← Mad Money w/ Jim Cramer
Mad Money w/ Jim Cramer
Mad Money w/ Jim Cramer 12/23/24
00:44:26
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 Disclaimer
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- [00:00]
American Express
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- [00:49]
State Street
Before investing, consider the fund's investment objectives, risks, charges and expenses. Visit SSGA.com for prospectus containing this and other information. Read it carefully. DIA is subject to risks similar to those of stocks. All ETFs are subject to risk, including.
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Jim Cramer
Possible loss of principal allocation.
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State Street
Alps Distributors, Inc. Distributor.
- [01:04]
Jim Cramer
My mission is simple to make you money. I'm here to level the playing field for all investors. There's always a bull market somewhere, and I promise to help you find it. Mad Money starts now. Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Other people are my friends. I'm just trying to make a little money. My job is not just entertain, but to put it all in context. So call me at 1-800-743-CNBC or tweet me at Jim Cramer. I am constantly on this show telling you that discipline always trumps conviction. I tell it to you over and over and over again. In other words, no matter how much you may love a stock, no matter how enthralled you are with the underlying story, if the rules say sell, sell, sell, you sell it. One thing I've learned from my investing career no matter how much you might believe in something, you violate the rules of the road at your own peril. That's why we obey them religiously with the Channel Trust, and they become our core guide for the CNBC Investing Club, which I want you to be in. But where the heck do these rules come from? It's not like they were handed down from on high and carved into stone tablets. Hey, they're not the Lost Five Commanders for the history of the world Part one. They're not like the laws of physics. You can't just deduce them from observing the way markets works. That you can, you can do, say, gravity. No, the rules come from my experience. That's right, from my experience. I spent over 40 years in this business and. And in that time, you better believe I've learned some powerful lessons. In many cases, I did. I did have to learn them the hard way. And because I don't want you to repeat my mistakes, because I want you to have the benefit of my whole career. Tonight I'm going to lay out some of the most important rules for investing. And they are indeed timeless. Some of this stuff may seem basic, but again, you forget the rules at your own peril. Back in my old hedge fund, I occasionally convinced myself that it was okay to make an exception. To have a cheat day, so to speak, to ignore my discipline just this once. For some reason, this seemed compelling at the time. And whenever I broke my own rules, I almost always got burned. It's like that old joke about the doctor. The guy who goes to the doctor and he says, hey, doc, doc, listen, it hurts when I stretch out and shake my hand around to which the doctor don't do that anymore. So. So what exactly should you be doing? Or not doing, as the case may be. All right, let's tick down my most important rules from best. We're going to start with the first one, which is Bulls make money, bears make money. Pigs, well, they get slaughtered. Look, I say this all the time because that's. Because so often in my business, I see moments where stocks went up and up and up so much that people were intoxicated with their gains and thought they were geniuses. However, it's precisely at that point of intoxication that you need to remind yourself that you don't want to act like a pig. I first heard this phrase in the old trading desk. Legendary Stein, our partners, an amazing old hedge fund. I've been having a big run. Some stock in the brilliant Michael Start would tell me that I'd made a lot of money, perhaps too much money. And maybe I was being a. I had no idea he was talking about how do you make too much money. I was just grateful I caught a major gain. Of course, not that long ago, not that long after, we got a vicious sell off and I gave back everything I made and then some. And that's when I enshrined the bulls make money, bears make pigs get slaughtered thesis as one of my own rules. And it's now so deeply ingrained that I got a barnyard full of sound effect buttons to tell the whole story. The bull, the bear, the pig, and of course the gid. Just be clear, bulls don't have monopoly on piggyness. The same idea applies to investors who press their bets too shortly, too aggressively. On the short side, we've had some major declines over the years. But other than the dot com bust in 2000 and the financial crisis 2008, 2009, most stocks bounce back pretty darn quickly. Even in the Fed induced meltdown that started the end of 2021, you had to turn positive by the fall of 2022. Because if you pushed your luck by staying short too long, you got sent to the slaughterhouse. So the question is, how do you know when you yourself are being a pig? Look, allegedly there's no such thing as stupid questions, only stupid answers. But honestly, you really don't need me to tell when you're being a picture pick. The NASDAQ more than doubled from March of 2020 to November of 2021. If you didn't feel greedy up there, you didn't need an investment foster, you need a psychiatrist. If it's a profits, you sidestep the huge decline. If you let your winners ride, well, you gave a lot, if not all the money back. Financial crisis is even more stark. Stark. If you were walking around owning a huge amount of stock in 2008 as the bank started dropping flies, well, you were beyond biggish. Why is this? One of my chief goals is to help you stay in the game. That's the hardest part of investing, is holding on through the difficult periods, taking short term pain so you can have long term gains. Which is what's happened the stock market for a century. The people got wiped out in 2022 or the DOT com collapse before, they tended to be the ones who never took anything off the table. They never felt greedy and their piggishness, well, they never felt it and so they got slaughtered. Being cautious and ringing the register near the top ended up keeping. No, I said near because look, catching the old bit top is just so impossible. Just catching you the top, that's great. That's why I remind people every day, have you taken any profits, have you booked anything or are you being a pick? Because you never know when the stocks you own are going to crash. You never know when the market could be wiped out. You can't have certainty. Stock market doesn't let you have certainty. If you assume stocks will keep going up forever in a straight line. Well you are in for for the house of everyone would own stocks if that were the case. And we know they don't because it's so risky. Sure there'll be times when stocks just going up and up and up. They just keep going. When I coined the term fang over a decade ago for Facebook which became better platforms Amazon, Netflix and Google which came Alphabet. I love them all. But I did give up on Amazon after an incredible run. I was trying to be disciplined. Yet it did continue to move up another 50%. I did feel felt like a pig after the stock's extremely popular run. But when I felt like said I felt like a fool after he kept galloping. You've had the feeling you know what it's like. That's just the price you have to pay for following the rules. I had bit a pig but the pig kept running. Didn't get slaughtered. Fortunately, we got back in Amazon for the Chapel Trust when then President Trump kept bashing him for ripping off the post office. You remember that? Probably even don't. But it was torture to watch it go up with Albion. It was terrific to get back in. Now you need to recognize though that for every huge pile of cash that gets left on the table with a situation like Amazon, you're sidestepping gigantic losses that the kind of which you would have would have had if you had left everything on the table 2000, 2008 or late 2021. Experiences that turn two generations of investors against stocks. And hopefully I'm trying to preserve the last one. So never forget bulls make money, Pig bears make money. But pigs? No Pigs. Yeah, you get it. And I'm going to keep repeating that forever. I'm going to give you the sound effects because it is just that important. How about rule number two? This is one that people I see them on the street, almost everyone says this to me when I ask them if they've taken made some sales. Rule number two is it's okay to pay the taxes. Look, no one ever likes paying taxes. I don't. You don't. But like death, taxes are inevitable and unavoidable. Yet the aversion of paying taxes on stock market winnings often borders on the pathological. So many times people have gigantic gains, but they simply refuse to take any profits because they don't want to incur taxes that cut into their winnings. Never mind the capital gains rates are pretty darn low versus ordinary income. Wall Street's littered with the broken hearts of investors who made this mistake several years ago. For example, I Went to a presentation from a prominent hedge fund manager who recommended buying Macy's because of its real estate value. The stock had already run a great deal before the presentation and it was ripe for some profit taking regardless. But I know people who'd owned it for years with hefty profits and they didn't want to bring the register because they would have to write a check to Uncle Sam. And of course they were thinking about how much that real estate was worth. Next you know, Macy's saw its stock get cut in half. And it wasn't a 2 for 1 split. The whole shopping mall space had hit a tipping point courtesy of competition from the Amazon. And the darn thing got obliterated. Those who didn't want to share their profits with the IRS ended up with no profits at all. Instead of hoping the stock could go to 100 because it might have a lot of real estate. So I want you to make your peace with the tax man. Some gains are simply unsustainable. A profit on paper is not the same as a profit in your bank account. Gains can be ephemeral. You haven't made any money until you ring the register. The last thing you need is to be worrying about capital gains tax and taxes. When it's time to sell, sell. In short, stop fearing the tax man. Start fearing the lost man. You won't regret it. The bottom line, remember my first two rules. Bulls make money, bears make money, but pigs get slaughtered. Don't be greedy, be disciplined, and don't be afraid to pay the tax man on profits that you've earned. Let's go to Tyler in California. Tyler. Hey, Big booyah from California. How you doing, Jim? I am doing well. How about you? I am doing good, thank you, sir. I don't know how many times I've sold a position. Next day or two, watched it reverse. So I'd like to know is when is a good time to just reevaluate and cut my losses? Okay, I think that this is a terrific question and don't feel bad because it's. I obsess in the losses for the Travel Trust and I know and I bothered Jeff Marks endlessly.
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Caller
I.
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Jim Cramer
We're down on this. We're down there. We got to know. What you do is try to look at it once a week, okay? Just once. Because I don't want you to get down. You're going to miss other opportunities. And what you're looking for is a change. Change at the margin. It's something set on the quarter, on the quarterly conference call. You don't want to just get up in the morning and say, you know what? I don't like the way that acts. I'm taking the loss. Wait for something definitive and if there is a bump up, don't be afraid to turn the position no matter what. How about Robert in Minnesota? Robert.
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Caller
Hey Jim, thanks for taking the call.
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Jim Cramer
My pleasure.
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Caller
Yeah. When I retired my company let me keep my four one which is in a time dated fund at the corporate rate which is very cheap but it has limited choices. My question is, should I switch it over to a managed fund with another company like fidelity or etc. At a higher standard rate but has more options.
- [11:32]
Jim Cramer
Look, I'm big in favor of the S&P 500 index fund. I think that'll be terrific. That's what my retirement's in. That's what your retirement should be in. I think that'll be fine. I love diversification. Remember my first two rules. Bull, fake money. Bears make money, but pigs? They get slaughtered. Don't be greedy, be disciplined and don't be afraid to pay the tax ban on profits you've earned. We love taking profits coming up. From portfolio maintenance to learning how to do your homework, I'm hitting my investing rules that I think are the key to mastering this market. You don't want to miss them, so stay with Kramer.
- [12:15]
State Street
Don't miss a second of Mad Money. Follow imKramer on X. Have a question? Tweet Kramer. Madmentions. Send Jim an email to madmoneycnbc.com or give us a call at 1-800-743-CNBC. Missed something. Head to madmoney.cnbc.com Get a head start on 2025 with CNBC's Big January, the hottest tech event, CES from Las Vegas, the data, the jobs report and meet the future of biotech and pharma at JPM Healthcare. Check out the Amex golf tournament from California. Inauguration day and the meeting of world leaders in Davos. Plus the first Fed decision of the year. The investing edge you need to start the year ahead of the game. Cnbc.
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Jim Cramer
At the end of the day, we're only human. If you remember only one thing about being an investor, that's it. Nobody's perfect. Everyone's fallible. And it's never that we're going to make mistakes, just the nature of the business. That's why if you want to own individual stocks, you need to follow a set of rules. Rules that are designed to protect you from yourself. Which brings me to my next commandment and this Is a really important one. Never buy all at once. I can't stress enough. Do not enter any circumstances. Buy your whole position. Position at once. This is something you can see us put into practice constantly with child trust. One more reason I think you should join the CBC investment club. Shameless promotion. Buying all at once is your follow. Yet no broker likes to fool around with partial orders. No financial advisor has the time to buy stocks methodically over time. The game is to get the trade done at one level in a big way. Make the statement buy. Boy, do I hate statement buys. Get to position. On the sheets are in the portfolio now. I don't like that either. Where I stand, it's all wrong. 100% wrong. You should never buy all at once and you should never sell all at once. Instead, I need you to stage your buys. Work your orders, try to get the best price over time. Why? Okay. When I first started as a professional money manager, I really wanted to prove to everyone just how clever and smart I was and how right I would be. So if I felt like buying, say, Caterpillar, okay, I said, by golly, I'll buy it now big. All at once. Make a statement. Because I was so sure of how right I was. Put me up on 50,000 cat. I'd scream as if I were the smartest guy in the universe. When I think back about that young Kramer, mostly full head of hair, by the way, all I can say is that I was one arrogant son of a gun. Arrogant and wrong. What was my mistake? If you want to buy 50,000 shares of Caterpillar, you don't pick them all at once. That's pure hubris. What happens if it goes down? You feel like a dope and it might go down. Thus my rule, never buy all at once. Instead, I should have boy cat in increments of, say, 5,000 shares. Gradually over time during that day, trying to get the best price I could. You put on a small position, then you cross your fingers, hope it goes down so you can buy more at a lower level to get a better cost basis. Hear what I said? I don't mind when a stock goes down if I can buy more. Now, I know we're trading institutionally, as you know. I don't say trade in size, as we used to call it, probably still do. But I still invest my capital trust. And whenever we have a new name, we buy in small increments, say 500 shares at a time to get, say, a 2000 share position over the course of multiple days, preferably again at Lower prices. That's right. We like it if our stocks go down so we can get an even better cost basis. And we lay out this whole process to members of the club. It makes sense. When you buy all at once, you're basically declaring that the stock absolutely won't go any lower. I mean, come on, that's crazy. Nobody has that kind of insight over time. Buying gradually in stages is about recognizing that our judgment is fallible. So why don't more people do it my way? Why don't investors, if they want 500 shares in ExxonMobil, decide to buy 100 share equals? Why won't they? I think it's because they. They want to be big too. They don't want to waste the broker's time. Your broker wants to get the trade done. I know why brokers hate it when my old hedge fund would place incremental orders. But it's just plain hubris to put a major chunk of your net worth into any stock all at once. Who knows, maybe it will go into free fall. Of course, this doesn't just apply to having a broker. Applies just electronic trading too. At the same time, many others simply want to pull the trigger on the whole position and then get it over. They don't want to agonize over each increment. Wrong again. That's why you need to resist feeling like you're making a statement buy when you purchase a stock. I bought and sold billions of shares of stock my time. Both my old hedge fund for my Chapel Trust. Do you know how often I got in the absolute bottom? How often the last price I paid was the lowest and then it was off to the races. I mean, maybe one trade in 100. And I'm pretty good at this game. So resist the arrogance. Buy slowly. Even buy over a couple of days if you have to. As I do for the chat with trust. Humility beats Ubers every time. Next rule, I need you to buy damaged stocks, not damaged companies. Let's say the mall is having a sale and you pick up a piece of merchandise. When I find out that it's broken when you get home, maybe it doesn't work. Maybe there's a hole in it. In the real world. You can return that merchandise, get your money back. There are guarantees and warranties galore on Main Street. Wall street is different. If you buy a stock that turns out to be a defective company, it losses. There's no money back. Guarantee. Caveat. Empty. And that's why you need to be very careful to distinguish between broken stocks. Names that are down for no particularly good reason and broken in companies which absolutely deserve to see their stocks trade lower. Sometimes damaged companies can be easier to certain. Whenever nearly everybody got their COVID vaccinations and we put the pandemic in the rearview mirror, all sorts of COVID winners fell by the wayside. Some of them were unfairly punished, but many of them got obliterated because a big chunk of the business disappeared as we knew it would happen. Take some video. A company that took the world by storm during the worst days of the pandemic to the point where it became, well, let's say the very name it became a verb. We would zoom just like we Googled. But once we got quality vaccines, the growth opportunity evaporated and the company struggled to use all the money made during the pandemic to pivot into something else. They had a huge cash position. Then gradually its competitors caught up. Very tough to go up against Microsoft and Google and Cisco. Zoom only plunged from 588its all time high in October of 2020 down to the mid 70s less than two years later. There were points on the way down where people assume assumed it had to be a bargain. But every time they did, they got burned. Because you can't call a bottom in a stock that's in free fall if the business is changing and getting slower. We saw something very similar to the financial tech stocks that had roared during the period of ultra low interest rates that coincide with the pandemic. Lots of buy now, pay later out of a firm, which is one of the better ones. But once the Federal Reserve warned that it would start rapidly raising interest rates, the whole business model was called on the question. This group was annihilated. The worst of these was a company called Upstart, which is really supposed to facilitate loans. But they started leaving many of these loans, what's known as on the balance sheet. Just as the Fed caused credit risk to skyrocket, the stock plummeted. Get this, from just over 400 its late 2021 peak down below tease less than two years later for eventually rebounding somewhat from its lows. On the other hand, sometimes the stock will sell off for reasons that have nothing to do with the underlying company. It could be caused by E. ETFs or problems overseas or Washington worries. Just because the stock is down doesn't necessarily mean that there's anything wrong with the underlying business. Damaged stock, not damaged company. So how do you distinguish between a broken company and a broken stock? Complicated. Complicated question what I like to do is develop a list of stocks I like very much. I call this the bullpen of my investment club Charitable trust portfolio. We give you the bullpen all the time. When Wall street throws a sale with the whole market coming down, we use that as an opportunity. Opportunity to pick up the stocks on our list made in a calm of no trading versus the battlefield of them when the markets open. We know these stocks ahead of time, so we know there's nothing wrong with the underlying companies because we've done the research ahead. But the bottom line is you never really know. That's why this rule works in tandem with the last one. Never buy a position all at once because what you think is merely a damaged stock might turn out to be a damaged company. If you take your time, you're much more likely, I'm sorry, much less likely to end up with a large quantity of broken merchandise. And remember, there's no money back guarantee. The word on the street is caveat. Amateur. They have Money's packet.
- [20:28]
State Street
It's CNBC's Big January with CES from Las Vegas, biotech and pharma at JPM Healthcare, the World Economic Forum in Davos, and the first Fed decision of the year. Start the year ahead of the game, cnbc.
- [20:50]
Jim Cramer
If you want to build portfolio of individual stocks, that's a big if. Since there's nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the s and P500, well, you got to be rigorous about it. Which brings me to my next rule. Do the homework. Let's see. Go ahead. My kids hated doing the homework. They thought it was punishment. Sometimes when I looked at what they were studying, I could see where they were coming from. What's the relevance of most of the things they teach in high school? How will it help you later in life? Why even bother? Of course, that's a terrible attitude. As a parent, I always encourage my kids to study because you never know what you'll turn out to be interested in later in life. But I bring this up because I think many of you have the same attitude to the homework you need to do in your stocks. You suspect it might be just as irrelevant to your portfolio as schoolwork seemed. My kids, when I tell people that they need to listen to the, let's say, Starbucks conference call or know what the analysts are expecting from Netflix, they don't want to hear it. They think I'm being a scold. But that's not true. You need to do the work if you're going to own those Kinds of stocks. When I remind people that doing the homework means listening to conference calls, reading research reports, they want no part of it. They look at me as if I'm some sort of old fashion teaser is asking for way too much. In this busy 21st century world, that's just plain wrong. Only stocks without doing the proper research, frankly, is lunacy. But people still do it. And they do it for a couple of different reasons. On the one hand, there's the buy and hold school of thought. The idea that you don't really need to do any work. You don't have to keep track of what's happening at the company because hey, you're in it for the long so what? On the other hand, you got people who just don't have the time to be diligent. For those of you who don't have the time, I got a simple solution. Get someone else to manage your money for heaven's sake. Or do what most experts tell you to do and invest in a low cost S&P 500 index fund. Or there is a third option. Find someone else to help you do the homework for you while teaching you to be your own portfolio manager. Which is what we do with the CBC Investing Club. And I still urge members to do as much of their homework as they can. The truth is, if you can't devote a couple of hours per week to your portfolio, you really shouldn't be messing around with individual stocks unless you join the investing club, which is what we're meant for. Investing may not be a full time job like trading, but it's definitely a part time hobby. That said, it's the buy and hold premise that's a lot more pernicious. Back during the 1990s, buy and hold became the be all and end all of all investing. You know what? I'm just going to own my and hold on to my CMGI because it's got to go back to 100 where I bought it. Yeah, I mean the experts told you that if you hold things for the long term, everything will work out. Of course I went to zero. But this philosophy took a real blow during the financial crisis when so many people who practice buy and hold got obliterated.
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State Street
That was easy.
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Jim Cramer
Buy and hold became popular again during the pandemic. Keeps popping up any time. There's just a nice smooth period when the market was flooded with cheap money and almost everything worked right. I mean middle of that money and bye bye bye. Once again though, it got it got you burned when the Fed finally started tightening in 2022 and the cheap money just vanished. A lot of people who bought and held the spacs got crushed because there was nothing worth holding. That was just a travesty. The SPACs. That's why I've always been evangelist for a new concept which is buy and homework instead. What is the homework though? Before you buy a stock, you should listen to conference calls. Go to the company's website. I really like that. I tell you, I've been starting with that lately. Read the research. If you can get a hold of research. Read the news stories. That's called Google. Everything's available on the web. Everything. You have so much more info available now, so much more knowledge that there's really no excuse. You aren't up there begging at the Goldman Sachs library for some micro fee statement from three months ago, as I did four decades ago. Right down the block here you have everything right at your fingertips. But if you fall back on a buy and hold strategy for any group of stocks and don't pay attention, I can assure you that you'll be soundly beaten by professional money managers with good track records who are actively searching for high quality stocks all the time. One point I'm quite certain that any index fund can beat someone who does no homework. Which is why so many experts tell you give up on individual stocks and put your money in a cheap S&P 500 index fund. Buy and hold is not a strategy, just lazy. I'm. Like I said, I am in favor of index funds for those who don't have the time. The predilection. The next rule is another essential that I harp on. Constantly diversify, diversify and diversify. Always be diversified. That conversation trolls risk and managing risk is really the holy grail of this business. What's the biggest risk out there? It's called sector risk. Stocks in the same industry, they tend to trade together, especially at extreme moments. In the old days, only about 50% of the action in a given sector came down to this. In a given stock came down to the sector. But thanks to the rise of sector ETFs, that number's gotten much, much higher. Some cases like 80, 90%. I don't care how great a tech stock was in €2,000. All your eggs in that one basket, you got scrambled. I got to prevent that. Same of the financials in 2000, I got to prevent that. The oils in 2014 through 2016, and of course tech during that discrete period in 2022 that was so horrible. And there's only one thing that can Keep you from getting nailed by sector sector risk and that is diversification. I always say diversification is the only free lunch this business. It's the only investment concept that works for everyone. If you mix up enough different sectors in your portfolio, at least five well I'll tell you you won't be wiped out when the one group gets obliterated. Something that happens far more often than you might think. But if diversification such a no brainer if every advisor and commentator under the sun has been telling people to do it for years, how can anyone still be under versified? I think it comes back to the homework issue. A lot of people simply don't own, don't know what stocks they don't. They don't understand what the companies do. So they end up with stocks that are frightfully very similar. I mean they don't understand that one is dis drive company, the other is a semiconductor stock. It just drives me crazy. Hey, you know what? Also others have zero respect for the history of the bear and how it attacks individual sectors. I still feel quite a few calls from people who genuinely think that owning Fang is a diversified strategy. Hardly. With Facebook now meta platforms, Amazon, Netflix and Google now for the you own variation of the same thing. Social, mobile, cloud, they trade together. That's what I call foe diversification. Having an undiversified portfolio is not just an amateur mistake though. Many professionals don't like to be diversified because of the bizarre way the money management business works in this country. If you concentrate all your bets in one sector, that sector takes off well you pretty much beat everybody right then there's in a diversified fund that is the nature of the beast even though I think it's ill founded. It's why Cathie Wood of Ark Invest could be the best money manager of 2020 then far from the best in 2021 and among the worst 2022 her flagship ark Innovation fund went almost all in on high risk growth stocks. That's not diversified and those all stocks they tend to trade as a group but that one huge year in 2020 made her a household name and once your household name we do get it made in this business. Don't be wrong. I feel she's great at picking high risk growth stocks and she she's never claimed to be running diversified flow. Not once. I just want you to be aware that when you go all in on diversified portfolio it is likely to blow up in your face a couple times in a few years time. Here's the bottom line. Whether you're an amateur professional, you always need to do your homework and keep your portfolio diversified. This is the kind of routine maintenance that protects you from monster losses down the line. Remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. But don't try to rationalize those losses because stocks don't always come back to even or anywhere near that. Let's go to Trey in Texas. Trey.
- [28:12]
Caller
Jim, the second greatest investor of all time, Warren Buffett, says individual investors like me should just buy the S and P. My question for you is, what does the greatest investor of all time think we should buy?
- [28:26]
Jim Cramer
Well, first, I know Warren Buffett. I'm a TV guy who tries to do his best to teach you. But I thank you for that. Here is what I have to say. I think it depends on your time and predilection. I think you put away your first 10,000 in an index fund. If you like picking stocks, let's do it well together. Join. Join the CNBC Investing Club if you don't like picking stocks and let someone else do it for you. But if you want to be involved, I will help teach you to be a good investor. I can do that. I've done it for a very long time and fortunately been very successful. Let's go to Ann in Indiana and.
- [28:59]
Caller
Hi, Jim, thanks for taking my call.
- [29:01]
Jim Cramer
You're quite welcome. And what's up?
- [29:03]
Caller
I'm a club member, but I've been thinking about this lately and I wondered if you could talk more about suspending our judgment and letting the market take a stock up. Even when a CEO does something they said they're not going to do, or a company makes a bunch of mistakes but they have very little competition, or a CEO makes big mistakes that seem to take a long time to fix.
- [29:31]
Jim Cramer
Well, this is a tough, tough one in because I've made this mistake. I've stuck with people for too long. I keep thinking, give them another try. Almost every case, it hasn't been worth it. Almost every single case, including situations I'm in now. All right. Whether you're an amateur or professional, you always need to do your homework and keep your portfolio diversified. There's much more ahead. I'm putting my four decades of experience to work sharing the key rules we follow for the CNBC Investing Club. Think of it as a glimpse behind the curtain if you're not a member. So stay with Craver. I don't want to go all Zen in the art of portfolio loyal maintenance on you, but when it comes to Managing your own money, you're often your own worst enemy. Don't take it personally on my own worst enemy too. If you want to invest wisely, you constantly be fighting off your own worst impulses. We're not robots, we have emotions. And those emotions can really throw you off your game. Which brings me to my next rule for investing. Nobody ever made a dime by panicking. Panic is not a strategy, and people do it constantly. A stock gets hammered, then investors sell. After the hammering, the market gets crushed. On a huge down day, people bail at the end of the day. In short, something gets annihilated and people can't take the pain. So what do they do? They bolt. There's something instinctive about panic, about the desire to flee. If you're a stone age hunter gatherer who accidentally stumbles into a family of grizzly bears, panic is a very helpful strategy. But it's not useful emotion when you're investing in the stock market. The truth is there almost always be a better time to sell than whatever moment inspired you to panic in the first place. And don't I know it. Remember the spring of 2020 when Covid hit everything shut down the whole stock market collapse. The SB 500 lost a third of its value in a little over a month. And for months after, almost everybody in the business was convinced the world was ending. That April though, legendary market market historian Larry Williams gave us the all clear. He was looking at other countries and realized we'd mostly be out of lockdown by midday. He told you to buy into the teeth of the panic, not flee with the panickers. Sure enough, the SB was making new highs again by the summer. And once the vaccines came along that November, well, the market just never looked back. So the next time there's a big market wide sell off and you feel like fleece fleeing and never touch your stock again, I want you to do something for me. I want you to take the opposite side of your own trade. The most rewarding trades you can make are those where the decks have been cleared out by terrified folks using market orders who just don't get that the exit doors aren't as big as they think they are. Mind you, I am absolutely not saying that every stock that gets hit with a panic sell up is worth buying for the long term. Often people freak out about an individual company. It's with good reason. But I am saying that after a big decline, you usually get some kind of bounce which gives you a better moment to sell if that's what you want to do. Even when things are really bad, bargain hunters will usually take it up from its lows. And that's when you get out. So the next time you want to dump everything, take a deep breath and wait for the rebound before you sell. Hey, speaking of hideous down days, I got another move that can help you handle big declines. Ready? When the stock market gets unrelentingly negative, remember that he who defends everything, defends nothing. It was when Frederick the Great said that centuries ago. And you know what? It's just as true now. So he defends everything, defends nothing. What exactly does it mean? It's about how you evaluate your holdings. When the market's flying and many stocks are in bull mode, you don't need to worry about most of your positions. The more exposure to a bull market, well, let's just say the better. But when things get difficult, when you're on the defensive, you need to recognize that many of the stocks you bought during better times might not fit this new environment. In short, when the economy slowing, the markets getting slammed, you can't hang on to everything you might like. If you try to defend all your positions in a market that turns against you, that's a recipe for getting blown out. And when I say defend, I mean you can't treat a declining market like it's a buying opportunity in every single stock in your portfolio. If you do that, you'll quickly run out of capital, leaving you unprepared to buy more. If we go lower still, and we usually do. Yet when the market gets negative, you need to get more selective and focus your efforts. That's why I rank all my travel trust stocks at all times for investing club members. Ones are stocks I buy right now. Twos are stocks I buy a weakness, and threes, while threes are outright sells it. Sometimes it is some strength, but if you can get out, it's good. That way. I'll know which stocks I should defend when things get tough and which ones I'll cut and run with and use that as a source of capital for something better. So let's say tech's getting hammered, but you think it's going to rebound. It's important that you don't try to hang on to the whole complex. Pick the best tech stocks. The one ones you'll want to buy into weakness and toss out the rest. Raise cash. Use those newfound cash reserves to buy the stocks of higher quality tech companies at lower prices. That's right, the non essentials. The ones that have no catalysts and that you only owned because you wanted exposure to a bull market. They get to heave ho immediately when things turn bearish. We used to call this circling the wagons around your best names in my old hedge fund. The first few times you do it, you'll curse yourself because you might be ending up putting down stocks that you love for quite some time. But eventually, after you experience enough difficult markets, you realize just how valuable this process is because it can protect you from a lot of pain. A house of pain. I never try to battle more than a few losing names at once. Don't buy, don't buy, don't buy. It's painful. So remember, you have to take on a lot of stocks that are going against you. It'll wear you down. It's just exactly what it's going to do, making it more likely that you'll crack under pressure and dump everything near the bottom. It's simply human nature. But you have to fight human nature tooth and nail, hammer and tongs, or any of those other cliche phrases that went out of style ages ago but still sound really solid. The bottom line Great investors know how to ignore their emotions when those emotions get in the way of making money. So the next time the market gets slammed, please don't panic. Nobody ever made a dime by panicking. But also, don't double down your whole portfolio into weakness. Vicious negative markets can give you buying opportunities, but you need to focus your capital on your absolute favorites rather than chasing bargains in third rate merchandise that actually deserves to trade. Lower Man Money is back after the break. Welcome back to tonight's Check yourself before you wreck yourself. Additional bit of money I'm a big believer in the idea that once you get some money saved up, you are in control of your own financial destiny. But that also means you need to be very careful because you're the one with the most power to derail your financial future. Look, mistakes will always be part of the investing game. I just want to do my best to ensure that you don't make the the same mistakes twice or three times or endlessly. That's why I got rules. Rules for investing protect you from the kind of misjudgments I used to make when I was young and inexperienced. The same rules we preach constantly in the CNBC investing club. Rules like don't own too many stocks back up my latest fund. I would spend three hours every day analyzing the mistakes of the day before about kidding. One reason I'd retire, at least for my own well being. That was a major task, one that I complete every morning before Anyone else came into the office. Generally between 4am and 7am Some people are night out, so I'm an early morning out. I would analyze every losing trade. You don't need to analyze the winners. They take care of themselves, right? And then try to figure out how I could have, let's say, made more money or lost less money. More importantly, I was, for lack of a better word, maniacal about it. And after a couple of years, I had an epiphany. I realized that good performance could be linked directly to having fewer positions, owning fewer stocks. In short, when we own fewer stocks, we tended to make more money. That's why ever since I won't buy a stock without first taking a different one off the table. Even for my Chabel Trust, which is the only way I can play these days. Yet don't just buy shares in more and more companies. You need to limit your holdings. That's a great discipline and you should adopt it pronto. All the bad money managers I know hundreds of positions. How the heck are you even supposed to keep track of all that? All the really good managers I know have a few names and they know inside and out those names, which means they can confidently buy them on the way down. That's why I say please don't own too many stocks. I know it can be constraining. You'll end up selling some stocks that are good for stocks that aren't as good. It does happen. Hey, hindsight is 20 20. But take it from me, as someone who owns stocks for over 40 years, it's far more likely that you'll be selling marginal companies in order to get better, bigger and in better stocks. That's how to make a portfolio really work for you. Hey, by the way, the time I lost the most money as a hedge fund manager, my sheets, that's my position sheets, were thick as a brick. When I made the most money, my sheets were, well, one sheet of paper, double space, and I made hundreds of millions of dollars. So please remember when you're a pro or an amateur, okay? Either one. It's always possible to have too many positions. Rule of thumb, if you're just investing for yourself and you own more than 10 stocks, you should probably pare something back so you can have too many stocks. But you know what? It's very hard to have too much of cash. Which brings in my next rule. Cash is for winners. The widespread aversion to cash in this business breaks by heart at times. Cash is such a perfect investment that it drives me crazy how so few People ever recommend it. Now they hate the market so they're only 95% long instead of 100%. Or they think the market stinks, so they decide to short a few high flyers against their longs. No, no, no. As an investor, that is absolutely the wrong way to approach things. You don't like the market, you don't like any stocks, then sell stocks you want as much as you want, then raise some cash, put it in cash. Don't buy. Put options on the stocks you own or find other stocks to short against your current positions. That's just, that's just that stuff that makes. It's just too hard for you. The odds simply do not favor you winning on both stocks, the short and long. It's a strategy whose goal is mediocrity. But if you can raise some cash and put it to work at lower levels, that's the best way to protect yourself against a lousy market. Let me tell you a little story. I was one of the biggest options traders on Wall street for time. And I can tell you that when I bought put options to hedge my positions, I almost always lost money. When did I make money? When I bought put options to profit from low quality companies with shortfalls or stocks that seem severely overvalued versus the fundamentals. If you dislike the market, you don't need to bend yourself into a pretzel to hedge against downside risk. Just sell some stocks and go into cash, which is literally short term treasuries of the less than a year variety. People start talking about how little cash earns, although it's a lot more lucrative when the Fed's tightening or they say it can't be, it can't be in cash. That's for losers. No, that's just plain wrong. I say cash is for winners, especially if you think that there's a major disaster ahead. And I don't care what interest you earn on that cash. Now, I grew up at a different time. I only shorted stocks when I had an edge. I can't short it all right now by contract, not even for the Chapel Trust. Back what I could. I didn't short stocks just for sake of having some short exposure to balance out my longs. I don't care about not having enough exposure. I care about losing money. I was an exception in the money management business. That was my focus. So if you don't like the market, if you think there's nothing compelling to buy into weakness, then just raise cash. Go sit on the sidelines and wait for the situation to improve. Believe me, it's never the wrong call when you don't like the tape where you can't find anything that truly makes sense for you. The bottom line, always be careful not to own too many stocks and not to have too little cash. Stick with Kramer.
- [41:38]
Caller
Good evening, Mr. Kramer.
- [41:39]
Jim Cramer
Thank you.
- [41:40]
Caller
Thank you for everything you do. You've been such a wonderful source of information with your teachings. I have to say thanks. Thank you for all your advice and saving us from ourselves. Your advice? Let me quit a job that I hated. I love you to death. Thank you for everything you do. Thanks for making us money and more importantly, thanks for keeping us from losing money.
- [42:18]
Jim Cramer
I always say my favorite part of the show is answering questions directly from you. Tonight I'm bringing in Jeff Morris, my portfolio analyst partner in crime. Help me answer some of your most burning questions. Could usually have some tough ones. For those of you who are part of the investing club, Jeff will need no introduction. For those of you who aren't, I hope you will be soon. I would say that Jeff's insight and our back and forth helped me to do a great job for Mad Money viewers as well as members of the club. Jeff and I do this sort of thing during all our monthly meetings where we give you an in depth look at our latest portfolio decisions. We talk about every single stock and answer your burning questions. If you like this to be something to keep up with, I need you to join the club. And thank you by the way, to people who stop me on the street, who love the club. Means the world to me. So let's start with a question from Michael, my home state of Pennsylvania, who asked, what do you think about dividend reinvestment strategies? Okay, so Jeff, one of the first things I learned and what I taught at Goldman Sachs was it's one of the great figures lunches of our business. You just keep letting it ride. And I have seen in my lifetime the dramatic amount of money you make from the dividend Reinvestment.
- [43:22]
Jeff Morris
Yeah, absolutely. That's how you take advantage of the power of compounding by reinvesting those dividends quarter after quarter. Now, unless you need the income of course, depending on where you are in your life that that may be a reason not to. But always reinvest. And it works for high dividend in stocks like a consumer packaged good stock or even tech stocks too that offer a dividend. It's a good thing to have. It's another way to dollar cost average into positions as well.
- [43:47]
Jim Cramer
I remember going over this with my late father where he was adamant, you just take the money and run. And I tried to show him and managed to convince him, no, take the money and be back in reinvest. Now we're taking a question from John in California. What are your sources of information related to stocks in the overall market economy, sources that you go to daily? All right, well, look, I, I make no bones about it. We have all the research in the world and what's one of the great things, the luck that we have is we get everybody's research. And I tend to let that control things as by the way, when I do the mad dash and I talk about what maybe the most important research calls of the day. So we're blessed with that. All right, now let's go to Nino in Maryland who asked, is there a P multiple that won't, that we won't buy above in each sector? Well, this is really tricky because when you're in tech, we have to use out years. So for instance, in video, if I had discipline and said that I wouldn't pay more than 20 times earnings, I would have kept out of video for a decade. Because Nvidia is about future. Yeah.
- [44:48]
Jeff Morris
And I think you also have to look at a company's growth rate too. It's all relative P is so you can compare the growth rates relative to their multiples. I don't think there's necessarily one that would keep me out. But also on the other hand, you can't look at a low multiple and two and say that's a good bargain because sometimes there's value traps. Value traps. There are low multiple for a reason. They could have declining earnings or there just might be another issue fundamentally.
- [45:13]
Jim Cramer
That's a great point. I mean, when people look at the, the automobile stocks, they have historically had very low multiples and just trade on dividends. If they ever really got the question growth of a Tesla, the stocks are triple. Right. So anyway, thank you, Jeff. I like to say, as always, bull market summer promise. Try to find it just for you. Right here on Mad Money. I'm Jim Cramer. See you next time.
- [45:35]
American Express
All opinions expressed by Jim Cramer 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 Cramer 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 It's CNBC's Big.
- [46:15]
State Street
January with CES from Las Vegas, biotech and pharma at JPM Healthcare, the World Economic Forum in Davos, and the first Fed decision of the year. Start the year ahead of the game. CNBC.