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 3/13/24
(upbeat music) Now is the time to embrace a new wave of workers. Every day your team grows younger, more digital, and more drawn to entirely new ways of working, which means you need flexible solutions to connect them where business gets done. T-Mobile for business was born digital. With America's largest 5G network, we can make it easier to work together from virtually anywhere. Your team may be changing, but with the right tech, it can be more productive than ever before. Get started at t-mobile.com/now. (upbeat music) (upbeat music) At Morgan Stanley, old school hard work meets bold new thinking. At 88 years old, we still see the world with the wonder of new eyes, helping you discover untapped possibilities and relentlessly working with you to make them real. Old school grit, new world ideas, Morgan Stanley. To learn more, visit morganstanley.com/yus Investing involves risk, Morgan Stanley Smith Barney, LLC. (upbeat music) - 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 summer, and I promise to help you find it. Man money starts now. - Hey, I'm Kramer, welcome to Man Money. - Welcome to Kramer, I'll be able to make friends if it's trying to make us some money. My job is not just to entertain, but to educate teacher, call me at 1-800-73-CVC. Tweet me at you, Kramer. If you come out here to talk about stocks every night, then you better believe you're gonna make some mistakes in a highly visible, highly public way. And by you, of course, I mean me. That's why every year I like to hold a day of atonement to help you learn from my worst mistakes. So tonight I'm gonna demonstrate the demonstrate how we can all improve by examining a number of calls we've made on Man Money and the Travel Trust, explaining why they occurred, what went wrong, and what you can do to learn from me and do it better. Before I get into specifics though, let me give you a sense of what I see as the biggest kinds of errors I seem to have made, and how I will vow once again to try not to make them, even as different ones, then pop up to haunt me. Most of the things I do wrong these days after 40 plus years in the business aren't rookie mistakes. It's very rare now that I suggest a quick trade if anything goes awry, because anyone who has watched the show morph over the years knows that I have moved away speedily against trading, and it's been most of my time trying to control you into investing. I've come to dislike the suggestion of day trading or even quick trading or even options, 'cause I think it's gonna hurt your chance to make money. It's just wrong to trade unless you're doing a full-time job. And even then I wouldn't recommend it. My mistakes rarely have to do with not doing enough homework. These days I'm doing, I think, more and better homework than I did back in my hedge fund, where the terrific staff of savvy people who've now been with me for some time and are really fabulous. Great team of the seems, investing club, too, if anything, I am crushing it and being crushed by my homework, as there are hundreds more public companies now than when I started. No, if anything, it's the opposite of rookie mistakes that I'm making, but we're calling veterans mistakes. My hours are rooted in overconfidence and arrogance of judgment, and in too much belief in what's worked so well before that it has to work again. They're blutters I make 'cause I sometimes feel like I've seen the movie before and I know how it ends. When the great challenge of investing in the stock market means that in reality, it's supposed to look like a close sporty event where you don't know the outcome of what it'll be. And just when you're sure you do, that's when you get the big upset. The worst errors I've made, though, have to do with trust, either by being too trusting or not trusting enough. I've trusted too many executives who could track records and told me not to worry about things that ultimately needed to be worried about. These are usually people with a lot of credibility, but one of the pearls of success is that eventually you can start believing your own BS. At the same time, there are other executives I didn't trust who perhaps upon a closer review actually deserved a little more credit. Most of all, though, I do this night of self-criticism. And I do it all the time and I do it to remind me and to remind you that while I come out here daily and try to get it right, I'm only human. And I fall prey to all the misjudgments that anyone else might fall prey to, but we've got to learn from them nonetheless. So why don't we just let me start with a story that really gets me down and let you down. It's a story where I had too much faith in management's power to triumph over an objectively difficult situation. I'm talking about the tale of Johnson and Johnson, one of my favorite companies, which we used to own for the child with trust, until we finally threw in the towel and gave up in a position properly, though, in the summer of 2023. Normally when we sell stock for the trust, it's because something's changed at the company. We're in the industry where the stock hits our price target and we don't want it to be greedy. We set price targets if you subscribe to members of the club. See, we care about adjacent profits, but as we teach members of the club, which chronicles the moves of the trust and details of any trades before the trust makes them, we care far more about containing losses because when you control your losses, well, guess what? The gains take care of themselves. But we didn't sell J&J because of the fundamentals. I still believe J&J has one of the best pharma pipelines in the industry, along with the terrific medical device portfolio. No, we gave up on J&J at a small game, mind you, because we were tired of being hostage to legal decisions that little through the greatness of this story company. Specifically, J&J was neck deep in lawsuits involving its baby power, and whether it's one-time key ingredient, tau, catraces of asbestos in it, traces that might have caused people to get cancer. 20 years ago, I would have known instantly that asbestos lawsuits equal sell, but it has been so long since we've had one of these that I forgot how ugly they could get for shareholders. I forgot that asbestos is a magnet for plaintiffs' lawyers. I believe that J&J's lawyers had control of the situation because they seemed persuasive and had good resumes, but you could have said the same thing about all the defense lawyers who lost biggest best cases in the 1980s. When these tauk lawsuits first exploded, I said, "I know how to deal with this. "I brought on the CEO Alex Gorski on the show." And after a considerable amount of research, I came to the conclusion that J&J acted in good faith, at least at the very least. They didn't know about these asbestos. In fact, I was convinced there might not have been any asbestos in it and begin with. Whole things seemed like an accident at worst. That was a misjudgment. Since then, there have been a seemingly endless number of cases filed against J&J. And while it's one many of them, it's also lost some big ones, including a $2 billion judgment that made me, let's say, believe I simply wasn't taking the plaintiff's side seriously enough. Again, 20 years ago, I never would have bet on a company engaged in asbestos-related litigation because that's a great way to like your money on fire. I forgot how tough these lawsuits were. I forgot out the great companies that went under because of asbestos. Even as many of it, I didn't think deserved it, but deserves, of course, got nothing to do with it. Then J&J came up with what I thought was an excellent strategy to pay $8.9 billion to the plaintiffs. It's part of a global settlement that would have put this whole thing behind them. And more important, put immediate money into the hands of the claimants. Good for everyone. And many plaintiffs' lawyers agree. I started feeling hopeful. Another mistake. The Third Circuit Court in Philadelphia, I find out later, absolutely hates these kinds of agreements. These bad settlements, that's what they think. How could I not have seen that coming? Because J&J's lawyers were so optimistic, and I was fooled, believe me. In the meantime, J&J reported terrific court response with the Consumer Products Division as a can-view and a user-successful IPL. But really, when the travel trust owned J&J, we thought we were betting on the fundamentals of the company. But you know what, we were actually betting on the thing that controlled the stock, and that was the litigation. And you never want to play that game. It is a game. In retrospect, I was far too sanguine about J&J's ability to get a settlement that would protect their shareholders from unlimited losses through a novel used to the bankruptcy code. Eventually, the judge overseeing the faux bankruptcy sided with the plaintiffs against J&J. So the company once again found itself with the mercy of the lawyers bringing suits for the extremely sympathetic clients. The court ruled that J&J was not in true financial distress, so it didn't have a right to the bankruptcy course. That's when I knew these cases would mount up, leading to another procession of hard to predict verdicts. Hence why I finally gave up on J&J for the travel trust. See, it didn't matter that I thought they weren't particularly culpable. It didn't matter that the underlying fundamentals were terrific. What matters is that through this litigation, they were potentially on the hook for billions of dollars almost incalculable in losses. In the end, you simply don't want to have a position that's precarious because of the lawsuits, not because of the fundamentals. Hey, this business is hard enough without playing a litigation roulette via a jackpot justice system that we have in this country. I don't want to wake up one day and discover that some runaway jury decide J&J's during school, and not to the stockholders, but to the sick claimants. I've seen this happen several times in situations that were truly pernicious, where the company's absolutely had it coming. I don't think J&J's is one of them. They had tremendous balance sheet, too. But so what? It doesn't matter what I think. It matters what the jury's think. And you don't bet on friendly juries when you're looking at an asbestos suit in a big, rich company. In fact, the terrific balance sheet actually worked against J&J. Well, well endowed company, which should be allowed to file for bankruptcy. So I didn't think the ultimate upside was worth hoping for, hopes you'd never be part of the equation, of course. Given the nature of our legal system, there's really no telling how bad this one could be, which is why we had the travel trust done, this great American company. By the way, I like betting on businesses, not lawsuits and lawyers who game them. So if you ever find yourself betting on a brutal set of lawsuits, don't try to fight it just because you love the company. Like I did with J&J for so long. Believe me, there are better and easier ways to try to make some money. It's got to Eric and Florida, Eric. - Am I called? - Oh, of course, Eric, what's up? - So my question, so you advise investors or home gamers take their first $10,000 and stick that in a low-cost index fund? - Yes. - My question for you is, as us home gamers build wealth over time, the weighting of that initial $10,000 from an overall portfolio perspective, if you're doing it right, becomes less significant. What do you recommend home gamers maintain as a weighting in terms of that position? And would you also maybe advise adding cues or IWM? - What a great question. I've got to tell you, yes, indeed, I actually think more about the smaller investor than I think about the larger one. But if you save over time, what you want to do is probably ultimately get it so that about 50% of your portfolio at minimum is the index fund. And then you can have some other stocks and maybe mix in some bonds as you get older. But I do believe that the index fund is the bedrock and thank you for recognizing that's my feeling. Let's go to Sean and Massachusetts, Sean. - Thank you, sir. And thank you so much for taking my coffee, giving your team a thanks for the ladies I got to check in. - I'm sure you talk a lot about S&P 500 or something similar to. My question to you is, should I change my current investment and my 401K plan through my employer to the Vanguard index 500 at 100%, which my company offers, or should I split it up with the current investment that I currently have in the plan? - I look, I am very conservative. To me, you want to be diversified. And that means index fund best, but it sounds like you're doing it very right. I am, again, incredibly conservative when it comes to retirement money. If you ever find yourself betting on a brutal set of lawsuits, please do not try to fight it just because you love the company like I did with Change A so long. You must believe in when I say there are better ways to try to make money. Well, may I have money tonight? I'm Silicon Valley back to Boeing. I'm sharing the pain that I've experienced in the years that I've been around and I've got to tell you something. - Oh, so, hey. - The best strategy on how to handle is what you're going to learn tonight. Don't fret. You and I all get through this together. So stay with Cramer. (upbeat music) - 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. (upbeat music) - In life, we're often driven by the search for better. But when it comes to hiring, the best way to find candidates isn't to search, it's to match with Indeed. Indeed's a matching and hiring platform used by over 300 million global monthly users, according to Indeed data. Need quality candidates fast? Use Indeed for scheduling, screening and messaging. And you'll connect with candidates in no time. And it's not just faster. 93% of employers agree that Indeed delivers the highest quality matches compared to other job sites, according to a recent Indeed survey. And here's the best part. Listeners of this show get a $75 sponsor job credit, giving your jobs more visibility at indeed.com/madmoney. Just go to indeed.com/madmoney right now and support our show by saying you heard about Indeed on this podcast, indeed.com/madmoney. Terms and conditions apply. Need to hire? You need Indeed. - Support for this program is provided by Chevron. Demand for energy is projected to continue rising in the future. To help keep up, Chevron is increasing their U.S. oil and gas production. And they're innovating to help do it responsibly across their operations, including their Gulf of Mexico facilities, which are some of the world's lowest carbon intensity operations, helping supply energy that's affordable, reliable and ever cleaner. That's energy and progress. Learn more at chevron.com/meetingdemand. (upbeat music) And the market just like real life failures a brilliant t-shirt. So what can we learn from the failures over the last year? Wait, what do I need to atone for? Let me talk about one of my most eye-catching thumbles in 2023. In February, we ran a segment on the 10 best performers in the SP500 for February, looking for stocks that could keep winning through the rest of the year. One of these stocks was a company called Silicon Valley Bank, which went on to collapse a little more than a month later. Well, when I talked about it in February, it was up 40% from the year. Everything looked fine to the point where I recommended the torrent thing. That was a huge and ridiculous mistake. Silicon Valley Bank experience an actual bank run, kicking off the whole mini banking crisis for the year. Download embarrassing, I got thrashed all over the place when I make mistakes. You know what? I actually don't care, as I am tougher on myself, than any one of these glass house critics could ever be. But I also think it's given us a teachable moment, because really everybody got Silicon Valley Bank run. Almost no one saw a company. Well, that's no excuse. If you look back to two days before us VB collapse, of the 2023 analysts who covered the stock, 22 of them had either buy or hold on it, with an average price target of 292. Only while an analyst was negative, Morgan Stanley's Menon Glasalia, congratulations, but even he had a $90 price target on this thing. Even the most negative of them thought it was a $90 stock, not a stock that was quickly headed in zero. Oh, and to be sure, it's no excuse that everyone got it wrong. You don't watch the show about everyone. You watch the show because of me and I let you down. In short, the Silicon Valley Bank run, was one of those events that blindsided everybody. So how back did we all get it wrong? Okay, let me tell you a little story. What's about a time Silicon Valley Bank really did have a fantastic business going. This company got its stars in a normal, regional bank in Silicon Valley. Thanks to its footprint in the land of innovation, SVB became the bank of choice, for a huge chunk of our nation's startups, including their founders and top executives. In the end, they were doing anything and everything for these startups and their top guys, banking, wealth management, even lending them money, using their non-publicly traded stocks as collateral. There's the hopeful game. In more recent years, they made some moves, expanding into research and investment banking, and all for the same type of customers, the stuff is terrific. Given Silicon Valley Bank's relationships with tech startups, emerging biotech firms, and the principles, you had a lot of reasons to believe this strategy would keep paying off in a few reasons to bet against it. After all, for many years, it was incredibly successful. SVB's average deposits grew from 20 billion in 2013 to 48 billion in 2018, and then 186 billion in 2022. Their earnings per share soared to, and their stock cut fire, along with the IPO market, skyrocketing from 200 in 2017 to an all-time high of 763, right before the federal fair war on inflation November 2021. Of course, in 2022, SVB got pollaxed, stock plummeting back to below 200 by its lows in the early December. See, the Fed's aggressive rate hikes made their clients a lot less valuable. Higher rates made it much harder for startups to get funding, and the IPO markets shut down, so the more mature ones couldn't come public in order to raise more cash. You don't want to be the banker to startups in a world where the IPO markets frozen, but like the analysts who covered this thing, I assumed that was baked into SVB stock price after it plunged from 763 to under 200, baked in. Still, why was I so optimistic that SVB could go higher when I talked about a little over a month before it went under? That's because the mini banking crisis came from out of nowhere, and this particular bank teleported practically overnight, right after a prominent group of great analysts from off and nafers had sold themselves to these guys. I came on another to get it right. There's such smart people, I thought they would have checked this out better. I don't know, it seemed reasonable, but it was wrong. But remember, I need to get it right for you, not off and nafers. Remember how 2023 started in January? We got a series of cooler inflation readings and weaker macro numbers, which let us, many of us to believe that the Fed was winning its world in inflation, could soon stop raising interest rates. In fact, the consensus through at the time figure that the Fed might even begin cutting rates at the end of the year, although I never bought into that thank heavens. If that more benign scenario had unfolded, the IPO market would have opened up again in the first half, and SVB would have been just fine. After all, they've been in the business for 40 years. I assume they know what that they were doing. Of course, all these assumptions should not be flat out long. First, not long after our ill-fated commentary on SVB, the economic situation turned on its head. We got stronger numbers, and inflation started heating up again, with a much higher than expecting consumer price index number on February 14th. I don't touch that. We quickly realized that the Fed's worry against inflation was far from over, something Fed Chief J. Powell confirmed, shortly before the bankrupt, when he made some very hawkish remarks on Capitol Hill. It still quenches the Silicon Valley bank and blow it to two days later. So you gotta understand, SVB had about two problems, and neither one of them were readily apparent until they smacked us in the face. First, the deposit base was way too concentrated among venture capital firms in the portfolio companies. Second, they took this money and made some very aggressive investments in longer-term government bonds to pick up a little extra interest. Investments that were underwater, because the Fed's rate hikes crushed bond prices. Normally, it's five different bonds are underwater. You just wait until maturity. It's principal back, big deal. But when Silicon Valley banks venture capital, depositors seem to demand their money overnight, this company is forced to sell its pump portfolio and it's sold at used losses. In the banking business, you need both a steady source of capital from your deposit base and a stable pump portfolio. Silicon Valley bank had neither a real bad mismatch that somehow had been blessed by the regulator. So all of a sudden, SVB needed capital badly, but they couldn't raise it. Even as the deposit alfos were coming fast and furious, even being tweeted line about, "Hey, it's time to get out." In response, the regulator sees the bank closed it, wiping out the common stock betterly than never, I guess. So that's what happened here. When we talked about SVB possibly in early February, we were giving our best opinion on the story with the information we had at the time. Information blessed by the regulators. Shortly after though, the macroeconomic situation changed, I wish I'd circled back to this one and told you to forget about it at that point. But man, none of the sell-side analysts got this one right either, because SVB really wasn't that forthcoming about the level of risk they were taking. We only learned how reckless the firm was with its investment portfolio right before the bank went under. They were running their money in a way that made them insanely vulnerable to losses in the event of a quick access to deposits. I also didn't count on those who departed yelling, fired a crowded theater, of course, on Twitter. They practically willed a bank run into existence. Who could have thought they would even do that? Most importantly, we were too cursory and chose to rely on public documents that have been vetted by regulators. We should have gone deeper than that, because we came to have learned that while the regulators were very stripped of systematically important financial firms, they were apparently a lot more lenient with banks dub non-systematically important, like SVB, bottom line here. So many of us got Silicon Valley banked wrong, because we relied on the regulators who were also wrong. The bank examers were totally asleep at the wheel before the mini financial crisis, although they've gotten much more aggressive once the horse had already left the barn. Still, it's no excuse. We need to be better than the regulators are, and in the case of SVB, we worked. I wish I'd been more pressured with this one, but when I get it wrong, I always atoned for it. May have money's back every good way. Now is the time to embrace a new wave of workers. Every day, your team grows younger, more digital, and more drawn to entirely new ways of working, which means you need flexible solutions to connect them where business gets done. T-Mobile for business was born digital. With America's largest 5G network, we can make it easier to work together from virtually anywhere. Your team may be changing, but with the right tech, it can be more productive than ever before. Get started at T-Mobile.com/now. While on this subject, the stakes I've made, and the desire for demonstration to learn from them, we need to talk about some trust issues. Sometimes I have way too tough for management, and sometimes I give them too many free passes. Right now I want to highlight a situation where I made a lot of bladder mistake, leaving too much and a great CEO's ability to turn around a genuinely broken company. Sometimes a company's in such a bad shape that there's almost no coming back from it, even if they bring in a tremendously talented management team. Maybe a brilliant CEO can only turn things around, but turning an awful business around is a process that can take years and years. It's not something you want to bet on right out of a game. If that's exactly what I did with Footlocker, not long after they brought in Mary, Dylan the CEO in late 2022. Dylan is a retail legend. She's the one who transforms ultra beauty into a nationwide cosmetic powerhouse. She took over in 2013. By the time she retired in 2021, the stock had given me a magnificent 245%. Turned in short, she is a legend. So when Footlocker hired her as a CEO in 2022, I figured she'd be able to breathe new life into the struggling mall-based footwear chain. We brought her on the show in March of 2023, and while she stressed that the term would take a long time, I thought she told a really compelling story. Heck, she even did a lot of insider buy and put in some money where her mouth is. She had a plan to close down the worst stores, and I was confident she could work her ultimagic at Footlocker. Although, again, I knew we'd have to be patient, and that's why we went as far as buying this one for the travel trust in small position. But we bought it. In retrospect, that was a colossal error, a disastrous mix of ignorance and arrogance on my part. I knew turning around Footlocker would be a peculiar task, but I had so much confidence in Dylan's leadership that I figured everything would be fine, no matter how hard the story got. Well, I put a lot of emphasis on the need for great management and how terrific CEOs can accomplish incredible things here. Some things are impossible, even the best executives in the world. There are real world constraints on what they can accomplish, so the great man or woman theory of investing only gets you so far. And look, it's not Mary Dylan's fault that I got this one wrong. She didn't mislead us. And when we bought the stock, she hadn't even been there long enough to accomplish real combat. My footlocker for this travel trust was my screw up. And while I'd love to pass the blame around my colleagues or the people who run Footlocker, the buck stops here. I said turning around Footlocker would be a Herculean task, but even Herculeans never needed to turn around a flailing, mall-based retailer, not a skill set. No matter how great the CEO, they can't fight the laws of nature, and that includes the merciless laws of the retail industry. Fast forward to late August of 2023, Footlocker's stock had already been obliterated when it reported an ugly quarter in May. Point from 41 to 30 in a single session. But the August quarter made that look like child's play. Coming up a little slack, I told members of the investing club that it would be a horrible quarter ahead of time. However, that turned out to be a severe understatement. I had absolutely no idea how bad this thing could get. My first loss would have been my best loss. See that August, Footlocker and Footlocker were one of the worst quarters I've ever seen. Not only did their sales sink 10% year over year or coming in we couldn't expect it, but the earnings plummeted 96% from the previous year. And that was actually an inline number, because the analysts understood Footlocker's business was awful. The thing that really hurt is that management also announced a pause in its dividend payments. Just a horrifying sign that the company didn't see anything getting dead or anytime soon. A lot of people were in this one for the payout. Footlocker yielded more than 6% going in the quarter. And they immediately lost the best reason to stick with the stock. A dividend boost is generally a sign of confidence. Dividend cuts are just lack of confidence, but a wholesale pause in dividend, that's just a different kind of confidence. The confidence of business would be awful for the foreseeable future. Management claimed that we consumer changing vendor mixes they tried to diversify away from Nike and a top macroeconomic environment. One that was hurting their core lower income customers particularly hard. Early in the year, Mary Dillon had outlined her turnaround plan coming off a pretty strong holiday season. But by the summer of 2023, the company had seen a weak start to after school season and a much more cautious consumer. As a result, Footlocker had aggressively discounted merchandise to unload excess inventory, you know, but that is and simply compete for market share. I got to the point where Footlocker was burning through cash so rapidly, it looked like they might even have to tap the credit line, just to stay in business. In response, the stock just to probably lost nearly 30% of its value in a single day, and for good reason. It was much worse than we had assumed. And any potential turnaround would take a lot longer than we were prepared to wait if we could ever have. Of course, by the time we figured that out, the stock can come down so low that it didn't seem to be worth telling at all. But the worst part of this Footlocker saga is that I really should have seen it coming. I was blinded by Mary Dillon's spectacular track record, and again, it's not her fault that the stock got killed in a year after she took over. This was a very troubled company, it took some time just to assess the full extent of the problem. I still believe she's a great CEO. However, I always tell you that you never want to own the best house in a bad neighborhood, one of our guiding rules for the CBC Investing Club, and Footlocker wasn't even the best house in a bad neighborhood, it was a bad house in a horrible neighborhood that is more of a shopping. It just happened to bring in a good contractor to fix things up. But there's only so much a contractor can do. When you're running a mall-based store-based with lots of excess inventory, it's insanely hard to orchestrate a comeback. This is less I should have learned back when I recommended American Eagle Outfitters another disastrous stock that obliterated the travel trust after peak to the summer of 2021, but I get that one, wrong shame on me, that I thought a mall-based stock like Footlocker could be anything more than a product of this environment. I simply never should have stuck my neck out on this one, no matter how much I believed the Mary Dylan's leadership, because sometimes leadership is not enough. I had too much faith in a person was too blind to what was happening to the very good management team in American Eagle. One of my worst picks since I started this open-handed stock-making experiment 20 years ago. The bottom line, management matters, surely. But when you bring in a new pilot on a crashing airplane, they can't defy gravity. Footlocker was a disaster waiting to have it. That kind of comeback can take an extremely long time. We never should have bought this one so early. Pure Ubers on my part. Ubers is an awful trade when it comes to investing and I allowed it to cloud my judgment like a rookie would, shame on me. Let's go to Mike in Illinois, Mike. - Hi, Jim, thanks for taking my call. - No, I'm good to call Mike, what's up? - I'm looking to open a 529 plant on my two-year-old granddaughter. - Excellent. - And I wonder what your opinion is, where I should invest it, where for the appreciation for the next 15, 20 years. - Okay, so let's just start by building up a nice position in index fund. You know what, I think what you probably wanna do. I might even put maybe 35% index fund before you even start thinking of some individual stocks. I just think it's a very, very conservative time and that's what you wanna do. Index funds are the way to go for 529 plants. Vinnie in Connecticut, Vinnie. - Thank you, Mr. Kramer, for taking my phone call and I am a club member. I would like to know if I buy an individual stock and it goes down, what percentage do I think about selling it? - Okay, well look, I mean, if we change our thesis about it, then you should sell it. Or if I say, look, I don't like this one, I'm trying to hold up to the long term, but it's really rough. I don't think you should be in it, then I think you should sell it. Those are the guidelines and you know, there's been a couple of stocks I've said that for and that's what I stand by. Irwin in New York, Irwin. - Hey, Jim, how are you? - I'm okay. - Brooklyn. - I've got a bid. - I've got a question to you. I know you have a lot of a wide range of listeners and watchers and all different degrees of investment. Some are small investors, some are medium investors. I have, I know you hate to have people having more than five or six stocks in the portfolio. - That's fine, that's fine. So I was very excited about it. Do I do the homework? - No, I have 10 stocks at various prices. I don't know how to balance the portfolio. Let's say, for instance, I have 10 stocks and I have $10,000. Now, it's very easy to put $1,000 into each of these 10 stocks, but that's the best people I could say equitable way to balance the portfolio. - Well, what is the proper way? - Okay, well, you know what, I like to rank my stocks. Not all stocks can be ones. I talk about ones, two, three's. Three's that they go up, you'll sell. One's you gotta keep, two's are in flux. And then I also would think, you know what, let's pick the stocks against each other. Maybe just pick the best five. I think that wouldn't be a bad idea. Thank you for the call and for your conference. Your versus an awful trait when it comes to investing is I've learned from experience. You should never allow it to cloud your judgment as I did mine. It's a rookie mistake that even seasoned professionals like me often make. Much more may have been in the head, I'm revisiting a couple more bad calls I made for the travel trust, including some stocks in terrific companies like Disney Bone. I learned from my mistakes. Plus, my colleague Jeff Marks, I'm sorry about to take your questions about investing, retirement, and more. So stay with Cramer. All night, I've been highlighting my biggest mistakes. That's not the punish myself. But because I believe the only way you can become a better investor is by acknowledging your screw-ups and then learning from them. Oh, I guess there's a little bit of an excuse in there too. I can't resist. We isolate what we did wrong. We at tone. We adjust and we are all the better for it. That's the man money way. Has been since we started. Let me tell you, as much experience as I have, as long as I've been doing this, which is facing it forever, you're never too old to make the classic mistake of falling in love with the stock, which is too bad because it's one of the quickest ways for you to wreck your portfolio. So let me give you a cautionary tale, a love story, my bad romance with Disney. Not to totally mix deeper references, but to stock sage, Demi Lovato, and her subtle treatise, give your heart a break. Once I was at the end, the day I first met you, you told me you'd never fall in love. And yet did I listen to Demi when I came to Disney? No, of course I didn't. No, I fell in love with Disney anyway, and when you fall in love with your judgment, 'cause you just go out the window, what happened? I made a judgment that Disney's franchise was worth any amount of money between the theme parks and the movie properties and the streaming platform, ASP and everything that got on TV. I didn't consider that a week in balance sheet rising programming costs and bungling management could overwhelm this amazing company's franchise. We own it for the child of trust, we stuck with Disney, through thick and thin, business stock plummeting from early 2021, through the summer of 2023, to paint the trough, the darn thing lost with a half of its value, shameful. Even as the situation deteriorated, and they tragically were obvious to me, actually they were. I refused to let this one go. No, pride. It's one of my favorite stocks to the point where I even have one physical share of Disney hanging in my office. I always say, "Listen, young people in kick gets born." You know, you give them Disney, though, like getting involved with the market. All nonsense when it comes to the losses we had here, unfortunately, this company did a few very foolish things. First, they spent 71.3 billion dollars buying 21st Century Fox's Entertainment assets in 2019. That turned out to be, but not at the time. A massive overpaid pay that I thought hurt their once pristine balance sheet. Second, they promoted a theme park guy, Bob Chapick, as CEO from 2020 through November 2022. This man was a bungler. Third, they spent a fortune building out their streaming platform, Disney Plus, right before Wall Street stopped charging, streaming based on subscriber growth, and instead started caring about profitability. In a way, Chapick, did he get a bad hand? He's not the one who made the fox seal happen, and the moment he took over the pandemic hit. But over time, I figured he'd resurrect Disney's flag and divisions, improve the balance sheet, restore its dividend, with the assistance of CFO Christian McCarthy. And said he mostly ignored McCarthy and seemed to lose control of Disney's various divisions. With little accountability, any kind of something went wrong. As this situation deteriorated, Chapick increasingly came, how about unhinged from reality? Or at least that's how it saddled in the conference schools. He assured me over and over again that things were getting better, and he could turn the ship around. And like a soccer, I believed him. Finally, in November 2022, Disney reported a truly abysmal quarter. But Chapick actually tried to spin as they used victory. At that point, I started calling for his resignation. And it didn't take long for the board of directors to oust Chapick and bring back his predecessor, Bob Iger, cosmopolitan guy, far better track record. In Iger's first few months back on the job, the stock rebounded like crazy. That was in part because suggestions from activist Nelson Ells were accepted. Then spent the next nine months steadily trending lower because the problems were too difficult to transcend overnight. So here's the thing. I still believe Disney's got a great set of franchises. The balance sheet's been fixed because the company generates a ton of cash. I still believe Bob Iger can turn things around, especially now that he's working with some very smart activist investors to get costs under control. I can already see Iger making even more progress with the balance sheet. So the opposition of Hulu, he doesn't know him, can be bought without reaching. And that's a big reason why we bought more of this one for the travel trust on weakness. But it was a mistake for me to believe in Disney when it was trading in the 1980s. It was a mistake to keep giving Bob Chapick the benefit of the doubt when he'd done next to nothing to earn it. Great companies don't rest on their worlds. In the end, even the best franchises can't overcome cash flow a shortage of the fickle nature of the consumer. Disney's ill-advised purchase of Fox should have made me cut and run. Broken balance sheet made it a broken stock for multiple years, and that was far more important than the franchise itself. Even when they brought in better management, it took some time before the business started turning around and the stock kept going lower for the better part of the year. So here's the bottom line. No matter how fantastic a company might be, do not fall in love with its stock unless you're giving serious consideration to its balance sheet. Because when the balance sheet's bad, it's like marrying someone with a horrible credit. You're gonna be paying for that mistake for ages. Do I think Disney will come back? Yes! But that's not the question. Why did I buy it so bad? Because I was in love with a piece of paper. Something that should never happen. Man monies back after the break. (upbeat music) (upbeat music) There's nothing worse than making a call, getting the substance dead right, but then just crushingly horrible execution of the name. And you know why? 'Cause you got frustrated or impatient and you couldn't wait for your thesis to play out. That's why I want you to consider the classic unforced error that the trust made with the stock of Boeing. Now this was a core holding for the child of trust coming out of the pandemic. As we told members of the CMC Invest in Club Repealing, we thought 2022 would be the year of Boeing. After years of costs and mismanagement, we figured they'd get their granted aircraft back in the sky and more important to see a wave of new orders. Honestly, this wasn't ironclad thesis for one very special, simple reason. No matter how badly Boeing screwed these up, and at the end of the day, there are only two major manufacturers, commercial aircraft on Earth. The other being Airbus. And when there's a booming demand for planes, Airbus can't possibly fill all the orders into the airlines, wait forever, or they also buy from Boeing. As long as you got into the stock at the right price, you were bound to be a winner, as the world went back to normal, and we saw it in insane travel boom. The airlines would desperately need that capacity. Boeing's order book would swell, and eventually the earnings would go through the roof. And hey, when you take a long view, that's more or less how it played out. If you were smart about your entry point in what Boeing in the spring of 2022, you would have made a bundle over the next 12 months, precisely because of the post-COVID travel boom that we were predicting. Problem is, that's not when we bought Boeing for the trust. We got in much earlier, and this comeback story ended up taking the long view that we expected to play out a lot longer. In the meantime, Boeing continued to do what it does best. Mismanagement's so bad, it's comical. Except it's hard to laugh, because when this company drops the ball, planes can crash and people die. Of course, I knew that Boeing was a clown show. That was baked in by both pieces, actually. No matter how badly they messed up, I saw a wave of demand coming from the airlines, and given that Boeing and Airbus are the only two players who can actually meet the demand and scale, I was sure a rising tide would lift boats. That was right. Now, when Boeing's stock went up in 2021, as part of the post-vaccine rally, we trimmed some, and we got a very nice profit there. At that point, all I had to do was sit back and rest. This is patiently wait for the travel bull market to kick in, causing a wave of orders from the overburden airlines. I had to plug my ears and just ignore all the negative. Press the Boeing seems to generate almost eventually. But man, that is hard to do, especially when the company in question keeps giving you a reason to sell. Even as the broader macro situation became more and more favorable to my bull thesis, Boeing kept dropping the ball. Even if the 737 MAX got re-certified years into this rough, horrific accidents, it was taking them forever to retrofit these planes and get them back in the sky. By the spring of 2022, when we finally gave up when Boeing for the travel trust, thousands of these jets were still grounded, even though the orders had started coming back. But just what it seemed like they've almost finished fixing the 737, the Federal Aviation Administration made them whole deliveries on the 787 Dreamlier, their largest commercial jet. From the spring of 2021 to the summer of 2022, Boeing couldn't actually sell them to customers. I was in front of the company who could make a boatload selling just to China, because China's desperate. They've got many people out of need to be flown a plane in China yet, and they need to show that if they had any field T at all, any way to be able to demonstrate some sort of friendship with our country, Boeing is the traditional way of our trading partners to send us an all branch. I mean, it's a bizarrely structured company, tries to source its components from as many congressional districts as possible. Remember, Boeing's also a defense contractor, so creating jobs from members of Congress is how they keep the federal orders flowing. But our government's relationship with China never really seemed to thaw the orders they can come, yet another use source of frustration. Of course, if I had stuck around until June of 2023, the Chinese airline thesis finally paid off, as Boeing started making extremely optimistic choices about the PRC. But I didn't have the fortitude to wait it out. I just couldn't take the house of pain. In January, 2022, Boeing reported a hideous square, just a huge sales generation, so skyrotic and labor costs, expensive raw materials, nasty cost overruns on their projects, and the company taking big charges to boot. In April, they put another top and bottom line miss, with a $1.5 billion charge from the delay of the 777X. They even messed up on their Air Force 1 contract, huge cost overruns, stock cut poverty again. At this point, Boeing had huge credibility problems and the stock had come down to the 120s. And what does management do to fix things? They decided to move the headquarters for Chicago right outside Washington, D.C. That's not a solution to it. Finally, I just gave up. I couldn't take it anymore. The endless trip of bad news and botched quarters was like torture to me. So we sold Boeing for the travel trust in the spring of 2022, right when we should've been buying it at discounted prices. What did I do wrong? I didn't have the patience or the pain tolerance to stick with my original thesis, which was dead right all along. Remember, we bought Boeing for the travel trust during the company at some part of management. That was even an issue for us. The whole idea was that, no matter how badly these guys dropped the ball, Boeing would make a fortune from the post-covered bull market. There's only two copies. Sure enough, we sold our final shares in Boeing at $121 in mid-May of 2022, which is only a few points above where the stock had only bought them. We'd stuck around for the next 12 months. We're going to see this shot. The stock shoot above $200 as the both thesis played out perfectly. The lesson here, if you believe in your own thesis, you can't let the naysayers scare you away. I knew Boeing was the second best plane-air plane maker in the world. It was flooded with demand because of aircraft. Yet I miss this spectacular rally here because I didn't trust my own work and couldn't take the pain. Here's the bottom line. The moral of the Boeing story is simple. If you have a thesis that looks like it's going to play out, don't let its unrelated negatives scare you away. Boeing's hideous performance in the first half of 2022 was not a reason to sell. It was a reason to buy, but only if you had the fortitude to stick with it. And I didn't. Let's stick with the people. (upbeat music) I always say my favorite part of the show is to answer your questions directly from you. Tonight I'm bringing Jeff Morris before I'll end this part of the book. And he's going to help me answer some of your most burning questions. Look, for those of you who are a part of the investing club, he'll be no introduction. For those of you who aren't members, though I hope you will certainly be soon, I would say it's just insights that are back and forth to help me do a great job on mad money viewers and members of the club. And I think that I need the ying and the yang here. So why don't we just get started? First up, we're starting out with a question from Pete in Michigan who asks, "Jim, regarding your rules, make money, "bears, make money, pinks, get slaughtered. "How does this apply to the own-it-don't-traded stocks?" Okay, this is a great question because a lot of times, when you have a bid day for Nvidia, bid day for Apple, say with a titanium heating, it challenges the thesis. But when I come back and say it's okay to have a cheat day, this is where I've been working on it. Yes, we've been pinks theoretically and Apple and Nvidia. But what we find is that those stocks are not piggish if we look in forward numbers. So it looks like Nvidia is expensive. And then it turns out that it's cheap and it justifies owning it. Does it justify keeping this much? That's a subjective question. I have often felt that it's okay to say, all right, we say, "Don't trade it, but you can trim." But I've been reluctant to do that 'cause these are our best stocks. Yeah, and what I would add to that is that when we do look to trim, it's usually at a certain point of when the stock becomes too large as a percentage of the portfolio due to that outperformant. So we usually-- - And we've had that. - Of course, we usually have it usually around 33 stocks in the portfolio and we'd have to give them time. - Well, then Lily, we've had Nvidia. - Sure, and when one of those Apple, just to pick on Apple, whenever it gets too large as a percentage of the portfolio, we trim it back, it's because it had a good run and that's usually a good time to do it. - Right, and that's not-- - I thought we saw it on the market. - Does it deviate now? - No, it's actually a nice discipline in the way we're approaching it. All right, next up, we're taking a question from Mike and Florida, who has chip. I've been doing a lot of profit taking and I'm 50% cash, I'm making just under 5% cash. We're being forced away from pullback to get back in and what level should I start buying right now? I'll tell you what, here's the way I look at. We could go back, I'm not saying right now to the team. When we have these situations where interest rates have spiked when the market's very oversold on our oscillator, which we have a special deal with for our subs, then you need to pick. But the market must be down. We don't pick high, we pick low. And that's why even the 50% of your money cash, I'm not saying go take that market. I'm saying, usually apply. All right, now let's take a question from Bennett, who wants to know what is the maximum exposure one should have to any sector or stock in a well-diverse type portfolio? Well, we don't really want more than say 10% in one's stock. Well, sector's a little harder. Yeah, well, look, you could always just try and follow the S&P 500, but be overweight, underweight, just pay yourself your conviction levels in those stocks, within those sectors. I'll give you a good example. Entering 2023, we didn't own any real estate or utility stocks and the travel trust, why? We listened to the Fed. The Fed said they still needed to raise rates, keep rates higher. No longer we know those stocks tend to underperform as rates go higher. So of course, you can always do some mixing and matching within it, but you can just track the index as well. Precisely, and I hope all of this helped you. We try to do, of course, much more than this for the club. But these are the questions we answer every day, and we actually use stocks that we're buying from the travel trust as more of the teaching moment. But this is representative of what you get. I'd like to say there's always a bull market summer, and I'll try finding just 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. You can make money the hard way of becoming a bullfighter, or save money the easy way with the XFINITY mobile. It sure beats making money as a human cannonball. Now they're March 21st. Learn how existing XFINITY customers can get a free line of unlimited intro for a year when they buy one unlimited line. That's hundreds of dollars and savings on your wireless bill. Visit XFINITYMobile.com today. Restrictions apply. XFINITYMobile requires XFINITY internet. Reduced speeds after 20 gigabytes of usage per line. 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