Transcripts For CNBC Mad 20240703

In other words, no matter how much you may love a stock, if the rules say sell sell, sell, sell you sell it. One thing ive learned from my investing crew, no matter how much you might believe in something, you violate the rules of the road at your own peril. Thats why we obey them religiously with the charitable trust, and theyve become our core guide for the cnbc investing club, which i want you to be in. Where the heck do the rules come from . Its not like they were hand down from high. The five commandments from the history of the world part one. Theyre not like the laws of physics, the way markets works, that you can induce gravity. No. The rules come from my experience. Thats right. From my experience. I spent over 40 years in this business. And in that time you Better Believe ive learned some powerful lessons. In many cases i did have to learn them the hard way. And because i dont want you to repeat my mistakes, because i want you to have the benefit of my whole career, tonight im going lay out some of most important rules for investing, and they are indeed timeless. Some of this stuff may seem basic, but again, you forget the rules at your own peril. Back in my Old Hedge Fund, i occasionally convinced myself to make an exception, to ignore my discipline just this once. For some reason this seemed compelling at the time. And whenever i broke my own rules, i almost always got burned. Its like that old joke about the doctor. The guy who goes to the doctor and says hey, doc, doc, listen to me. It hurts when i stretch out and shake my hand around. To which the doctor says then dont do that anymore. So what exactly should you be doing or not doing as the case may be . Lets take down my most important rules for investors. Were going to start with the first one, which is bulls make money. Bears make money. Pigs, well, they get slaughtered. Look, i say this all the time because so often in my business, ive seen moments where stocks went up and up and up so much that people were intoxicated. Thought they were geniuses. However, its precisely at that point of intoxication that you remind yourself that you dont want to act like a pig. This phrase in the old trading desk, an amazing old fund. Id been having some big run and they would tell me id made a lot of money, perhaps too much money, and maybe i was being a pig. I had no idea what he was talking about. How do you make too much money . I was grateful i caught major gain. Not that long after, we got a vicious selloff. And i gave back everything i made and then some. [ crying ] and thats why i enshrine the bulls make money, bears make money, pigs get slaughtered thesis as one of my own rules. And its now so deeply ingrained that i got a barnyard full of sound effect to tell the whole story. The bull, the bear, the pig. Bulls dont have a monopoly. The same idea applies to investors who apply taggressivey on the short side. Other than the dot com bust in 2000 and 2009, most stocks bounced back pretty darn quickly. Even the fed induced meltdown at the beginning of 2021, you had to turn positive by 2022. If you pushed your luck too long, you got sent to the slaughterhouse. So the question, how do you know when you, yourself are being a pig . Look, there is no such thing as stupid questions, only stupid answers. But honestly, you dont need me to fell you when youre being a pig. The nasdaq more than doubled. If you didnt feel greedy up there, you didnt need investment, you need a psychiatrist. If you let your winners ride, you gave a lot, if not all the money back. Financial question was even more stark. If you are Walking Around owning a huge amount of stock in 2008 as the banks started dropping like fly, well, you were beyond piggish. [ booing ] why is this rule so important . Simple. One of my chief goals is to help you stay in the game. Thats the hardest part of investing is holding on through the difficult periods, taking shortterm pay so you can add longterm gains, which is what happened to the stock market for a century. The people that wiped out in 2022 are the dot com collapse before they tended to be the ones who never took anything off the table. They never felt greedy. And their piggishness, well, they never felt it. So they got slaughtered. Being cautious and ringing the register near the top ended up keeping you notice its near. Catching the ultimate top is so impossible. Just catching near the top is great. Thats why i remind people every day, have you taken any profits . Or are you being a pig. You never know when the stocks you own are going to crash. You never know when the market could be wiped out. You cant have certainty. Stock market doesnt let you have certainty. If you assume stocks will keep going up forever in a straight line, well, you are in for the house of pain everyone would own stocks if that were the case. We know they dent because its so risky. Sure there be times when the stock is going up and up and up. They keep going. When i coined the term faang, i loved them all. But i did give up on amazon after an incredible run. I was trying to be disciplined yet they continued to move up another 50 . I did feel like a pig after the successfully run, but i felt like felt like a fool. Youve had the feeling. You know what its like. Thats just the price you have to pay for following the rules. I had been a pig, but the pig kept running. It didnt get slaughtered. Fortunately we got back in amazon for the charitable trust. And then President Trump bashed it for ripping off the post office. You remember that . Probably even dont. But it was torture to watch it go up and terrific to get back in. For every huge pile of cash that gets left on the table with a situation like amazon, the kind of which had if you had left everything on the table in 2008, or 2021. Experiencing two generation of investors against stocks and hopefully trying to preserve the last one. Never forget, bulls make money, bears make money, but pigs, no. Pigs, yeah, you get it. And im going keep repeating it forever. Im going use the sound effects because it is just that important. How about rule number two . This is one that people i see them on the street. Everyone everyone asks if theyve made some sales. Its okay to pay the taxes. Look, no one ever likes paying taxes. I dont, you dont. But like death, taxes are inevitable and unavoidable. Yet the aversion of paying taxes on stock market winnings often borders on the pathological. So many times people have gigantic gains, but they refuse to take any profits because they dont want to incur taxes that cut into their winnings. Never mind that Capital Gains rates are pretty darn low versus ordinary income. Wall street is littered with investors who made this nice stake. Several years ago i went to a presentation from a Prominent Hedge Fund manager who recommended macys. The stock had already run a great deal before the presentation and it was ripe for profittaking regardless. But i know people who had owned it for years with hefty profits because they didnt want to write a check to uncle sam and they were thinking how much that real estate was worth. Next macy saw its stock get cut in half, and it wasnt a twoforone split. It hit a Tipping Point courtesy of competition from amazon, and the darn thing got obliterated. Those who didnt want to share the profits with the irs ended up with no profits at all instead of hoping the stock would go to 100 because it had a lot of real estate. Some gains are simply unsustainable. A profit on paper is not the same as a profit in your bank account. Gains can be ephemeral. You havent made any money until you ring the register. The last thing you need is to be worrying about Capital Gains and taxes. When its time to sell, sell. In short, stop fearing the tax man. Start fearing the loss man. You wont regret it. The bottom line, remember my first two rules. Bulls make money, bears make money, but pigs get slaughtered. Dont be greedy. Be disciplined. And dont be afraid to pay the tax man on profits youve earned. Lets go to tiyler in californi. Caller how you doing, jim . Well. How about you . Caller i am doing well. Thank you, sir. I dont know how many times i sold the position and the next day or two watched it reverse. So id like to know when is a good time to just reevaluate and cut my losses. Okay. I think this is a terrific question. Dont feel bad. I obsess on the losses for the charitable trust. And i know, and i bother jeff marks endlessly. Were down, no. What you do is try to look at it once a week, okay . Just once. I dont want you to get down. Youre going miss other opportunities. And what youre looking for is a change at the margin. Its something said on the quarter, on the quarterly Conference Call. You dont want to just get up in the morning and say you know what . I dont like the way that acts. Im taking the loss. Wait for something definitive. And if there is a bump up, dont be afraid to turn the position no matter what. How about robert in minnesota. Robert . Caller hey, jim. Thanks for taking my call. My pleasure. Yeah, when i retired, my company let me keep my 401 in a time dated fund at the corporate rate which is very cheap, but it has limited choices. My question is should i switch it over to a managed fund with another company Like Fidelity or et cetera at a higher standard rate, but has more options . Look, im a big favor of the s p 500 as the index fund. I think that will be terrific. Thats what my retirement is in. Thats what your retirement should be in. I think that will be fine. I love the diversification. Remember my first two rules. Bulls make money. Bears make money. But pigs, they get slaughtered. Dont be greedy. Be disciplined. And dont be afraid to pay the tax man on profits youve earned. We love taking profits. Coming up, from portfolio maintenance to learning how to do your homework, im hitting my investing rules that i think are the key to mastering this market. You dont want to miss them. So stay with cramer. Dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, madtweets. Send jim an email to madmoney cnbc. Com. Or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. Every day, businesses everywhere are asking is it possible . With comcast business. It is. Is it possible to help keep our Online Platform safe from cyberthreats . Absolutely. Can we provide health care virtually anywhere . We can help with that. Is it possible to use predictive monitoring to address operations issues . We can help with that, too. With the advanced connectivity and intelligence of global secure networking from comcast business. Its not just possible. Its happening. The first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. We just got an order from dinosaur, colorado. Start an easy to build, powerful website for free with a partner that always puts you first. Start for free at godaddy. Com is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Is it possible my network could take my business styles and textures. To the next level . It is with comcast business. Powering all your devices with gigspeed wifi. And you get fast downloads and uploads. Pick it up pick it up oh we got this because its powered by the next generation 10g network. More speed for your business . Its not just possible. Its happening. Get started for 59. 99 a month for 12 months. Plus, ask how to get an 800 prepaid card with a qualifying internet bundle. Comcast business, powering possibilities. At the end of the day, if you only remember one thing about being an investor, thats it. Nobody is perfect. Everyone is fallible. Its inevitable mistakes. You need to follow a set of rules, rules designed to protect you from yourself, which brings me to my next commandment, and this is another important one. Never buy all at once. I cant stress enough. Do not under any circumstances buy your whole position at once. In is something you can see us put into practice constantly in the charitable trust. One more reason i think you should join the cnbc investing club. No one likes to fool around with partial orders. No Financial Adviser has time to buy stocks over time. The game is to get the trade done at one level and in a big way, make the statement boy. Boy do i hate statement buys. Get position in the sheets or in the portfolio now. I dont like that either. Where i stand, its all wrong. 100 wrong. You should never buy all at once, and you should never sell all at once. Stage your buys, work your orders, try to get the best price over time. Why . When i first started as a professional money manager, i really wanted to prove to everyone how clever and smart i was and how right i would be. So if i felt like buys, say caterpillar, by god, ill buy it now, big, all at once. Make a statement. Because i was so sure of how right i was. Put me up on 50,000 cat, id scream, as if i were the smartest guy in the universe. When think back about that young cramer, mostly full head of hair, by the way, all i can say is i was one arrogant son of a gun. Arrogant and wrong. If im going the buy 50,000 shares, you dont pick them all at once. Thats pure hubris. What happens if it goes down . It might go down. Never buy all at once. Instead, i should have bought cat in increments of say 5,000 shares gradually over time during that day, trying to get the best price i could. You put in a small position, cross your fingers, hope it goes down so you can buy more at a lower level to get a better cost basis. I dont mind when a stock goes down if i can buy more. I no longer say trade in size, as we used to call it, but we still do. But i still invest my charitable trust. And whenever we have a new name we buy in small increments, say 500 shares at a time to get say a 2,000 share position over the course of multiple days. Preferably, again, at lower prices. We like it if our stocks go down to get a better stock basis. We lay out the numbers to the club. When you buy all at once, youre declaring the stock wont go lower. Thats crazy. Nobody has that kind of insight all the time. Buying gradually in stages is about recognizing that our judgment is fallible. So why dont more people do it my way . Why dont investors this f they want 500 shares in exxonmobil decide to buy in 100 share increments . They want to be big too. They dont want to waste your brokers time. I know why brokers hate it when my Old Hedge Fund would place incremental orders. But its hubris to place a net chunk of your net worth into one stock ought al once. At the same time, many others simply want to pull the trigger on the whole position and then get it over with. They dont want to agonize over each increment. Thats why you need to resist making a statement buy when you purchase a stock. Ive bought and sold billions of shares of stock in my time. Both for my Old Hedge Fund and charitable trust. You know how i got in the absolute bottom, how often the last price i paid was the lowest and then off to the races . Maybe one trade in 100. And im pretty good. Resist the arrogance. Buy slowly. Even buy over a couple of days if you have to, as i do for the charitable trust. Humility beats hubris every time. Next rule. I need you to buy damaged stocks, not damaged companies. Lets say the mall is having sale and you pick up piece of merchandise only to find out its broken when you get home. Maybe it doesnt work. Maybe there is a hole in it. In the real world, you can return that merchandise and get your money back. There are guarantees and warranties galore on main street. Wall street is different. If you buy a stock that turns out to be a defective company, yeah, it aint the losses. There is no moneyback guarantee. Caveat emptor. Thats why i dont is to be careful to distinguish between broken stocks and broken companies, which absolutely deserve to see their stocks trade lower. Sometimes damaged companies can be easier to discern. When nearly everyone got the covid vaccinations, all sorts of covid winners fell by the wayside. Many got obliterated because a big chunk of the business would disappear as we knew would happen. Take the company that took the world by storm during the pandemic, the very name became a verb. We would zoom, just like we google. But once we got quality vaccines, the Growth Opportunity evaporated and the company struggled to use all the money it made during the pandemic to pivot. It had a huge cash position. Very tough to go up against microsoft and google and cisco. Zoom punched from 588 at its alltime high down to the mid70s less than two years later. There were points on the way down that people assume it had to be a bargain. But every time they did, they got burned. Because you cant call a bottom in a stock that is in free fall if the business is changing and getting slower. We saw something similar with the financial tech stocks that had roared during the period of ultra low Interest Rates that coincide with the pandemic. Lots of buying and ill pay later. Once the fed warned it would start rapidly raising rates, the whole Business Model was called into question and the group was annihilated. The worst was upstart. They started leaving many of the loans on the Balance Sheet as the fed caused rates to skyrocket. The stock plummeted from just over 400 at late 2021 peak, down to the low teens less than a few years later. On the other hand, sometimes a stock will sell off for reasons that have nothing do to do with the underlying company. It could be caused by problems overseas or washington worries. Just because a stock is down doesnt mean there is significant wrong with the underlying business. Damaged stock, not damaged company. How do you dish between a broken company and broken stock . Complicated question. What i like to do is develop a list of stocks i like very much. I call this the bullpen of my investing Club Charitable trust portfolio. We give you the bullpen all the time. When wall street throws a sale with the whole market comes down, we use that as an opportunity to pick up the stocks on our list made in a calm no trading versus the battlefield when the market is open. We know these stocks ahead of time. So we know there is nothing wrong with the Underlying Companies because weve done the research ahead. But the bottom line is, you never really know. Thats why this rule works in tandem with the last one. Never buy a position all at once, because what you think is really a damaged stock might turn out to be a damaged company. If you take your time, youre much less likely to end up with a large quantity of broken merchandise. And remember, there is no moneyback guarantee. The word on the street is caveat emptor. Mad money is back. Meet gold bond daily healing. A powerhouse lotion that moisturizes, heals, and smooths dry skin. With 7 moisturizers 3 vitamins. And. New gold bond healing sensitive. Clinically shown to heal moisturize dry, sensitive skin. Gold bond. At humana, we believe your healthcare should evolve with you, and part of that evolution means choosing the right medicare plan for you. Humana can help. Hi, my name is sam davis and im going to tell you about Medicare Advantage Prescription Drug plans that can provide more coverage than original medicare, including Prescription Drug coverage, all wrapped up into one convenient plan. With original medicare youre covered for hospital stays and Doctor Office visits, but you have to meet a deductible for each. And then youre still responsible for 20 of the cost. Next, lets look at Medicare Supplement plans. If a service is covered under original medicare, then a Medicare Supplement plan pays for some or all of your medicare deductibles and the 20 coinsurance. But they may have higher monthly premiums and no Prescription Drug coverage. Humana Medicare Advantage Prescription Drug plans include medical coverage, plus Prescription Drug coverage. As well as dental coverage that includes two free cleanings a year, plus a yearly exam. Vision coverage includes vision exams and a yearly allowance toward eyewear such as lenses or contacts. And hearing benefits include routine hearing exams and coverage toward hearing aids. Youre covered for Preventive Services like annual mammograms and prostate exams. Theres a zerodollar copay for routine vaccines and telehealth visits. And you get worldwide coverage for emergencies when you travel. You get all of this in one convenient plan. Plus, theres a cap on your outofpocket costs so, call or go online today to see if theres a humana plan in your area, to find out if your doctor is in one of our networks, and to get our free decision guide. Theres no obligation, just good information. Humana a more human way to healthcare. If you want to build a portfolio of stocks, thats a big ifs. There is nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the s p 500. But youve got to be rigorous about it. Which brings me to my next rule. Do the homework. Listen, my kids hated doing the homework. They thought it was punishment. Sometimes when i looked at what they were studying, i could see where theyre coming from. In high school, how will it help you later in life . Why even bother . Of course, thats a terrible attitude. As a parent, i always encouraged my kids to study, because you never know what youll turn out to be interesting later in life. I bring this up because many of you have the same attitude of the homework you need to do on your stocks. You suspect it might be just as irrelevant to your portfolio as school work seemed to my kids. When i tell people that they need to listen to the lets say starbucks Conference Call or know what the analysts are expecting from netflix, they dont hear it. They think im being a scold. But thats not true. You need to do the work if youre going to own those kinds of stocks. When i remind people doing the work means listening to the Conference Calls and reading reports, they want no part of it. They look as me as some sort of oldfashioned teacher who is asking for way too much in this business 21st century world. Thats just plain wrong. Owning stocks without doing the Proper Research frankly is lunacy. But people still do it. And they do it for a couple of different reasons. On the one hand, there is the buy and hold school of thought, the idea that you dont need to do any work, you dont have to keep track of whats happening in the company because hey, youre in it for the long haul. So what. On the other hand you have people who dont have the time to be diligent, for those of you who dont have the time, i have a simple solution. Get someone else to manage your money. Or do whatever most experts invest in a low cost s p 500 index fund. Or find someone else to help you do the homework while teaching you to be your own portfolio manager, which is what we do with the cnbc investing club. And i still urge members to do as much homework as they can. If you cant devote a couple of hours a week to your portfolio, you really shouldnt be messing around with individual stocks unless you join the investing club, which is what were meant for. Investing may not be a fulltime job like trading, but its a part time hobby. Its a buy and hold premises thats a lot more pernicious. Back during the 1990s, buy and hold became the be all end all in investing. You know what . Im going buy and hold on to my cmgi because its got to go back to 100 where i got it. Netflix told you if you hold things for the longterm, everything would work out. Of course to zero. This philosophy took a real blow during the financial crisis when people who practice buy and hold got obliterated. That was easy. The house of pain buy and hold became popular. It keeps popping up when there is a nice smooth period. When the market was flooded with cheap money, buy, buy, buy. Once again, it got you burned when the fed finally started tightening in 2022. A and the whaep money vanished. A lot of people got crushed because there was nothing worth holding. That was a travesty, the spacs. What is the homework . Before you buy a stock you should listen to Conference Calls. Go to the companys website. I really like that. I start with that lately. Read the research if you can get ahold of the research. Read the news stories. Thats called google. Everything is available on the web, everything. You have so much more info available now. So much more knowledge that there is really no excuse. Youre up there at the Goldman Sachs library for some mike feature statement from three months ago as i did four decades ago right down the block here. You have everything right at your fingertips. But if you fall back on a buyhold strategy for any group of stocks and dont pay attention, i can assure you that youll be soundly beaten by professional Money Managers with good track records who are actively searching for high quality stocks all the time. One more point. Im quite sure an index can fund anybody who doesnt know. Give up on individual stocks and put your funds in a cheap s p 500 index fund. Im in favor of index funds for those who dont have the time or the predilection. The next rule is i harp on constantly, diversify and diversify and diversify. Always be diversified. That controls risk. And managing risk is really the holy grail of this business. Whats the biggest risk throughout . Its called sector risk. Stocks in the same industry, they tend to trade together, especially in extreme moments. In the old days, only about 50 of the action in a given sector, any given stock came down to the sector. But thanks to sector etfs, that number has gotten much, much higher. Some cases 80, 90 . I dont care how great a stock was in 2000. If you had all your eggs in one basket, you got skrcrambled. The oils in 2014 through 2016 and tac during a discreet period that was so horrible. There is only one thing that can keep you from getting nailed by sector risk, and that is diversification. I always say diversification is the only free lunch in this business. Hallelujah its the only concept that works for everyone. If you mix up enough different sec no, sir your portfolio, at least five, i tell you, you wont be wiped out when the one group gets obliterated, something that happens far more often than you might think. But if diversification is such a nobrainer, if every adviser has been saying it for years, how can you be under diversified . I think it come backs to the homework. A lot of people dont know, they dont understand what the companies do. So they end up with stocks that are very similar. I mean, they dont understand that one is disrupt and another is semiconductors. It drives me crazy. You know what also, others have zero respect for the history of the bear and how it attacks individual sectors. I still field quite a few calls from people that generally think that owning faang is a diversified strategy. Hardly. With facebook, amazon, you own variation of the same things, social, mobile, cloud, they trade together. Thats what i caught faux diversification. No matter how much i like the oil stocks, i cant see pioneer, chevron and halliburton. I always say no to a portfolio of j j, eli lilly, even as i like all companies, they leave you have to a Health Care Risk that could overwhelm the group all at once. Having an undiversified portfolio is not just an amateur mistake. Many professionals dont like to be diversified because of the bizarre way Money Management works. If you concentrate in one sector and that sector takes off, you beat everybody. This is the nature of the business, even though i think its ill founded. Its why cathie wood of ark invest could be the best for 2020 and the worst in 2022. Her flagship arc innovation went almost all in on highrisk growth stocks. Thats not diversified. And those stocks, they tend to trade as a group. But that one huge year in 2020 made her a household name. And once youre a household name, you do get it made in this business. Dont get me wrong. Cathie wood is great at picking higher growth risk stocks. I just want you to be a wear when you go all in on a diversified portfolio, it is likely to blow up in your face a couple of times in a few years time. Here is the bottom line. Whether youre an amateur or professional, you always need to do your homework and keep your portfolio diversified. This is the kind of routine maintenance that keeps you from monster losses down the line. Remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. But dont try to rationalize those losses because stocks dont always come back to even, or anywhere near that. Lets go to trey in texas. Trey . Caller jim, the second greatest investor of all time, Warren Buffett says individual investors like me should just buy the s p. My question for you is what does the greatest investor of all time think we should buy . Well, first, im no Warren Buffett. Im a tv guy who tries to do his best to teach you. But i thank you for that. Heres what i have to say. I think it depends on your time and predilection. I think you put away your first 10,000 in an index fund. If you like picking stocks, lets do it well together. Join cnbc investing club. If you dont like picking stocks, let someone else do it for you. But if you want to be involved, i will help teach you to be a good investor. I can do that. Ive done it for a very long time, and fortunately ive been successful. Anne in indiana, ann . Caller hi, thanks for taking my call. Youre quite welcome. Whats up . Caller im a club member, but ive been thinking about this lately, and i wondered if you could talk more about suspending our judgment and letting the market take a step up, even when a ceo does something they said theyre not going to do or a Company Makes a bunch of mistakes, but they have very little competition, or a ceo makes big mistakes but things take a long time to fix. Well, this is a tough one, anne. Because i made this mistake. Ive stuck with people for too long. I keep thinking give them another try. Almost every case it hasnt been worth it. Almost every single case. Including situations im in now. All right. Whether youre an amateur or professional, you always need to do your homework and keep your portfolio diversified. There is much more ahead. Im putting my four decades of experience to work, sharing the key rules we follow for the cnbc investing club. Think of it as a glimpse behind the curtain if youre not a member. So stay with cramer. Join the cnbc investing club with jim cramer. Its helped me become a better investor, and helped me become a better financial planner. The place to be is the club join the cnbc investing club with jim cramer. Go to cnbc. Com investingclub now. Hey you, with the small business. Whoa. Youve got all kinds of bright ideas, that your customers need to know about. Constant contact makes it easy. With everything from managing your social posts, and events, to email and sms marketing. Constant contact delivers all the tools you need to help your business grow. Get started today at constantcontact. Com constant contact. Helping the small stand tall. Hi, im jason. Ive lost 228 pounds on golo. Constant contact. I dont ever want to go back to wearing a 4xl shirt or not being able to climb up stairs without taking a break. So im committed to golo for life. This is Spring Semester at fairfieldsuisun unified. They switched to google tools for education because theres never been a reported Ransomware Attack on a chromebook. Now theyre focused on learning knowing that their data is secure. heres why you should switch from chrome to duckduckgo. Duckduckgo is a browser you download to your mobile and desktop devices. Unlike chrome, the duckduckgo browser has privacy builtin. It comes with a private alternative to google search, which doesn■t spy on your searches, and it blocks cookies and creepy ads. And theres no catch. Its free. We make money from ads, but they dont follow you around. Join the millions of people taking back their privacy by downloading duckduckgo on mobile and desktop today. I dont want to go all zen in the art of portfolio maintenance on you, but when it comes to managing your own money, youre often your own worst enemy. Dont take it personally. Im my own worst enemy too. If you want to invest wisely, you constantly seem to be fighting off your own worst impulses. Were not robots. We have emotions and they can really throw you off your game. Which brings me to my next rule for investing. Nobody ever made a dime by panicking. Panic is not a strategy, and people do it constantly. A stock gets hammered, then investors sell. Sell, sell, sell the market gets crushed in a huge down day, people bail at the end of the day. Something gets annihilated and people cant take the pain. So what do they do . They bolt. The house of pain there is something instinctive about panic, wanting to flee. If youre a stone age hunter who stumbles into a family of grizzly bears, panic is a very helpful strategy, but its not useful emotion when youre investing in the stock market. The truth is there will almost always be a better time to sell than whatever moment inspired you to panic in the first place. Dont i know it. Remember the spring of 2020 when everything shut down. The s p 500 lost a third of its value in a little over a month. And for months after, almost everybody in the business was convinced the world was ending. That april, legendary market historian Larry Williams gave us the all clear. He was looking at other countries and realized wed mostly be out of lockdown by midmay. He told you to buy into the teeth of the panic. Buy, buy, buy not flee with the panicers. Sure enough, new highs again by summer. And once the vaccines came along, the market never looked back. [ bell ringing ]. The next time there is a big market wide selloff and you feel like fleeing and never touching a stock again, i want you do something for me. I want you to take the opposite side of your own trade. The most rewarding trades you can make are those where the decks have been cleared out by terrified folks using market orders who dont just get that the exit doors arent as big as they think they are. Mind you, i am absolutely not saying every stock that gets hit with a panic sell is worth buying for the longterm. Oftentimes people freak out with good reason. I am saying after a big decline, you usually get some kind of bounce, which gives you a better moment to sell if thats what you want to do. Even when things are really bad, bargain hunters will usually take it up from its lows, and thats when you get out. So the next time you want to dump everything, take a deep breath and wait for the rebound before you sell. Speaking of hideous down days, i have another one that will help you handle big declines. Ready . When the stock market gets unrelentingly negative, he who defends everything defends nothing. It was when frederick the great said that centuries ago, and its just as true now. So he who defends everything defends nothing. What exactly does he mean . Its about how you evaluate your holdings. When the market is flying and many stocks are in bull mode, you dont need to worry about most of your positions. The more exposure to a bull market, well, lets just say the better. Hallelujah but when things get difficult, when youre on a defensive you need to recognize that many of the stocks you bought during better times might not fit this new environment. In short, when the economy is slowing, if you try to defend all your positions in a market that turns against you, thats a recipe for getting blown out. [ gunshot ] when i say defend, you cant treat a declining market like its a buying opportunity of every single stock in your portfolio. If you do that, youll quickly run out of capital, leaving you unprepared to buy more if we go lower still, and we usually do. Yep, when the market gets negative, you need to get more selective and focus your efforts. Thats why i rang k all my stoc for investing club next. One i buy right now, two in a week, and threes are sells. Sell, sell, sell sometimes some strength, but if you can get out, its good. That why way i know which ones to sell and which ones to cut and run with and use that source of capital for something better. So lets they say a tech stock is getting hammered, but you its going to rebound. Its important that you dont try to hang on to the whole complex. Pick the best tech stocks, the ones you want the buy on a weakness and toss out the rest. Use the new cash reserves to buy the Higher Quality Tech Companies at lower prices. Thats right. The nonessentials, the ones that have no catalyst and you only owned because you wanted exposure to a bull market, they get the heaveho immediately when things turn bad. Sell, sell, sell we used to call this circling the wagons around your best names in my Old Hedge Fund. The first times you do it youll curse yourself because you might be putting down stocks youve loved for quite some time. But eventually youll realize how valuable this process is because it can protect you from a lot of painful. The house of pain i never try to baltimore than a few losing names at once. Dont buy, dont buy, dont buy, its dont buy remember, you have to take a lot of stocks that are going against you, it will wear you down. Its exactly what its going to do. Making it more likely that youll crack under pressure and dump everything near the bottom. Its simply human nature. But you have to fight human nature tooth and nail, hammer and tongs. The bottom line, Great Investors know how to ignore their emotions when the emotions get in the way of making money. The next time if market gets slammed, please dont panic. Nobody ever made a dime by panicking, but dont double down your whole portfolio in a week. Vicious negative markets can give you buying opportunities, but you need to focus your capital on your absolute favorites, rather than chasing bargains and thirdrate merchandise that actually deserve to trade lower. Mad money is back after the break. Unnecessary action hero missing punches . Unnecessary check reversals . Unnecessary time sheet corrections . Unnecessary unentered sick time . Unnecessary go unnecessary go unnecessary when you can take this phone, youll be ready. Make the unnecessary, unnecessary. Let your employees do their own payroll. [soldier] take a look at this theyve left us a gift. [soldier] i think we misjudged them. I love horses. birds chirping [soldier] we should open the gate. Lets see what charlotte thinks. [narrator] at crowdstrike, we monitor trillions of cyber events to detect threats and prevent breaches before they happen to keep your business from becoming history. We stop cyberattacks. We stop breaches. We stop a lot of bad things from happening. Crowdstrike. Protection that powers you. Welcome back to tonights check yourself before you wreck yourself edition of mad money. Im a big believer in the idea that once you get some money saved up, you are in control of your own financial destiny. That also means you need to be very careful. Youre the one with the most power to derail your financial future. Look, risk will always be part of the investing gig. I want to do my best to make sure you dont make the same mistakes twice or three times or endlessly. Thats why i have rules. Rules that protect you from the kind of mistakes i used to make when i was young and inexperienced. The same rules we preach constantly in the cnbc investing club. Rules like dont own too many stocks. Back in my hedge fund, i would spend three hours every day analyzing the mistakes from the day before. Im not kidding. One reason i retired, at least for my wellbeing. That was a major task, one i would complete every morning between 4 00 a. M. And 7 00 a. M. Some people are night owls. Im an Early Morning owl. I would analyze every losing trade. You dont need to analyze the winners. They take care of themselves. How i could have made more money or lost less money. I was maniacal about it. After a couple of years, i had an epiphany. I realized that Group Performance could be linked to directly having fewer positions, owning fewer stocks. In short, when we own fewer stocks, we tended to make more money. Thats why ever since i wont buy a stock without taking a different one off the table, even for my charitable trust, which is the only way i can play these days. Yet dont just buy shares in more and more companies. You need to limit your holdings. Thats a great discipline, and you should adopt it pronto. All the bad Money Managers know have hundreds. All the good manage verse a few names, and they know inside and out those names. Which means they can confidently buy them on the way down. Thats why i say please dont own too many stocks. You end up selling stocks for stocks have arent as good. It happens. Hindsight is 2020. But take it from me. As someone who on the other hand stocks over 40 years, its far more likely youll be selling marginal companies in order to get better, bigger and better stocks. Thats thou make a portfolio really work for you. Hey, by the way, the time i lost the most money as a Hedge Fund Manager on my sheets, my position sheets were thick as a brick. When i made the most money, my sheets were, well, one speed of paper, double spaced, and i made hundreds of millions of dollars. Please remember, when youre a pro or an amateur, its always possible to have too many positions. Rule of thumb, if youre just investing for yourself and you own more than ten stocks, you should probably pare something back. You can have too many stocks, but you know what its hard to have too much of . Cash. Which brings you to my next rule. Cash is for winners. The weiss man version of cash breaks my heart. At times it drives me crazy how so few people recommend it. Nah, they hate the markets so theyre only 95 long instead of 100. They think the market stinks. They decide a few highflyers against their longs. No no. No that is absolutely the wrong way to approach things. You dont like the market . Then sell stocks. As many as you want, and then raise some cash. Put it in cash. The dont buy putt options on the cash you own or stocks to short your position. Thats the stuff, its just too hard for you. The odds do not favor you winning on both the short and the long. Its a strategy whose goal is mediocrity. But if you can raise some cash and put it to work at lower levels, thats the best way to protect yourself against a lousy market. Let me tell you a little story. I was one of the biggest options traders on the wall street for a time. When i bought put options to hedge my business, i almost always lost money. When did i make money . When i bought put options to profit from low Quality Companies with shortfalls. Or stocks that seemed severely overvalued versus the fundamentals. If you just like the market you dont need to turn yourself into a perez toll hedge against downward business. Go into cash which is shortterm treasuries of the less than year variety. People Start Talking about how little cash earns, although its a lot more lucrative when the fed is tightening. Or they say it cant be in cash. Thats for losers. No. Thats just plain wrong. I say cash is for winners, especially if you think is there a major disaster ahead, and i dont care what interest you earn on that cash. I grew up in a different time. I only shorted stocks when i had an edge. I cant short it all right now by contract, not even for the charity aable trust. I dont care about not having enough exposure. I care about losing money. I was an exception in the Money Management business. That was my focus. So if you dont like the market, if you think there is nothing compelling to buy in a weakness, then just raise cash. Go sit on the sidelines and wait for the situation to improve. Believe me, its never the wrong call when you cant find anything that truly makes sense for you. The bottom line, always be careful not to own too many stocks. And not to have too little cash. Stick with cramer. Booyah, jim. I love you, man ive been watching you from day one. Thank you for all the wonderful buys tyou provide us. Watch your Program Every day. Love it. I always wanted the say booyah on your show. Thank you for being the greatest in the world. We consider you the money market maker, and we thank you for all you do. I love your show. We think its the most Entertaining Program on tv. In the u. S. We see millions of Cyber Threats each year. That rate is increasing as more and more businesses move to the cloud. So, the question is. Cyber attack as cyber criminals expand their toolkit, we must expand as well. We need to rethink. Next level moments, need the next level network. [speaker continues in the background] the network with 24 7 builtin security. Chip . At t business. The first time you connected your godaddy website and your store was also the first time you realized. Well, we can do anything. Cheesecake cookies . The chookie manage all your sales from one place with a partner that always puts you first. we did it start today at godaddy. Com heres why you should switch from chrome to duckduckgo. Duckduckgo is a browser you download to your mobile and desktop devices. Unlike chrome, the duckduckgo browser has privacy builtin. It comes with a private alternative to google search, which doesn■t spy on your searches, and it blocks cookies and creepy ads. And theres no catch. Its free. We make money from ads, but they dont follow you around. Join the millions of people taking back their privacy by downloading duckduckgo on mobile and desktop today. I always say my favorite part of the show is answering questions directly from you. Tonight im bringing in jeff morris, my portfolio analyst, partner crime to help answer some of your most burning questions because you usually have some tough ones. For those of you part of the investing club, jeff will need no introduction. For those of you who arent, i hope you will be soon. I would say that jeffs insight and our back and forth help me to do a great job for mad money as well as members of the club. Jeff agnd i do this sort of things at our monthly meetings and answer your burning questions. If you would like this to be something to keep up, i need you to join the club. And thank you the people who stop me on the street who love the club. It means the world to me. Lets starts with a question from michael, my home state of pennsylvania. What do you think about dividend reinvestment strategies . Jeff, one of the first things i learned and taught at Goldman Sachs, its one of the great free lunches of our business. You just keep letting it ride. And i have seen in my lifetime the dramatic amount of money you make from the dividend reinvestment. Absolutely. Thats how you take advantage of the power of compounding, by reinvesting those dividends quarter after quarter. Now unless you need the income, of course, depending where you are in your life, that may be a reason not to. But always reinvest. And it works for high dividend stocks like a consumer Package Goods stock or tech stocks too that often a dividend. Its a good thing to have. Its another way to color cost average. Yes. I remember going over this with my late father where he was adamant, take the money and run. I tried to show him and managed to convince him, no, take the money and be back in, reinvest. Now were taking a question from john in california who asked what are your source of information related to stocks in the overall market and economy, sources that you go to daily. All right, well, look, i make no bones about it. We have all the research in the world. And its one of the great things, the luck that we have is we get everybodys research. And i tend to let that control things. As by the way when i do the mad dash and talk about what may be the most Research Calls of the day. So were blessed with that. Yeah, absolutely. But on a daily basis, you can also read annual reports that Companies Put out, investor presentations, transcripts if you can get your hands on them, not only for quarters, but all the conferences that are happening every single month. Really important to look at those, particularly after a quarter. I have to tell you, i more and more have started at the website of the company, for the companies i dont no. I would rather go to the research. Because research may have a snapshot summary. But you need more than that to understand things. Now lets go to nino in maryland, who asked is there a p multiple that we wont buy above in each sector . Well, this is really tricky, because when youre in tech, we have to use outyears. So for instance, nvidia, if i had discipline and said i wouldnt pay more than 20 times earnings, i would have been kept out of nvidia for a decade. Because nvidia is about future earnings. You also have to look at a companys growth rate. Its all relative p e, so you can compare the growth rates relative to multiples. I dont think there is one that would keep me out. But you cant look at a low multiple and say thats a good bargain because sometimes there is value traps. Theyre a low multiple for a reason. It could have declining earnings or might be another issue fundamentally in the company. Thats a great point. When people look at the automobile stocks, they historically have very low multiples and trade on dividends. They havent really got the growth of a tesla. So thank you, jeff. I always like to say there is a bull market somewhere. I promise to try to find it for you right here on mad money. Im jim cramer. See you next time. \s right now, last call, when will this end . House speaker crisis got even more chaotic, well go live to capitol hill for the breaking developments. Were going to talk more about tesla, the earnings for tesla. There we go. The numbers are coming out. They are out. Theres new on the cybertruck. Were going to have that for a you. Plus offshore just put it on me. Were going to talk. Offshore guys, this is last nights show thats the start of last call. This is what happens, folks. Im bria