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 3/15/24
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[MUSIC PLAYING] 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. Mad money starts now. [MUSIC PLAYING] Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramer America. I'm going to make friends. I'm just trying to make a little money. My job is not just to entertain, but to teach. And I'm telling you, I'm going to do a lot of teaching tonight. So call me at 1-800-743-CMC or tweet me at your grammar. 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 client are never easy to navigate. You need all the help you can get. To borrow a line from Tolstoy's fantastic Anna Karenina, all happy rallies are alike. Each sell-off is unhappy in its own way. It's true. Bull markets, stocks higher, and 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. [SCREAMING] 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 have only been 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. Do what even the COVID crash when the SPF had lost 35% of its value just over a month? That wasn't nearly 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 19, 1987, also known as Black Monday, the Dow Jones Industrial Average fell 508 points, or more than 22% in the 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, and the Dow 100738, where it lasted ended that day. It kept coming right into the close. I remember thinking, "Save by the bell!" 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 nearly a 10% decline. That harsh pullback encouraged bargain hunters, intrepid 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, the week 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 remarkable two-day rally that 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 held. But do you know that it took until mid-1989 for the average to return to where they were trading before this big break down? The bear market that began in October of 2007 was a totally different animal. Dow fell from 14,198, so it was 14,000. Remember, the other one was in 14,000. And it didn't bottom until March 6th of 2009 when it landed at a staggering 6,470. We didn't return to 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 were 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 it's doppelganger in 2015, both times when the market simply failed to work. Now, all three of these started with the S&P 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 performance of the underlying companies the stocks are meant to represent. Underline corporate earnings used to mean 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 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 a dependent 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 5% or 10%, or some other number depending on the policy to account. 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 is 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 this remember them says, just really as idiots, it's not the crooks I thought they were. I mean, toward the latter theory, because there's no magic trick that can get your returns from investing in the stock market without much risk. Come on! The two go hand in hand. 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 figured 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 than we realized in New York, much weaker than set up the conflagration. And when the Treasury Department examined what happened at day, it concluded the futures 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 to stabilize the tape. The latter had no duty to stabilize things, but the former were supposed to do so. The Treasury found out that many didn't do the jobs. Now, I was fortunate enough to actually be in cash on Black Monday, (audience applauding) having looked at my portfolio early in the previous week, because the market had actually barely, I didn't want any 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 bear market of 2007, 2009, so you can figure out what to do when they really morphs. (audience applauding) Irma in New York, Irma. - Yes, good evening, Mr. Kramer. - I'm planning to open rough, non-deductible rough IRAs, IRAs for my grandchildren who are all in their 20s. - Okay. - And 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 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 life team. - Thank you. - I love you to your listing. What I want to ask you is when we like a stock, and we love a stock, and we put earnings that are really good, but then for some reason, the market buys it down. Can we buy day one, or do we have to use that rule, like everybody says, wait three days before you buy a stock that goes down? - No, no, no, you buy it at your prices. You buy a little bit at the beginning, and then if 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 tastes don't last forever, people, but when they come along, you need to know how to respond. Or mad 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 @GymCramer 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. - Resourceful small business owners know how to get value from the purchases they already make for their businesses each month. The Enhanced American Express Business Gold Card is designed to take your business further. It's packed with benefits and features, like four times membership rewards points that automatically adapt to your top two eligible spending categories every month, on up to $150,000 in purchases per year. So you earn more where your business spends the most. Plus up to $395 in annual statement credits on eligible business purchases at select shipping, food delivery, and retail subscription merchants. And with flexible spending capacity that adapts to your business, and access to 24/7 support from a business card specialist, you can continue to run your business with confidence. The AMX Business Gold Card, now smarter and more flexible. 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Need to hire? You need Indeed. (upbeat music) - Today I'm teaching how to cope with all sorts of declines. (screaming) I already covered the crash of 1987. And how it wasn't really related to the economy. Shocker. So it made sense to buy stocks from the smoke clear. Now, 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 basically did the table flash crash of 2010. One of those negative moments that drove away so many investors who never came back to stocks, 'cause 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? Was pretty much the same deal as Black Monday of '87. 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 forever since, could it? The flash crash started at 2.32 PM on May 6th of 2010. It lasted for 36 minutes. And at 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 play the pin in the tail on the sell-off. There were riots in Greece, and maybe this time was 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 because I had the benefit trading on Black Monday, I recognized 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 wildfire. Many buyers just simply disappeared. They walked away. They didn't wait for what went around to find out what was causing the landslide. Had 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. That was not a real price. It's too bad. The system obviously broke down. We are trying to get the specialist from P&T to talk about what happened. And it obviously broke down. Obviously 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. Well, some listened and actually bought stocks on what I had to say. Many people simply didn't believe that equities could break down. That's what happened. 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. OK, how about August 2015 sell-off? Where the Dow felt 1,000 points right, the opening? Now, that was seemingly related to fears that the federal reserve physician raised interest rates, writing 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, kind of, you know, 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 frame. Somehow, I found myself when I heard all the right times of witnesses of ads. That Friday before the self had been-- it had been a monstrously ugly day as a fed official late in the afternoon. Had suggested it was time to raise rates despite 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 24, 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 promised stocks would be every down 40, 50%, 50%. It was, indeed, crazy town. As the market rolled open, the Dowling of 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 and chatting about the me of the sell-off. His reaction, I thought, was priceless. I don't, this is, I gotta make some phone calls. 'Cause that's, these are, these are-- Yeah, you gotta find out whether someone bosses. These are 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 it was worse somewhere. Maybe something occurred in Europe we didn't know about. We had to be, as soon as it'd 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 everyone. It's like, they are safe havens. Once again, I suggested it was the machines that were causing the problem that the futures had overwhelmed the stocks and 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 then, and it went a beautiful metaphor for us. 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 wasn't excellent time to buy stocks. Buy, buy, buy. 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 2010 and 2015. I could think of three days during the COVID crash when we were down almost from 7.8% to almost 13% in a single session. But the COVID crash was very straightforward. We knew exactly where the problem was. Government 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 CBC 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 gonna 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 of the economy or not. If it is, stay tuned. If it isn't, stay tuned anyway. But recognize you have a first pass panic on your hands. Nobody ever made a dime panicking. But boy, oh boy, did they coin money taking the other side of the trade. May have money's back hit for the break. (upbeat music) Now is the time to bring new ideas to your industry. And T-Mobile for Business has the advanced 5G solutions to make that happen. We're helping rethink patient doctor interactions with real time data sharing. We're tracking carbon with 5G sensors to help fight climate change. We're partnering with cities to connect roadways, cars and drivers to minimize injuries. Disruptive thinking deserves a disruptive partner. So let's get started on what's next for your business. Step up your innovation at teammobile.com/now. (upbeat music) (upbeat music) - Not all days are winners in the market. And knowing how to handle the down days is key. We have to cover good and bad days to omit 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 again, 17 times. And the economy after cheering for just a bit, fell off the cliff, took the stock market 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 gonna 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, he 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. That's a great depression. I was a chaos, 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 it this 2005 vintage thing was in trouble everywhere. I was asking when I got off the phone as the problems 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's transcripts for that period were released, I found out that my rant was put up, but only as a joke. Soon after my they know 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 in the 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 in your term to take it out of the stock market before it was all lost. - Four 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 for say. - 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 core. 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 in 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 pattern 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 a real economy. One that is true systemic risk, that's the term. Meaning that the entire country could collapse. That's how it was during the financial crisis. It's why I got so angry when people say, hey, this is gonna be like, I get angry every time. Oh, it's gonna 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 without a viable vaccine, everything nearly worked back to normal. We heard about systemic risk 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 wanna 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 as soft in the blow of the financial crisis. What brought the market out of its funk was the statement by then-fed chair Ben Bernanke. So forceful statement made on 60 minutes to less than he'd know we're letting 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. Where there was the spot at the bottom? I got a couple of signs that can help. There's a proprietary oscillator. I watched everybody on it very heavily for the CNBC investing club. It's a paid subscription product measures buying or selling pressure. When you get a minus five, that indicates there's most likely too much selling. Hey, when you get a minus 10, well, you gotta just buy, even if everything seems horrible. We were getting signals that were 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 is 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 gonna step out on a limb here. This is the big, hold on, everyone's waiting for this. I think we're at a bottom. I really do. I think we're gonna have a rally. There we go, man, I'm afraid to make a call. And, well, here we are. I don't know whether it's gonna be a good luck or 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. Best call I've ever seen. Now, it's certainly made a ton of sense to sell when I said to sell on October 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 killing. Yeah, so it would be 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 Washington Stackwell. (indistinct) 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've got a lot of bad weather. I hear women trying to get it together. I can definitely say it was, I'd give a big shout out to you from the great Northwest, though, Jim. You're doing a great shout out. Don, thank you. I'll take that shout out. Now, because you get a lot of advice from all around the world, I'll say it like this. You want good bread? You might as well go to a qualified baker. So what I want to go and say to you, man, is that I'm curious if your feeling is going to use in high-union 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 our little 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? Stack, well, 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, the 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 skip is 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'll give you a flash crash, survival guide, with some takeaways from the crashes of 2010 and 2015, and the best ways to pop the market pullbacks. Then, imagine all your birdie questions with my college at marks. So stay with Kramer. In tonight's special survival guide edition of Airborne, we're discussing how to deal with brutal sell-offs. Specifically, how to depend 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 pensions to collapse of 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 when 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-Ys 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. I also want to look at the yield in the tenure treasury. If a stock typically yields a 2% 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 balance sheets. Second, if the yield level isn't giving you opportunities, I'd use a mechanical selloff 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 rush I told people to use wide scales. Pick one of your best stocks out there. 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 and amazing prices. Then you can flip the stocks for big profits or you can hold on 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%. Well, if 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 know, 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. Geez. Yeah, that's the crazy. This is what I'm talking about. By the way, a lot of people end up doing that Proctor trade. I've been thanked for movies. I don't know, I've been like a dozen times people thank you. 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 the fact of life. It's been like that since I got into business. But when the economy's strengthening, it perhaps starts to overheat. Well, the Fed is 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 and 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 put not skaters will come out of the wool work 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 with 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. 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 trust, 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 gonna be among the worst performers, because suddenly they 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 rates is 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 tighters, and stick with the accidentally high-yielders that might just give you the delicious baths when the Fed's dog tight. You may have money to be back after the break. (rock music) (rock music) Tonight we're talking sell-offs, specifically during this block what causes garden variety pullbacks. Many times the problem is indeed the status. 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 demands. 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 in the so-called VIX got their heads handed to them. They were short the VIX, betting the market would remain calm, stupid. And at the same time, they bought the SP500 using borrowed money. Again, real stupid. When the stock market fell, these managers were forced to dump their S&P 500 positions that had raised 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. (barking) 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 who buy stock with borrowed money. And it doesn't happen immediately. They gotta have to keep choppin'. How do you spot this margin called 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 overstretched individuals or for hedge funds. They wanna get out before the night. So margin clerks demand the collateral be 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 one and two, a clock. If the selling runs this course by 2.45 p.m., 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 cares. You might also want to buy the secular growth place that work in any environment, making caps stocks. I thought, look, I talk about them all the time. Especially the members of the CMBC investing club, 'cause we like to own the best ones for the travel trust. What else can create viable opportunities? Sell us from 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, Venezuela, Mexico, California 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 wanna 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 and do it over, or see these driven sell off. You should always assume there are people who don't understand how unimportant these worries are in the vast scheme of things. And of course, those people are going to panic and sell out after you would've thought they would've 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. But there's gonna be a bottom. Another kind of sell off, the IPO related to climate. Remember, at the end of the day, stock markets are markets first and foremost. And markets are controlled by supply and demand. So if the backers start rolling out lots of new IPOs, and then these companies sell more shares via secondary offerings, you could end up in a situation where there's just much too much supply and not enough demand. By the way, we saw this during the end of 2021. After we've been drowned under the weight of 600-odd IPOs and SPAC deals, oh! - Tell some men! - Tell some men! (screaming) - That's a house of pain! - 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 ones with yield protection. Sometimes we get declines triggered by multiple simultaneous Ernie shortfalls. Oh, you gotta be real nimble with these. If you wanna buy stocks after an Ernie's 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 Tolstoy 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 wanna 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 in Washington 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 and 2009, they're gonna 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. Stick with me. (upbeat 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, help me know 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 men, 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 that trust having a set amount of funds, how do you recommend putting your new money into 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 gonna buy all these, which was never supposed to. I'm gonna 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 magnificent seven stock is what we called them. What's happened is is that those are really the only ones you can do it because they come down a lot. When they come down a lot, you wanna buy it. We've had stocks that have come down and 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 four cents. That would be a good time to buy it. Right, it goes up and then it goes down less, and you wanna 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 great, "be starts with those tomato jars." So let's eat. You know, when fam'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 saucy came from the fact that my tomato yield was so great, I had no choice but to sauce, sauce or throw out, and I was not gonna do that. Next up, we're taking a question from Jeff. In Florida, we asked if a stock has been in the red for a couple of years and I averaged down during that time, when is it going to be time to sell some of that stock? Do I sell someone that 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, there's a bull mark just somewhere, and I know I've got to end the questions. I don't like to do that, I'm going to break form and say thank you very, very good, Jeff Marjorie 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. (upbeat music) - 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. - We could try to explain what it feels like to get your work done on a John Deere. The way a Z-Track mower finishes in half the time you thought it would, or how much easier it is to move mountains of soil with a one-series tractor. We could even go into detail about how it feels to tow up to 4,000 pounds behind a Gator SUV, but if you really wanna know what it's like to run with us, you just have to get in the seat. Learn more at JohnDeere.com/GetInTheSeat, or visit a dealer near you. (upbeat music)