president. outsourced obama care, outsourced the stimulus bill. left this to congress, to do all the major works he wanted, left it to them. now he's handing it over.
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he's the only western this afternoon who doesn't have to bow to the god of re-election, he, if anyone, could compromise, he doesn't have to worry about getting re-elected again. that's driving decision making on both sides when it comes to congress, yet, he doesn't lead. he hands it over to a man who hasn't passed a budget in years. >> at 3:00, we'll meet. and i'll tell congressional leaders, you come up with the package, tyler. >> the real tragedy, what it says about the quality of leadership in this country. they can't lead, seem unwilling to lead. that's what's distressing to individual voters and to the markets. >> thank you, joining us, and thank you, out there. we'll join "mad money" right after this break. and we'll see michelle right after that on a special "kudlow report." let's give thanks -
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for an idea. a grand idea called america. the idea that if you work hard, if you have a dream,
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if you work with your neighbors... you can do most anything. this led to other ideas like liberty and rock 'n' roll. to free markets, free enterprise, and free refills. it put a man on the moon and a phone in your pocket. our country's gone through a lot over the centuries and a half. but this idea isn't fragile. when times get tough, it rallies us as one. every day, more people believe in the american idea and when they do, the dream comes true. we're grateful to be a part of it.
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welcome back to tonight's methods to madness show. some of my best tricks for buying and selling stocks.
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truly, this is wisdom for the ages. think of me as penn and teller for the stock market. if that resonates at all for this group. pull back the curtain. how it looks for stocks to buy and stocks to sell, sell, sell. no magic, no hidden talent. disciplines that can make you "mad money" if you master them. you don't have to be a genius, you don't have to be that smart. you just need to know what you are doing and put in some homework. that's where cramer, the sad, but wise clown comes in. more like the fool from king lear, something to think about. let's move on to more important things, how to find stocks that are great buys, i am talking about stocks that have pulled back from the new high list. it is proven a winner, erwinner optim optimum. you can usually get a better deal if you are patient and wait
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for weakness. there are very few occasions when buying a stock off the new high list is just. sometimes a stock is so sizzling so hot, you have to buy, buy, buy, whenever you can. as soon as you can. you won't find these often and they are very rare, but when you find them, you got to remember not to buy all at once, 100 shares of stock, lunch to me. so much mojo you won't get a pullback from the high. i'll bless buying 25 shares at the high lest. worst thing that happens, it goes higher, and you don't get to buy more, and you find another stock. believe me, there is always another stock to find. another train coming to the station. one exception where i'm okay to buy stock that is hitting a new high. and if you see inside you hooiia stock at 52-week high, that's a clear signal. rare thing to see happen, but i have seen it, and in my experience, it's rarer still this method of picking stock doesn't make you money.
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i love when i see insiders buying at the high. great confidence in the business. who knows better than people running it, right? it means from meaningless to a small, but insufficient reason to buy stock. a lot of times you will catch it because they want to create an illusion of confidence. insiders aren't stupid. if if they see you buying their own stocks, they know the market will smile upon them, so they play the system. that's fair, but it means we ignore most insider buying it could be sketchy. that said, when you get truly colossal insider buying at the high, well, you might want to take another look at the stock. a pretty powerful endorsement when insiders buy a whole lot of stock. it's really the volume of the insider buy that declares its sincere steve. we're focusing on buying at the top. nothing more arrogant than when an insider backs up a truck for his own stock, sitting at a
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52-week high. they are saying we know we rock, and we're so confident it will keep going higher, we'll buy stock hand over fist, not waiting for a pullback. buying what looks like to be the high. arrogant, sure, but bankable uverse, and there are notable exceptions occupying the wall of shame. let's assume they know what they are doing. not everyone deserves the benefit of the doubt in this business, and after the financial crisis at the end of 2008, i know a lot of people think ceo execs are fraud, crooks, liars, especially those of you who got burned on lehmann brothers. that's the wrong lesson to draw from the crash. healthy skepticism is one thing. a total unwillingness to believe anything positive is something entirely different. if you are going to own stocks, you need to be willing to extend some measure of trust to those who run the companies. getting their stock to a 52-week
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high and buying a bunch of shares is pretty darn good reason to give the ceo benefit of doubt. they won't buy at the high unless they have unshakeable convictions about their companies ork perhaps they have been contacted for potential purchase. and they have spurned them. and most investors are smart enough to wait for pullback. insider buying at the high says these guys don't think there will be a pullback. i want to wait for a pullback after they bought. that's the betts of all possible worlds and here is the bottom line. one more method of cramer's madness, the stock that is 52-week high, you might want to be buying too. after the break, i'll try to make you more money. well, if it isn't mr. margin.
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mr. margin? don't be modest, bob. you found a better way to pack a bowling ball. that was ups. and who called ups? you did, bob. i just asked a question. it takes a long time to pack a bowling ball. the last guy pitched more ball packers. but you... you consulted ups. you found a better way. that's logistics. that's margin. find out what else ups knows.
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i'll do that. you're on a roll. that's funny. i wasn't being funny, bob. i know. with scottrader streaming quotes, any way you want. fully customize it for your trading process -- from thought to trade, on every screen. and all in real time. which makes it just like having your own trading floor, right at your fingertips.
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i'm in a great mood, a manic mood even. me at my best. i'm pretty darn productive when i'm in high gear. revealing many secrets and methods to my madness. pullout our pencils and some paper, start jotting things down. what i'm about to tell you could be incredibly useful. better than giving you stock picks, giving you some of the best ways i know to pick stocks. teaching you to invest and trade like kramer. not to be like me, because -- i got some emotional issues, frankly, you would probably not to emulate. is that is off track. so far, i've given away two precious secrets. two i used at my hedge fund. and charitable trust, unlike lady gaga, i play with an open hand, not a poker face, allowing viewers to see my trades before i make them. lady gaga is better than pink. am i raising a glass when i'm stock picking.
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a lie li i like to buy stocks around the new high list and have substantial insider buying, it says people in the company believe their stocks still have legs and if they believe, there could be good reason for to us believe too. this is not enough to recommend a stock. pieces, okay? pieces of a puzzle. have to do the homework, check the fundamentals and websites, make sure you like the story behind the company, and if the stock goes down, you know to buy more, rather than cut and run and lose. what i'm teaching you tonight e re tells. sing signals that it might be worth your time and efforts to reading through the transcript and quarterly filings. thousands of stocks out there, any method we can use to winnow, to narrow down ones that might be attractive, that's a method worth having. we talked about insider buying at the high.
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i don't use it to determine if that's the way to determine if the stock has it going. one other scenario, where insider buying makes for an incredibly bullish tail, and that's when you have a stock that's an incredibly heavy sell, sell, sell. a lot of bears out there. they are waiting for the stock to go lower to buy them back. >> buy, buy, buy. >> and profit by returning the stock to the bank they borrowed it from and collective difference between the price they sold it first and bought it back later. hard for people to understand. i want you to think of shorting as like regular investing, only in reverse. what do we try to do? buy low and sell high? successful shorts turn that around. try to sell stocks they think will go lower and then they buy them back and they collect that difference. when the stock has a lot of shorts in it, that means a lot of people have serious conviction that stock is headed
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lower. maybe dramatically lower. it takes more conviction to short a stock than go long. that's wall street speak for buying a stock. when are you short, potential downside is infinite. a stock does stop at zero, right? shorts lose money when stocks go higher, is there really a lid to that? no. the other important note is if there is a lot of it, and the stock all of a sudden gets great news, we get what is known as a short squeeze. and it sounds exactly like it is. squeezed up. the shorts have to buy. that's called covering. in other words, buying isn't just -- when you are buying a short back, that's called covering the short. when a lot of shorts cover at the same time, in a panic, and that happens quite a bit, the stock will surge, just like if everyone were to sell, and the stock goes down hard. what you really have is a lot of people desperate to buy the stock. a lot of demand. they have to buy unless they
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want their years wiped out. remember, many short sellers in 2010 got their years blown away when the market refused to quit. where does insider buying fit in the short selling equation? you are looking for a high short interest. a giant percentage that will float or trade is shorted or sold short. when some of the people who sold the company start buying shares for themselves, bingo. that's your chance. almost like drawing a line in the sand for the short's sake. we think it goes no lower, and i'm hear nothing lower. this is an explosive conversation. one that often sends the stock much higher. shorts are smart. they tend to be smarter than long side buyers, but don't know more about the business than insiders who run it. if management is buying in sizabilisiz sizable amounts, do homework.
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it's a great starting point. and usually you want to side with management, and ride higher and higher through jackie wilson style. and as shorts panic and push it up big in the desperation to buy or cover positioned. it may be to cover losses or want to ring registers all at once, when a company begins a buy back, another line in the sand situation where management is contradicting the shorts. companies repurchase their own shares, and not all buy backs are just wastes of money, i teach you to identify the bogus buybacks, and, and an active look at the stock, you don't find out it's active until the end of the quarter, that's why i like to read the quarterly report. a note of caution, you have to be careful in dealing with a company in the crosshairs of the shorts. especially when people are nervous and the markets are in
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bad shape. the shorts have the ability, legally or not, to wreck a stock, even if the fundamentals of the company are fantastic. these days, the shorts, they got tremendous firepower and more -- i think in part because of the s.e.c., both the democrats and republicans, that looks the other way when shorts raid stocks with bogus stories with accounting issues and management blunders. that's cold formenting a decline. not allowed, but it debts done anyway. pretty easy to thrive stocks down. it slows short selling and makes it harder to create bears. an up tick, something from the 30s. waiting for a higher price before they could short a stock. that was a good rule. but somehow the government got talked into abolishing it to make things quicker, it just made things easier for the shorts. a lot of good that did it. the reason a lot of home gamers left the building. the government doesn't seem to
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care. we established the original rules, the upparticular rules, to stop the formenting panic. something that happened in the great depression. the government seems to think panics are no longer possible. actually, we know they are more prevalent than ever. we have to be careful not to succumb to panics who are orchestrated by short sellers. much easier to panic people in a financial than a regular business that doesn't involve credit. without those protections, the shorts were able to run wild and pratt particularly assassinate the stocks during the crash of 2008, until in 2009, the bulls were back in control. in 2011, using weapons of mass stock destruction. dealing with a heavily shorted stock in one of the s, like the financials, we leashed you have to tread very carefully. you can still find great opportunities in stocks where shorts have overreached and insiders are buying, before
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going into situations, i got to warn you that the balance of power has shifted against you in recent years. against the regular investor and in fair of the hedge funds that like to bang down stocks. that means even if the short sellers are wrong about a company's prospects, they can still demolish it, demolish the stock. don't understatement the amount of damage the shorts can do. the best protection against these raids is often from stocks that pay good solid dividends. they have to pay dividends to the real owners. a terrific deterrent for those who are pernicious in the way they go about shorting. the best protection you can get against short sellers. insider buy, and heavy shortages can equal good investing opportunities where you can avoid situations where the shorts are determined to crush the stock at any cost. let's go to barth in
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georgia. barth. >> caller: a big booyah from chas clarksville, georgia. >> how can i help? >> caller: there are obvious reasons why a company might change the stock ticker symbol. are there reasons that are not so obvious here in the u.s. or abroad? and does this have any affect on stocks? >> no, not really. when i was a couple years ago at, the symbol was tsm and the ceo wanted to a symbol face lift and i picked tst. it was just a change of face. companies want to change their names. really the fundamentals that matter. let's go to rich in new york. >> caller: hi, jim. for a beginning investor new to the stock market, would you advise shorting stock? and could you explain how one would make money trading in that
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manner? >> no, i do not advise shorting stock. losses can be infinite. i would prefer you to buy puts and you protect your upside sales call. and you protect your down side, and go back to getting even. i describe in 100 pages how it's better to buy puts. we know the key things to look for. great stocks to buy, insider buying is one of them, particularly when there is a heavy short position. that can often be a combustible situation that can explode to the upside. stay with cramer. nobody is more passionate about the market than i am. nobody in the whole country. >> i want to thank you. have you saved my retirement. >> you are why i come out here and do this show. thank you so much. >> the stuff that are you doing for all of us, is so important. i want to say thank you. >> my husband and i watch every day, and we count on your help for small investors like us. >> put cramer's 30 plus years of
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experience to work for you. "mad money," weeknights on cnbc.
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welcome back to my methods
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to the madness of the craziest and most entertaining show, even though i'm a maniacal crazy man, even if i do say myself. all of the tricks that made me a pretty darn good money manager. trying to enlighten you what is behind the scenes and try to make you the most money. today, transcending the usual model, though. i want to teach to you do what i do so you can do it yourself. so far, let's look at the interesting methods to pick stocks. a way to trade them now. we were doing investing, now trading. discipline incredibly useful, and this is the thing i get the most about @jimcramer, trading around a core position. i'm all about trading, don't have advice for regular investors, entirely untrue. this show is mostly about long-term investing. get dividends, can't do that in
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short term. to put whatever had you tillity i have left, i was a darn good trader. now i can only trade for the charitable trust, really longer term. much different from my hedge fund and i can't short sell or use options and those are two weapons i advocate you use. be careful, not for beginners, and if you want to be a good investor, pays to put trading disciplines into practice. trading is about profiting from short-term fluctuations in stock prices. sometimes these moves are caused by a catalyst, sometimes the result of a topsy turfy market. knowing how to trade makes awe a better investor. one of the most useful disciplines out there. and remember when we were subject to the gigantic swoonz. intraday swoons, and i want to profit from them when they come back. what's it mean to trade around
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the core position. let's go through it step by step. first, you need a stock. one have you an opinion about. one where you have a directional bias. buy a stock you needory the higher term. what you are really looking for is a great company with a stock that gets tossed around by market volatility, which you think will ultimately be headed higher if you are patient. so we know getting shot at, we'll take advantage of the to buy. if you were just in vesting, set a position in the stock, buying in increments, levels like we're talking about. buying all at once is the height of arrogance. let's use, over the short term i like it. let's say you want to earn 300 shares of amazon. the way to be set up 100 shares three times over a period of weeks or months. that's the core position. let's say you want to trade. many of you want to but feel
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discouraged because of the amateur daytraders got blown out when the tech bubble burst, the key word is amateur. you can make money trading if you do it right, like a professional. in the old days when commissioners were higher, it wasn't true then. the commissioners, it would eat up your profit. had has not been the case forages. 300 shares for amazon, trading at 100 bucks per share for the purpose of the show. i know it's nowhere near that. every time it jumps 3%, you sell 50 shares. 109, you share 50 shares, and then you wait for something to knock the stock down, as long as it doesn't change the company's prospects. that shouldn't take long given we're in a world where stocks can get crushed by factors that have nothing to do with the merchandise to selling the books, entertainment stuff, selling fundamentals. you buy it back in increw meants, just like you purchased
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it. we started 500 shares, let's keep using increments 560. when it comes back to 103, buy 50 shares. and so on. up 3%, sell 50 shares, down 3%, buy 50 shares, but over time, profits do add up and i've seen it happen. that's what trading around a core position is all about. a lot of people think trading is really exciting, and it can be, but if you are beginning, i want you to be board. contra the image of trading as reckless and irresponsible. trading around the core position is the height of prudent portfolio adjustment and discipline. we have some rules to follow. in my example, we started with the core position, 300 shares of amazon. if i were trading around that i don't know. i would want to own more than 300 shares or less than 100. trading around a position for less than 25 shares won't make you enough money to be worth it
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you can scale shethese numbers,t avoid putting yourself in a spot where you have too much on the table in case the stock gets squatted down or too little to take advantage of any upside that comes your way. trading around a core position is an important basic trading strategy everyone can use, even those who find the notion of trading versus investing to be abhorrent. want to take it to the ultimate level, i recommend reading the two chapters on how to use options for getting back to even. the strategy i used at hedge fund. the only place i talked to them. too sophisticated for "mad money" if have you time and inclination and want to put in more homework, it's worth the effort. doingle, i would never do it in common stock, but do it with stock replacement. a cheaper and less risky way to do it. i want to talk about options on the show.
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too risky for vast majority of people out there. another method to my madness, one that allows you to generate lots of small games that add up over time. stick with cramer. sitting on the sidelines because of all the uncertainty in the market? >> thanks for taking my portfolio from mean to green. >> that's what i want to hear. >> with over 25 years of experience in bull and bear markets, let coach cramer show you how to play to win. >> thank you for keeping us in the game. >> "mad money," weeknights on cnbc. or you can get out there and actually share something. ♪ the lexus december to remember sales event is on. this is the pursuit of perfection. we don't let frequent heartburn come between us and what we love. so if you're one of them people who gets heartburn and then treats day after day... block the acid with prilosec otc and don't get heartburn in the first place!
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i got one more trick to teach you tonight. one more method to my madness, and i want to talk selling, along with when you buy, maybe the most important undervalued tool in the whole home arsenal. how do you know when to sell a hot stock? how do you get out before the party ends? so you don't get stuck cleaning up the mess? this is the question to be answered.
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a lot money to own hot stocks. but you have to know when it's time to leave the table. always naysayers and they are almost always profession right, and virtually almost all steaming hot stocks implode. this happened big in recent years with stocks netflix and research in motion. at one time, they were both on my favorites. made a lot of money for you i hope. and this recklessness could be described as prudence. people shy away, because they don't know where they will top out. understandable and i would be afraid to buy them too if i didn't have the discipline to let me know when to get out. lucky for you, i do have one and you're about to learn it. when i talk about hot stocks, i mean hot speculative stocks. companies with low market capitalizations who are tiny or tinier.
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they have very little research coverage and these names can go up and up and up for a long time. they can catch fire and stay on fire. more months, years, and the key to figuring out when interest is peaked and time to sell is by watching the analyst coverage of all things. you have to use your own judgment here. a good rule of thumb, once one of the hot stocks a half dozen analysts cover it, the run will peter out. too big, too well known. no longer the hot little speculative stock. you can find out how many guys on the stock by looking up on the internet. this formula has worked for me for as long as i can remember. it works because the number of analysts on the stock is a good gauge of how much awareness and interest on the hot speculative stock. hot stocks get tapped out when nobody is left to be attracted to them. when all of the people have already bought. come out of nowhere, tracking more and more attention, more and more backers and everyone who has a piece of the stock has a piece of it. when that happens, sorry, guys,
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time to go home. one of the best examples a company formerly known as hansen national. one of the hottest stocks in 2004, hottest stock in 2005, hottest stock in 2006, and it went from $18 in 2005 to 205 in 2006. the whole way up, hansen, a beverage company that got momentum from monster energy drink, so much momentum with this energy drink it renamed the company monster. ultimately, it was a fad that would dry out and crash. it took years for the momentum to top out. i knew how stocks worked. peaked in july 2006, in part because they did a 5-1 split. even though they weren't supposed to do anything this encouraged people who had been in hanszen a long time to take it off the table. and it picked up its fourth analyst, may 10, 2006 when
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goldman started covering the stock. two months to sell between goldman's initiation and the stock peak. prudence dictated we sell once the stock had four analysts. better to clear out early with inning than to wait for them to fade away. hansen and all other hot stocks started to cool off. and incredibly after hansen fell off the radar screen, and the active analyst coverage dwindled, the stock dwindled. an amazing ren nance, and when analysts stop following the company, but the company's earnings start special lating as the case with hansen in 2011, a storied l like move can happen. especially when mopster ended up vanquishing the competition, when everyone said would wipe out monster, but didn't materialize, after the dramatic fall from grace, they renamed
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the company monday sterster. you must know when to sell and that comes when you see too many analysts jumping on the bandwagon. and use four as a good rule of thumb and start trimming the position. stay with cramer. >> u.s. a brutal, full contact sport. >> from the time the whistle blows -- >> traders bracing for a wild session. >> to the last play of the game. >> markets absolutely getting hammered today. >> i know it's not easy, but i promise to keep fighting for you. >> jim cramer, leveling the playing field for all. >> the road is a tough one, but the payoff can be your greatest win of all. >> join "mad money" training camp, weeknights. customer erin swenson bought from us online today.
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so, i'm happy. sales go up... i'm happy. it went out today... i'm happy. what if she's not home? (together) she won't be happy. use ups! she can get a text alert, reroute... even reschedule her package. it's ups my choice. are you happy? i'm happy. i'm happy. i'm happy. i'm happy. i'm happy. happy. happy. happy. happy. (together) happy. i love logistics.
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let's do some mad mail and mad tweets. jim says jen in texas, i'm trying to understand when peg is level when it's time to trim a stock. i know 2 is too high. i appreciate your teaching, oh, wise one. >> a rueful thumb, guideline. i think 2 is a red flag. for the stock that is 2.1 that people want to own, i don't like it. i've had too many mistakes made over 2. an odds game. ben in pennsylvania. jim, i'm a new home gamer and a question regarding takeover bids.
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an i deal time when a company gets a takeover bid? i like to ring it immediately. immediately. because i am not an arbiter, and you shouldn't be either. we need to look for the next big win. tweets, this one fro from @kendoggie. i'm just starting a portfolio, better to buy one full position at a time or smaller amounts of all five at once? absolutely the latter, one of the things when are you just starting, i mean, it just happens to be the luck of the draw here. everybody just started immediately the first thought, went down very big this is an insurance plan against that happening to you. so no, i don't want you buying all at once. buy in stages. okay, this one from @motorrat. how do you determine target prices for action portfolio. my charitable trust. stephanie link and i talk about it constantly. we try to figure out where we think the stock would be too
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expensive. peg ratio or price to earnings mobile ratio, and we are afraid we'll start giving things back. if the fundamentals improve, we can ahedvise our price tashgrge. we want to give them a sense of why we would take something off the table. we want you to have the move before we make it that's part of what i like about the charitable trust. this @paulsullivan. j.c., tweeting at 4:30 a.m. when do you sleep? i have strange sleeping habits, i admit to that. i usually get four hours of sleep on a given night. i would like to get more sleep. many of you ask me @jimcramer, the answer is why can't i sleep? that's why i'm up. stick with jim cramer. welcome to chevy's year-end event.
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