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 7/19/24
This episode is brought to you by Merrill. With a dedicated Merrill Advisor, you get a personalized plan for your financial goals. And when plans change, Merrill's with you every step of the way. Go to email.com/ bullish to learn more. Merrill, a bank of America company. What would you like the power to do? Investing involves risk, Merrill Lynch, Pierce, Finner, and Smith Incorporated registered broker dealer, registered investment advisor, member SIPC. Homes.com knows that when it comes to home shopping, it's never just about the house or condo. It's about the home. And what makes a home is more than just the house or property. It's the location and neighborhood. If you have kids, it's also schools, nearby parks and transportation options. That's why homes.com goes above and beyond to bring home shoppers the in-depth information they need to find the right home. And when I say in-depth, I am talking deep. Each listing features comprehensive information about the neighborhood complete with a video guide. They also have details about local schools with test scores, state rankings, and student-to-teacher ratio. They even have an agent directory with a sales history of each agent. So when it comes to finding a home, not just a house, this is everything you need to know, all in one place. Homes.com, we've done your homework. My mission is simple. To make you money. I'm here to level the playing field for all investors. There's always a more market somewhere. And I promise to help you find it. Man, money starts now. Hey, I'm Kramer. Welcome to Man Money. Welcome to Kramer America. I'm going to make friends. I'm just trying to make you a little money. My job is not just an entertainment to teach. And I'm telling you, I'm going to do a lot of teaching tonight. So call me at 1-800-743-CVC or tweet me at you, Kramer. Tough days do not last forever. But when they come along, you need to know how to respond. You need a game plan ready so you can figure out what kind of sell-off we're dealing with and then react appropriately. Because the early days of the decline are never easy to navigate. You need all the help you can get. To borrow a line from Tulsa is fantastic anacronina. All happy rallies are alike. Each sell-off is unhappy in its own way. It's true. Bull markets, stocks higher. Everyone thinks they're genius participating because it seems so darn easy. Same every time. But big declines, much harder. They could be the start of a bear market. Or maybe something worse. Or they might actually be just a viable glitch. That's why tonight we're turning to history to illustrate some of the common qualities to sell-offs. So you know what to do the next time the market has an inevitable moment of weakness. Now really, there only been two truly horrifying sell-offs since I started investing over four decades ago. The one-day crash of 1987 and the rolling crash in 2007 and 2009. That was the financial crisis. You know what even the COVID crash when the SBA 500 lost 35% of its value just over a month, that wasn't really as bad as these two. Especially when you remember that the market started rebounding almost immediately. So let's deal with the two big ones head-on because they make for great examples. 1987 and the financial crisis are actually polar opposites. Although the percentage of clients were really pretty similar. On October 19th, 1987, also known as Black Monday, the Dow Jones Industrial Average fell 508 points for more than 22% in a single session. I was trading that day and even in previous week, it'd been one of the worst weeks of market history. Black Monday hit fast and hit hard. It felt there were no buyers to be found from Dow. 2,246 where the crash started. The Dow 100738 where it lasted ended that day. It kept coming right into the close. I remember thinking saved by the mail. Except it felt like there wasn't that much money left to be saved. But most people don't remember that the week before was horrendous too. The Dow had already plunged from 2004 and 82 to 2,246. That's really a 10% decline. That harsh pullback encouraged bargain hunters and trepid souls who thought they could flip in Monday morning into some strength. You bought Friday, flipped it on Monday, except the strength never showed up and they got badly burned. In fact, we just continued into the next day. You know, that day became known as Turbo Tuesday where the Dow kind of just broke down entirely. The markets simply stopped functioning, but you know what? I was there and I was actually able to calculate that bottom. The bottom turned out to be about Dow 1,400. That was down another 122 points or about 7% from where we closed on Black Monday at the end of the day. It was all just, I pieced them together one by one. And people didn't think it ever went down below the Dow 1,600 but they were wrong. Then Fed chairman Alan Greenspan stopped the decline in his tracks when he said he'd provide all the liquidity necessary to stabilize the market. Now, I still remember that green line when it came over your screen. He enlisted multiple firms around Wall Street to help put in the bottom and the market stage were more comfortable two-day rally. It took the Dow up more than 400 points from its lows. It seemed pretty unbelievable the time. The effects of the crash lasted for just three months when we had a retested help. But do you know that it took until mid-1989 for the average to return to where they were trading before this big breakdown? The bear market that began in October of 2007 was a totally different animal. Dow fell from 14,198, so it was a 14,000. Remember the other one was the 14,000? And it didn't bottom until March 6th of 2009 when it landed at a staggering 6,470. We didn't return that how in 2007 level until March of 2013. Why did one sell off end so quickly when the other took six years to unwind? Well, that's the question that defines the two extremes of unhappy sell-offs. See, Black Monday was a mechanical sell-off. The first one I can remember where the averages melted down because of pure market dysfunction. It's instructive to unpack Black Monday because the way it played out was reminiscent of two other crashes, the flash crash of 2010 and its doppelganger in 2015, both times when the market simply failed to work. Now, all three of these started with the S&B 500's futures pits in Chicago. See, Chicago overwhelmed Wall Street in New York where the stocks underneath the futures are traded. Black Monday happened because stock traders didn't understand the power of the futures market back then, which could flood the stock market with instant unseen supply, no one was ready for it. These days we accept the futures are worth watching but it wasn't like it back then because they were relatively new instruments created about five years before the crash and no one knew the power they had. See, the power of the futures snuck up on us as they were initially a much smaller market than the stocks themselves. Because portfolio managers could go in easily and out easily though, the futures became the most powerful drivers of stock prices, particularly for hedge funds, even more powerful than the actual form of the underlying companies that stocks are meant to represent. Underlying corporate earnings used to be much more to the day-to-day action of the stock. The thing is even with the relatively new impact of futures, Black Monday was highly unusual. We'd had a big run going into the crash of '87. It was a remarkable multi-year rally with the areas substantial decline and don't I know it. I left Goldman Sachs in 1987 to start my own hedge fund because my returns have been so bountiful for investors. The multi-year rally in the mid to late '80s had created such as a pendant gains that a group of clever salespeople started offering big funds. What they claimed were insurance policies that could lock in gains and stop out losses after their funds had gone up so much. So-called portfolio insurance involved something called dynamic hedging where these specialists said they could use futures to ensure that you'd no longer be exposed to stock market risk say down five or 10% or some other number depending on the policy took out. Yeah, it was like a stop loss. The idea was that these policies would let you sidestep the losses. Of course, it's impossible to do that but they had such a great sales pitch. People believed them because the stock futures were so novel. In reality though, when the losses all kicked in at once on Black Monday, the portfolio insurance didn't work. If anything, the future selling from these insurance policies actually accelerated the decline in the stock market causing massive losses for the poor saps who bought these things. Many of the actual clients were wiped out. The people who sold these policies, they were charlatans and mount banks. Although his remember them says, just really as idiot, it's not the crooks I thought they were. I mean, toward the latter theory because there's no magic trick. They can get your returns from investing in the stock market without much risk. Come on, the two go hand it in. Don't believe anyone who tells you different. Those people are charlatans. Of course, at the time, we didn't know that the power of the futures could cause a crash. We figure where there's smoke there's fire. If the market's crashed, then there's going to be something wrong with the economy, right? So we had to be recession-lirking it because stocks couldn't go down on their own. There had to. Otherwise, how could the Dow plummet 22% in a single day after falling 10% to week four? I say though, it turned out wrong. The economy was strong going in the '87 crash and it was strong coming out of it. There just wasn't any economic correlation with Black Monday at all. It was the interplay between Chicago, much more powerful to realize in New York, much weaker to set up the conflagration. And when the Treasury Department examined what happened at day, it concluded the future set off immense selling while some specialist firms on the floor of the exchange and some brokerage houses failed to step up in what's known as stabilize the tape. The latter had no duty to stabilize things, but the former were supposed to do so. The Treasury found out that maybe didn't do the jobs. Now, I was fortunate to actually be in cash on Black Monday. Having looked at it in my portfolio early in the previous week, was the market excellent failure. I didn't want to part of it. Now, in retrospect, it did make my career. I look like a true genius, but the truth is I was just frightened of the market and wanted to regroup. I always say though, it's better to be lucky than good, but discipline can help maximize your luck, which is why we spend so much time teaching you discipline in the CBC Investing Club. So here's the bottom line. Sometimes crashes have nothing to do with the economy. They're caused by the mechanics of the market. Stay tuned for more examples of this kind of decline and the more serious animal, the bare market of 2007, 2009. So you can figure out what to do when they really marks Irma in New York, Irma. - Yes, good evening, Mr. Kramer. - Good evening. - I'm planning to open rough, non-deductible rough IRAs, IRAs for my grandchildren who are all in their 20s. - Okay, better off with a growth fund or an index fund. - I want you to be in growth, growth, growth, because they're young. You can switch to the index in the 30s. Let's go for some real risk here, because they got the whole life ahead of it and I really want you to hit it big right now for them. Tony, I am alone in that, but I don't care. I really want risk taking them when they're younger. Tony in Florida, Tony. - Hey, Jim, I just want to let you know I'm a member from day one, it will be a lifetime member. I love you, what I want to ask you is when, when we like a stock, or love a stock, and we put our earnings at a really good, but then for some reason, the market buys it down. Can we buy it day one, or do we have to use that rule? Like everybody says, wait three days before you buy, it starts to go down. - No, no, no, you buy it at your prices. You buy a little bit at the beginning, and then like we teach at the club, you buy it on the way down. We may have a real battle on our hands. Now you know we battle on the club, and we've been very successful in most of our battles. Some of them have been tougher, but that's the way you make it so your battle won't be too hard buying it all once does that, and we don't want that. Tough days don't last forever, people, but when they come along, you need to know how to respond. For me and tonight, I'm giving you a crash course in crashes, so offs, pullbacks, and big market declines, so you'll be prepared to get the best possible outcome from the worst possible situations. So stay with Cramer. ♪ ♪ Don't miss a second of Mad Money. Follow @chimcramer on X. Have a question? Tweet Cramer. #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. 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. When you're hiring, the best way to search for a candidate isn't to search at all. Don't search, match. With Indeed, indeed is your matching and hiring platform with over 350 million global monthly visitors, according to Indeed data, and a matching engine that helps you find quality candidates fast. Use Indeed for scheduling, screening, and messaging to connect with candidates faster. Plus, 93% of employers agree Indeed delivers the highest quality matches compared to other job sites, according to a recent Indeed survey. Leveraging over 140 million qualifications and preferences every day, Indeed's matching engine is constantly learning from your preferences. Join more than 3.5 million businesses worldwide that use Indeed. listeners of this show will get a $75 sponsor job credit to get your jobs more visibility at indeed.com/madmoney. Just go to indeed.com/madmoney right now and support this show by saying you heard about Indeed on this podcast, indeed.com/madmoney. Terms and conditions apply. Need to hire? You need Indeed. Breaking news, the Peanut Butter Group and Chocolatey Corp have merged to create PBC Inc. And the byproduct of the merger is the new delicious Jif Peanut Butter and Chocolate Flavored Spread. I got the press release and get this. Critics tried to say it creates a monopoly on cravability. But obviously, it's not illegal to be irresistible. Calling it now, this will revolutionize the snack industry and the contents of my pantry. Visit pbcincorporated.com to try the flavor merger of the century, Jif PBNC. Today, I'm teaching how to cope with all sorts of declines. I already covered the crash of 1987. How it wasn't really related to the economy. Shocker. So it made sense to buy stocks when the smoke cleared. 1987 was a rare opportunity that took a little time to reveal itself. But when it did, Ooh la la. It was also the first instance of the S&P 500 Futures exercising the pernicious power over individual stocks. Sadly, it was the first of many. Which speaks to the fabled flash crash of 2010. One of those negative moments that drove away so many investors who never came back to stocks because they didn't know their value could be destroyed so quickly. Almost whimsically. Who wants to keep their life savings and instruments that can blow up in the blink of an eye? I don't blame anyone for not wanting to be in after the flash crash. What happened that afternoon? It was pretty much the same deal as Black Monday of 1987. The Futures overwhelmed the stock market and buyers just walked away, betting that there had to be something substantive behind their destruction, right? Couldn't just be the machines breaking down for everything's good. The flash crash started at 2.32 p.m. on May 6th of 2010. It lasted for 36 minutes. In that 36 minutes, the Dow fell almost 1,000 points from roughly 10,000 level. Very memorable for me because I had to be on air at the time. Immediately, money managers tried to pin the tail on the sell-off. There were riots in Greece and maybe this time as everyone was focused on southern Europe, thanks to endless sovereign debt crises. Others pinned it on the newfound weakest in the US economy, of which for the record, there really wasn't any. Perhaps you can decide the benefit trading on Black Monday. I recognize the flash crash exactly for what it was. Another situation when the machines were breaking, as the Futures overwhelmed the stocks, it wasn't the fundamentals. We didn't know it at the time, but a gigantic air and sell order caused tremendous fear that spread like welfare. Many buyers just simply disappeared. They walked away. They didn't wait to find out what was causing the landslide, how to be something big, right? They just wanted to get out as fast as possible. Lightning. On air, I called it a phony sell-off because the decline had no basis in economic reality, which made for a tremendous buying opportunity. That was not a real price. It's too bad, the system obviously broke down. We are trying to get the specialist from P&D to talk about what happened. The machines failed, and it obviously broke down. The market didn't work, it broke down, the machines broke down, that's what happened. That's exactly what happened. It had nothing to do with the fundamentals, just more of this nonsense. While some listened and actually bought stocks on what I had to say, many people simply didn't believe that equities could be that fragile and they left. It was shocking. In all the years I've been doing this show, I hope I've taught you that stocks are not hard assets. They are subject to all sorts of whims that can reduce their value in a heartbeat, including mechanical issues that we saw during that 36-minute sell-off. They're just not perfect enough, and people think they are. Anyway, the market quickly regained its equilibrium, but not before another round of individual investors left the asset class entirely, and they never came back. How about August 2015 sell-off, where the Dow felt 1,000 points right the opening? That was seemingly related to fears that the Federal Reserve physician raised interest rates, writing to the teeth of still one more story about the China market collapsing. Hey, China's been collapsing for ages, right? Back then, the Chinese market was the most dominant negative story out there. It's always been out there, but the whole economic edifice of the PRC could collapse from too much leverage at any given time. It's been a common refrain. Somehow, I found myself when I heard all the right times to witness these events. That Friday, before the South had been a bit of monstrously ugly day, as a fed official late in the afternoon, had suggested it was time to raise rates just bite the Chinese sell-off. It was an aggressive statement that demonstrated a cavalier attitude toward the market's ugly, but also fragile mood. Now, when we came in on Monday, August 24th, we heard that there were some very large sell orders in place for major stocks. We weren't ready, though, for the gap downs we saw, where large capitalization stocks were shedding hundreds of billions of dollars of value, many down 20% as the market opened, and we had no ability to tell why. Like the crash of '87, it was very tough to see what the real prices were. The confusion was that horrific. It was like trading in the fog of war. Yes, the fog of trading. Some prominent stocks let me ever down 40, 50, 50%. It was indeed crazy town. As the market rolled open, the Dowland and the Italian declined up about 1,000 points when the smoke cleared at 10 AM. I and my partners in the squawk on the screen were pretty stymied at the time. I remember turning David Faber to chat about the meaning of the sell-off. His reaction? I thought it was priceless. I gotta make some phone calls, because these are- Yeah, you gotta find out whether someone buys these or enormous moves. I gotta make some phone calls. I mean, I remember when he said I said, "Yeah, that's it. I gotta make some phone calls." That's how confused we were. That's how long we knew it was, but kids just go out and say it's wrong. Again, we figured there had to be something very bad in the economy. Somebody knew something we didn't. Something mysterious. Something otherworldly. Something nefarious. Maybe China had actually collapsed. Maybe there was war somewhere. Maybe something occurred in Europe we didn't know about. We had to be- assumed to be a good reason for that kind of decline. I was suspicious, though, because some of the hardest-in-stocks were the recession-proof names, especially the biotechs, which for some reason declined harder than almost all the rest of the market. Now, that really made no sense. That's exactly what people buy when the economy softens up for heaven's sake. They are safe havens. Once again, I suggested it was the machines that were causing the problem that the futures had overwhelmed the stocks in the computers that go on haywire, just like 2010, just like the flash crash. By mid-morning, we learned that that was exactly the case in the stock market dinner when a beautiful metaphorifics into a furious rally, jumping 500 points from the bottom. Strong stomach buyers came in and took advantage of the opportunity. The economy was gaining strength, not losing it, and a thoughtful federal reserve wasn't really about to tighten, not with China teetering. It was an excellent time to buy stocks. Why was there such fear and confusion at the time, both in 2010 and 2015? Why were those mini crashes so frightening? I think investors weren't ready for either flash crash, because post-1987, the government had put in what are known as circuit breakers. They were supposed to cool these declines by stopping trading momentarily, but the circuit breakers created a false sense of security that oddly still exists today, even as they failed to work properly on both occasions and did very little to stop the destruction of your nest egg. So please, when you hear talk of circuit breakers protecting you from fast declines, no, don't believe it. Fear can't be legislated or regulated out of the market. It will always be there. There will always be people who react horribly after an initial event, even as that event is mechanical and not truly substantive in nature in any way, shape or form. Now, there have been many declines worse than the flash crashes in 2010 and 2015. I could think of three days during the COVID crash when we were down almost from 7.8 percent to almost 13 percent in a single session. But the COVID crash was very straightforward. We knew exactly where the problem was. Governments shut down the whole economy to fight a deadly plague. Zero confusion, flash crashes were different. By the way, if you thought my own air commentary was useful in 2010 and 2015, and it was, then oh, that's actually kind of a modern reason to join the CMC investing club. We show you how to run a portfolio in real time. We take all this stuff into account. In fact, these kinds of moves are never going to go away. As we get further from the last one, I always anticipate the next one. So what's the bottom line here? If you can figure out when a sell-off is caused by the mechanics of the market breaking down, then you might have an incredible buying opportunity. First of all, you have to determine whether the sell-off is related to the fundamentals, the economy or not. If it is, stay tuned. If it isn't, stay tuned anyway. But recognize you have a first-class panic on your hands. And nobody ever made a dime panicking. But boy oh boy, did they coin money taking the other side of the trade. May the money's back hit for the break. 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. Want a website with unmatched power speed and control? Try Bluehose Cloud. The new web hosting plan from Bluehose. Built for WordPress creators by WordPress experts. With 100% uptime, incredible load times and 24/7 WordPress priority support. Your sites will be lightning fast with global reach. And with Bluehose Cloud. Your sites can handle surges in traffic no matter how big. Plus, you automatically get daily backups in world-class security. Get started now at Bluehose.com. Not all days are winners in the market. And knowing how to handle the downdays is key. We have to cover good and bad days showing me up money. And there are lessons in the really bad days that can help. So let's set the stage. Back in October of 2007, the Dow peaked in a little more than 14,000. After the Fed had raised rates over and over and over, it had 17 times. And the economy, after cheering for just a bit, fell for Cliff. Took the stock corner with it. It's one of the things that you could have seen coming if you paid attention. Specifically, if you had paid attention to me back on August 3rd of 2007. When I excoriated the Fed for having raised rates so much, oblivious to the damage it was doing to the real economy. I have talked to the heads of almost every single one of these firms in the last 72 hours and he has no idea what it's like out there. None. And Bill Poole has no idea what it's like out there. My people have been in this game for 25 years and they are losing their jobs. And these firms are going to go out of business and he's nuts. They're nuts. They know nothing. All right. What did I mean by that? Well, surely before I came out and set that moment with my old friend, Aaron Burnett. I've been talking to the head of a major Wall Street firm about problems in the mortgage market. Pretty much everyone who followed the mortgage market, which is incredibly important to the health economy, knew that there were a lot of unsound practices occurring. Still, it was jarring when I was told by this executive that he couldn't believe how many people were beginning to default on their mortgages. Yeah, here's the keys. He talked about how many mortgages of the 2005 vintage used to term that I previously only associated with fine wine. Just weren't money good. Something that only happened once in our country's history and I was never supposed to have began and that's a great depression. I was a KS, but you know what? I had a lot of friends and a lot of firms, so I started making a lot of calls. I wanted to see if this 2005 vintage thing was in trouble everywhere. I was asking when I got off the phone. It's the problem seemed to be spreading like wildfire. I called mortgage bankers. I called guys who ran major firms. Yeah, that's what I said. My people, everybody said the same thing. We're in big trouble. And that's why I went off so strongly on my rant. Sadly, the Fed didn't listen, especially this fellow Bill Poole, who at the time was an incredibly important Fed official. He was so sang about things that I had to sing them out in the rant. Years later, when the Fed transcripts for that period were released, I found out that my rant was pulled up, but only as a joke. Soon after my Vayno Nothing rant, we had a series of horrendous defaults of large banks and savings and loans, some of which were thought to be too big to fail and fail anyway, including the largest savings and loan and two of the largest and most fabled brokerage houses. I did my best to try to get people out. Even when all the today showed to urge anyone who needed money, near term, to take it out of the stock market before it was all lost. For investors, what is your advice today? Whatever money you may need for the next five years, please take it out of the stock market right now. Very dramatic statement. I thought about this all weekend. I do not want to say these things on TV. Well, sure enough, the market fell another 40% for a bottom. It's good call. Now, if you bought any time from the when the stock market peaked at 14,000, so it was cut more than half by March 9th of 2009, you lost a fortune. Probably never came back in stocks, probably gave up. So how do you know to avoid buying this kind of dip? How do you tell the difference between that lead up to the financial crisis and itself that's a buying opportunity like Black Monday in 1987? Well, first, you have to ask yourself about the state of the economy. Is business really getting crushed? Is employment falling off and falling off hard? Is the Fed standing patter even raising rates from the real size of cracks, like major firms going under big companies unable to pay their bills? Are there actual runs of multiple financial institutions around the country? Not just in one area. If the answer is yes, then you have a decline that could be joined at the hip with the real economy, one that has true systemic risk. That's the term, meaning that the entire country could collapse. That's how it was during the financial crisis. Why I got so angry when people say, "Hey, this is going to be like, I get angry every time. Oh, it's going to be as bad as 2007-2009." But there's, of course, nothing like that occurring, because like I said, only twice in 80 years has it occurred. Even the COVID recession wasn't as bad, because the moment we got a viable vaccine, everything immediately roared back to normal. We heard about systemic risks when some of the regional banks went under in 2023, but within a few months, we were over it. So if you're worried about systemic risk, the odds are you're worrying too much. Second, you want to know if there's anything in place that can actually save the economy or turn it around. That's important, too. Our elected leaders did very little assault on the blow of the financial questions. What brought the market out of its funk was the statement by then-fed chair Ben Bernanke. It's a forceful statement made on 60 minutes to the list. They didn't know where Latin American banks go under it. Boy, he was letting them go under left and right until then. We had watched, the Fed was just sitting on its hands, but the moment Bernanke decided that something needed to be done, the stock market bottom. Were there ways to spot the bottom? I got a couple of signs that can help. There's a proprietary oscillator. I watched and I brought it on very heavily for the CNBC investing club. It's a paid subscription product. Measures buying or selling pressure. When you get a minus 5, that indicates there's most likely too much selling. Hey, when you get a minus 10, well, you got to do some buying, even if everything seems horrible. We were getting signals that things were much worse than that near the bottom in 2009. Another way to look at it, I got one. I like to see who's been pessimistic or concerned about stocks, but it's more lucky to say anything positive, who then changes his tune. The best example of that kind, that big switch, came from the late great Marquette's. Who had this to say back then? I'm going to step out on a limb here. This is a big, hold on, everyone's waiting for this. I think we're at a bottom. I really do. I think we're going to have a rally. There we go, man. I'm afraid to make a call. I don't know whether it's going to be a drunk or a rally, but I think, in other words, I think today, this is for real. Man, what a call. Look at that. March 10th of 2009. The day after Bernanke was in 16 minutes, just a huge contrarian call from someone who hadn't been willing to make one until that moment. That's cool I've ever seen. Now, it certainly made a ton of sense to sell when I said to sell in October of 2008. But before you say to yourself, what happens if no one warns you again the next time? Well, I got, you know what, I got some good news for you. It's a little sobering, but it's good news. If you waited long enough, six years to be exact, you actually did get back to where you were before the bear market began. All right, six years, but if you sat tight in the worst market in living memory, you eventually got back to even and went on to make a kill. Yes, it would have been better to take something off the table in 2008, like I told you to, but a lot of people struggled to get back in the lower level because they got burned out of the whole asset class. They get worse than the ones who simply sat tight. So here's the bottom line. The financial crisis gave us a once-in-a-lifetime bear market with true systemic risk, but that's the exception, not the rule. Let's take questions. Let's go to Stackwell and watch in Stackwell. What's going on, man? Ah, I don't know. I'm having a cup of water right now. What's going on with you? Oh, man, you know, I'm trying to have a cup of water. I got a lot of bad weather. I hear it. I'm trying to get it together. I can definitely say it without giving a big shout out to you from the Great Northwest, though, Jim. You're doing a great job. Don, thank you. I'll take that shout out. Now, because you get a lot of advice from all around the world, I figure like this, we want good bread. You might as well go to a qualified baker. So when I want to go and say to you, man, I'm curious, if your feeling is on using high-yielding dividend stocks as a form of investment. Because the reason I'm asking is I'd like to know that if you sort of too risky, or if they kind of dividends down or lose market value, are you going to be hit? And if you do agree, as our barbell approach, or can we take a balance in our portfolio in a certain way that you feel? Stackwell, I love it. I love it. I love it. Now, I don't want to reach it. I don't want dividends that are so high-yielding that something's fishing. What I want are very solid companies with good balance sheets to pay dividends that we reinvest constantly. That is Nirvana for me. And that's the way I would love to invest if I could own individual stocks. The 2008 financial crisis gave us a once-in-a-lifetime bear market with true systemic risk. But you have to remember that's the exception, not the rule. Much more may have money ahead in this special show. I'm giving a flash crash, survival guide, with some tech questions from the crashes of 2010 and 2015, and the best ways to pop for market pullbacks. Then, imagine all your birdie questions with my colleague, Jeff Marks! So stay with Cramer! It's a nice special survival guide edition of everyone. We're discussing how to deal with brutal sell-offs. Specifically, how to defend against them. I take advantage of them even because you know I like to be opportunistic. Now, I've told you not to be clear about the systemic risk-sell-offs that involve potential to collapse the US economy. But those are easy to spot because it'll seem like the world's falling apart like in 2008. You don't need me for that. But now I want to help you game out the other less dangerous kind of crash, the mechanical kind caused by a broken market in a healthy economy. Now, the best way to deal with these sudden declines is to recognize that there's a bottoming process one you can spot. So what should you do? I have a solution that has worked in even the toughest of times. I like to look at something I call the accidental high yielders. I actually call them A-H-Y's on this show. Those are stocks of companies that are doing fine have good balance sheets. That's very important, by the way. But their share prices have fallen so low that their dividends are starting to give you an unbelievable turn. That's right, good yield. How do you spot these? When you look at the historic level of dividend yields you've gotten from certain stocks, you also want to look at the yield of the 10-year treasury. If a stock typically yields a 2% and suddenly is paying double that because of a market-wide decline, then you're probably looking at an accidentally high yield, as long as the stock's been going down for no particular reason. And that's why when you're hunting for these dividend stocks, you should focus on companies that aren't particularly sensitive to swings in the economy that have very good balances. Second, if the yield level isn't giving you opportunities, I'd use a mechanical sell-off to pick some stocks that you like. You can begin buying them using what's known as wide scales. That's why I recommended during the 2010 flash crash. I told people to use wide scales. Pick one of your best stocks at their premier stock and buy some using limit orders only. Don't use market orders because you might end up getting terrible prices. Frankly, you should never use market orders because it's especially stupid during a crash. I like this method because if the market does come right back, as it dated to the two flash crashes, you've picked up some terrific merchandise at amazing prices. Then you can flip the stocks for big profits or you can hold on to them for the long haul. But take a look. I actually demonstrated exactly how this works during an appearance on TV when the flash crash happened in 2010. P&G is now down 25%. Oh, well, that's true. If that stock is there, you just go and buy it. That can't be there. That is not a real price. When I woke down, it was a 61. I'm not that interested in it. It's a 47. Well, that's a different security entirely. So what you have to do though, you have to use limit orders because Proctor just jumped seven points that I said I liked it at 49. So I mean, you got to be careful. The market was down 900 points. We're now down 68. So remember, I buy 50,049. I now flip it at 59. I just made 500 Gs. Yeah, that's the crazy. This is what I'm talking about. And by the way, a lot of people end up doing that Proctor trade. I've been thanked for movies. I know, I mean, a dozen times people thank me. Remember, the limit order advice really does bring true. Now, we've talked about meltdowns and true systemic risk and gut churning moves that are untethered from the economy. But how about the garden variety and pullbacks we experience all the time? What causes these declines? Well, they're usually a bunch of different varieties. First, you've got the selloffs caused by the Federal Reserve. That's probably the most frequent reason for stock dumping. There's a reason that business media constantly talks about the Fed. When the economy is weakening, it's the Federal Reserve's job to try to restore growth, which they did with a plumb when COVID shut down the economy in 2020. As long as the Fed's printing money, almost every decline is a viable one, it's just a fact of life. It's been like that since I got the business. But when the economy's strengthening, it perhaps starts to overheat. Well, the Fed has a different mandate, stamping out inflation. When the Fed declared war on inflation in late 2021, the markets started rolling over with the highest risk groups getting eviscerated. Now, nobody wants persistently high inflation. Those of you who missed the 70s and 80s now know from the post-COVID experience. But we also don't want the Fed to break the economy, like it did when it raised rates 17 straight times in lockstep, going into the Great Recession. It caused the Great Recession. Now, there are plenty of times when the Fed's tightening, but the stock market didn't get crushed because the economy didn't get crushed. And that's how we got the incredible bull market in the first half of 2023. However, whenever the Fed tightens, some could not skaters will come out of the woolwork to tell you the market will crash or at least take a very big header. That's inevitable. So when you hear these comments, please don't panic. Fed rate hikes don't necessarily lead to crashes. In fact, I've seen plenty to do next to nothing. But there are rational reasons why the stock market deserves to go down when the Fed tightens and I'm not ignoring them. First stocks are only one of the assets available in your business institutions. For instance, there's gold, there's real estate, of course it bonds. I like gold as a safe haven and I believe that every person should hold some gold, preferably bullion, but if not, then the GLD is a hedge against economic chaos. Real estate, actual real estate can be a good hedge. But most people don't have the money to invest in that kind of real estate the big institutions can buy. Now, we do have real estate investment trusts, but they're not as reliable proxy for real estate as a whole. Finally, we have bonds as an investment alternative and bonds are the source of the problem in the Fed tightens. You see it yourself when short-term treasuries give you more than 5% risk-free. Lots of people catch out of the stock market and park their money in treasuries. Hey, listen, it's not a bad return. As the Fed tightens bonds, particularly short-term pieces of paper, become more competitive with stocks. You'll notice as the Fed jacks up rates, high yielding dividend stocks are going to be among the worst performers because suddenly they've got some serious competition from fixed income. So please be careful these dividend stocks are safe havens when you're dealing with a sell-off cost by the Fed. They're very different from accidental high yielders that can spring back when the Fed starts tightening. The second reason why stocks can go down legitimately when the Fed raises is raised because the Fed is imperfect. They've raised rates when they should have stood pat or even been cutting rates fast because the economy was already slowing rapidly. Although in recent years, Jay Powell has been much more responsible about not pushing us off a cliff than some of the previous Fed chiefs. Here's the bottom line. Garden variety pullbacks can be gained as long as there's no systemic risk involved. But solves in the wake of the Fed raising rates? Those are trickier, although they can lead to decent opportunities. As long as you stay away from the high yielders that become less attractive than the Fed tightens, and simply the accidentally high yielders that might just give you the delicious bounce when the Fed's done tighter. They might be back after the break. Tonight we're talking sell-offs. Specifically during this block, what causes garden variety pullbacks? Many times the problem is indeed the fattest I mentioned before the break, but sometimes there are other issues that are driving the carnage. For starters, there's the issue of margin. As a former hedge fund guy, I'm well aware that there are many times when money managers borrow more cash than they should. So when the stock market goes down, they don't have the capital to meet the margin close to man's. These kinds of margin use the clients have repeatedly happened. Including, say, February of 2018, that was a good one when funds that had borrowed money to bet against stock market volatility and so-called VIX got their heads handed to them. They were short to VIX, betting the market would remain calm, stupid, and at the same time they bought the S&P 500 using borrowed money. Again, real stupid. When the stock market fell, these managers were forced to dump their S&P 500 positions that had to raise capital and unwind their trades. There were so many managers doing this at once that their selling ended up causing some severe market-wide loss. These margin use breakdowns often occur after the market stand for several days in a row. That's why I'm welcome to tell you to be aggressive in the first few days of a big decline, because there will always be margin clerks against these managers. You know, who buy stock with borrowed money, and it doesn't happen immediately. They got to have to keep chopping. How do you spot this margin call driven declines? You know what? I use the clock. Marginal clerks don't want their firms to be on the hook for overstating individuals, for overstretching individuals, or for hedge funds. They want to get out before the night. So margin clerks demand the collateral we put up, raise some cash, or they sell you out of your positions without your say-so. I always consider the margin clerk the butcher, and the butchering occurs between 1 and 2 o'clock. If the selling runs this course by 2.45 pm, yes, I find it's actually that specific. Now, I think you have a decent chance to start buying safety stocks. The kinds of stocks that tend not to need the economy to be strong, to advance, like the health carers. You might also want to buy the secular growth place that work in any environment, making caps stocks. I talk about them all the time, especially in members of the CMBC investing club, because we like to own the best ones for the travel trust. What else can create viable opportunities? Sell us some overseas. I cannot tell you how often I've heard commentators who scare the bejesus out of us, because it's important where we say from Greece or Cyprus, Turkey, and that is what Mexico counts on its places. I always tell you to ask yourself, do any of these woes truly impact the stocks of the American companies in your portfolio? Do they really make you want to pay dramatically less for an individual US stock? Usually the answer is no. Unfortunately though, you can't just start buying stocks hand over fist into an over-seized driven sell-off. You should always assume there are people who don't understand how unimportant these worries are, the vast scheme of things, and of course, those people are going to panic and sell. After you would have thought they would have known better, that's why these international declines often last for three days. Again, the best way to figure out if they're done is to watch the clock, as the sellers usually need to be margined out against their will. There's going to be a bottom. Another kind of sell-off, the IPO-related decline. Remember, at the end of the day, stock markets are markets first informed us, and markets are controlled by supply and demand. So if the backers start rolling out lots of new IPOs, and then these companies sell worse shares via secondary offerings, you can end up in a situation where there's just much too much supply and not enough demand. By the way, we saw this due to the end of 2021. After we've been drowned under the weight of 600-eyed IPOs and SPAC deals. Oh, man. Don't bite, don't bite. My suggestion avoid the blast zone. The area where most of the UIPOs are concentrated, and focus on the stocks that are down due to collateral damage, especially once with yield protection. Sometimes we get declines triggered by multiple simultaneous earnings shortfalls, so we've got to be real nimble with these. If you want to buy stocks after an earnings induced pullback, isolate the sectors where the shortfalls are a curry, and avoid them like the plague. There's no reason to stick your neck out here. Instead, buy unrelated stocks that have been hit by the much broader selling via the S&B 500 futures. Then there's the trickiest kind of risk. One that's truly tall story asked, political risk. I often find this risk tremendously overblown. Whether it's because of strife between parties, or trade policies, or even all-out war risk. I am not a political guy, and I hate talking about this stuff on air and off air. But with every stock you own, you need to ask, does this company have direct earnings risk when it comes to Washington? If not, then you've got nothing to worry about. However, if you own something that's directly impacted by, say, a trade dispute with China or a government shutdown, well, if it turned into a house of pain, I know political risk is entirely negative, because, well, there are so many pundits everywhere waiting, and he gave me the two cents. I think these guys want to scare you. My suggestion, tune it all out, please. Instead, look for companies that have nothing to do with the political fray, even as their stocks may be brought down by it. Like we see every time there's a debt ceiling standoff. I can't tell you how many times since 1979, I've seen politics used as a reason to sell stocks. Now, they may be a reason to sell some stocks, but rarely has anything watching been enough to sell everything. Here's the bottom line. There are all sorts of sell-offs, but unless they involve systemic risk, which is increasingly rare, like in 2007-2009, they're going to prove to be buying opportunities long-term. You just need to recognize what's thriving in decline. Note the signs that it might be subsiding, and then take action to buy, not sell, and never to panic. Stipper cream. [music] I always say the favorite part of this show is answering questions directly from you. And so, tonight, I'm bringing in Jeff Marks, my portfolio analyst and partner of crime, to help me answer some of your most burning questions. For those of you who are part of the investing club, which of course I want you to be, he'll need no introduction. For those of you who aren't members though, I hope you will be soon. I would say that Jeff's insight in our back and forth helped me to do a great job for all mad money viewers, and more importantly, members of the club. So, if you like this, be sure to join the club. First up, we're taking question from Peter, who asks, "As a younger investor, and is able to add funds to the market by weekly when paid, and they trust having a set amount of funds, how do you recommend putting your new money into the work?" Well, frankly, Jeff, as you know, it doesn't really matter. We have a set number of funds. I always remember when my late father would look at the list and say, "Listen, I'm not going to buy all these," which he was never supposed to. "I'm going to pick six of my favorites." My suggestion is that each time every two weeks picks six of your favorites, stick with the six if you want to, but invest, invest, invest. And if it's down, invest, and if it's up, invest. Don't miss it. That's the way I would do it. Next up, we have a question from Michelle in California, who asks, "How do you know when to break your cost basis? Discipline always trumps conviction. We almost never do this. When we do it, and we've done it sometimes, say for a magnificent seven stock is what we called them. What's happened is that those are really the only ones you can do it because they come down a lot, money come down a lot, you want to buy it. We've had stocks that have come down, then come up, and then when the market got oversold, we feel tempted, but we do it very rarely." Yeah, I would say general rule of thumb, if the stock is down, call it 10% from a level, but the story has actually gotten better, and the stock is down just due to market forces. That would be a good time to buy those up, and then it goes down less, and you want to be able to be in there. It is true. That is something that you can do. We don't do it very often. Now we're going over to one of your mad mentions. This is one from the Blues Rock who says, "Jim, are you sure you're not a fellow Italian? The best sauce, not gravy, starts with those tomato jars. So let's eat." You know, when family's got some Irish in it, but not any Italian in it, so I really don't know what to say. I will point out the sourcing came from the fact that my tomato yield was so great, I had no choice but to sauce. Sauce were throw out, and I was not going to do that. Next up, we're taking questions from Jeff in Florida who asked, "If a stock has been in the red for a couple of years, and I average down during that time, when is it going to be time to sell some of that stock?" Do I sell someone who finally gets back to it? Even or do I risk it? And what word until I have more substantial gains? This is a really important question because what you find is at the same time that you see when it gets back to even, and you want to sell it. It's precisely when there are a lot of people who start getting interested in it. I've always found, I call it stuck in the mud. When it finally gets out of the mud, people get very excited to sell. What you should think is, "No, a stock's out of the mud, people want to buy!" So the answer is hold on. Yeah, and something that I learned from you is that we don't care where stocks came from, we care about where they're going, so if the outlook is still strong, you want to hold on. Absolutely. Definitely. Now, I always like to say this bull market somewhere, and I know I've got to end the questions. I don't like to do that. I'm going to break for them and say, "Thank you very, very good, Jeff Marjia, to have you on the show." And then I promise to try to find new ideas that are good for you right here on Mad 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. Want a website with unmatched power speeding control? Try Bluehost Cloud, the new web hosting plan from Bluehost, built for WordPress creators by WordPress experts. With 100% uptime, incredible load times, and 24/7 WordPress priority support, your sites will be lightning fast with global reach, and with Bluehost Cloud, your sites can handle surges in traffic no matter how big. Plus, you automatically get daily backups and world-class security. Get started now at Bluehost.com. [MUSIC]