Mad Money w/ Jim Cramer 2/28/25

Summary

Mad Money with Jim Cramer – Episode Summary (02/28/25)
Release Date: March 1, 2025

In the February 28, 2025, episode of Mad Money with Jim Cramer on CNBC, host Jim Cramer delves deep into his seasoned investment strategies, sharing invaluable rules and insights aimed at empowering both novice and experienced investors. The episode is structured around Cramer's foundational investment principles, interactive listener Q&A sessions, and practical advice on navigating the volatile world of Wall Street.

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1. Mission and Introduction

Jim Cramer kicks off the episode by reaffirming his mission: “To make you money” (01:00). He emphasizes his role as a guide through the intricate landscape of Wall Street, aiming to level the playing field for all investors. Cramer sets the tone by highlighting the importance of discipline over mere conviction in investment decisions.

Jim Cramer (01:25): “Discipline always trumps conviction. No matter how much you may love a stock, if the rules say sell, sell, sell, you sell it.”

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2. Fundamental Investment Rules

Cramer outlines his core investment rules, each supported by historical market examples and personal anecdotes, ensuring listeners grasp their practical applications.

Rule 1: Bulls Make Money, Bears Make Money, Pigs Get Slaughtered

Cramer underscores the peril of greed in investing. He explains that while bulls and bears can thrive in their respective markets, "pigs" – investors driven by greed – often suffer significant losses.

Jim Cramer (03:15): “Bulls make money, bears make money, pigs get slaughtered.”

He references pivotal market downturns, including the dot-com bust of 2000 and the financial crises of 2008-2009 and 2021-2022, to illustrate how unchecked optimism leads to substantial losses.

Rule 2: It's Okay to Pay the Taxes

Addressing the common fear of taxes, Cramer advises investors to embrace tax obligations as a natural part of profit-taking. He shares the example of Macy’s stock, where reluctance to sell due to tax fears resulted in missed profits during a significant downturn.

Jim Cramer (05:50): “Stop fearing the tax man. Start fearing the lost man.”

Rule 3: Never Buy All at Once

Cramer advocates for staged investments rather than lump-sum purchases. This strategy mitigates risks associated with market volatility and ensures a better average cost basis.

Jim Cramer (09:30): “Resist the arrogance. Buy slowly. Even buy over a couple of days if you have to.”

He recounts his early hedge fund days, where impulsive large purchases often led to losses, reinforcing the need for gradual investment.

Rule 4: Buy Damaged Stocks, Not Damaged Companies

Differentiating between temporary stock downturns and fundamentally weak companies, Cramer advises investors to seek out stocks that are undervalued due to market overreactions rather than genuine business flaws.

Jim Cramer (15:20): “Never buy a position all at once because what you think is merely a damaged stock might turn out to be a damaged company.”

He cites examples like Zoom and Upstart, which saw significant declines due to post-pandemic adjustments and rising interest rates, respectively.

Rule 5: Do the Homework

Emphasizing the necessity of thorough research, Cramer stresses that successful investing requires diligent analysis of company reports, conference calls, and market trends.

Jim Cramer (20:10): “Only stocks without doing the proper research, frankly, is lunacy.”

He criticizes the buy-and-hold strategy when not supported by continuous research, highlighting its pitfalls during market crises.

Rule 6: Diversify, Diversify, Diversify

Cramer highlights diversification as the cornerstone of risk management. By spreading investments across various sectors, investors can shield their portfolios from significant losses tied to any single industry downturn.

Jim Cramer (25:00): “Diversification is the only free lunch in this business.”

He warns against concentrated investments, even among top performers like the FAANG stocks, to avoid sector-specific risks.

Additional Rules: Limiting Positions and Embracing Cash

Cramer advises keeping a manageable number of stock positions to maintain oversight and effectiveness. He also champions holding cash reserves as a strategic advantage, allowing investors to seize opportunities during market downturns without prematurely exiting profitable positions.

Jim Cramer (33:30): “Cash is for winners, especially if you think that there's a major disaster ahead.”

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3. Interactive Listener Q&A

Throughout the episode, Cramer engages with listeners, addressing their specific investment dilemmas and providing tailored advice based on his established rules.

Caller Tyler from California (10:08)

Question: “When is a good time to reevaluate and cut my losses after selling a position that reverses shortly after?”

Cramer's Response: Review your positions weekly and focus on changing fundamentals rather than short-term reversals.

Caller Robert from Minnesota (11:04)

Question: “Should I switch my retirement fund from a corporate-managed index fund to a managed fund with more options?”

Cramer's Response: He recommends S&P 500 index funds for diversification and simplicity but encourages active investors to join the CNBC Investing Club for guided stock picking.

Additional Q&A Highlights

• Dividend Reinvestment Strategies (44:30): Cramer and portfolio analyst Jeff Morris discuss the power of reinvesting dividends to harness compounding growth.

  Nino (44:55): “Reinvesting dividends allows you to take advantage of compounding quarter after quarter.”

• P Valuation Multiples (45:56): They explore the complexities of P/E ratios across different sectors, emphasizing that multiples should be considered relative to growth rates.

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4. Emotional Discipline and Market Psychology

Cramer delves into the psychological aspects of investing, highlighting the detrimental effects of panic and emotional decision-making. He advises maintaining composure during market downturns and avoiding rash sell-offs driven by fear.

Jim Cramer (28:30): “Nobody ever made a dime by panicking.”

He shares his experience during the COVID-19 market crash, illustrating the benefits of contrarian investing by buying during panic-driven sell-offs.

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5. Conclusion and Final Thoughts

In wrapping up, Cramer reiterates the importance of adhering to disciplined investment strategies, continuous education, and emotional resilience. He encourages listeners to join the CNBC Investing Club for ongoing support and detailed portfolio management tips.

Jim Cramer (46:44): “Great investors know how to ignore their emotions when those emotions get in the way of making money.”

He closes with a reminder that successful investing is a blend of strategic planning, disciplined execution, and emotional fortitude.

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Key Takeaways

1. Discipline Over Conviction: Adhering to investment rules is paramount, even when emotionally attached to a stock.
2. Profit-Taking Without Fear: Embrace tax obligations as part of taking profits to secure gains.
3. Staggered Investments: Avoid lump-sum purchases to mitigate market volatility risks.
4. Selective Buying: Focus on purchasing undervalued stocks of fundamentally strong companies.
5. Continuous Research: Stay informed and regularly analyze your investments to make informed decisions.
6. Diversification: Spread investments across various sectors to minimize risk.
7. Manageable Portfolio Size: Limit the number of holdings to maintain effective oversight.
8. Strategic Cash Reserves: Hold cash to capitalize on market downturns and investment opportunities.

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Jim Cramer's comprehensive discussion in this episode of Mad Money offers listeners a robust framework for navigating the complexities of investing. By emphasizing disciplined strategies, continuous research, and emotional control, Cramer equips investors with the tools necessary to thrive in fluctuating markets.

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Note: All timestamps in this summary refer to the podcast's transcript provided and are indicative of the content’s placement within the episode.

Transcript

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[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 want to make 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, 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 chattel 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 lowest 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 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 cheap 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 to me, it hurts when I stretch out and shake my hand around to which the doctor blushes. Don't do that anymore. So, so what exactly should you be doing or not not doing, as the case may be. All right, let's tick down my most important rules for investing. 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. They 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 I first heard this phrase in the old trading desk. Legendary Steinhardt 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 money, 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 guillotine. Just to be clear, bulls don't have monopoly of piggishness. 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 bounced 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 so such thing as stupid questions, only stupid answers. But honestly, you really don't need me to tell when you're being a pig. 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 advice, you need a psychiatrist. If it took profits, you sidestepped a huge decline. If you let your winners ride, well, you gave a lot, if not all the money back. Financial crisis was 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 piggish. Why is this rule so important? Simple. One of my chief goals is to help you stay in the game. That's the hardest part of investing. It's 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 for a century. The people got wiped out in 2022 or the dotcom 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 notice. 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? Why 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 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 became 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 stocks extremely popular run. But when I felt like said felt like a fool after kept Gallup, you've had the feeling you know what it's that's just the price you have to pay for following the rules. I had been a pig, but the pig kept running, didn't get slaughtered. Fortunately we got back on 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 what you would have would have had if you had left everything on the table. 2000, 2008 or late 2021. Experiences that turn 2 Generation 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.

[Caller Tyler]

Hey, Big booyah from California. How you doing, Jim?

[Jim Cramer]

I am doing well. How about you?

[Caller Tyler]

I am doing good, thank you, sir. I don't know how many times I've sold a position and 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?

[Jim Cramer]

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 bother Jeff Marks endlessly. I. We're down on this. We're down there. We got. No, 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 at the margin. It's something set on the quarter, on the quarterly comps call. It's you. 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.

[Caller Robert]

Hey, Jim. Thanks for taking my call.

[Jim Cramer]

My pleasure.

[Caller Robert]

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?

[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. Bulls make money, bears make money, but pigs? They get so slaughter. Don't be greedy, be disciplined and don't be afraid to pay the tax grant 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.

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[Jim Cramer]

Over $500,000 since its beginning.

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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 inevitable that we're going to make mistakes. It's 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 at once. This is something you can see us put into practice constantly. The child trust. One more reason I think you should join the CBC Investing Club. Shameless promotion. Buying all at once is sheer 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 or 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 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. Bid 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 bought Cat in increments of, say, 5,000 shares gradually over time. During that day, trying to get the best price I could, you put in 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. Here. What I said. I don't mind when a stock goes down. If I can buy More now. I know trade 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 channel 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 all the 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 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 to electronic trading too. At the same time, many others simply want to pull the trigger on the whole position and then get it over with. 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 Chapel 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 only to 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 and get your money back. Those 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 getting the 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 companies which absolutely deserve to see their stocks trade lower. Sometimes damaged companies can be easier to discern and look. When every 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 became a verb. We would zoom just like we Googled. But once we got quality vaccines, the growth opportunity evaporated. The company struggled to use all the money it made during the pandemic to pivot into something else. They had used 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 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 all the financial tech stocks that had roared during the period of ultra low interest rates that coincided 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 into 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 current risk to skyrocket, the stock plummeted. Get this from just over 400, its late 2021 peak down to the low 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 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 in a broken stock? Complicated Complex Question What I like to do is develop a list of stocks I like very much. I call this the bullpen of my investing 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 to pick up the stocks on our list made in the calm of no trading versus the battlefield of when the market's open. We know these stocks ahead of time, so we know the st. 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, 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 sweet reading is caveat amateur they have money's packet.

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[Jim Cramer]

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[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 P500. Well, you got to be rigorous about it. Which brings me to my next rule. Do the homework. Listen, 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 and what's the Relevance of most of the things they teach in high school. How will it help you later in life? I 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 listen to the conference calls, reading research reports, they want no part of it. They look at me as if I'm some sort of old fashioned teacher who's 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. 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 your 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 to buy 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 was the zero. This philosophy took a real blow during the financial crisis when so many people who practice buy and hold got obliterated. That was easy of a buy and hold became popular again during the pandemic. Keeps popping up anytime. There's just a nice smooth period when the market was flooded with cheap money and almost everything worked right. I mean made all 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 sparks. 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 the 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 to go 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. More important 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. 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 controls 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 the given sector came down to this. Any 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 2000. If you had all your eggs in that one basket, you got scrambled. I got to prevent that same of the financials in 2008, 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 a diversification is 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 own. They don't understand what the companies do. So they end up with stocks that are finally some 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 individuals digital sectors. I still feel quite a few calls from people who genuinely think that owning Fang is a diversified strategy. Hardly. With Facebook down meta platforms, Amazon, Netflix and Google now you own variation of the same thing. Social, mobile, cloud may trade together. That's what I call foe diversification. Or another example. No matter how much I might like the oil stocks at any given moment, I can't count as a portfolio made up of Chevron, Pioneer, Natural Resources and I don't know what they give me. I use Halliburton or two, two high yielding ones. In a driller I always say no to a portfolio of J and J, Eli Lilly, Bristol Myers, United Health Group, even As I like all four companies, they just leave you way too exposed to health care risk that could overwhelm the whole group all at once. 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 takes off well, you pretty much beat everybody right then is 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 you? I'll be with Kathy Wood. She's great at picking high risk growth stocks and 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 of 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.

[Caller Robert]

Jim, the second greatest investor of all time, Warren Buffett says individual investors like me 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?

[Jim Cramer]

Well first I'm no Warren Buffett and 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 a in an index fund. If you like picking stocks, let's do it well together. Join in. Join the CNBC investing club. If you don't like picking stocks, then 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, I've been very successful. Let's go to Ann in Indiana. Ann.

[Caller Ann]

Hi, Jim. Thanks for taking my call.

[Jim Cramer]

You're quite welcome, Ann. What's up?

[Caller Ann]

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.

[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 CBC Investing Club. Think of it as a glimpse behind the curtain if you're not a member. So stay with crave. I don't want to go all Zen in the art of portfolio 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 invest wisely, you constantly need to 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. People do it constantly. A stock gets hammered, then investors sell to 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 in motion. When you're investing in the stock market, the truth is, there'll 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. 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 historian Larry Williams gave us the all clear. He was looking at other countries and realized we'd mostly be out of lockdown by mid May. He told you to buy into the teeth of the panic, not flee with the panickers. Sure enough, the SB was making new highs in again by the summer. And once the vaccines came along that November, will the market just never look back? So the next time there's a big market wide sell off and you feel like fleece fleeing and never touching a 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 is 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. Yep. 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 the weakness. And threes, while threes are outright sales is 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 ones you 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. Sell, sell, sell. 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. Painful. So remember, you have to take on a lot of stocks that are going against you. I'll wear you. It'll wear you down, I promise. 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 low. Matt Money is back after the break. Welcome back to tonight's check yourself before you wreck yourself. Additional man 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 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 at 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. 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 owned 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 my Chapel 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 wind 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 head from 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 you can have too many stocks. But you know what? It's very hard to have too much of cash. Which brings you to my next rule. Cash is for winners. The widespread aversion to cash in this business breaks my heart. At times, cash is such a perfect investment that it drives me crazy. How so? Few people ever recommend it. Nah, 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 and 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 the long. It's a strategy who 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 the lousy market. Let me tell you a little story. I was one of the biggest options traders in Wall street for a 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 itch. 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 a tape or 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. 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. 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 stopped 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 asks, 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 free 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. Reinvest.

[Caller Nino]

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 stocks, like a consumer packaged goods 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.

[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 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 of 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 may be the most important research calls of the day. So we're blessed with that. 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 would pay more than 20 times earnings, I would have kept out of video for a decade. Because Nvidia is about future earnings.

[Caller Tyler]

Yeah.

[Caller Nino]

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 reason. They could have declining earnings or there just might be another issue fundamentally.

[Jim Cramer]

That's a great point. I mean, when people look at the automobile stocks, they have historically had very low multiples and just trade on dividends. If they ever really got the growth of a Tesla, the stocks are triple. So anyway, thank you, Jeff. I'd like to say, as always, bull market somewhere. Promise. Try to find it. Just for you, right here on Mad Money. I'm Jim Cramer. See you next time.

[Caller Jeff]

All opinions expressed by Jim Cramer on this podcast are solely Kramer's opinions and do not reflect the opinions of CNBC, NBCUniversal 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 My side hustle brings in over six figures, about $10,000 a month.

[Jim Cramer]

Over $500,000 since its beginning.

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