Listen to Jim Cramer’s personal guide through the confusing jungle of Wall Street investing, navigating through opportunities and pitfalls with one goal in mind - to help you make money.
Mad Money w/ Jim Cramer
Mad Money w/ Jim Cramer 7/26/24
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Welcome to Man Money. Welcome to Kramer America. I'm Bill McFriends. I'm just trying to make a little money. My job is not just to entertain, but to educate and teach you. So call me at 1-800-743-CBC or tweet me @JimCramer. The stock market isn't always a friendly place. It can be volatile. It can be painful. And just downright difficult. There are tons of big picture problems that can derail any rally. Problems you might not have any idea about until they hit a smack in the face. That's why I'm so adamant about trying to make you a better investor. I want to teach the tricks of the trade so that when the market gets negative, which it always does, when it becomes hostile, you'll be prepared and you'll know what to do. The same tricks I teach you about constantly when you join the CMC Investing Club. Now I've spent my entire career analyzing the way stocks trade. Surging for patterns of what's worked for me and what hasn't. And from those observations, I put together a set of rules. Rules that are designed to help protect you from the worst mistakes you can make in both good markets and bad. Rules that now make up the investing clubs really the guidebook. And I'm sharing that with you. As much as I sometimes might seem like an unhinged lunatic, maybe not as much before. The truth is that I'm all about discipline. You're going to make mistakes in this business. It's inevitable, but if you stick to your discipline, you stick to the rules. That should help you minimize your losses and maximize your gains. So let's talk about discipline. I'm always telling you to buy best-to-breed companies. Even if you have to pay up for their stocks, I use that phrase constantly. Why should you try to identify the stocks of the best-run companies with the best prospects in each industry? Let me flip that on its head. Why is owning best-to-breed even a question? When you're shopping for a car, you buy best-to-breed or the best you can afford. We pay out for the highest-quality brand because we know that a brand and a good brand signifies reliability. It tells us that we can expect a higher-level service, a quality of ownership that will make your drive safer and easier for years to come. Nobody would ever set out to buy a worst-to-breed car, would they? I mean, there are simpler ways to put your life in danger. So why is it that so many people seem to feel differently about the stock market? Why are we drawing the penny stocks that are constantly talked about on Twitter? It's the same reason why so many people throw their money away buying garbage cryptocurrencies. There are a couple of good ones. Why don't you stick with those? Many of us simply can't resist what we perceive as a bargain, emphasis on the word "proceed." Here's the thing. If you owe honey for cheap stocks of low-quality companies, it's more likely to lead to losses than to gains. Now, let me clear. I love bargain hunting. But I only want genuine bargains where the underlying merchandise is actually worth something. You know what's not a real bargain? Buying junk merchandise just because it seems to have a low dollar price. That's why whenever I get asked about a low-quality stock on the lighting rack, people hear me say to somebody, "Hey, ski daddy, if you like blah, blah, blah, then you'll love proctor and gamble." Because that's best to bring. Sure, P&G is probably not going to give you any short-term power tech. No. But it's a kind of long-term story that you can count on. It's an industry leader with a great balance sheet, a long history of dividend moves, and it's got some of the best brands on Earth. What makes a company best to bring more like the late, great Supreme Court Justice Potter Stewart, what he once said about pornography? I know when I see it. But to put it into words, when I say best to breed, I'm talking about well-managed, high-quality companies with great balance sheets like a proctor and gamble. If you can get proctor and gamble on sale, that's fantastic. If you can't get on a sale, though, I'd still prefer you to pay up for something similarly great rather than just try to pick up some penny stocks just because they seem cheaper, but they're not! Remember, at the end of the day, there are very few genuine bargains out there when it comes to second or third-tier players. Their stocks may look cheaper than the top dogs, but that's because they deserve to be cheaper. The businesses are worth less. Don't worry about paying a higher price turn each vulnerable for a best to breed business. It may seem more expensive, but in addition to usually being a better investment, you're also buying piece of mine. A great company like Nvidia, for instance, almost always looks super expensive, doesn't it? But the stock just keeps charging steadily at higher, as it has for more than a decade, with only an occasional detour, because Nvidia's best to breed, too. Now, once you find yourself in a best to breed company, the kind of company where the store you believe in, I've got another important move for you. High-quality companies represent value, and give me up on value as a sin just because the stock doesn't act so well for the moment. I see so many people throwing in the talent companies that have realized this and real worth just because their stocks aren't working right now. It's driving me nuts. Look, patience is a virtue in this business. If you have a reason to believe in a business, don't dump its stock just because it's not getting any traction for the moment. You're not a hedge fund manager for every sake. You don't need your positions to show a gain every quarter, every month, or even every day. You don't have any investors who are going to pull their money out from you because one particular position is taking too long to pay off. So, just indulge yourself. You can afford to wait for these stories to play out. I say this because you will be tempted to sell even best of these stocks if they don't do something in a short period of time. You may correctly identify value, but this market can make it very difficult to stick to your guns, even with something you truly believe in. When you own a stock that's going down, you're going to feel compelled to give up on it. But in many cases, if you've done your homework and you have conviction in the underlying business, that urge to sell will be a mistake. And look, it happens to the best of us. It brings us in 2016. I did an interview with Tim Cook, the CEO of Apple, after his stock had plummeted from split adjusted $31 to $23 in a fairly short period of time. Everybody was giving up on Apple. I looked at the stock, which was selling an incredibly low price, surely, foldable. I looked at the customer loyalty, the service revenue stream, and yes, the cash position, balance sheet. And I said, "What the heck is the point of selling the stock of a company that makes the greatest product products in history?" That may sound like a no-brainer, but there are tons of Apple skeptics at all times. And they're always constantly arguing. They're always out there saying, "Oh, the company's best station behind it." Presenting these surveys of Apple's component suppliers as evidence that their business is in decline, time after time, they've been proven wrong. Yet they don't give up. They don't go away. Sure enough, telling you to buy Apple at $23, it turned out to be a fabulous score. Because the insane amount of negativity gave you one of the opportunity to pick up the stock in a major discount. The key here is that Apple is a high-quality company, a best-of-read company. So when the stock goes down, you know that it's getting cheaper. Selling Apple at $23 is so many of the so-called great minds told you to do. At $23, we would have been a classic example of giving up on value. And you would have missed one of the biggest moves of our lives. Oh, and of course, there's no apologies from those who downgrade it then, at least that I know of. And look, in late 2022, many were tempted to make that same mistake with Nvidia, as all things tech had gone through a miserable year. But I learned my lesson from Apple, so we stuck with Nvidia. And the stock eventually tripled in a little more than seven months. Here's the bottom line. Don't be afraid to pay up for best-of-read stocks. They may have higher price-turnings multiples than stocks of lower-quality companies, but they're also much less likely to blow up in your face. The best-of-read premium is worth it. Oh, and once you find a company that's best-of-read with a store you believe in, don't let the bear scare you away, even if the stock is temporarily broken. His patience is a virtue, and giving up on a value stock is a sin. Let's go to Mandy and Mandy! Professor Kramer, how are you? I'm fine, Mandy. How are you doing? I'm hanging in there. Thank you so much for taking my call. Love your show. I watch it. I breathe it every day. Thank you. I really appreciate all you do. My question is, if you have $5,000, how do you invest? Okay, I have said, and I will reiterate, that for your first $10,000, and not before then, you should put that money in an S&P index fund, preferably a low-cost one. Only after that, because I care about diversification more than anything else, only after that, can you start buying individual stocks? How about Jerry and Missouri, Jerry? Hey, Jim, thanks for taking my call. Of course, Jerry, how can I help? You stress diversification all the time. All the time. But, my investment strategy is mainly growth. Things like gold, recession-proof stocks, and dividend stocks have all backfired for me. I prefer may have tech stocks, and I've been enjoying the ride in my tech-heavy portfolio lately. I currently have about 20% in cash, and I'm waiting for a downturn, so I can buy some more. I feel like I can have a fairly diversified portfolio, even though this technology dominated it. What are your thoughts? Okay, look, I think that we have to understand that there have been times in our careers where that strategy has been a very bad. So, that's why you can have a couple tech stocks, but I think to be at tech-heavy, if we get something like a $2,000 or we've had a couple others to eat in 2008, or in 2021, where we then began to roll over, I am worried about your position. So, let's be a little more careful, a little less concentrated. Please, don't be afraid to pay off for best debris stocks, and once you find them, don't let the bear scare you away. Patience is a virtue, give me up on value as a sit. Always remember that. Remember tonight, if you're trying to get a handle on any tape, I like to look at one corner of the market to help me get a sense of where we're headed. Our real what it is and how you can learn from it too. Then pull back Sir Neville, but how do you prepare for what? I'll give you my strategy for him in whatever the market throws in your portfolio, and our real rule for investing in the Macy's Mobius, but it's an easy step that can help you design a more high-quality portfolio. So, stay with Kramer! Don't miss a second of Mad Money. Follow @chimcramer on X. Have a question? Tweet Kramer, #MadMensions. Send Jim an email to madmoney@cnbc.com, or give us a call at 1-800-743-cnbc. Miss something, head to madmoney.cnbc.com At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. 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Learn more at chevron.com/meetingdemand. How can you keep track of a confusing market? Let me use advice that rarely ever steer me wrong. There are only two things you really need to watch. One macro, that's the big picture, and one micro company specific. Why don't we start with the big picture? If you want to know where the stock market might be headed, you have to do it. You have to keep your eye on bonds. Look, I know the bond market is boring as well. Get out. But it's much larger than the stock market. More importantly, it's very important to the overall direction of stocks. Back in the day when I was running my old hedge fund, I'd always call in from the road and I'd start the same way. I had to be away from my desk, so I'd begin the phone conversation by saying, "Hey, where are the bonds?" That's how much it mattered to be on a day-to-day basis. Didn't ask for the stocks first. I didn't wear the bond marketers. Yet stock market investors seemingly forget the bond market rules all the time. They forgot in 2000 that the bond market tourist economy was softly right near the dot-com peak. They forgot when the Fed raised interest rates 17 times, in lockstep fashion, and lead up to the financial crisis, specifically in the worst downturn since the Great Depression. There's a little bit of little attention to when interest rates peaked in 2022, even as it became the best time in years to buy the industrials, and even the whole builders. Never has come as a surprise to you that long-term interest rates are rising and falling. You've got to know that. You simply must know what the bonds are doing at all times. Now, bonds can punch your portfolio in the face if you are paying attention, hence the excessive folks on the yield curve. Yes, where the two-year is, where the five-year, the ten, the twenty, the thirty. That's why I say don't forget bonds. Always keep those bond prices and interest rates in front of you if you want to know what might be happening in the future. Now, when I was coming up in Goldman Sachs, I was trained to focus on bonds because bonds are the true competition to stocks. The competition I most fear. When short-term interest rates, the one set by the Fed goes sky-high. You have to expect that the dividend stocks, I'm talking about companies like high yields, like America Electric Power Southern, that we have to bet they'll sell off, because their dividends can't give you yields big enough to compete with their fixed income alternatives. Unless, of course, they sell off big enough that they are, once again, legitimate competition. But who wants to endure horrible capital losses for measly five or six percent yield, and then not even be able to sleep well like you can with bonds. When long-term interest rates rise, the one set watches the yield on the ten-year treasury, then you have to start being wary that the entire stock market might be worth less when rates rise. It's simple. If the bond market competition gets more attractive and the stock market gets less attractive, this can become a giant and zero sum year. Of course, you shouldn't be especially worried about rising long-term rates caused by a pick up in inflation, like we saw during the Great Bear market in 2022. If I see it sway at the value of long-dated assets like equities, because the future earnings streams have less purchasing power, and that's really especially true for growth stocks. Higher interest rates don't just make bonds more attractive. They also make it more expensive for banks to lend, and of course, that puts a damper on the whole economy. For a long time we had an ideal environment for stocks, we had low inflation and low interest rates. That is just fantastic. But then the pandemic hit and the world turned upside down, with the worst inflation in 40-odd years, which led to a hideous market-wide meltdown as the Federal Reserve lowered the boom on us. Let me put this another way. Let's start playing basketball. If I'd be saying that if you just watch the man with the ball, hey, let's call the man with the ball city group, and you don't watch what the other team is doing on defense, let's call that the bonds, there's no way you're going to get to the basket. The man without the ball, the ball market, you can determine the action and the stock market. So keep your eye on the ball and the bonding without it. Okay, what else do you need to keep an eye out for? How about on the micro level, the company-specific level? You need to be very cautious when you see unexplained resignations by key executives to put it bluntly when the chiefs resign, you should too. Yeah, when you see a CEO step down from notice, a real reason. You know what? You should presume something is wrong, and you had to do some selling. I say shoot first, ask questions later. I've sold stocks simply because the CEO or the CEO for resign, and if I turn out to have jumped the gun, I simply buy back the stock. But in my whole investing group, you don't make times that actually can recall that a CEO left for undisclosed personal reasons, and the stock was still worth buying right then? Well, at the top of my head, I have one, Visa. I have racked my brains to come up with other examples. I just can't think of them because they're that uncommon. Why? Simple. CEOs don't quit for personal reasons. Not if they want to keep their bonuses. CFOs don't quit for personal reasons either. These are fabulous jobs. You don't get to be a chief executive of a publicly traded company by being devoted to your family. Nobody gets one of these jobs without giving up great deal of what most people enjoy about life. Things like family, friends, nights out, vacation. Competition for these positions is so serious, so fierce. Fierce. That when you finally land one, you don't up and leave. Not for no reason. When C-suite executives leave for undisclosed personal reasons, it's almost always because there's something wrong at the company, even if it's something that they did. Hence my rule. When high level people quit, a company is a sell. Aha, you say. Well, I know a CEO who quit because he had an epiphany about climbing K2. Well, I know a CFO left because she really did want to spend more time with family. Fine. You know what? Those are exceptions. At some point somewhere, a CEO really does step down just to spend more time with the kids. But here's the thing. When you're investing in the stock market, it's not the exception that matters. It's the rule, always the rule. There will always be situations where it's a mistake to sell a stock when senior executives leave. I don't care because most of the time, selling will be the right decision. This is the kind of rule that helped keep me in the game at my old hedge fund. It's all about helping you avoid losses. And one way you do that is by not taking unnecessary risk. Like many companies with a CEO just resigned for undisclosed personal reasons. The bottom line, if you want to get a handle on the stock market, you need to watch what's going on with the bonds. That should be obvious at this point. But it's something people quickly forget once the economy regains some semblance of normalcy. And when you're looking at individual companies, remember that unexplained high-level executive resignations equals sell, sell, sell. Mad money is back after the break. Join FinterAct, a peer-to-peer community of financial services professionals, and keep your finger on the pulse of the industry. FinterAct offers a digital hub to start conversations, connect with fresh perspectives, and problem-solve with peers. This member's only community also provides access to virtual and in-person events, where you can chat tech stack, develop efficiencies, and learn new ways to propel your business forward. Apply at FinterAct.net. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line? It's possible. Complex specialty care that cares about your ROI. It's possible, because we're already doing it. All while saving businesses billions, that's wonder made possible. Learn more at EverNorth.com/wonder. Before you could be a good investor, you need to be a realistic investor. There are far too many people in this game who are not realistic. Either they allow their emotions, they'll cloud their judgment, or they allow themselves to be surprised by the inevitable. So let's start with the inevitable. You think people get comfortable with the idea that stocks can indeed go down? After the dozens of correction mini-sizable pullbacks we've had over the past 20 years, you think we get used to the process, and except that watching your stocks drop in place, something can happen, and it will happen. If people were reasonable, if we were a realistic species, you might assume that we'd say something like, "Let's prepare for the inevitable correction, because it could be right around the corner." Yet aside from the permanent bears who think we'll always do for pullback, most people act like every correction is a total shower. The type of thing that never happens. So every time this talk market goes down, there's a huge contingent of people who seem stunned, just caught totally by surprise. To me, corrections are like the rain. I know the rain is inevitable, so do you. I expect it to rain. I prepare for it. When the rain comes, I'm ready. I have an umbrella or a color. I stay indoors. That's how you need to approach the possibility of a pullback in the market. Sooner or later, we're going to get what? So best have some cash ready on the sidelines, just in case that time turns out to be now. Of course, plenty of corrections happen to allegedly unexpected times. In recent years, we've had a lot of major declines that were preceded by terrific updates, during which we made lots of money, and everything will be peachy. In January of 2018, the stock market were higher. People were acting like we had this unstoppable rally. But in February, the averages, they got obliterated. So, so, so. In the full 20, 21, we were coming up with a magnificent year and a half long rally. We're probably everybody was making money because picking winners was just so darn easy. Then the whole market rolled over, and it took months for people to realize that no. This was not some temporary gift. It was a bear market last summer's year. But there were some terrific days in November of 2021 before everything fell apart. Why don't I mention this? Because the time to be most worried about a looming correction is the moment when nobody else is concerned. That's when we get these brutal, supposedly unexpected declines when everyone is so euphoric. Now, I used to have a rule at my hedge fund. When I made 2% in a day on the upside, 2%, I knew I was too exposed. I knew I was too long, as we say. I knew that my portfolio would kill me if we got caught in a storm. I simply had made too much money all at once. So, as the market lifted or if my performance was swinging too much into the upside, I pulled back, sometimes furiously, selling in the straight, sell, sell. To prepare for that big down day just around the quarter. And it does prove to be just around the quarter. Sometimes the correction is never came, and I had to swallow my pride days later, maybe even buy everything back that I had sold. But when we did get hit with a major sell-off, my hedge fund outperformed by so much that my clients thought I was a genius. I wasn't a genius, though. It was discipline. It was preparation. Plus, because I'd taken something off the table and learned to raise cash, I've been able to use that money to buy all sorts of high-quality stocks into weakness. Look, we may not be able to predict when a storm is going to strike, but we do have barometric readings that can help us immensely. Yep, if crutches are like raining, then where should you get your weather report? Well, I got one. I like to follow the proprietary market edge oscillator. That's a terrific indicator I pay for. It tells us when the market is getting oversold. Whenever this oscillator, which you can subscribe to through the investing club, had a pretty good deal. Register is plus five or above. That tells me we've come up too far, too fast. Five or above. Two point where it's gotten dangerous. So to me, a plus five reading means you need to pull back aggressively, and then wait for that correction to occur before buying it. What do I mean by pullback aggressively? What do I mean? Well, if you're nimble, admittedly a big if, you might want to ring the register. On a nice part of your portfolio, as we always, always, always advise you if you remember the club. We've spent hours teaching you how to learn to sell discipline. That way you have a ton of cashless sidelines that you can use to buy back your favorite stocks at lower levels when the storm hits. Even if you're not an old nimble, you should be selling something to raise some cash. When the oscillator that we talk about all the time, it's plus five. By the same token, when the oscillator hits minus five, it means the market is incredibly oversold, and it's time to- Yeah, it's time to buy. We usually come down so far so fast that at least we're due for short-term bounce to be, let's say, trading in. It's a good place to put your cash to work if you haven't already. And some of our best work with the travel trust has come when we tip toe in down five on the oscillator. And when the oscillator hits minus ten, where it was about a week before the market bottom, October of 2022, you often get massive moves higher. So then we hold our noses handy. Buy, buy, buy. So this tool can help you spot bottoms and avoid tops. Worst case scenario, you sell something at a high level, but there's no storm in stocks go ever higher, which means you underperform the averages because you have too much cash to the sidelines. I will take that risk. I'll admit it is a real risk, but look at it this way. Using the same methodology I just described at my hedge fund, I'm merely trading far more. I gave my investors a 24% compounded annual return after all fees, about three times with the S&P 500 would have given them over the same period. As I see it, that's pretty strong evidence that avoiding losses on big down days more than makes up for the possibility of missing some partial gains on the big updates. Now, let's talk about the other component of realistic investing. You need to stop yourself from making investment decisions based on misleading emotions, and the worst of those emotions is hope. Whenever I hear the word hope, as in I hope that doom stock du jour will come back to where I bought it so I can sell it without taking a loss, I get angry. Or as you remember, hope should never be part of the equation. Don't hope for anything. Hope is emotion pure and simple. And this is not a game of emotion, or at least not your emotions. Every stock you own because you hope it goes higher is another position in your portfolio that's not being filled by a stock that you believe will go higher as opposed to hope. Yet I hear hope constantly. That's fine if we're talking about religion. It's good if we're talking about sports. You know some of those come from behind NCAA men's basketball teams? They keep the players motivated through hope. But in the stock business, hope is a mistake because hope's a plant's reason. Especially when we're talking about stocks that trade with single digits. You tell yourself, I bought this stock. This is five. Now it's at four. I hope it goes back to five. And then I'll sell. How hard could it be to go from four to five, right? Wrong. No company ever sets out to have a single digit stock. Most companies will fight tooth and nail to keep their stocks from going to the single digit territory. So when you find something that sells for just a few bucks, the market has already rendered a very harsh judgment indeed. When you let hope become part of the equation, you can end up holding these low quality pieces of paper. Wait for something that will never likely occur. Forget hoping and wait for higher prices. Catch your losses and move on to a stock you can actually see that could go higher under its own power. Not because of hope. Because hope cannot be the reason. Of course, when there are times when hope pays off, like 2020 or like 2021, rural sources of garbage could roar higher because there was so much easy money and so many credulous investors looking for easy wins. But the moment the Fed took away the easy money, that whole playbook blew up in your face. And anyone who kept buying stocks, especially on margin, or with borrowed money, basically got eaten alive. How's it going? Bottom line. It pays to be realistic in this business. So prepare yourself for corrections. Big pullbacks are like rain. They're inevitable. And whatever you do, don't make stock picking decisions based on hope. You need to invest in the real world. Not in the fantasy land. Let's go to Denise in Massachusetts. Dennis. Dennis, Dennis, how you doing? I'm good. I'm glad to talk tonight over here. They're very kind, Dennis. Thank you. I'm honest. I have a question real quick. If there are any common mistakes or pitfalls that people should avoid when managing their following accounts? Well, I think that what people do is they take too many based on thinking that, oh, it's for the long term, they take flyers. Now, I think it's fine if you take flyers when you're in the teens or in the low 20s, because you've got your whole life to make it back. But when it comes to 401K, we want standard, strict discipline, good dividend, good balance sheet, good growth stocks. That's what I believe is right. Being realistic is key. Expect corrections, and don't really allow a hope. Please, no hope is an investing strategy, because it's not. What's for me money? Do you know what you own? I'm sure why having a thesis for each of your holdings could be a winning strategy. Then when it's time to raise some cash, how do you determine what to sell? I'll give you my plan. And one of my favorite aspects of this show is getting to hear from you. So I'm bringing my investing club partner, Jeff Marks. Cancel some of your most burning questions. So stay with Kramer. You know you don't need me to tell you that the internet has become a double-edged sword. That's true in every area of life, including investing. I mean, sure, the web makes everything more convenient, right? You have all sorts of information available at the push of button in your fingertips. Something that was unimaginable when I got started in this business. It was much harder to do the homework in the old days. It took real effort. These days everything is searchable. Hey, and then there's chat shipping tea. So the internet's great for investing. But it also creates tons of new problems. And when we have new problems, we need new rules to help contain them. For example, you absolutely have to be able to explain your stock picks to another human being. If you can't explain it, you don't understand the story well enough to just find buying this talking question, right? Here's the thing in the old days this rarely came out. But the rise of the internet took away one of the most important breaks in the process. One of the most important warning systems, which is talking to another human being about what you want to buy. It used to be that you hadn't talked to a broker or to buy anything. Now with the stroke of a key, you can buy the stock of skyward solutions or an album bar without ever having to tell another person why you're doing it. That it's cell phone. That it's on lithium. So you don't have to even pay a commission. To me, I'd much rather have the commission and some a real person. But it might not happen. Why is this an issue? Why do you need to explain this stuff to someone, to anyone else? It doesn't have to be a professional, by the way. It could be anybody, preferably an adult. But you can fall back when it's plenty of your kids. If you can't find an adult as loyal listeners, you'd babble about the market. Buying stocks is a solitary event, too solitary if you ask me. But we're all prone to making mistakes. Sometimes big ones. The error is to you, all right? The error fell off the accents, E.R.R. If you want to cut down on these mistakes, you should force yourself to articulate to someone else why you like that stock. Do you know how they make their money? Do you know how their earnings are supposed to look? If you don't, then you say yourself up for trouble. You won't know what you're looking for. I always see this problem in biotech. So many people own biotech stocks, without even the fagists understand. They have no idea of what the underlying company does, or how it could possibly turn a profit. They don't even know the drug pipeline. They just know that it's hot, hot, and that is a real bad reason to buy. I urge you to be able to articulate a thesis for owning every stock in your portfolio. Think of it as a test to make sure you've actually done the homework. That way, if the stock gets slammed, you'll know whether to cut and run, or maybe buy more. If you don't actually know what you... Oh, I'm bleeding. You're going to get slaughtered on the next decline. You are going to sell at the bottom, and there's always the next decline. When I was in my old hedge fund, I always made my employees sell me the stock before we pulled the trigger. Literally sell it to me like a salesperson before I buy it. I'd pick it to the boss. If you're in a position where you're picking stocks yourself, get someone to listen to you and let you articulate your reasoning. It will always help. I always like to say, "Hey, what's going to make this dog go up? What's the catalyst?" That's the keyword "catalyst." Or, "Have we missed the move in this overvalued stock that's up 100% already?" This year, and of course, what's your edge? These are all important questions. If you can't answer them, you shouldn't be buying. And look, the ability to make the HAC decisions is not the only thing you need to be wary of on the web. There's something else you need to watch out for. The Internet has vastly increased the power of the Wall Street promotion machine. Most people, if we don't have enough respect for the promotion machine, you don't have to like it. But you have to acknowledge it's power, and you have to know what it is. When Wall Street falls in love with the stock, it'll go much further than anyone expects, and it's efforts to hype that stock to high heaven. Think about all the garbage-spack stocks. There's startups that get in public in 2021 and 22 by merging with special-purpose acquisition vehicles. Basically, big pools of money that exist to make big acquisitions. Originally, they were meant to make lots of little acquisitions. But in 2020, some geniuses realized that they could use SPAC murders to bring hot startups public, while skirting all the intense regulatory scrutiny you get when you actually do an IPO, which is what they should have been doing. We have so many as the like, how about the electric vehicles? The electric vehicle and adjacent SPAC vehicles in 2021 were totally made up forecast that went out many years into the future. If you tried to pull something like this with a real IPO, you might end up in prison. The SEC would never sanction the stuff. If you want to a bank to borrow money with these projections, it left you out of the room. Yeah, Wall Street let these SPAC deals happen, because the investment bankers wanted the fees, of course. Meanwhile, the strings exchange commission, the supposed cop on the beat, was asleep at the wheel, and you couldn't count on. Wall Street's the strange place. There's no one around who says, "You know what? We shouldn't crush people with made-up estimates and impossible meat projections. We shouldn't close our eyes to what we know can't work." Because they want the money, they didn't care that you, that the people running the SPAC targets, though, were charlons. They didn't tell us, they didn't tell us. Who didn't police themselves because the regulators didn't seem to care? We couldn't even spot it. Eventually, the most egregious of these SPAC operators got prosecuted, but not until after they lost people's fortunes. And the level of hyper legitimacy here was ridiculous. The whole SPAC boom started with Nikola, and that was an electric vehicle play with a stock that soared to the strategy. And then we found out that it made outrageous claims that couldn't be backed up by the FAS. Nikola's the one where they doctored a video of an electric truck. They rolled it down the hill for him to say, "To make it look like to run under its own power, I watched it." I thought the thing was just incredible. It's just the dumbest fraud imaginable. So, I want you to do this. The next time you see this kind of enthusiasm for potentially dubious merchandise, take your cue from public enemy. Don't believe the hype. One next thing. And this is really true of all media, both online and off. Whether you're watching TV, like watching me, or scrolling through tweets, please be skeptical. It pays to be skeptic. My general approach is that when you hear on TV, it's possibly right and likely not fraudulent, but no more than that. Same goes for the web, except you have to be a lot more careful because there's a ton of junk information and uninformed commentary online. That's just the world we live in. And chat GBT Google it after, okay? So, repeat after me. Just because someone says it's on TV, that doesn't mean it's true. You can't believe everything you hear. That's one reason we mostly just talk to high-level executives on the show. Mostly CEOs, right? You never see a couple of CFOs now and then. They can still mislead you. But if the public company's CEO outright lies about how their business is doing, let's just say their legal bills will really start out. Get me? But generally speaking, you see a lot of money managers coming on television and for a variety of legitimate reasons, these guys aren't well vetted. And often, managers can't help themselves when it comes to being promotional. So, here's a good rule of thumb for you. If a money manager is on TV and he's moving his lips, he might be talking, presumably his book. When someone comes on and says that some plunging stock is a buy, do you think, "Hmm, that sounds like an opportunity." No, instead you should wonder, he must really be stuck in that pig. Is he bailing when I'm buying? You know it's awfully hard to tell. Here's the bottom line. Please, always be able to explain your stock picks to another human being and never take anything on faith in this business, not gospel, not from the Wall Street promotion machine. And especially not from money managers who love to come on TV and tell you they are writing 100% of the time. They have money back after this break. No matter how smart you are, no matter how well informed, no matter how lucky. Sooner or later, you're going to make some sub-optimal stock picks and happens to the best of us. Every portfolio manager has a few duds in it. The trick difference between a good investor and a bad investor is how you handle your losses. People seem to have a natural version to sell you to losers. I don't know, professionals and amateurs alike hate doing it. I know, believe me, I sure hate selling them for the child of trust, but it has to be done. Still, somehow we just keep hoping. Operating under the assumption that a sinking stock is somehow wrong and everything will be just fine if we just hold it on long enough. They rationalize that the weakness they see will be fleeting and that others will soon recognize the value of the stocking question. Hope, hope, hope. That's all well and good until you need money. Maybe you want to raise some cash because your portfolio has gotten a little too stock heavy. Maybe you have some real life expenses that require you to put together a lot of cash and a hurry. Maybe you're a money manager with some investors who want their money back. Redemption. Well then, how do you sell it to sell? This is where the tendency to hold on to our losers shows its sinister side. A lot of investors would prefer to sell their best performing holdings rather than their worst performers. They'll sell their winners to subsidize the losers. That's where it's wrong. You then get a self-fulfilling spiral as the bad stocks stay bad. They usually keep going down and with fewer winners your performance will get even worse. This is particularly dangerous for a hedge fund because bad performance triggers you have more redemptions from your client's vicious circle. If you keep selling winners to give them their money back, it becomes a nightmare. Vicious. Individuals do the same thing. You only have a finite amount of capital invest. Rather than take your medicine, the loss far too many people prefer to remain in denial and pretend the losers aren't losing. You've done it. I've done it. That's my rule. Never subsidize losers with winners. My advice to anyone who's stuck in this position is simple. Sell the losers and wait a day. Hey, look, if you really want them. Go back in the next day and buy them. I bet you won't want to. Once they're out of your portfolio, I doubt you'll be tempted to bring them back. By the same token, you can't keep hanging on to low quality stocks just because you're hoping for a takeover. Look, I get it. Nothing's worse than you had a takeover. Nothing's just looping. You put on a lifetime's worth of gains in the day from a takeover. It feels so good. So maybe we'll go to great lengths to try to capture these losers. I don't blame them. These include they're buying a lot of bad companies in the hope that they might catch a bid. Funny thing about bad companies, they rarely get bids. In reality, what gets acquired are great companies with cheap stocks. Not crummy companies with stocks that seem cheap, but in fact pretty expensive. Yet so many people buy this junk merchandise because they think, "Oh, a takeover's going to save me." Which brings you to my next rule. Never speculate on takeovers of companies with bad fundamentals. The odds are, you'll end up owning something that can go down much more than you thought. Even if it has a very limited upside. Even if a bad company gets a takeover, it might end up coming at a much lower price than what you initially paid for stock. And that's the thing about bad companies. Their stocks tend to go lower, as they should. You can do better buying a well-run company that's in good shape and can still get a takeover bid from buying a company that's doing poorly, and thus unlikely to get a bid. It makes sense. Not many bad companies get acquired because not many CEOs can turn bad companies into gold ones. So don't wait around for a company with lousy fundamentals to be taken over. You could be waiting forever, especially in a world where some regulators have gotten more aggressive about blocking mergers. You've got by blessing a speculative takeovers if you're betting on well-run companies only. Because even if the deal doesn't happen, a good business has other ways to win. Plus when this stock of a good company goes down, you can confidently buy more into weakness. That's not something you can do with a company that's gone from bad to worse, while you're waiting irrationally for lightning to strike. The bottom line, please, please, please, never sell your winners to subsidize your losers. If you need to raise money for whatever reason, just take the darn loss and sell something that's underperforming. And absolutely do not expect that it'll takeovers in companies that have deteriorating fundamentals. If it's possible to takeovers the only reason you have to like it in stock, you shouldn't like it in the first place. Stay prepared. Jim Kramer, Die Hard of the Dolls. Hey Jimmy, love the show. My five-year-old grandson loves to watch your show. I have to thank you for making us money when it's there to be made. Our world is a better place with you in it. [Music] I always say my favorite part of the show is answering questions directly from you. To end up bringing Jeff Blarx, my portfolio analyst and partner in crime, to help me answer some of your most burning questions. For those of you who are part of the investing club, he'll need no introduction. For those of you who aren't, though, I hope you will be soon. I would say that Jeff's insight and our back and forth helped me do a better job for you, and for all of my viewers, and of course, from members of the club. Jeff and I do this sort of thing during all of our monthly meetings where we give you our in-depth look at our latest portfolio decisions for the club. Answer your burning investing questions which I know you have. If you like, we would love you to be joining the investing club. So let's take some questions. First, we're going to Nancy, who asks, "When you advise people to take out their cost basis and play with the house's money and let it run, at what point do you suggest people taking profits?" Jeff, I always find this a little bit difficult because I obviously want people to take their cost basis out. I also don't want them to miss out on a big move, cost disciplines, but I still favor making sure they don't give back the gain. Take the cost basis out and then let it run. But I don't know. I mean, you're a little more conservative. Absolutely. No one ever got broke taking a profit. I think if Eli Lilly, often times in '22, a stock that we own for the charitable trust was a big out performer in what was a really tough year. But because it was doing so well, a lot of new drugs were being approved, good trial results. We were taking profits every 20% or so higher. I think that's a good way to look at it. It's an art, not a science, but I think that staircase worked well for us. Now, here we're taking a question from Herm, who wants to know, Jim has been talking about battling the stocks that are down. What exactly does that mean? Training, kick your stock for a while, doubling down on a stock that is down from its cost basis, finding a good exit point to sell the stock. Thank you. Okay. You know, this one is so tough, because when I say battling, I mean, yes, it's a stock that's down that we like. And we want to try to get our cost basis lowered by buying some, but we also want to scale out if it goes up rapidly. This is, again, Jeff, I think you and I go back and forth, because when we're battling, that means we're playing a little too much defense, but sometimes we're just stuck. And the whole time we're trying to understand, do we have a broken stock where the company's fundamentals are still good, but maybe it's not being fully recognized by its value in the market? Or is it a broken company where there's something really fundamentally wrong? And I think that's all part of the battling process. Broken stock, got to have patience. Yes, in broken company, you got to sell. All right, next let's go to Michael who asks, can you recommend a few stocks specifically when you're investing for young children? Many of us invest for our children or grandchildren, so that would be helpful. Now, there was to be a time when I would have just said, look, we got to go buy some Disney. I find Disney troubling. I would say that, look, you got to go buy some of the, like, cereal stocks, as you might be doing something on the dinner, go on the breakfast table, or the dinner table, Campbell Soup. But I think a younger person should own technology, or really super gross stock. So I'm thinking maybe drug stocks, of high growth drug stocks, or maybe what you do is you try to find some new kind of technology that would be really exciting years from now. That might be a little sad. Yeah, I think you want to use companies with a lot of products and services that the young children will use every single day, because that's a great way for them to learn not only about the company, but if they have an investment in that company, it's a great way to get started with investing, too. And it's never too early to get started with investing. Wow, I think that's terrific advice. And, you know, on the Disney just, you know, I do think the Disney is fine. It's just that it's no longer the way I like to think. But I think, look, Apple, Amazon, Alphabet... They all work. People use these products every single day. They're going to get Apple made into it when they're quite young, so all great companies. I totally agree. Absolutely. Right, I'd like to say there's always more market somewhere. I'm sort of finding just for you, right here on My Money, I'm Jim Kramer. See you next time! All opinions expressed by Jim Kramer on this podcast are solely Kramer's opinions and do not reflect the opinions of CNBC, NBC, Universal, or their parent company or affiliates, and may have been previously disseminated by Kramer on television, radio, internet, or another medium. You should not treat any opinion expressed by Jim Kramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Kramer's opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Mad Money disclaimer, please visit cnbc.com/madmoneydisclaimer. Join FinterAct, a peer-to-peer community of financial services professionals, and keep your finger on the pulse of the industry. 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