Mad Money w/ Jim Cramer 8/22/25

Summary

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Mad Money w/ Jim Cramer – August 22, 2025

"The Mad Money Rally Playbook: How to Maximize Gains and Avoid Mistakes in a Bull Market"

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Episode Overview

In this episode, Jim Cramer dedicates the entire show to what he calls his “Mad Money Rally Playbook”—a complete, no-nonsense guide for investors on how to handle short-term market rallies. Rather than focusing on how to ride the exuberance of rising markets, Cramer urges listeners to develop discipline: to sell into strength, prevent euphoria from clouding judgment, and use rallies as an opportunity to strengthen portfolios for inevitable market downturns. With his trademark candor and humor, he explores practical tips, emotional pitfalls, and hard data, all designed to help regular investors make rational moves during times of bullish euphoria. The episode also features several interactive Q&A segments with listeners and insights from portfolio analyst Jeff Marks.

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Key Discussion Points & Insights

1. Why You Need a Rally Playbook

• Common Mistake: Investors often neglect seeking advice during rallies but clamor for help during downturns.
  • “People always want help when the market sells off... But after more than four decades, I can’t recall a single time when someone’s come up to me and asked, ‘Jim, the market’s rallying like crazy. What do we do?’” [12:32]
• Danger of Complacency: Complacency and euphoria during rallies lead to poor decisions.
  • “Euphoria is fine, as long as it doesn’t lead to complacency. Complacency is your nemesis on a big update.” [06:34]
• Purpose: Develop rules for selling, not just riding the wave.

2. Core Rally Playbook Rules

A. Treat Rallies as Opportunities to Sell, Not Buy

• “Just as we can’t give in to despair when the market’s down, you simply don’t want to give in to euphoria and buy, buy, buy, when the market’s roaring. That’s not when you should buy. It is when you should be taking some chips off the table.” [05:49]
• Remember: You only make money when you actually sell and the register “rings.”

B. Gradual Profit-Taking and Preparation

• “We never ever buy or sell all at once. That’s not my style. But on big up days you can sell in larger increments.” [07:26]
• Use rallies to raise cash for flexibility during future downturns:
  “Cash, my friends, is what makes everything else possible... I would never, ever have less than 5% of my portfolio in cash, and I try to get it up to 10 if I could, especially after a nice run.” [22:43]

C. Tough Portfolio Evaluation

• On up days, scrutinize every holding ruthlessly:
  • “Always be really, really, really tough on your portfolio. Not just on the down days, but on the big up days.” [12:54]
  • “Suspend the benefit of the doubt. Assume everything you own is guilty until proven innocent. Focus on the worst qualities of your stocks.” [13:21]
  • Don’t fall in love with your winners: “You can love your spouse, kids... but don’t become enamored with your stocks. Silly pieces of paper... They’re not going to love you back.” [13:54]

D. Diversification & Risk Assessment

• Outsized gains compared to benchmarks may indicate too much risk or poor diversification:
  • “If your portfolio leaves the averages in the dust on a day when the market’s roaring, it means you’re taking on way too much risk…” [32:24]
  • Overexposure to a winning sector can turn very ugly when the tide turns—as seen with tech in 2021-2022.

E. Avoid Chasing Rallies

• “Do not buy stocks after the averages have just spiked. Don’t chase. Be smarter than a dog. I want you to take advantage of rallies. But when you buy stocks the day after, the ones after they just got marked up big, you’re letting the rally take advantage of you.” [39:08]
• If you missed a big run, “tell yourself you missed it and take a pass.” [40:46]

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3. Listener Q&A Highlights

Practical, Investor-Focused Advice

A. Selling a Home & Investing a Windfall

• Caller Michael: Asks whether to focus on short-term high-growth or long-term dividends with $100k.
  • Cramer: “Dividend stocks are a great way to protect yourself. Try to pick ones that are 4 or 5% and I think you’ll do very well.” [08:41]

B. Portfolio Split Approaching Retirement

• Caller Steve: Is a 60:40 growth to value split good in retirement?
  • Cramer: “60, 40, Steve, it is right in my wheelhouse. I would not do a thing... You’re betting with your life, not against your life.” [09:55]

C. Young Investor Entering Finance

• Caller Dylan: How to prepare for a career in high finance.
  • Cramer: “Work hard. Work harder than everyone else.... Be the last person to leave.” [28:25]

D. Beginner Investor & Index Funds

• Caller Linda: Should she use savings in an S&P index, Nvidia, or “Magnificent Seven”?
  • Cramer: “I do want you to start with your first $10,000 in an index fund… put a couple hundred dollars to work each month… Stick by that discipline and don’t go any faster.” [29:47]

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4. Portfolio Management Systems

• Cramer’s 1-4 Stock Ranking System:
  • 1 = Buy now
  • 2 = Buy on pullback
  • 3 = Sell at a higher price
  • 4 = Hold until more information
  • “A rally has a way of simplifying things… former ‘ones’ become ‘twos’, and ‘threes’ become ‘fours’.” [15:18]

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5. Common Emotional Traps

• “Most investors want to know about buying, especially what to buy. But you know what? You should have a plan for selling every single one of your stocks, even the best ones.” [21:13]
• “Most people, for reasons we don’t have time to go into, really enjoy buying stocks, but see selling them as a defeat. But ringing the register is not a defeat when you’re getting top dollar prices during a juicy rally.” [17:33]

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6. Memorable Quotes & Moments

• “You aren’t making money until the register is rung.” [06:14]
• “The best time to raise cash is when the market is on fire, not when it’s going lower.” [29:55]
• “Stocks of good companies can get too expensive. It happens all the time in a big rally… It’s easy to sell something when you know it’s bad. Isn’t it much harder to unload something you genuinely like?” [21:23]
• “If you’re not diversified, if you’re keeping all your stock eggs in one basket, then you could get wiped out in a heartbeat.” [33:50]
• On risk: “Making too much money on a given day can be a problem or at least a red flag… the warning is very simple. You’re taking on way too much risk.” [32:24]
• On IPOs (with Jeff Marks): “Make sure that the valuation isn’t completely out of whack with some other companies… Be mindful of lockups.” [42:33]
• Technical tools (RSI): “It’s just another arrow in the quiver, but not the most important one. At the end of the day, the fundamentals are what matter most.” [45:57]

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Timestamps for Key Segments

• Main rally discipline/intro: [00:40] – [07:58]
• Listener Q&A (investing windfall): [08:08] – [09:13]
• Rally Playbook & Portfolio Grading: [12:32] – [19:22]
• Cash as King, Raising Cash: [21:05] – [29:47]
• Diversification, Outperforming Risks: [29:47] – [35:09]
• Avoid Chasing Rally/Emotional Awareness: [35:53] – [42:33]
• Q&A with Jeff Marks (IPOs, GAAP, adding to positions, RSI): [42:33] – [46:44]

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Final Takeaways

• Focus on Selling into Strength: Use rallies as your main chance to trim, rebalance, and prepare for downturns.
• Emotions Are the Enemy: Recognize when euphoria is affecting your judgment—discipline trumps instinct.
• Diversification is Protection: Big outperformance can be a warning sign, not a badge of honor.
• Cash is Essential: Always keep a minimum cash position for flexibility and opportunity.
• Don’t Chase the Market: If you’ve missed a rally, wait for the next opportunity—don’t get burned by buying after a spike.
• Stay Disciplined: Develop and follow a plan—both for buying and for selling.

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For more daily tactics and deep dives with Cramer, join the CNBC Investing Club or tune in nightly to Mad Money.

Transcript

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[Jim Cramer]

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[Jim Cramer]

How those ahead? Stay ahead. 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's not just entertain, but to teach you. So call me at 1-800-743-CBC or tweet me. Jim Cramer. In a bull market, there is nothing worse than watching the averages roar higher while your portfolio just sits there barely moving. It makes you feel like a complete dope, doesn't it? Like the stock market must be some sort of total shell game. But really it just means you might be making a few basic mistakes. That's why tonight I'm devoting the whole show to my playbook for taking advantage of a short term rally. Not to be confused with the so called bear market rally, which is a bogus term people throw around whenever stocks go up at a time when the intelligentsia thinks they should be going down. Sell, sell, sell, sell, sell, sell. Yep. I want to give you my game plan for handling short term gains. Now I know what a lot of you are thinking. What kind of incompetent doofus needs a guy to make money and rally? What's next? Is Kramer going to draw us a diagram explaining how to pick your nose? I mean man, potty training. Should I just start reading picture books to children? Hey, we've already got the animal scout effect and reading rainbows. Been off the air for more than a decade. Maybe you feel like that. That's the same level of difficulty as making money when the stock market's on fire. Who needs help when the Dow's up hundreds of points in a day? Or even better, during a multi day rally. A real run, a buy fest. Do you really need my advice? To help you deal with what? Huge profits? No, I'm not buying in that biggie small story of investing mo Money mo problems. But knowing how to approach a quick run the right way can make you a better investor. And tonight I want to teach you some of the discipline that we demonstrate for the CNC Investing Club all the time. Sure, everybody makes money in a big rally. It can even feel like you're running your portfolio is running itself. Doesn't feel like that. But I'm not here to talk about how to make the most money possible when the market's up big. Honestly, not that crucial. No. The most important lesson for dealing with a major short term move higher is that you always have to work hard to prepare yourself for the future. Otherwise you'll end up letting some great opportunities to sell, sell, sell, sell past you. Buy, sell, sell, sell. That's right. Just as we can't give in despair when the market's down, you simply don't want to give in to euphoria and buy. Bye bye. When the market's worry. That's not when you should buy. It is when you should be taking some chips off the table. Remember, you don't actually have a profit until you sell something. You aren't making money until the register is wrong. And the idea that you should buy and hold through both the best of times and the worst of times and has proven to be incredibly foolish. With only very few exceptions, you need to use strength to lighten up. Particularly on stocks of companies with deteriorating fundamentals. That's why I always insist you do your stock homework. Because how else will you know what to unload if you don't want to do it yourself? You know what? You can join our club, the CNBC Investing Club. And we do a lot of homework for you and with you. Why is it so hard to sell to strength? Good question. Let me put it this way. Nobody wants to miss a rally. If you sold every stock you own right before a huge up day, you feel like a stooge. Not even Larry, Curly or Mo. I mean, maybe the dreaded Shemp. Let's look at it another way. Say you're in stocks for the rally and you have massive gains, but you don't do anything. You let them ride, so to speak. And then gradually, or maybe not so gradually, your stocks come back down. If you hang on for too long, if you let your gains ride until they evaporate, how is that any different from missing the entire rally? It isn't. Making lots of money on a great day or a great month or great year is wonderful, but you can't feel a rally is just a day or a few Days where your portfolio went up in value, nothing more. You need to see it as a time to take action, even if you don't fancy yourself a trader. And try not to time the market. Even if you're like that, and I encourage you to be like that, you have to make an exception for some very good but sharp up rallies. That's what I'm talking about. Just you need to remember the good days during the sell offs to keep yourself in the game. You remember the down days when the market's roaring. To keep yourself tethered to reality, don't pass up an opportunity to trim your positions just because you're in stocks for the long haul. As an investor, not a trader, I'm not telling you to blow out of the positions. That's not what I'm saying. I'm talking about doing sell, sell, sell. Being an investor does not absolve you of the need to have judgment. In other words, you should approach every rally with a grain of pessimism about what's coming next. That shouldn't be that hard. Think about this like the post Covid meltdown in 2022. Not many one. Just sell in late 2021. It looked too great, right? Because we had an unbelievable bull market where buying the dips made you a fortune. But then the Fed declared war on inflation and those gains disappear. If you had sold stocks gradually on the way up, as I told you to do, you were in much better shape as the market spent the next 11 months just getting obliterated. There's nothing wrong with feeling good about a rally. Someone with some violent mood swings that are happening, reaching for that cheap scotch line on a dirty linoleum floor. When you get that really bad tape can tell you I recognize the value of celebrating your stocks when times are good. Euphoria is fine, as long as it doesn't lead to complacency. Complacency is your nemesis on a big update. You can be thrilled. You just don't. Don't forget that you're getting a terrific opportunity to lighten up with some of the stocks. That's what short term rallies are for. But it's very easy to be swept away by the positivity. When the market's up and everybody's optimistic, the last thing people want to do is sell. Once you believe in the market again, when everything seems wonderful, how could you ever want to sell a stock? In theory, we all know we're supposed to buy low and sell high. But in practice, the that could be a lot harder than it sounds. This is why we constantly teach you the discipline of selling into strength when you join the club. Because we do it all the time with the travel Trust would peel some off. Look, I know the feeling. You're sitting there watching the gains roll in and you feel like selling some stock would be the most insane thing in the world. Because what happens as rally keeps going doesn't matter. We sell into strength, but we also never sell all at once. That way timing is less of an issue. Take some off and if the rally holds up well, you can sell more later. The name of the game is preparation. While there's no real way to prepare for a rally other than by owning stocks, you can use a rally to prepare yourself for potential down days in the future. It's a little counterintuitive, but it works. The best time to adjust your portfolio like that is is when stocks are going higher, not when they're going lower. Think about what you'll need if the market goes south and consider what you can do for your portfolio today, the day of the rally that you couldn't do yesterday. The simple answer is that you can sell part of position to take advantage of higher prices. Remember, we never ever buy or sell all at once. That's not my style. But on big up days you can sell in larger increments. In the rest of the show, I'm going to go through the whole mad money rally playbook and explain what to sell, how to sell it and why you're selling. But right now, here's the bottom line. When the stock market's had a big short term run, short term, don't get carried away by the optimism. Instead, keep your head on straight, check your emotions, focus on the long term and think about ringing the register, especially on stocks that might be getting too high. More on that later. Let's go to Michael in Pennsylvania please. Michael.

[Caller]

Hey Jim. Booyah. This is Michael in Philly burbs. Hey, I'm looking to sell my house for about 500,000 and I'm buying a new place for about 350.

[Jim Cramer]

Okay.

[Caller]

And by the time I'm all done, I'm probably going to have $100,000 to invest for my.

[Jim Cramer]

I think that's terrific nothing that's terrific looking.

[Caller]

I'm looking to do what do I do short term high growth and what do I do long term dividends like.

[Jim Cramer]

Okay, okay, now I know my. I tell you I am in a different camp from most everybody else. I want to bet on my long term life. I want to be able to say, look, I think I'm going to live long. The all the longevity statistics. Very good. I think Larry Fink agrees with me on this. He's the great CEO of BlackRock. I think that you should be buying dividend stocks. I'm trying to urge you to not move into cash. Dividend stocks are a great way to protect yourself. Try to pick ones that are 4 or 5% and I think you'll do very well. And you do it yourself. I know you can build this. Steve in Kansas, please. Steve.

[Caller]

Booyah. Jim, how you doing?

[Jim Cramer]

I am doing well, Steve. How about you?

[Caller]

I'm great and thanks for taking my call.

[Jim Cramer]

Sure.

[Caller]

So, Jim, I'm heading into retirement at the end of this year and I have been investing all my life. I'm 100% equities, no bonds. At the beginning of 2022, I moved about 40% of my portfolio into value. So I'm a 60:40 growth value. I've been big growth all of my life for the most part. What is your opinion about staying with that type of split?

[Jim Cramer]

60, 40, Steve, it is right in my wheelhouse. I would not do a thing. I think you're doing it right. I was so afraid that you're going to say I'm thinking about switching 20, 20% bonds, 30% bonds. The short term rates are high. I get that. But I like how your position because you're betting with your life, not against your life. And that's what I teach people to do. All right. When the stock market's had a big short term run, please don't get carried away by your optimism. Instead, keep your head on straight. Focus the long but also think about ringing the register, especially on stocks that might be getting too high. And I know you own some that will be on Mad Money tonight. I'm giving you everything you need to know about market rallies with my Mad Money rally playbook. I'll show you how you can tell whether you're taking on too much risk, when you should use rallies to raise cash and the things you should never do in a green tape. So stay with Kramer.

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[Jim Cramer]

People always want help when the market sells off. They want me to tell them what to do to validate their fears. When stocks get hammered, investors freak out. They panic. Or at least they want to panic. I think that's right. I mean, I obviously don't want you to panic, but that's what people are doing. Many don't know what's going wrong, few can easily handle the trauma of big losses, and even the smartest operators want some expert advice. But after more than four decades in this industry, I can't recall a single time when someone's come up to me and plaintively asked jim, the market's rallying like crazy. What the heck do we do? Hey, that's unfortunate. Because just as you need a playbook to deal with declines, like I just mentioned, you also need a rally playbook. A guide that tells you what to do when the market's having a big short term run. Not sell off, but run. I know the received wisdom is that nobody wants to help with a rally, but you need to reject that idea that people only need help when the market's lousy. There are all kinds of mistakes you can make when the stocks are going higher. In fact, the rally playbook might be more important than the sell off playbook, if only because so few people think they need one. So here's my first rule for handling a rally. Always be really, really, really tough on your portfolio. Not just on the down days, but on the big up days. The only time you should be harder on the stocks you own is when you're in the midst of a Brutal decline with no end in sight and the need to circle the wagons. Meaning dump everything you aren't thrilled to own and use the cash to shore up your positions in the stocks where you have the most conviction. Obviously, that's the worst case scenario. How exactly do you get tough on your portfolio when you need to give every one of your stocks the harshest possible evaluation? Suspend the benefit of the doubt. Assume everything you own is guilty until proven innocent. Focus on the worst qualities of your stocks. Emphasize the downside. Make each and every company you own prove to you that it's worth holding all over again. If this strikes you as silly or even unfair to your fabulous stocks, allow me to explain. Please. On a good day or a good week, you're ready to fall in love with your positions because they made you so much money. That's typical, but it's also a mistake. You can love your spouse, you can love your kids. You can love your pets. I like one of them. You can love your country. You can even love your car. Just as long as you don't become enamored with your stocks, silly pieces of paper that you bought for the sole purpose of making money. They're not going to love you back. In fact, when we're in the midst of a big rally, you really shouldn't give your stocks too much credit for making money unless they dramatically outperform the rest of the market. Yet even then, you need to give your stocks a hard time. When a stock makes you a fortune, the normal reaction is to like that stock or like it more. However, think about this. Most of the time you should like it less for the simple reason the stocks get more expensive when they go higher during a major market wide rally. Unless there's some serious value enhancing good news, your stocks become pricier and therefore less desirable if you didn't own them. You know this right? When you look at it. Oh, that stocks up too much. For example, no matter how much you like Microsoft company And I do Microsoft, the stock is a lot more attractive, say at 250 than is 350. Correct. In other words, in the wake of a big up move, your entire portfolio just got less attractive. Like I constantly explained to members of the CNBC investing club, price matters. And when a stock price goes up, the risk reward becomes worse. Okay? Valuation makes it more volatile. You made money, which is what we're after. But you can't let that prejudice you in favor of any particular stock. Just like blackjack, the cards have no memory, people. While your stock may have gone up when the market was roaring. That doesn't have much bearing on where it goes tomorrow, does it? The second reason to get tough on your portfolio during a rally is that you can figure out which ones to sell and sell hard. I tell you to sell in the strength all the time, but I recognize this idea is totally contrary to human nature. In a rally, everyone else is buying like crazy. You feel great about your stocks and you certainly don't want to sell. But you have to because there's no better time to sell than during a major short term move higher. Oh, and by the way, this selling doctrine applies to everything, even mutual funds. If you have gigantic short term gains, it's okay to ring the register on some of them. I like that. Again, we all know this is true on some level. We know buy low, sell high, but that's hard to execute in the moment. You have to though, because the facts have borne it out for years. Even as nobody likes being told to sell a winning stock into a smoking hot rally. So how do you fight your instincts? How do you get to a place where you can sell in spite of your emotions? Simple. Just like I said before, you get tough in your portfolio. Re evaluate your stocks and demand a lot more from them than you normally would. Especially since they're more expensive than they were the day before because they went up. Now I've got a very specific way of grading my stocks that I've used since my hedge fund days. Every week I rank the stocks in my charitable trust, which you can follow along with by joining the CNBC Investor club, which I urge you to do. I rank them from 1 to 4. Ones are stocks you would buy at their current price. Twos are stocks you'd buy if they pulled back. Freezer stocks you'd sell at a higher price and force your stocks. Well, let's say you don't want to take any action without more information. Period. And when it comes to ranking system, a rally has a way of simplifying things. Prices are up, so the former ones, stocks that were worth buying at their current price suddenly become twos. Stocks only worth buying on a pullback because most things will have gotten too expensive. Get this. Better to keep your powder dry. Wait for a sell off down the road before you do any more buying. Meanwhile, a lot of your three stocks that you wanted to sell in this rank become four stocks. You don't want to take any action without more information. Now this is just a preliminary approach to what you should sell in a short term rally. I'm going to give you more details later in the show. The reason we rank our stocks like this is to keep our emotions in check. We understand that we're frail, okay, so we buy low and we sell high instead of buying high just because it feels good at that moment. Most people, for reasons we don't have time to go into out now at least really enjoy buying stocks, but see selling them as a defeat. But reading the register is not a defeat when you're getting top dollar prices during a juicy rally. First though, you have to put yourself in the cell mode and you start doing that by getting tough on your portfolio bottom line during a big update. And after, don't get swept away by euphoria, okay? Don't listen to the buy and hold doctrine that says it's not worth it if you actually want to buy. You know, book a little profit on some merchandise because the whole point of owning stocks is that you're supposed to sell them when they go higher to make money if the fundamentals aren't changed, if the company hasn't improved, then it might have gotten too expensive as the stock because of the rout. So when the market's roaring, give your stocks a hard time. Please hold them to a higher standard and ring the darn register on some of the stuff, both on the names you like the least and of course even the ones that are up the most may have money's back here for the break.

[Announcer]

Coming up, want to preserve those profits after a big rally? Kramer's revealing the next chapter of his playbook and how to build the most important part of every investor's portfolio.

[Jim Cramer]

Next.

[Caller]

Jim Cramer, the die hard of the dollar. Hey Jimmy, Love the show. My five year old grandson loves to watch your show. I have to thank you for making us money when it's there to be made.

[Jim Cramer]

Our world is a better place with you in it.

[Announcer]

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Landsford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and [e-mail] MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.

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[Jim Cramer]

Tonight we're diving into the Mad Money Rally playbook, teaching you the disciplines that will let you take maximum advantage of a big update. Over and over again, I've been telling you that short term rallies are opportunities to sell, sell, sell, not buy. Extolling the virtues of something that may sound really obvious, but can be hard to put into practice because it runs counter to what our emotions say we should be doing when Stocks are roaring of course, most people don't like to hear about selling stocks except when they're panicked and they think the whole world's falling apart. Then they want to be given permission to sell as they want to sell everything, even though that's almost always a mistake. Generally most investors want to know about buying, especially what to buy. But you know what? You should have a plan for selling every single one of your stocks, even the best ones. And you should make that plan before you ever purchase them, simply as part of the process. Being an investor means knowing when to get out, and it's better to make those decisions beforehand rather than waiting until the heat of the moment. Of course we always want things to stay and never have to sell. But you know what, listen to me on this. Stocks of good companies can get too expensive. It happens all the time in a big rally. Stocks of bad companies also get too expensive. But it's easy to sell something when you know it's bad. Isn't it much harder to unload something you genuinely like for legitimate reasons? For example, 2021 we had a spectacular rally in fast growing cloud based software stocks. The whole group got too expensive. But the low quality speculative names with no earnings and the higher quality established companies with great numbers, well, they all went up. And that includes many Kramer faves like Salesforce and Servicenow. They got too hot and you had to sell them into strength because after the Fed declared war on inflation, the cloud software cohort spent the next 11 months getting more. Oh, the profit ones held up a lot better, but their stock still got eviscerated. And you could have sidestepped much of that pain if you simply rang the register on the way up. Now let me make this clear. Selling into a rally is not solely about turning a profit then and there. Obviously we're looking to buy low and sell high. So a big up day or two gives you a great chance to sell. But the best reason to Take some profits or cut your losses during a rally. All boils down to what I talked about at the beginning of the show. Preparation. Let me explain. I believe you should be prepared for the bad days down the road. Maybe because I'm a glass half, half empty kind of guy. Except of course from being a glass half full kind of guy. But mostly because the bad days are just as inevitable as the good ones. And what's the best time to get ready for these inevitable down days? How about during or right after a big update? That's the perfect moment to take something off the table. Raise cash. In other words, a short term rally is your best opportunity. Protect yourself from potential downside. Trust me, you get the most mileage out of preparing for the worst days on the best days. Don't get me wrong. That doesn't mean you should sell everything into any kind of strength. That would be self defense defeating. It doesn't mean you should believe that all rallies are ephemeral and not to be trusted. There's an army of strategists and billionaire money managers and commentators who are constantly eager to convince you that every up move is temporary or even illusory alchemy. They want to scare you. I am not one of those. I know that plenty of rallies have staying power and can take you higher and higher. True Jackie Wilson style. Perhaps without that Latin casino event, you can believe in a rally and still use a big update to take some profits. Though that's how you get ready for days in the future that likely won't be good. There's no cognitive dissonance here. We're just trying to balance the concept of capital preservation. The need to keep money secure with capital appreciation, the need to grow your money. Both of these are pure necessities and they're not always mutually exclusive. You use a rally to take a profit so that when the market comes back down, you'll have cash on the sidelines. Cash you can put to work buying stocks that have been suddenly put on sale. So in a way, the rally playbook is really an extension rally, more of a prologue to the sell off playbook. We use the rally to stockpile everything that we'll need in case things get bad. And one of those things is cash. Glorious cash. Yet while I'm a citizen of the United States, I always pay my respects to the one true king. Which is cash. Plato, cash is probably the single most important part of your portfolio. Most of the home gamers I talk to do not know this. I hear from people all the time who Tell me they're fully invested. Many every dime of their money that's earmarked for investing is parked in stocks. And whenever someone tells me that, they always think it's a good thing. Cash, my friends, is what makes everything else possible. Back in my old hedge fund, I would never, ever have less than 5% of my portfolio in cash. And I try to get it up to 10 if I could, especially after a nice run. Cash is flexibility. When the market pulls back, give you an opening to start a position in a stock you like or to buy more of one you already own, you need to have some cash on the sidelines in order to do your buying. Otherwise, you have to sell something you already own on the fly or use margin, meaning borrow from your broker. And that's something I never recommend doing. It's too risky. Hey, speaking of margin, a big rally gives you the best opportunity to get off margin and start investing like a sane person rather than someone with a financial death wish. What's this got to do with responding to a rally? While we'd like to be heavily invested with a little cash before the rally, trying to call one in advance is too difficult. But the best time to raise cash, which many of you absolutely must do if you're fully invested and the rest of you should want to do, is right after a giant move up. This is why we always have some cash on the sidelines. Channel Trust. Here's how I think of it. Your portfolio's cash position is like your car's gas tank. If you don't have at least 5% cash, then you're running on empty. And you better fill her up the next time you get a chance to. Whenever you sell to raise cash, and we'll talk about that after the break, you'll get a much better deal after a rally. But listen, I'm not saying that rallies are a great time to go into all cash. Not at all. I'm saying I believe it's essential to raise some cash during or after rally. Emphasis on some. Really, That's. That's the goal. I don't care how much you like stocks, not selling something to raise cash when the market's making it easy for you is downright reckless. With the channel Trust, I've taken my cash position at times up to around 20% when I sense too much euphoria when the market eventually pulled back, put that swing cash back to work in stocks we liked a lot more than the ones we previously sold. Even so, the quality of companies you own isn't enough. Part of the equation. Here it is. Part of it, actually. It's the price of the stocks that matter. And some will get very extended in every rally. So trim them, you can buy them back later. Lower with the cash you raised from selling. That's the entire point. Next time things go sour, you'll have that terrific pile of cash you've hoarded up during the rally. You'll feel great. You'll be able to buy into weakness. You won't feel hampered like so many who don't. Don't do this. This isn't about getting a great deal, people. It's about protecting yourself. Bottom line, the next time we get a big update or two, please, I'm begging you, use the strength to raise some cash. You might not know it, but without cash, your portfolio is zero flexibility. And the best time to raise cash is when the market is on fire. Let's go to Dylan in Virginia. Dylan.

[Caller]

Mr. Kramer, thank you for your time today.

[Jim Cramer]

As a student, I'd be grateful for.

[Caller]

Any guidance you could offer students like.

[Jim Cramer]

Myself as I prepare to enter the extremely competitive field of high finance. Thanks so much for your advice. All right. Work hard. Work harder than everybody else. If you see everyone's coming at 7, come in at 6, and they're working at 6, come in at 5. Be the last person to leave, okay? I don't care what. Be the last person. Look around. If ever, if anyone else is still there, you stay later. That is what the bosses want to see. By the way, do some work while you're there. I mean, like, you know, I don't want you playing solitaire. But work harder than everybody else. That's the secret. The work from home, people. Let's go to Linda in Illinois.

[Caller]

Linda, hello. Booyah, Kim.

[Jim Cramer]

Booyah. Linda. What's going on?

[Caller]

Hey, it's so wonderful to talk to you. Listen, I affectionately call you Mr. Magic Money Maker. Listen, thank you for your wisdom. And this is my question. I'm a retired postal employee who worked for 45 years. I have no financial investment knowledge. I wanted to know how do I buy stocks? And I wanted to ask you, should I try to invest my drift savings plan money in S and P index funds or Magnificent Seven or Nvidia or all in video?

[Jim Cramer]

First of all, you're sweet to. To trust me. I do want you to start with your first $10,000 in an index fund. You will buy it this following way. You will put, if you can. If you can put a couple hundred dollars to work each month. I don't want it in all at once. Okay, I don't if the market drops stencil massively big, more than 10%, I want you to take the month that you would have bought two months from now and put it to work with that current month. That's how you're going to get the best basis. Stick by that discipline and don't go any faster and then I'm confident you'll get good prices and not feel like somehow you got hurt. I love Nvidia. Not the right method of diversification. When you're facing a big update, here's what I want you to do. I want you to use the strength to raise a little bit. You might not know, but without cash your portfolio has 00 flexibility and the best time to raise cash is when the market is on fire, not when it's going lower. There's much more. Mad money head. You probably think it's good when your portfolio outperforms even on a big rally day. Well guess what? You'd be wrong. Don't worry, I'm explaining why. Plus I'm taking all your burning market questions with my investing club colleague Jeff Marks. So stay with Kramer. You're watching the Mad Money Rally Playbook where I'm teaching you the best ways to take advantage of a market that's up big over a short period of time. Remember, that's crucial. Just a spike. Alright, if you're just tuning in. I'm deeply wounded by the cold shoulder you gave me when you will hopefully chose not to watch me or at least watch most of the show. I know you did it as a callous and sadistic attempt to hurt my feelings. Congratulations. It worked. I hope you're happy. Back to business. Most of my rally playbook has been about what you can benefit do to benefit from higher stock prices, how you can use the rally to set up for the inevitable rough patches that the market runs into sooner or later by raising cash and which stocks you should sell in order to do it. The last part of my rally playbook is a little different. It's not about what you can do during or right after a rally, which we've already covered. Instead, I want to highlight what a major move higher can teach you about your portfolio. Because rallies are incredibly illuminating. I'm not too worried about anyone seriously underperforming the averages on a big up day because that's something you can easily study and fix by getting more exposure to the sectors that were up the most. No, what should get you truly concerned is watching your stocks dramatically outperform the average dramatically upward. That's the key word in market wide rally. You heard me right. Making too much money on a given day can be a problem or at least a red flag. A situation where your gains are trying to warn you about something. It's very counterintuitive. But bear with me, the warning is very simple. When your portfolio leaves the averages in the dust on a day when the market's worry, it means you're taking on way too much risk with your portfolio. I know I don't strike many of you as best most conservative investor. Ralph, I get that. And the fact that I do this show every day, even though it probably doubles my odds of a heart condition doesn't help my case. But take you on unnecessary risk in your portfolio makes absolutely no sense. And watching how your stocks move in a market wide rally is a terrific way to figure out if perhaps you're taking on needless risk. Say the rally comes and you make much more than the averages. The question is why were you using margin borrowing money from your broker to get that extra bit of money leverage that will help you crush the average in rally, but it will also get you crushed by your losses in the sell off. That's just not worth the people. What else could cause your portfolio dramatically out for the benchmarks in a powerful market wide rally? Well, it could be because you're not diversified enough. That's a way to make boatloads of money in a short frame time frame. Let's say the rally led by is led by tech and your portfolio is 50% tech. You'd be a big winner, right? For a day or two. But those gains are ephemeral. They won't last. Not only that, but the outsized profits are a huge warning screaming at you to sell your darn tech positions, maybe trim it back at least and maybe call me up and play. I might have versified. If you're not diversified, if you're keeping all of your stock eggs in one basket, then you could get wiped out in a heartbeat. Just ask all the investors who loaded up on cloud software stocks or electric vehicle plays before they peaked in November of 2021 1. Those people then got blown out the whole business. They just got out with massive losses. They couldn't take it. They were all beating the stuffies out of the benchmarks in late 2020. In the bulk of 2021. They were making too much money. That's right, too much money. Just like tech investors for the dot com bubble burst in 2000. If they pay attention to this rule, something we remind you of constantly, if you happen to be a member of the CBC investing club, then they might have been able to avoid the damage from the hideous tech losses. And 2022, they could have adjusted their holdings and lightened up on their biggest winners so that no single sector made up more than 20% of the portfolio. So let me give you the bottom line here. The best time to figure out if you're making too much money, meaning you're taking on a dangerous amount of risk, is during a big market wide rally. Use these runs as diagnostic tests to see if your portfolio has total diversification and too much risk or if it's a. Okay, Mad Money. Be right back.

[Announcer]

Coming up, have a fear of missing out. Kramer's giving you his guidebook on how to keep those emotions in check after a big run for the market.

[Jim Cramer]

Next. Booyah for the emperor of Kramerica.

[Caller]

Honorable James J. Kramer.

[Jim Cramer]

You got me jumping around my office right now.

[Caller]

Thank you so much, so much for all you do for us.

[Jim Cramer]

I enjoy your show and I find it very entertaining and informative.

[Caller]

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

[Announcer]

Don't miss Mad Money every night at 6pm Eastern. Plus, join the CNBC investing club and stick with Kramer around the clock.

[Jim Cramer]

If you've ever dabbled in the stock market, chances are you know who Jim Cramer is. One of the greatest, most spectacular performers on television. We turn now to a Wall street veteran, a financial heavy hitter, and he's the man hundreds of thousands of hopeful investors turn to every day. Makes his living throwing chairs, hitting buzzers and screaming at the at the top of his lungs, the mad prophet of profit, Jim Cramer. Jim Cramer. Please welcome Jim Kramer, Mad Money's Jim Cramer. My first question is we've never discussed this. What's wrong with you? Booyah. Booyah. Booyah. Okay, ski daddy, ski daddy. We have no idea what that means. Stock guru, Mad Money. Best selling author and fantasy football fanatic. Market's crazy, so you gotta have a madman. You gotta stay focused.

[Caller]

Talking about making money.

[Jim Cramer]

Jim Cramer is here tonight. This is the great Jim Cramer from Mad Money on cnbc. A really terrific show. Mad Money's Jim Cramer. I think this thing could even go as high as a. Don't buy, don't buy. Jim Cramer hosts Mad Money on this network. What is cnbc? Hello, fellow Facebookers. I'm here to do one thing, get you more bread. Stark Industries. Let me show you the new Stark Industries business Plan I'm grounded and spend all day listening to my dad yell at Mad Money with Jim Cramer. Are you okay? Oh, yeah, it's nothing. I was a guest on Mad Money last night. What's happening? It's one of you. Jim Cramer.

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Okay, stop it.

[Jim Cramer]

Stop it. Jim Cramer had this to say about the economy. He's a prophet. Listen, then he's nuts. They're nuts. They know nothing. You said it was going to be the end of the world. Nobody knows anything. They know nothing. They know nothing. In retrospect, don't you think you were too calm? Whatever money you may need for the next five years, please take it out of the stock market right now. That was a call that should have wrecked my career. And it would have if the market gone up. My stock market my neck out and did it and saved a lot of people. If he was right at that point, we were at the beginning of this great panic. Don't say that. It's very hard. They're stupid. Is it?

[Jeff Marks]

Yes.

[Jim Cramer]

I have a gift to turn people on to this stuff, to get them involved. And I love doing it. I love to teach and educate this stuff, this stuff is for me. This stuff is really for me. It is the right thing. I cannot believe how lucky I am at this age to have come across an unbelievable thing which is a show that I run and I love. Like I've been saying all night, you may not think you need your need help at all when the market seems to be levitating, but in reality, you probably do when stocks go up, especially when they're a big people get emotional and emotions make us bad investors, period. Always does. And that's why the Mad Money rally playbook is all about helping you combat your intuitive emotional reactions so you can make sound, rational decisions. By the way, we teach this discipline, same discipline in more detail to members of the CBC Investing Club every single day as we manage the Travel Trust. Remember, when you catch a big update, that's a selling opportunity, all right? What you want to use it to unload some of your best performers along with your liars and the stocks you wanted to get rid of anyway. Also, you can raise some cash for a rainy day. That's the most important thing to keep in mind after a major move higher. Which brings me to my final rally rule at a moment when raising cash is essential, spending cash is absolutely prohibited after big one day move, I know you're going to be tempted to buy some stocks the next day. I know this. Big up days make us more bullish. Investors love to chase rallies the same way dogs like to chase cars. When your last experience in the market was having practically all your stocks produce huge gains, of course you're going to feel like buying. But that's another case where your feelings are leading you astray from good investing. Do not buy stocks after the averages have just spiked. Don't chase. Be smarter than a dog. I want you to take advantage of rallies. But when you buy stocks the day after, the ones after they just got marked up big, you're letting the rally take advantage of the you. I know you're doing this too. I read it on X for me Twitter at Jim Cramer all day after every big rally. And that's when people are just most excited. That's when they want to open their wallets and start chasing stocks. Don't do it. I know this sounds like common sense, something any clown could figure out. Say nothing of Kramer Faye Bozo, but I don't waste your time on the show. Of course you know it's silly to buy the day after a rally or after stocks just had a huge run. You know it right up until the moment when you get swept away by your euphoria, which is a mistake we all make, including yours truly. That's why you need a playbook. You need rules to prevent yourself from getting swept away and making mistakes that you that you're obviously going to regret later on. So please, if you want to buy a stock and the market's just had a remarkable run, do me a favor and tell yourself you missed it. Just say, darn it, I missed it and take a pass. Or at least, very least, very least, keep your bat on your shoulder and wait for a better pitch at a cheaper price. It's the smartest thing you can do in that situation and it could save you a lot of pain down the road. Here's the bottom line. I always tell you to buy into weakness and sell into strength, but that really means you need to sell some of your winners the moment when they're at their hottest. And you probably shouldn't buy anything when the market feels like it's on fire. If you do, your new start, stock picks will likely be consumed in the aftermath of that fire and you won't have much to show for all that hard won money that went up in spring. Throughout this entire show tonight, you've heard me explain to you how to pretend and play your portfolio in a bull market. I love to teach my viewers, but I also love learning from them. Which is why I always say my favorite part of the show is taking questions directly from you. Tonight I'm joined by Jeff Marks, my portfolio analyst and yes partner in crime, the CNBC Investing Club and we're going to answer some of your burning questions. We'll also give you a little inside look at what we do in the club. If you're not a member of the club you can just scan the code or go to cnbc.com investingclub to sign up. I hope you do. Let's take our first question Jeff. All right. First up we've got oh when do you recommend investing in an ipo? Now this one Jeff, I'm going to let you handle because there's nothing harder.

[Jeff Marks]

Yeah look I think if you can get in on the deal that's always preferred.

[Jim Cramer]

Right.

[Jeff Marks]

But if you are trying to invest in a new IPO just make sure that the valuation isn't completely out of whack with some other companies companies in its peer group. One more consideration, lockups. Always something to be mindful of when a company becomes public. Oftentimes the the employees of the company, the major shareholders they are restricted from selling stock. Once they become unrestricted, sometimes they'll unload their shares right away. That could create pressure on the stock. So just be mindful of lockups because if you're a little bit patient it may lead to a better price.

[Jim Cramer]

I want you for but you have to understand that I get very enthusiastic and Jefferson check on me with all the time. What happens is so many of these IPOs are so exciting but that should never dictate why you buy something. Excitement doesn't count. Next up Andy in California. Hi Jim, you please explain how investors should view GAAP or non GAAP earnings. Thank you. This very complicated but let's suffice it to say that I like better known as traditionally generally accepted accounting principle numbers. In other words I don't want to hear fancy ways to make earnings when there is a traditional way that I learned in accounting and you learned to sure let's not fool around.

[Jeff Marks]

Gap is gold standard. I mean at times it is helpful to look at non GAAP because they'll exclude some one time items that maybe doesn't give you a great apples to apples comparison of earnings. But sometimes we know management teams they like to take a very liberal view of those non GAAP earnings. So you have to be careful right.

[Jim Cramer]

Sometimes around that and we don't share the notion of liberal view. There are so many companies out there that have straightforward accounting. Why reach to someone that doesn't and want to go to Todd Minnesota who asks concerning when to buy. Doesn't only buying adding to a stock when it's below basis dogmatically ensure we miss all momentum runs and only participate in downturns? I missed out on used runs in the fall because I hesitate to add the partial position. This is a, an art, not a science, sir. And what happens, Todd, is that we end up, yes, we're going to miss some. That's absolutely true. But we care more about the downside. If we stop the downside, if we protect against the downside, the upside is going to take care of itself. It is painful for me sometimes because we've talked many times about how we refuse to violate basis. Yeah, this is something we fight every day to tooth and nail. But the fact is we have proven evidence that we've saved more money than we would.

[Jeff Marks]

Yeah, look, I like to apply a strict interpretation when you're just putting on position on over those first couple of weeks, maybe months, only because you never know what curveball the market may throw at you. In that case, just being a little bit patient saves you. But in terms of when to violate, well, if you, if you've been owning the stock for a while and you've had a lot of good news come, well, then it's just a better company than from where you first started buying it.

[Jim Cramer]

So that could, that could cut towards that. Look at it a great way. I know that there'll be situations that are missed, but you just heard why we have to stick to our discipline. Next up, we have a question from Karen in New York who asks how do we find the RSI and is it reliable indicator for making investment decisions? Yeah, this is great as well. Strength index. I do like to look at it, but I'm not wedded to it. And we can find it in various different places. I don't know. I tend to just look at the chart myself.

[Jeff Marks]

Yeah, look, you can find it on your trading platform. Keep in mind rsi. It could signal when a stock may be overbought or oversold. But overbought doesn't necessarily mean sell, and oversold doesn't necessarily always mean buy. At the end of the day, the fundamentals are what matter most. And if a stock is oversold for a long time, it could signal that something is fundamentally wrong.

[Jim Cramer]

Very true. And we're looking for Entry Point. It's a tool. Again, what I find most important about Entry point is whether I'm buying it expensively or less expensively. And as far as I'm concerned. Rsi. It's just another arrow in the quiver, but not the most important one. I like to say there's always a bull market somewhere and I promise I'd find it just for you right here on Mad Money. I'm here, Jim Cramer. See you next time.

[Commercial Voiceover]

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 More perks, more.

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