Mad Money w/ Jim Cramer 7/18/25

Summary

Mad Money w/ Jim Cramer – Episode Summary (July 18, 2025)

Hosted by CNBC's Jim Cramer, "Mad Money" delves deep into investment strategies, market analysis, and provides actionable insights for both novice and seasoned investors. In the July 18, 2025 episode, Cramer tackles the Efficient Market Hypothesis, offers guidance on portfolio construction, discusses the dangers of IPO mania, and engages with listeners through a series of insightful questions.

---

1. The Efficient Market Hypothesis (EMH) Debunked

Time Stamp: [01:23]

Jim Cramer opens the episode by challenging the Efficient Market Hypothesis (EMH), which posits that stock prices fully reflect all available information. He asserts,

“That's just totally bogus. ... markets are not perfectly efficient. In fact, frankly, they're often irrational.” ([01:23])

Cramer argues that markets frequently misprice stocks due to irrational behavior, creating opportunities for investors to outperform indices through meticulous stock selection. He highlights his personal success, mentioning a 24% compound annual return over 14 years at his hedge fund, compared to the S&P 500’s 8% during the same period.

---

2. Investment Strategies: Beyond Following the Crowd

Time Stamp: [01:23] - [15:14]

Cramer emphasizes the importance of independent thinking in investing. He warns against succumbing to groupthink, explaining:

“The most useless thing you can do as an investor is to worry about what everyone else is worrying about.” ([01:23])

Instead, he encourages investors to focus on unique opportunities and undervalued stocks that others might overlook. He also touches upon various investment approaches, such as:

• Timing the Market: Attempting to buy low and sell high based on market gyrations.
• Trading Around a Core Position: Balancing a substantial holding with selective trading to capitalize on market movements.
• Index Fund Investing: Advocating for low-cost index funds for the majority of one’s portfolio, aligning with his belief in their efficacy for most investors.

Cramer reiterates his support for index funds, especially for retirement accounts, while also highlighting the potential for individual stock picks to outperform when done correctly.

---

3. Caller Interactions: Practical Investment Advice

Time Stamp: [09:14] - [47:45]

Throughout the episode, Cramer engages with listeners, addressing their specific investment concerns:

• Mary from Idaho ([09:14] - [10:06]): Inquires about profit-taking strategies. Cramer advises a disciplined approach, suggesting selling portions of a stock after consecutive miss quarters and reinvesting the proceeds into better-performing stocks.

  “I’ve done this is create a level discipline that that’s what you should do, Mary.” ([10:06])

• Dave from Colorado ([10:50] - [12:46]): Seeks guidance for his girlfriend’s portfolio. Cramer recommends a split portfolio with two-thirds in the S&P 500 index fund and one-third in selected high-potential stocks, particularly focusing on the MAG7 (seven leading growth stocks).

  “I would put two thirds of it in an S and P index fund... and 1/3 I would structure around... mostly MAG7.” ([11:42])

• Howard from New York ([28:46] - [31:38]): Discusses portfolio gains and asks about trimming profits. Cramer outlines a systematic trimming strategy, selling portions of holdings after significant gains (e.g., 20%) to lock in profits while remaining invested.

  “We believe in discipline and we believe in conviction. Discipline was always trump conviction.” ([29:17])

• Ned from Ohio ([29:58] - [30:29]): Questions about high-growth companies and Nvidia as an example. Cramer praises Nvidia for consistently outperforming earnings estimates and maintaining strong growth.

  “Nvidia... has a remarkably low price earnings multiple.” ([30:29])

---

4. Navigating IPO Mania: Risks and Rewards

Time Stamp: [31:57] - [38:16]

Cramer delves into the IPO (Initial Public Offering) cycle, cautioning investors about the pitfalls of excessive new stock offerings. He recounts the 2020-2021 IPO surge, highlighting:

• The initial excitement and rapid stock price increases of companies like Zoom and Quantumscape.
• The subsequent collapse as the market became oversaturated with new stocks, leading to significant losses for many IPO participants.

He notes:

“When you pack into a crowded trade, you're playing with fire... the easy money’s already been made.” ([15:14])

Cramer emphasizes the importance of caution during IPO booms, advising investors to:

• Evaluate Fundamentals: Focus on companies with strong financials and sustainable business models.
• Beware of Overvaluation: Recognize when hype has driven prices beyond reasonable valuations.
• Diversify Carefully: Avoid overconcentration in speculative IPO stocks.

---

5. Distinguishing Signal from Noise in Stock Movements

Time Stamp: [23:16] - [38:19]

Cramer explores the challenge of differentiating meaningful stock movements (signal) from random fluctuations (noise). He explains:

“When you see dramatic swings in individual stocks, your mind will try to draw connection to the fundamentals... sometimes that connection genuinely exists, other times the action the stock is noise.” ([23:16])

Key points include:

• Overbought/Oversold Conditions: Using technical indicators like the Slow Stochastic Oscillator to identify potential reversals that might not reflect underlying fundamentals.
• Unusual Market Actions: Recognizing when a stock's movement contradicts general expectations, signaling potential investment opportunities or risks.
• Avoiding Emotional Reactions: Encouraging investors to stay rational and not make hasty decisions based on short-term market noise.

Cramer advises:

“Take your Q4, the fundamentals, the underlying company. Don't put too much significance on day to day gyrations in the share price.” ([29:28])

---

6. Expert Insights with Jeff Marks: Portfolio Construction and Stock Selection

Time Stamp: [43:24] - [47:45]

In collaboration with Jeff Marks, Cramer addresses advanced topics in portfolio management:

• Identifying Top Companies Within an Industry: Focus on highest growth margins and strong partnerships, as highlighted by Marks.

  “See who's partnering with who. That will give you a good tell about who's best of breed...” ([43:57])

• Optimal Number of Stocks for Diversification: Recommends maintaining a manageable portfolio size (5-10 stocks) to ensure effective monitoring and research.

  “Try to keep it to 10. Don't be a mutual funder yourself.” ([45:09])

• Index Funds vs. Total Stock Market Funds: Explains that total stock market funds offer broader diversification, including mid and small-cap stocks, potentially providing marginally better long-term performance.

  “Total stock is. You'll have the mid caps, some of the smaller caps as well.” ([46:18])

• Trimming Profits and Managing Losses: Advises on systematic profit-taking and accepting losses to maintain a healthy portfolio balance.

  “There’s nothing wrong with admitting that you have a loss. What matters... is you just win more than you lose.” ([47:19])

---

7. Final Thoughts: Discipline Over Emotion

Time Stamp: [47:45] - [48:24]

Cramer concludes by reinforcing the importance of discipline and rational decision-making in investing. He cautions against emotional trading and urges investors to stick to their strategies, leveraging both index funds and selective stock picking to build a robust portfolio.

“If you want to be a better investor, don't tear your hair out, Freddie, about the same things as everybody else.” ([15:14])

He encourages listeners to join the CNBC Investing Club for continued education and support in their investment journeys.

---

Notable Quotes

• On Efficient Markets: “Markets are not perfectly efficient. In fact, frankly, they're often irrational.” ([01:23])

• On Following the Crowd: “The most useless thing you can do as an investor is to worry about what everyone else is worrying about.” ([01:23])

• On IPO Caution: “The easy money’s already been made.” ([15:14])

• On Stock Movements: “Take your Q4, the fundamentals, the underlying company. Don't put too much significance on day to day gyrations in the share price.” ([29:28])

• On Diversification: “Try to keep it to 10. Don't be a mutual funder yourself.” ([45:09])

---

Conclusion

In this episode of "Mad Money," Jim Cramer provides a comprehensive analysis of market theories, investment strategies, and practical advice tailored to individual investors. By challenging prevalent market hypotheses and advocating for disciplined, informed investing, Cramer equips listeners with the tools necessary to navigate the complexities of Wall Street successfully. Engaging with audience questions further enhances the show's value, offering personalized insights that resonate with a diverse investor base.

Transcript

[Dell Representative]

Introducing the new Dell AI PC. Powered by the Intel Core Ultra processor, it helps do your busy work for you so you can fast forward through editing images, designing presentations, generating code, debugging code, summarizing meeting notes, finding files, managing your schedule, responding to Jim's long emails, leaving all the time in the world for the things you actually want to do. No offense Jim. Get a new Dell AI PC starting at $[e-mail] AI PC how those ahead.

[Relay Representative]

Stay ahead did you know over 75% of small businesses don't have enough cash on hand to cover unexpected business disasters? You need Relay, an all in one banking and money management platform that will change the way you think about money. With Relay, you can open up to 20 accounts to separate your cash for things like income, payroll or operating expenses. All you need is a few minutes to sign [e-mail] podcast that's R E L-A-Y-F I.com podcast Relay is a financial technology company and is not a bank. Bank services provided by Threadbank member FD.

[Jim Cramer]

Hey, I'm Kramer. Welcome to Matt Money. Welcome to Kramer. I'd be one of my friends. I'm just trying to make a little money. My job is not just entertainment, but to educate and teach you. So call me at 1-800-73-CBC tweet be Jim Cramer. You want to know the single most useless thing you can do in this business? Oh, that's easy. The most useless thing you can do as an investor is to worry about what everyone else is worrying about. The flip side of this is also true. There's no point in getting excited about something that everybody else is eagerly anticipating. Why? See, because when the vast majority of investors agree that something's going to happen, that thing is already priced into the stock market priced in while the real economy moves at its own state pace. For example, you got to borrow money to buy a build out equipment, then use that equipment to manufacture goods and transport them to retail outlets and wait for the customer to come along and buy them. The stock market has no such limitations. Stocks don't quite travel at the speed of thought, but they come pretty close. So the moment of preponderance of hedge fund and mutual fund managers decide that the economy slowing or speeding up or flatlining stocks start trading like that's already the case. Usually it takes some time to build that kind of consensus, which is why you rarely see these moves happening instantaneously. But once the big institutional portfolio managers are on the same page about something, you can be pretty darn confident that it's baked into the averages. This is some basic economics one on one stuff. Now, I don't have a ton of use for economists as a professional in this show. They tend to take a totally ivory tower approach to this discipline, meaning they have all sorts of models for how the world's supposed to work, the economy supposed to work. Often very boring models by the way. But they rarely let the empirical facts get in the way of a good theory if the data conflicts with the model. Economists have a bad habit of throwing away the data and not the model. However, as long as you keep that caveat in mind, some basic economics is incredibly useful when you're trying to manage your own money. For example, let's take something a little bit difficult, but we're going to get get this together. What's known as the efficient markets hypothesis. This series says that at any given moment, stock prices already reflect all the relevant information that's out there. And when some new piece of data comes out, stocks immediately adjust to reflect the new reality. You often hear index fund purists citing this theory to explain why it's impossible for stock pickers to get any kind of edge. Because whatever you know about a company should already be baked into its share price. As far as they're concerned, markets are so efficient that investing in individual stocks is basically the same as gambling. If everything you could possibly know is already priced into the stock, that means your homework is meaningless. And the only thing that can push a stock higher or lower is some random new piece of information nobody knows about. It has to be something totally unknown, because if anyone did know, they would have acted on already, ergo would be baked into the share price. That means under the extreme version of the efficient market hypothesis, the only thing that can move stocks are unknown unknowns, to use the parlance of former Defense Secretary Donald Rumsfeld. And if you're merely betting on unknown unknowns, you might as well just be playing roulette. It's more fun again, that's why index funds advocates adore the efficient markets hypothesis. The this theory tells them that it's impossible for individual investors to consistently beat the averages. So if you want equity exposure, the only smart way to do it is putting your money into a nice low cost index fund that mirrors the s and P500. Now, as anyone who watch the show regularly knows, I have no beef with index funds. In fact, I think they're the best way for the vast majority of people to invest in the market. I've held that that position since the year 2000. Even if you've got the time and the inclination to pick individual stocks and manage your own portfolio, you you should still direct a big chunk of your savings, if not the plurality of it, into some cheap s and P500 index fund. It's the safest way to give yourself equity exposure. It's perfect for your retirement accounts. Think about this. It's not that easy to be a good individual stock investor. It takes real work. Which is why of course, we try to help you if you join the CBC investing club. But it's an incredibly easy thing to be an index fund investor. Putting money in a 401k or a lot of index fund territory. You can gradually contribute over time with every paycheck. And as long as you believe the US economy can keep growing over the long haul, you can park that money in an index fund and check in on it maybe once or twice a month. But to get back on track, this idea that you can't possibly beat the averages because of the efficient market hypothesis tells us stocks are always perfectly valued. And you know what? That's just totally bogus. Putting aside the fact that I did consistently beat the averages nearly every year at my old hedge fund, giving my clients a 24% compound annual return after all fees over the course of 14 years, versus 8% for the S and P, the simple truth is that markets are not perfectly efficient. In fact, frankly, they're often irrational. They ignore things, make mistakes, misvalue information every day. And that's a major reason why anyone can make money picking individual stocks. These anomalies are everywhere, and they can be great for your portfolio. Ironically, this core dogma of free market economics is a lot like communism. Makes a lot of sense in theory, doesn't necessarily work in life. So why the heck did I bring up the efficient markets hypothesis in the first place? Is such a boneheaded idea. Because even if the most extreme form of this theory isn't true, and it's not empirically, we know for a fact that markets are all kinds of inefficient. It's still a very useful idea. As an ironclad law of the universe, the efficient markets hypothesis can't help us. But as a rough guideline, it can lead us in the right direction. But markets try to be efficient. They aspire to be to efficiency. When a company puts a fantastic quarter, stock spikes immediately. Because that kind of data, this can get baked in very quickly when the Federal Reserve changes policy, telling us is probably done raising interest rates that we saw in late 2023. That's huge news. And it takes longer to get reflected in the average. Baking that in could take months. Even when the Fed abruptly changed courses at the end of 2018, that kind it took weeks to work in through the averages. Stocks that benefit from lower rates will instantly soar. But it can take days or weeks or even months for the average to fully reflect the new normal because it takes time for portfolio managers to reposition. We're talking about huge slugs of stock here. No hedge or mutual funds is going to buy or sell them all at once. Sooner or later though, we do reach a new equilibrium. So let me give you the mad money version of the efficient markets hypothesis. Quote the kind of sort of efficient markets corollary. When there's a widely held consensus view about something, anything, be it positive or negative, you have to assume that view is already being discounted by the stock market. So when everyone's feeling euphoric about the strong job market, that's probably baked into stock prices already. When everybody's worried about a temporary Fed mandated slowdown is probably baked in. When investors are hunkering down and fear bad earnings season, don't expect the stocks to get slammed in disappointing numbers. People are already anticipating a disappointment. In short, when all the talking heads and journalists and media friendly money managers are telling you to be afraid of the same thing, that might be the one thing you don't actually need to be worried about. Let everybody else worry for you. From the stock market's perspective, the fact that most investors believe something's going to happen means that Wall Street's already treating it as a reality. Yet it's so easy to fall prey to groupthink when you're managing your own money. Emotions are infectious like communicable disease. Frankly, when you see all sorts of experts coming on television and saying the same thing while the newspapers print similar stories and your friends echo this stuff back to you, it's only natural to assume must be true. And you know what? Very often it is true. But that doesn't mean it's going to move stock prices. By the time we get any kind of real consensus on issue, that move is probably over. You missed it. The bottom line, if you want to be a better investor, don't tear your hair out, Freddie, about the same things as everybody else. Instead, you should worry about the things other people don't seem to care about because the real threat is the one that you don't see coming. Let's take questions. Let's go To Mary in Idaho. Mary.

[Mary]

Hi Jim. Nice to talk to you again. I have a comment and a question for you. The comment is regarding when you were talking about the conventional stupidity. Yes, I sent you an email on that and I hope you'll have an opportunity to read it. I thought you'd enjoy it.

[Jim Cramer]

Thank you.

[Mary]

The question is at what percent of increase in the stock? Should a person consider taking some or all of their profit either to reinvest immediately or to just hold back as cash to buy something down the road?

[Jim Cramer]

Okay, let's take this from the point of view of that you need to sell something in order to be able to buy something. What I like to do, and we talk about this CBC Investing Club, is that if a stock has changed, if there are fundamental differences from what happened when I bought it, in other words, let's say I bought a stock and then subsequently has two bad quarters. Well, that's what I want to sell. I rank the stocks, I lower stocks ranking if they've missed a couple of quarters and, and then I boot that to buy something I think is better. There are going to be moments where a third quarter turns out to be good and I didn't get it and I kicked myself when that happens. But what I've done is create a level discipline that that's what you should do, Mary, and thank you for your email too. Let's go to Dave in Colorado. Dave, hi Jim. Dave, how are you?

[Dave]

Colorado? Booyah to you.

[Jim Cramer]

Booyah.

[Dave]

Longtime listener, first time caller. Thank you for all you do. A side note, my mom got me into investing decades ago and had me watch Wall Street Week in Review with Louis Rukeyser, Marty Swag, and you are carrying on their legacy so well.

[Jim Cramer]

That's how I got involved too. So we're in the same boat. Let's go to work.

[Dave]

All right, let's go to work. Here's the setup. I'm calling on behalf of my girlfriend who is in her early 60s. She's retired with a state pension. She has an investment management firm managing 600,000 in stocks and ETFs in tax deferred accounts, but they're charging her 1% per year.

[Jim Cramer]

Okay.

[Dave]

They haven't kept pace with the s and P500 and have actually avoided the MAG7 and growth stocks almost completely. She wants to manage her money on on her own. Two questions. How should she construct a portfolio of her own? And over what time frame should she make the change?

[Jim Cramer]

Okay, so I would put two thirds of it in an S and P index fund. Obviously if they can't beat it, just go for it and join it then 1/3 I would structure around We've been saying a portfolio of say 6 to 10 stocks of which 2 or 3 can be overweighted and large. Mostly mag 7. I should add stocks that we think are really great. CBC Investing Club can help you pick those 10 because we have a portfolio of more than 30 and you just take the 10 that you're most excited about and no more 1%. You're now free to move and well, she is. And tell her congratulations for having saved up that much money. That's terrific. All right. The most useless thing you can do as an investor is to worry about what everybody else is worried about. Remember, the real threat is the one you didn't see coming. I'm inbody today I'm giving you my Madonna course in giving you all my best practices for investing. Sometimes you need to take a step back and evaluate not just what you're investing in, but how. So if you want to better your investing skills, I say yes indeed. Stick with Kramer.

[Dell Representative]

Don't miss a second of Mad Money. Follow imkramer on X. Have a question? Tweet Kramer Madmentions. Send Jim an email to madmoneynbc.com or give us a call at 1-800-743-CNBC. Miss something? Head to madmoney.cnbc.com Are you looking to invest in municipal bonds? For extra protection, buy bonds insured by Assured Guarantee. It guarantees that 100% of your principal and interest will be paid when due. Assured Guaranty has demonstrated reliability and financial strength for nearly four decades. That's why the bonds they back are one of the safest investments you can make. Visit assuredguaranty.com assured guaranty a stronger bond.

[Fidelity Representative]

Don'T just ride the index, seek to outperform it with FELC, the Fidelity Enhanced Large Cap Core ETF. Unlike passive ETFs, FELC is run by a team of experts to adapt to market conditions and pursue upside potential wherever it's hiding. And while you get the potential outperformance of an actively managed fund, you can still buy and sell it on your terms just like any other ETF. Discover FELC the Fidelity Enhanced Large Cap Core ETF part of Fidelity's suite of active ETFs. Learn more at fidelity.com felc before investing in any exchange traded fund, you should consider its investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus and offering circular or if available, a summary prospectus containing this information. Read it carefully. While active ETFs offer the potential to outperform an index, these products may more significantly trail an index as compared with passive ETFs. Fidelity Brokerage Services LLC Member NYSE SIPC.

[Relay Representative]

Did you know over 75% of small businesses don't have enough cash on hand to cover unexpected business disasters? You need Relay, an all in one banking and money management platform that will change the way you think about money. With Relay, you can open up to 20 accounts to separate your cash for things like income, payroll or operating expenses. All you need is a few minutes to sign [e-mail] podcast that's R E L A-Y-F I.com podcast Relay is a financial technology company and is not a bank. Bank services provided by Threadbank Member FDIC.

[Jim Cramer]

Like I told you before the break, when you pack into a crowded trade, you're playing with fire. If everybody's on the same page about a stock, or even a whole sector, that usually means the easy money's already been made. Doesn't mean you can't profit from something obvious. But when you're late to the party, you're going to have lower returns and higher risk. Look, that's just the nature of the beast. Fortunately, nobody's putting a gun to your head and forcing you to follow the hedge fund herd. In fact, you don't even have to think about spotting tops and bottoms by gauging sentiment. And if you don't want to, there are lots of different ways to invest. Some of them take less work than others. For example, there's timing. You could try to call every gyration. The average is buying stocks when they look poised for a near term bottom and selling them when they look toppy. You can trade around a core position. You take a large holding, then you lighten up on part of your position when it gets overextended to the upside and buy it back when the stock sells off. You can keep your battle on your shoulder, waiting for the perfect moment where the whole market sells off dramatically, giving you a chance to pick up your favorite stocks for much less than there were. My fave pack of my hedge fund I love doing this stuff. If you've got the time, and of course you need the inclination and the right resources, it is a terrific way to make money. But if you got a full time job, this whole approach is just nuts. And I say that as someone with a terrifying extended family history of mental illness. Regular people who work that's funny. Regular people who work for a living don't have time to stare at the time tape all day. Even if you work the night shift. It's just not a good use of your precious free time. More importantly, trading this actively just isn't worth the agitation. That's why I come here every night to do the show. I focus on the market like a hawk so that you can take a less intense approach to investing. One that lets you go to work and have a personal life. It's why we help walk you through all these different things with our Travel Trust when you join the CBC Investing Club, which you know, I really want you to do. So how should you approach the market if you're not prepared to devote your entire waking life to watching stocks? What's the safest way to handle individual stocks part time? For starters, let me say once again that index funds are a wonderful thing. If at any point when I'm describing sounds too daunting to you or just too time consuming, please do not hesitate to say individual stocks are not for me. And just put most of your mad money, that's the cash you invest with, that's not part of your retirement portfolio, into a nice low cost index fund or etf. They have very low fees that mirrors the S&P 500. I said this before the breakthrough, but that's because it's good advice. Being a savvy stock investor takes work. Being a savvy index fund investor, well, let's just say it's relatively easy. Sure, if you manage your portfolio well, if you do the homework and stay disciplined, I think you can beat the S&P 500 with a diversified group of individual stocks. And I do like one or two overweighted just here, you know. But not everybody has that kind of time. Not everybody has that temperament. Not everyone is comfortable taking on more risk to chase a higher return. And that's perfectly fine to see. You got to do what's right for you. Call that suitability what suits you? So keep that index fund option in your back pocket. Now, assuming you really do want to try to profit from individual stocks, let's talk about how you can do that without the stock market taking total control of your life. First, from the get go, you need to accept that the best is enemy of the good. There's no point in trying to buy or sell stocks at the perfect moment. Nobody's that talented. Even making the attempt will drive you nuts. You need to accept results that are good enough rather than trying to chase perfection. For example, if a stock you like gets hammered down from $60 to $50 and you pull the trigger. But then it goes down another couple of points before it bottoms and rebounds to $60. Please don't kick yourself for making a mistake. You didn't screw up. You made a good point pick. Okay, yeah, you could have made a couple extra points if your timing had been flawless, but a wins win. Second, regular viewers know that I don't believe in the concept of buy and hold. I believe in the concept of buy and homework. Meaning you need to keep researching your companies after you own a piece of them. And if something goes terribly wrong, well, you may have to bail. I think it's a good idea to buy stocks slowly on the way down and sell them gradually on the way up. All of this requires a certain amount of active management. Please don't feel compelled to be too active though. Now the last thing you need is to be flitting in and out of stocks with every gyration in the broader market. You want to be an investor, not a trader. You think you can time things perfectly and flit in and out, but most gains occur in concentrated bursts, so you're liable to miss them if you're on the sidelines. Thank you great Peter lynch for putting that in my head Again. If you've got the time and the inclination to trade, that's great. However, most people don't. When you got a full time job and you're trying to manage your own portfolio, you need to be willing to sit tight with the stocks you believe it. There will be sell offs. There will be rotations out of one group and into another. There will be crazy action on a week to week and even day to day basis. You don't have to constantly adjust your holdings based on these moves. If you believe in the stocks you own, and you shouldn't own anything you don't believe in, then you should be willing to stick with them when the backdrop gets tough. Ideally you'd be able to trade in and out, but like I told you, the best is the enemy of the good. In reality, when everybody's panicking over the latest crisis, you're going to be tempted to panic too and just sell everything. Get out now. You might even avoid a substantial decline by bailing on the whole stock market. Sooner or later you need to get back in. The whole point of sidestepping a decline is to sell high and buy your favorite stocks back at a lower level. Unfortunately, again, it's really hard to nail the time here to see my theme. It's I don't want you to do the impossible if you dump everything, there's no guarantee you'll be able to buy your stocks back for something. Changes in the market comes roaring back. Witness when the market bottomed in October of 2023 when long term interest rates peaked and started heading lower. Well, something almost nobody saw coming. What's the solution? If you don't want to give yourself a panic attack every day, keep doing the homework so you know what you own when your stocks surge higher. Use that opportunity. Ring the register just on part of your position. Raise a little cash after 20% move or more. You need to take something off the table. That's my limit these days. When you stop when your stocks get hit, put that cash to work buying more shares at lower prices. But you don't have to nail every short term, top and bottom. Let me give you the bottom line here. To trade or not to trade. That is the question. If you're trying to be an investor who doesn't need to stare at the tape all day long. It's no blur in the mind to suffer the slings and arrows of outrageous fortune. You don't need to be perfect at of the day. The end managing your money. You just need to be good enough. And that means you shouldn't waste your time trying to anticipate every little gyration in the market. Take a page from Jimmy Chill and relax. Their money's back into the room. Booyah for the Emperor of Kramerica.

[Dave]

Honorable James J. Kramer.

[Jim Cramer]

You got me jumping around my office right now.

[Howard]

Thank you so much for all you do for us. I enjoy your show and I find it very entertaining. Entertaining and informative.

[Dave]

I watched your first ever episode of Mad Money back in 2005 and I've been watching every single episode ever since.

[Dell Representative]

Don't miss Mad Money every night at 6pm Eastern. Plus join the CNBC investing club and stick with Kramer around the clock. Are you looking to invest in municipal bonds? For extra protection? Buy bonds insured by Assured Guarantee. It guarantees that 100% of your principal and interest will be paid when due. Assured Guaranty has demonstrated reliability and financial strength for nearly four decades. That's why the bonds they back are one of the safest investments you can make. Visit assuredguaranty.com Assured guarantee a stronger bond.

[Relay Representative]

Did you know over 75% of small businesses don't have enough cash on hand to cover unexpected business disasters? You need Relay, an all in one banking and money management platform that will change the way you think about money. With Relay, you can open up to 20 accounts to separate your cash for things like income, payroll, or operating expenses. All you need is a few minutes to sign [e-mail] podcast that's R E L A Y-F I.com podcast Relay is a financial technology company and is not a bank. Bank services provided by Threadbank member FDIC.

[Jim Cramer]

The stock market talks to me. And I mean that figuratively, not literally. Contrary to what you may have read on X formerly known as Twitter, I do not hear voices. Although periodically I think that my left molar crown does indeed play music. But that's not what we're talking about here. I'm constantly listening to the tape, not music, to get a read on what the big institutional money managers are up to. And to do that, I need to separate the signal from the noise. What I mean by that okay, on any given day, there might be monster moves in individual stocks. It's tempting to assume that all these swings are equally significant, but some are a lot more meaningful than others. So when you see the cloud stocks versus getting killed, for example, the natural conclusion to draw is something must be wrong with the cloud. When a really low group bounces, it's not much of a stretch to assume that the pain must be over. But that's too easy. The truth is, some of these moves are a signal signal. And some of them are noise. Signal means something. It tells you that the stock will probably keep moving in the same direction. Noise, the other hand, well, is noise. To borrow my favorite line from Macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more. It is a tale told by an idiot, full of sound and fury, signifying nothing. In short, while signal carries a message, there's no real takeaway from noise. In another life, Shakespeare would have been even dynamite investor. Distinguishing the signal from the noise is as much an art as the science. So how do you tell when a major stock swing hurled something larger? Before we get into what makes a move meaningful, you need to understand that we get major single day advances and declines with no real significance all the time. Good stocks can get ahead of themselves, rallying too far too fast for selling off. The technical term for this is overbought, and charters measure it with the Slow Stoke Stochastic oscillator or the Williams Percentage R oscillator, named after the legendary Larry Williams. We talk about a lot when we go off the charts. When something's overbought, it means pretty much everybody who wanted the stock at a given level has already purchased it. Even the Highest quality company can have an overbought stock, and when you run out of buyers, you almost always get a pullback. But this kind of overbought sell off doesn't tell you anything except that the stock in question you take a breather and digest its gains. At the same time, even bad stocks can rally, and for similar reasons. If they get oversold because they've come down too quickly, you tend to get a nice oversold bounce. Once again though, this is the sort of rally that doesn't convey much information. It's noise. A stock gets oversold, it bounce. Unless something else changes, it can go right back down once the works off the bounce. I bring this up because when you see dramatic swings in individual stocks, your mind will try to draw connection to the the fundamentals, the real world facts about how the underlying company is actually doing. Sometimes that connection genuinely exists, other times the action the stock is noise, not a signal. And you'll end up feeling very foolish if you take your cue from that kind of action. Those who want to know more about this can go back to the canon on stock markets. And that's Confessions of a Street Addict where I describe how easy it is to see a stock move a point and convince yourself something's really happening underneath to really funny part of the book. All that really happens is that you have more buyers and sellers at a given moment in a way that might be totally unrelated to the actual company. I demonstrate that with a long time ago with a stock called Stride rates. Pretty funny, hey? By the way, this is something we're constantly walking through with the CNBC investing club. Of course, it's not just the technicals. There are plenty of other reasons why a stock might explode higher or meltdown that have nothing to do with the fundamentals. Sometimes the market simply makes a mistake and then the mistake gets rolled back, no greater significance. Maybe people misinterpret a good quarter as a bad one, something that happens quite often during earnings season because there's so many things happening at once. Maybe money managers are dumping stocks in one purely to raise money so they can buy another. Yeah, one that's hotter. So what kind of action carries real significance? How do you know when a big moves foreshadowing something even bigger down the line? All right, there's a lot of signal. That's pretty obvious. Company reports a blowout quarter and its stock roars. Obvious. An analyst cuts estimates and the stock plummets. Obvious. That's just business as usual. Now I prefer to look for the unusual. Company catches an Analyst downgrade and stock goes up. Interesting signal. Counterintuitive. In my experience, when the stock refuses to go lower on bad news, it often means that's putting in a bottom and is ready to rocket higher. The same token, when a company puts a fantastic quarter, it gives you great guidance. A bullish conference in the stock at slam. Well, look, that's the kind of signal I'm looking for too. It means Wall street believes this company is looking at its last great quarter. When your stock falls on positive news, well, you may be looking at the top. For the most part, though, you can't decipher hidden messages in the way stocks are trading. Except in some rare cases, you probably shouldn't even try. It's important to know what's working and what's not working in any given market. But you can't let your money management decisions be completely guided by what's in or out of style on the Wall street fashion show. Otherwise you end up owning stocks just because they're going higher. And that is a terrible place to be because you won't know what the heck to do with them once they inevitably start coming down. Here's the bottom line when you're evaluating stock. Take your Q4, the fundamentals, the underlying company. Don't put too much significance on day to day gyrations in the share price. Sometimes you can extrapolate a great deal from a big move in an individual stock. But more often it's telling you something you already know or it's just noise that means nothing. Let's take calls. Let's go to Howard, New York.

[Howard]

Howard boy Jim, this is how we from the Bronx, first time caller and club member.

[Jim Cramer]

Excellent. Thank you, my friend. Thank you. Howie, what's going on?

[Howard]

Every time I visit with my grandson, he looks at my portfolio because he knows I'm always watching Mad Money every day. And thanks to your 10am conference calls and your intraday alerts, he sees gains of anywhere from 60 to 200% to some of my stock. Now, my grandson, he wants to be an investor too. Here are my questions.

[Jim Cramer]

Okay?

[Howard]

Threefold. When do I start to trim? How much should I trim? And more importantly, because I like these stocks so much and I believe in them, when can I get back in?

[Jim Cramer]

Okay, these are really great questions and they're fundamentals because what happens is, is that we believe in discipline and we believe in conviction. Discipline was always trump conviction. That means that we like to start trimming 20%. 20% up, we'll trim between 5 and 10%. Another 20%. Same thing. If we really want to be able to be in shape, to be able to buy some back, we must do that. And that's how we play it. Otherwise we let it run if we got our cash out. Holy cow. Ned in Ohio. Ned, five star.

[Ned]

Professor Kramer, it's good to talk to you today, sir. How are you?

[Jim Cramer]

I am good, Ned. Thank you for calling in. How can I help you?

[Ned]

Yes, sir. Well, a couple months ago I was listening to Warren Buffett and he talked about high growth rate companies that eventually forge their own anchor. He said the company keeps expanding and its shares kept rising. Would you explain that to me? And does it? Is Nvidia an example of that?

[Jim Cramer]

Well, in video is a really great example. Let me tell you why. Because when you look at Nvidia on forward earnings or the estimates, it always looks expensive. And then it so far trumps those estimates that when you look backward, it turns out that the stock was selling at a remarkably low price earnings multiple. And that's been the secret to Nvidia literally since 2012. Incredible. It just keeps doing that. Please don't put too much together on day to day gyrations in the stock share price. You have to know when something is a signal and when it's all just sound and noise signifying nothing. Watch what man bunny at. I'm highlighting one of my key points pitfalls that many investors falsely think of as an opportunity. I'll explain why you should be more cautious than you think. And I'm taking all your investing questions with my investing club partner Jeff Marks. So stay with Kramer.

[Howard]

Good evening, Mr. Kramer. Thank you. Thank you for everything you do. You've been such a wonderful source of information with your teachings. I have to say thanks.

[Fidelity Representative]

Thank you for all your advice and.

[Jim Cramer]

Saving us from ourselves.

[Howard]

Your advice let me quit a job that I hated.

[Jim Cramer]

I love you to death.

[Howard]

Thank you for everything you do. Thanks for making us money and more importantly, thanks for keeping us from losing money.

[Jim Cramer]

All night I've been warning you about the dangers being a follower and everybody expects the same outcome. In the stock market there's very good chance it won't play out as expected because it's already priced in. That's what we call priced in. And that's why you need to be extra wary of the IPO cycle. Let's go over this. We've seen the pattern over and over again. We get this deluge of new deals. At first many of them explode higher but at the same time they're flooding the market with new stock supply and that supply ultimately drags us down. I said it a million times. The stock market is like any other market. It's all about supply and demand. Too much supply and prices are going to be lower. The problem is when IPOs are making people fortunes, you tend to get a palpable sense of exuberance. And then when the deals start attracting less interest, the exuberance turns into hostility. And then the whole market, not just the IPOs tends to get slammed. We've seen this happen so many times. In 2020 and 2021, we got this wave of new IPOs and SPAC mergers as many people invested their government stimulus checks in the hottest looking stocks in the market. Just in 2021, get this, we had roughly 400 traditional IPOs and another 200 SPAC mergers, which originally were meant to be blank check companies that would make a bunch of acquisitions over time. But in 2020, lots of startups began to use SPAC mergers as a way to come public while evading the strict regulations that the SEC, you know, the securities Exchange Commission places on IPOs. Now initially there were some very exciting ones that really caught fire. For example, Zoom video. This one came public in 2019 and then soared to the stratosphere in 2020, once the pandemic made its platform essential, at least during the COVID year. At first you get a bunch of hot deals to get people excited. 2020, we also had a ton of electric vehicle and charging station related IPOs and SPAC mergers. At first these stocks were unstoppable, although most of that was because this was a period of high, high risk speculation where people were willing to give anything with the right buzzwords. The benefit of the doubt. Mistakenly of course, reminiscent of the dot com era in the late 90s when anything connected with the Internet was beloved until the market was flooded with excess supply. The whole group collapsed in the year 2000. I'm going to give you a really concrete example from 2020. It's company called Quantum Space. Quantum Space, which in retrospect was basically a science experiment looking to develop better battery technology for electric vehicles. Anyone can develop better, more efficient batteries with the ability to charge very quickly and you can make a killing even in a world where electric cars have lost some of their luster. But Quantumscape was a long way from having anything they could actually commercialize that they could sell. Even four years later, these guys still didn't have any meaningful revenue. Back in 2020 and early 2021, Wall street was still giving the benefit of the doubt to anything Connected to electric vehicles. Vehicles. Quantumscape came public via SPAC deal. And you have to remember you have to be really skeptical of those. And when that merger was announced, the SPAC it was merging with saw its stock more than double in just two trading sessions, putting in the 20s. Now during this initial period of maximum hype, the stock I know this could be crazy, but stock shut up shot up to nearly $132 and that's where it peaked in December 2020. Then we started seeing short sellers come out of the woodwork arguing it was a scalp damn. And Wall street gradually lost interest in companies with zero profitability, let alone super speculative names like Quantumscape, no revenue. In the end the stock got obliterated by late 2022 is a single digits since only been able to bounce above those levels at times thanks to what I regard as an occasional short squeeze. And the Quantumscapes hardly alone don't mean to pick on it. All sorts of electric vehicle plays that came public during the ipo frenzy of 20 and 21 got crushed. Riviano though, and it ended up coming back but Lucid Nikola, Canoe, the Lion Electric, Lightning Motors, Lordstown Motors, Faraday Future Intelligent Electric all saw their stocks plunge more than 90% from peak to trough. Many like Nikola turned out to be well, had some fraudulence. Their founder and CEO was even sentenced to prison. Again though, we had roughly 600 companies come public just in 2021. And by the second half of that year many of these deals were blown up in your your face because we already had far too many newly minted stocks. The moment the Fed started talking tough about raising interest rates in November 2021, the entire edifice collapsed and these new issues spent pretty much the entirety of 2022 getting eviscerated. That's why I came out and warned you about the dangers of the IPO mania in late 2021. I said there was one surefire way to wound a bull market and that's by flooding it with lots of supply new supply again. When times a company start coming public, we basically get a supply glutton stock market. I also warn you that eventually the IPO bubble would burst and then you might be left holding the bag. Don't forget hundreds of really low quality companies that came public in the 2000 year old and they went bankrupt. 2021 was just as bad. In fact you could argue was worse because so many of these were SPAC mergers and that could make absurdly overconfident long term forecasts that the SEC would never allow in a traditional ipo. The other big problem, when portfolio managers get excited about putting a lot of money to work in new IPOs, and they often need to raise that money by selling something else. And when there are a lot of large deals, they need to do a lot of selling. 2021 was a little different, thanks to the Fed's zero interest rate policy and all the stimulus checks that people got from the government. But in a normal IPO cycle, the new tends to trout out the old. That's what happens. You sell to buy. Remember, the bulk of the new money that comes into the market goes into index funds and they can't participate in IPOs because those stocks aren't in the industry policies yet. The actively managed funds that participate in these deals in the aggregate don't have enough cash coming in to get in on a bunch of big deals without selling something else. There's the mechanics of it. So the next time we have a big wave of upcoming initial public offerings, I need you to remember that it pays to be cautious when the IPOs are coming hot and heavy. The bottom line, as much as I love anything, it generates enthusiasm for the stock market. Of course, nothing does that like a few massively successful IPOs. Gotta be careful when we get a whole wave of new issues. The IPO cycle tends to start out strong, generate a lot of euphoria, then it burns out and all the new stock supply can really weigh on the market. Please just keep in mind that concept the next time you get excited about a bunch of red hot deals. And mad money is back after the break.

[Howard]

I love you man. I've been watching you from day one.

[Jim Cramer]

Thank you for all the wonderful advice that you provide us.

[Mary]

I'm learning so much watching your show. Watch your program every day.

[Jim Cramer]

I love it. Always wanted to say booyah on your show.

[Howard]

Thank you for being the greatest in the world. We consider you the money market maker.

[Jim Cramer]

And we thank you for all you do. I love your show. Long time fans of your show and we think it's the most entertaining program on tv. When you're picking stocks, you need to be very careful about doing the right thing for the wrong reasons. This happens more often than you expect. Let's say you find a great company, well managed, strong fundamentals, good dividend. You buy that company stock and it goes up to natural concluded the stocks rallying for all the reasons that you liked it in the first place. That's not always true. You might think a win is a win, but sometimes it's more Complicated than that. Don't understand why stocks moving up or down. You're probably going to be very confused when it stops doing that and goes in the opposite direction. And when we're confused, well, guess what happens. We make really lousy decisions. For example, there are a bunch of excellent well run consumer packaged goods. They call them CPG companies. Maybe you want to buy Procter and Gamble, longtime favorite. There are lots of logical reasons to like them. But like I told you earlier, logic is rarely what drives the stock market on a day to day basis. So but let's follow through here. Suppose you pick up some Proctor and Gamble because you really believe in management or you like the dividend or you think that plastic and fuel costs are going down which will boost the company's gross margins. That's a huge part of the expense. So you buy the stock and then exports higher. What's next? Well, you have to ask yourself why is it rallying? It's very easy to tell yourself I nailed it. This market's finally given Proctor the credit it deserves. When you buy a stock and it goes up, that means you were right. Why would you second guess yourself when you're right? Well, the answer is simple. Because maybe you were just lucky. As I've told you before, it's better be lucky than good. But either way you need to be able to tell the difference. So when you pack, let's say you rack up a nice win in Proctor, you should ask yourself if you were right or if you simply happen to be in the right place at the the right time. What do I mean by right place for time? Rotation. Rotation. Rotation. There are times that the consumer packaged goods stocks roar higher for reasons that have nothing to do with the underlying companies. Procter, like all the consumer packaged goods place, is a recession stock because its earnings tend to hold up during a slowing economy. Its stock roars when we get lousy economic data. If you buy these stocks because you believe in the business, but then they go higher as part of a sector rotation that has nothing to do with the business, you still got to win. The bank isn't going to tell you that they can't take that money because they don't accept profits from rotations. But you don't want to get caught with your pants down because the market suckers you into believing that Procter and Gamble is going up based on the fundamentals when really was benefiting from rotation into the whole consumer packaged goods stock sector. You know the Colgate Exchange. This is what I meant earlier about filtering out the Signal from the noise. And it is hard to do. Why? Because of something called confirmation bias. When you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you were right all along. You should approach that feeling with skepticism. Maybe right people are right about stocks every day. But maybe it's just a coincidence. Darn it. You should bring the register before that coincidence goes away. Okay, let me give a concrete example. The residential solar Stock soared in 2020 and 2021 and kept running into 2022, even when most growth plays were getting pulverized. If you owned it, maybe you thought you were winning because people were embracing renewable energy and the government was subsidizing it heavily. But in 2023, the residential solar stocks, they got obliterated. Why do you know? It had nothing to do with the popularity of renewable energy and it couldn't be stopped by generous federal subsidies. Instead, it turned out that people can't really afford residential solar systems without building. Borrowing money mean the whole industry was actually built not on solar, but on financing. And once people realized long term interest rates would remain elevated for quite some time, the residential solar stocks, they all got crushed. It's not a coincidence something like end phase was roaring in 2020 and 2021 when people could borrow money for next to nothing. So let me give you the bottom line on this. It's very helpful to understand why a stock you like is going up or down. When you have a win, don't lazily assume you simply got it right. Think about what it means if you were merely in the right place at the right time. And please proceed with caution. Stick with crap. Tonight, I've told you all about Metonymics 101. But now it's time to turn to you. My viewers are smart, which is why my favorite part of the show, as I always tell you, is answering questions directly from you. Now tonight I'm bringing in Jeff Marks, my portfolio analyst, partner in crime at the CNBC investing club to answer some of your questions. And Jeff, don't get a swell headed. Some of these callers were calling in saying you do a pretty great job. You know, keep your head so we can get through the door here.

[Jeff Marks]

Thank you.

[Jim Cramer]

For those who are in the club, Jeff will need no introduction. For those of you aren't members in soon, I hope you will be. Jeff's insight and our and our back and forth really are what we think is a major part of being part of the investing club. Thank you very much. All right, now let's get started. First up, we have a question from Jimmy who asks how can we best identify the best companies within an industry? Now I have a way that I like to do. I like to see who has the highest growth margins because that means they've got the biggest moat. That means they can make the most money. And it's something that people don't look at enough. The gross margin.

[Jeff Marks]

Yeah, that's a great way to do it. You could also look at who's growing the fastest as well revenues. But another way I think is really important is read the conference calls of, of the companies and their peers and their customers. See who's partnering with who. That will give you a good tell about who's best of breed, who has the best products, who's doing the best best by their customers.

[Jim Cramer]

That's a really good point because I find that in the conference call you get a real sense of by the way of whether the analysts hate it or like it. You can often see by their questions whether they are in awe or they think that there's something that's suboptimal. So it's great, great point to the conference calls. Now next up, we have a question from Ian in Pennsylvania who asks, you've stressed the importance of being diversified and also doing your homework. Is there a point where one is individual can have too many different stocks to be able to keep up with the homework while staying diversified. I used to discuss this question with Pop, my father. He had usually liked to have 40 or 50 stocks. And I would say to him, dad, why do you have 40, 50? Because you know Jimmy, I work a couple hours a day and then I spent a lot of time just looking at the market. So I like to look at a lot of stocks. Now. He had time on his hands. Most people don't. That's why I usually say that. Try to keep it to 10. Don't be a mutual funder yourself.

[Jeff Marks]

Yeah, I think the benefits of diversification, they start to diminish at a certain point. If you keep adding and adding and adding stocks. But that's five to 10. That's what we generally say for the club.

[Jim Cramer]

Start with the best handle. Pick the ones you like. Use your power of observation, curiosity, and.

[Jeff Marks]

As you can do more of the homework, that's when you can start adding more.

[Jim Cramer]

Yeah, and I think that's a perfect, perfect situation. Next up, we have a question from Dean, also from Pennsylvania, who asks, I'm concerned considering either S&P 500 index fund or a total stock market index fund for purchase Both seem to have very similar expense ratios and historical returns. What is the primary difference between the two which you feel is better? Do you know that John Bogle personally told me, jim, I want you to put in your 401k. I want it to be in the total Stock market return fund of Vanguard. And that's what I did. And I wanted. Why did he want me to do it? He said, over the long term you'll get a little bit better performance because you'll be diversified away from the S and P and you'll end up picking some really good young growth stocks that are in the total stock market.

[Jeff Marks]

That's exactly the difference. Right. S&P 500. That's going to be more of the large caps. Total stock is. You'll have the mid caps, some of the smaller caps as well. But I think if you look over the long run, the turns, the returns aren't going. There's not going to be much difference between the two.

[Jim Cramer]

And I did TSM either. Right. But I ended up doing. Because the father of the index fund is John Bogle.

[Ned]

Sure.

[Jim Cramer]

And he. Jack said, jim, this total stockholding term will beat it. Now, there was a very long period, but it's really kind of. Anyway, I'm just doing it out of homage to the. To the late John Bogle, who is. Amazing guy. All right, now let's go to Miles in New York who is. What are your stages in cutting bait? Now, I'm presuming cutting bait means when are we doing some selling? Up 20% we like to a little sale, then up another 20%. We've been very, let's say, diligent about letting our great stocks run and cutting off the ones that aren't. That's the key thing. You let your great stocks run. But if you can minimize your losses and be more aggressive in cutting, you will outperform the market.

[Jeff Marks]

Right. And you always have to remember when your original thesis, when it's not playing out as. As expected, that's when you may have to make an adjustment. And I know in some of those cases we've often learned that our first sale is the best sale.

[Jim Cramer]

True. When.

[Jeff Marks]

When trying to get out of a struggling name.

[Jim Cramer]

Yeah. And I think that there's nothing wrong with admitting that you have a loss. What matters, as we were talking about the other day with Roger Federer, is you just win more than you lose. That's what you need to do right now. You know what? We're going to have to save the rest of the questions for next time. So All I can say is I like to say there's always more market somewhere and I promise try to find it just for you right here. May Money see you next time.

[Fidelity Representative]

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 did you know.

[Relay Representative]

Over 75% of small businesses don't have enough cash on hand to cover unexpected business disasters? You need Relay, an all in one banking and money management platform that will change the way you think about money. With Relay, you can open up to 20 accounts to separate your cash for things like income, payroll or operating expenses. All you need is a few minutes to sign [e-mail] podcast that's R E L A Y-F I.com podcast Relay is a financial technology company and is not a bank. Bank services provided by Threadbank member FDIC.