Transcripts For CNBC Mad Money 20160705

Than you would be by hiding out in bonds or even putting your money in index and mutual funds which you know we favor. The chommentators say its too hard and shouldnt bother trying. I know from experience from running a 500 Million Hedge Fund for 14 years and returning 24 after fees that you can do it as long as youre willing to put in the time and effort. And i know you are succeeding in individual investing when you stop me on wall street or the way to squawk on the street and tell me about your big wins. You tweet me at jim cramer on twitter thanking me for help along the way. Not everybody is up to it. Listen, no problem with index fund, in order to be a good investor, you got to understand how the market works behind the scenes. What might be happening to your stocks without you knowing it. Tonight im devoting it to educating you sharing some of the most important lessons i learned in more than four decades in the market. Before i can teach you, before you can start learning, theres lessons i need you to unlearn. Myths that need to be demolished. One of the most pernicious myths is the notion that the market is always rational and the action always makes sense. That simply isnt true. On any given day it can be completely nonsense cal and stocks can go up when they should have gone down and vice versa. Entire sectors can move for bogus reasons. Never forget it can often be stupid for whole sessions of trading and i see it happen frankly around here at least once a week, maybe even twice. Now its our job in the media to help you make sense of whats happening. Sometimes we go too far and start creating explanations where there are none trying to find the logic and reason behind moves that are nothing more than tales told by idiots signifying nothing. Because the market always is supposed to make sense is nonsense. On a daytoday basis is often does crazy things. These are just nuts, they dont make any sense at all because once you Start Cooking up connections where none really exist youre in trouble. As you can make yourself believe in just about anything. You see sometimes stocks are the whole market will go up or down for reasons that have nothing to do with actual companies and i know thats confusing to you. When it occurs take advantage of the irrational, not by not buy into it or panicking out of them. Remember, no one ever made a dime panicking. For example, whenever we get hit with a huge pullback, the kind of day that annihilates people, theres fundamentals underneath and hence the opportunity. Hedge funds start selling not because they want to but because they have to raise money to pay back their unhappy clients. All boo thats why weve been known to play bob marleys Redemption Song to remind us what can happen. You can pick up a copy of confessions of a street addict to see what happened to me when i had my margin call. Maybe there is a red hot deal out there so huge mutual funds have to sell stocks to raise cash. You dont see that. They have to raise it to buy the shares. Thats not something on your mind. It is because i was a professional trader. It makes no sense who dont understand. Mutual funds dont keep the cash on hands to make these and know we get enough over the transom without selling the other stocks they might own so they can have the cash to buy the new ones. Then regular investors see the selling start to panic. No, aaagh and get blown out and start dumping stocks themselves. Sell, sell, sell. They explain why things dont normally go down together are all down at once and concoct theories and get too negative. I dont think if youve managed money professionally you can understand these and seen the many times in my career and i actually describe what its like to live through in almost all my books. Now i was embarrassed, embarrassed mightily in confessions of a street addict in the great selloff of 1998 and much more hedge Fund Redemption related than actual events and mention the book because i need you to understand the emotionalism of the selling. Weve seen it in the 2008 200 the era and not just in stocks but commodities too and never forget how oil ran up to 147 a barrel even as demand for petroleum was weaker to cause it to go lower, not to spike to the highest level ever. Only after that insane rally did we find out oil sky rockawayed because theyve been caught short meaning they had bet against it and had to buy in their shorts or end their positions at outrageously high prices as they face their demise because investors were pulling the money out. After that huge run it fell in a Straight Line to 33 a barrel and on margin or debt when it was rally had to capitulate and sell at any price to raise cash. The mirror image of what happened when it was higher. The worst mistake, the most common mistake you can make these days is to say a particular stock trades at a given level deserves to trade there. When i first started trading we measured a stock by the prospects of the underlying company. What its earnings might be and what it might be worth to another company, 1979. What it might be worth to an inquirer. Does it make a lot of money off what it sells but the market in its infinite wisdom decided to lump them together in the 1980 when we developed an instrument, the s p 500 and went to all stocks together and asset class and they started to trade together in lockstep sometimes whether their proz pespects wer good or bad, mother commodic oct ochlt seechommodoticommodotized. One by one our stock markets when commodityized. Something happened along the way that changed things drastically. Money managers and Hedge Fund Managers pooled vast amounts of money together, so large that they dwarfed individual stocks. Amounts so vast that if they tried to buy it they would buy all the shares of many of them. They had that much cash and ran so much money so the hedge funds graph stated instead of individual stocks to the s p 500 futures markets which are bigger and developed a group think. The Hedge Fund Manager traded in sync with each other and they had the computers with the same exact programs and algorithms. So much hedge funds bought the exact same kinds of stocks and futures and sold the exact same commodities and did it with borrowed money. Where many of those were whipsawed by events they didnt see coming, they had to sell, sell, sell. They had to sell everything because they were positioned wrong and survival was at stake. I called them hedge funds gone wild and it would create an artificial buying opportunity because while many deserved to go down not everything deserved to go down. They didnt deserve to go down at all. Now this kind of thing continues to happen to that day because so many buy and sell them the same way like their commodity, not pieces of paper that actually represent shares of vastly Different Companies with different prospects. We saw most recently with the internet and cloud stocks, spring of to 14 when theyre hit with huge amounts of new stock and Insider Selling secondary, the good went down with the bad. The next time you see everything go down with everything moving in lockstep or certain sectors collapse even as many of the companies and sectors are doing well before you try to cook up excuses for why the moves make sense ask yourself, if we might simply be seeing the results of hedge funds gone wild. The bottom line, it doesnt always make sense on a daily basis. Whenever a given sector goes down instead of dreaming up reasons, think about whether the move was caused by the fundamentals of the wall street Money Management business and out of control hedge funds meaning big redemptions then take heart and start recognizing that their irrationality could be your opportunity for big profits. Andrew in florida, andrew. Caller hey, jim, real quick i just want to mention another big fan of yours. My mom who deserves a big hallelujah booyah for being cancerfree. Hallelujah that is great news. Caller thanks, jim. My question is about your rule about investors putting their first 10k into index funds. Right. Caller as a Young Investor with a higher risk tolerance would you advise me putting my first bits of money into a few safe stocks like that arent made for trading but longterm investing . No, im still going index fund. Thats what i did and a lot think of me as someone listing individual stocks do or die. I want that 10,000 saved first then you can take those shots, so to speak but were index fund people here, longterm index funds and mad money. Irwin in new york, irwin. Caller hey, jim, its earlier brooklyn. I have been investing for 35 playing in the stock market 35 years. I havent made any money till i started listening to you two years ago. Thank you. Caller my question to you is i have an account with lets say 100,000 in it and i have side issues in that portfolio. Is there a proper way to balance the portfolio because it turns out now i have almost half the money in one issue. What Salt Lake City proper way to balance out this is a great question and first of all remember its a high quality problem meaning what happens you probably made a lot of money in one stock and have to trim. I used to take the rule when it was a quarter, 25 take om solve and changed that when its up 50 take a little off or up 100 take a little off and always playing with the houses money. Ultimately it can take many years to get there. Continue to let it run and just trim as you get 50 and then 100 but trim only. No one ever hurt taking a profit. John in idaho. Caller greetings and many thanks for your investment guidance. It has paid off will for my family. Thank you very much for saying it. Love it. Whats up. Caller you walked us through the peg ratio of the fudd melt trick you actively use and you spoke to the buy side mostly and stated you rarely bought a stock that had a peg ratio greater than 2. 0 and used it as a decision metric and sell side. If so can you walk me through how you use it . Honestly all im trying to do is find situations that seem overvalued in relation to where the s p is selling in terms of their growth rate but, remember, if theres two kinds of stocks that get overvalued. The kinds that get overvalued because it turns out earnings in the outyears will be tremendous. Im fine with those. Then the ones overvalued because theyre nads and those are the ones that the peg ratio says sell, sell, sell. And thats the one i dont doubt. Dont listen to the naysayers. I think if you work really hard and do research, you can make money in the market but as i have said in this segment and many others if you dont have time or inclination im fine giving it to professionals but i bet you we can do it together. Coming up on mad money the type of stocks you should avoid. Dont miss it. Not all bad news. Let you in on the companies that could be worth buying when things turn sell. Send your tweets to me at jimcramer. Im about to answer them on the show. Mad money will be right back. Dont miss a second of mad money. Follow jimcramer on twitter. If you have a question, mad p momone madmoney cnbc. Or give us a call at 1800743cnbc. Ah the freedom to watch your directv with unlimited data from at t. The steady stream of entertainment. Your favorite shows. Streaming on. You can just keep streaming. And streaming. Hello jim. So much streaming, but id really like to go home now. My arms are very tired. Seize the data get our best unlimited plan ever so you can stream and surf all you want with unlimited data from at t. When there are use losses in the market youll have opportunity to buy Good Companies with stocks that have become bad because the market turned down. Youll catch me saying things like buy broken stocks not broken companies which is the kind of saying that doesnt do you a lot of good on its own until we put it in a broader context. Almost everything will indeed go down, certainly a lot will decline right alongside that deserve to be lower. So i think the big question is how do yyou tell the difference between a broken company thats not bouncing back and a broken stock that could be a golden opportunity. Tonight i propose to give you a new way to look at stocks during a big selloff to help lead you away from broken companies and toward the broken stocks i want you to own. Whats a broken company. Corrections have cause, right . In 2007 we have multiple selloffs related to a weak Real Estate Market and collapse of companies that issued mortgages then the shellacking taken by every one that owned those specifically bonds backed by the mortgages and mix them together and what you got was a credit crisis and along with that came your big selloffs. In the wild summer of 2011 we had a combination of debt ceiling concerns in the u. S. Topped off with an s p Credit Rating downgrade only quiddity concerns. And same with the endless declines related to the bats between democrats and republicans including the Government Shutdown and nasty sequester. We had the meltdown in nasdaq in year 2000 where many stocks just kind of folded up and disappeared. In each of these selloffs we had serbs with companies that were immune to the actual cause of the selloff like the drugs and foods that rallied strongly after the nasdaq fell apart in march of 2000 and what an opportunity that was unless you were mesmerized by the dot bombs of the era. When you find yourself in the midst of it look at the companies that caused it. Theyre probably broken. In 2007 everything touching housing mortgages or any kind of lending. Part of a reason for a correct at a company youre looking at a broken company. [ train sounds ] those are directly in the blast zone and might be certain to be obliterated. [ ticking time bomb ] and another thats not as bad but pretty radioactive not directly related to the cause of the selloff but that should cause these companies to make a lot less money Going Forward and earnings will be hurt. While they were back in the blast zone almost all the financials became victims because they had invested in bonds that defaulted or came near doing so and couldnt be owned through the crisis. A company does not break just because its stock goes lower. In 2007 a great example would be many of the great infrastructure stocks that would get marked down with Everything Else in a selloff or the oil companies, agriculture, none of these businesses was going to be directly affected by the credit crisis. That meant they werent necessarily broken and saw it in the summer of 2011 preventing many buying opportunities in companies that had little to do with the worries over the potential default of the government or brought down by european turmoil. How could a Mexican Restaurant like chipotle get hit . It happened. How about the fact that the defense stocks didnt go down because, well, you know what, frankly, their budgets were pretty good. Now, there was archbishop 0 wasnt a connection to the causes of the selloff and yet these stocks get hit so we need to think about this and what we did i came up with something i think will help you. And i call it, the bristolmyers syndrome as in what does that selloff cause by a cyprus bank failure or shutdown or endless greek crisis have to do with the price to earnings ratio of bristolmyers. Most likely nothing which is why its probably time to buy that quality blue chip drug company. It worked every time since like 1983. Put another way. You dont want to buy the stocks leading the decline when looking for opportunity to sell off but stocks independent of whats ailing the market even if you think youre approaching a bottom and worst are about to become the best thats rarely a safe bet. Not one i want you to do. Once it breaks its difficult for itself to mend and thats only more true for sectors that control half of a stocks move many. Heres the bottom line. In a selloff there will be stocks that have clear reasons for going lower and ones that just get sold along with Everything Else. The first are broken companies, avoid them please at all costs. The second group are just made up of broken stocks and thats exactly where you want to be. Still on mad money ahead the opportunities created during a marketwide selloff. How to zero in on the stocks worth buying and common practice in Corporate America could be a cause of concern if youre looking to invest and why you should be worried watching some stocks rally. Ill give you a headsup. Whats better than mad money. How about more mad money. Follow mad money on facebook, twitter and instagram to go withinonone with cramer. What are other questions do we have . Ah, i always tell people you got to start with an index fund because i need you to be diversified. Get more with guest. How do you stay . And go behind the scenes with the most interactive show on television. If you cant explain in three bullets why youre buying a certain stock dont buy it. Follow mad money today. Mary buys a little lamb. One of millions of orders on this companys servers. Accessible by thousands of suppliers and employees globally. But with Cyber Threats on the rise, marys data could be under attack. With the help of at t, and security that senses and mitigates Cyber Threats, their Critical Data is safer than ever. Giving them the agility to be open secure. Because no one knows like at t. This clean was like pow. Everything well . It felt like i had just gone to the dentist. My teeth are glowing. They are so white. 6x cleaning , 6x whiteninga in the certain spots that i get very sensitive. I really notice a difference. And at two weeks superior sensitivity relief to sensodyne i actually really like the two steps step 1 cleans and relieves sensitivity, step 2 whitens. Its the whole package. No ones done this. Crest healthy, beautiful smiles for life. Freshly made in the tokyojapanese tradition, each batch is small. Special. Unique. Every bowl blurring the line between food. And art. When you cook with incredible ingredients. You make incredible meals. Fresh ingredients. Stepbysteprecipes. Delivered to your door. Get your first two meals free blueapron. Com cook. Welcome back to the special edition of mad money where i teach you how to navigate socalled Market Corrections. Decline in stocks that would leave the best of us in tears. [ baby crying ] if that heading straight for the dirt i linoleum floor with only a brief layover at the liquor store to pick up some cheap scotch to wash our troubles away. Now, thats one way of handling a big market downturn but not the way we do it on mad money and especially if were not underage. The big picture stuff how selloffs are part of the process and is to be anticipated and relied on by every good investor. You know that you have to dirkle the wagons around what you really like and leave the stocks youre not enthusiastic about in the dust. Ive talked about the damaged stocks and damaged goods when hunting for bargains during a selloff which is exactly what you need to be doing. You need to go hunting. A correction is just a megasale on stocks. What you might find on all things at sams club or costco any day of the week. I want to get more specific about the methods to my madness. A couple of types of stocks i specifically like to hunt on for days that are really down and the more brutal the selloff frankly the more attractive these tend to look to me. First, i like to find stocks that have pulled back from their highs during the selloff. The new high list is always a great place to go hunting if youre looking for good investments. You generally dont end up on the list for no reason. They tend to be expensive or at least thought of as expend serve. You might love the company but not on a 52week high list. This is what big declines were made with. Get knocked off that new high list and get pushed a couple Percentage Points o their 52week high because of the marketwide correction and youre likely to find a lot of very good merchandise. Not all is going to be worth buying. Some stocks come off their highs will be gone for more reasons that have to do with the company. Maybe theyre damaged goods but then there are others that could only be dislodged from that list because Market Conditions got so horrible everything went down at once. When you find a stock that actually needs a correction to take it down genuine wall street gibberi gibberish, you know what, you probably got Something Wonderful there. Buy, buy, buy. Not all the time youll have to use your discretion for each individual stock. Usually the ones that get knocked by their highs will be the ones that recover hardest and fastest from the carnage unless theyre part of the reason for the carnage meaning a damaged company sits under that damaged stock and not a place you want to go anywhere near. Thats the first group of stocks i want to you look at while bargain hunting an certainly have at least one stock that pulled back from its highs on your selloff Shopping List at all times which is really what im trying to teach you to make here. You want to list a stocks you would buy if the market took a nosedive tomorrow. Even if you would ordinarily take a pass because theyre so darned expensive. When the decline comes youll take advantage rather than being a hapless victim. Theres a second kind of stock to keep your eye on during a gigunga selloff. Difficult depdzs that become more attractive to the share price as it goes lower, right and yield goes higher. Just like you should be watching the 52week high list for stocks you buy in a downturn you should keep your eyes on stocks you would buy if their dividend yields were higher. A Market Correction will give you higher yields. Because it will send the stock lower. Pardon me if you know this already. Im trying to reach everybody including second graders the difference between a stock and bond and 3yearolds who like the animal noises. Sell, sell, sell. [ dog barking [. The dividend yield is the size of the annual ditch depdz say 1 ainge share price, 1 dividend divided by 20 share, well, thats a stock with a 5 yield. As the price goes lower the yield goes higher. Sometimes you have one so severe you get ahy, accidental high yielders. Meaning stocks that didnt seem to be dividend plays but have fallen so hard so fast their dividend yield becomes meaningful or a trampoline for a quick bounce back when times get better. You know what, they tend to get better. I know dividend investing isnt sexy at all but believe me when i tell you nobody ever woke up unhappy the next morning after bringing home a stock with a big dividend you got to trust me. Especially when looking at a big decline you want to get more conservative. You want stocks that are practically guaranteed to put money in your pocket. Thats what a dividend does, remember, theres no guarantee that any stock bounces back. Again, dont buy a damaged company just because its dividend has skyrocketed. If its damaged and not just hurt by the selloff you can bet that Company Might cut its dividend. We ought to avoid that which a good rule of thumb when youre trying to tell is by looking at the earnings or profit if theyre at least twice the size of the Dividend Payment i think the dividend should be really secure. A good rule, not perfect. Some like the tell cocompanies have cash flow. Bottom line a selloff, its an opportunity to buy. Especially stocks that have pulled off highs and stocks with nice yields that have grown larger thanks to the decline in the overall market. These are the best places to bargain hunt in the decline of any magnitude and ill be right there alongside you. Trying to spot them. Lets go to janet rose in new york. Janet rose. Caller hi, kramer. Hi. Caller longtime listener. I wanted to know how Interest Rates will affect my dividend stocks. Okay, people will immediately sell higher yielding stocks when rates go higher. That just happens every time. Why . Because you know what, bonds offer more can offer more attractive yield with more safety so you swap out the alleged safety of some stocks and go for true safety of bonds, this is the way people think, i personally like growth and like yield and, therefore, i would not be a seller of these stocks but its what happens in the marketplace and always has, happened since 79, get ready and be ready and be act accordingly. Jason in new york, jason. Caller hey, jim. How are you doing . All right. How about you . Caller im doing great. Listen, my question is, i have a lot of friends that have been Real Estate Investing with a monthly income. How can i do that same thing with stocks, monthly income with stock market investing. You know what, i have to do i have to do a theres stock that offer monthly income. The ones i know im actually not that fond of. Ive got to find new ones particularly in the Partnership Sector where you find a lot of them but the ones that were doing it ruff turned out to be some of the more dangerous ones. Let me revise my thinking. This market presents gifts to you all the time. When there is a huge selloff use it to spot bargains to get in on stocks you should be at prices you like. Coming up on mad money, when it comes to shopping tore stocks do you dare go up against the powerful index funds . Ill tell you how you can get your take on the averages and come out on top. Plus, getting ready to get back in the game sometimes the warning signs arent so obvious. I have all the details when a rally could be a red flag. Plus, you tweeted now im answering. Ill take some of your toughest questions. Mad money will be right back. At just 12 years old Greg Wittstock began building ponds with his dad. By the time he was 25 he had a booming business called aquascape. But behind the scenes a family drama, the recession and a Building Collapse almost ended it all. See how he turned everything back around on your business 7 30s on msnbc. But behind the scenes a family now, theres an entire Cottage Industry of pundits devoted to tell you you will never ever beat the market. That you cannot win so its simply a better to put your money in an index fund that mirrors the market than invest on your own. If you dont have the time or inclination or too overwhelming the pundits will be right and it works fine for me. I believe your first 10,000 should be saved in an index fund. Nevertheless, i also believe you can beat the averages, but only if you know what youre doing. Using the precepts we teach every night. Why i spend so much time trying to educate you about how stocks and the stock market works. Again, though as i always say i want you to be a better investor or better client. If you cant get advice do it with an index fund. If you do the homework do it after you invest the 10,000. If you want tocks and cant do the work hire a professional preferably someone with good word of mouth from your acquaintances. Im devoting tonights show so some of the most morning lessons ive learned with more than three decades of investing and trading and avoid the mistakes of investing especially when times get tough on the battlingfield. Right now ive got a rule i want to bring back from getting back to even. That was the book i wrote after the great recession. I think it will help avoid help you avoid being burned and that is, dont necessarily put a lot of faith in buybacks. They sound great but arent created equally and arent a place to run to in a selloff even though you think its a nice trampoline, safety net, in fact, many buybacks disappear when times get tough when oil came crashing down in 2014. Ray lot walked away from the buybacks. I used to believe large buybacks where they repurchase their own shares in order to take them out of the equation something that reduces the number of shares outstanding and boost the earnings per share were almost always worthwhile and buybacks were the exception. Buybacks like dividends are a way for companies to reward shareholders with their cash, a return to you of the money but i like dividends pore because of the superior downside protection. Buybacks over the years have become increasingly popular and companies spent a trillion dollars and thats money i thought would have been better been paid right to you in a dividend. Unfortunately these buybacks havent given us the value we thought they would in many cases and in some cases theyve turned out to be huge wastes of money so when you see a company with large buyback and a puny dividend lets be skeptical and track record looks better thanks to the huge rally in 2009 but in the wake of the 200 crash buying them back at higher pressures and showing nothing but some companies have been a whole lot worse than others. For example, heres a group that i like now but they spend a lot of money doing the wrong thing, the Health Maintenance companies. Good performer since the Affordable Care ago and generate a huge amount of cash but have been stingy with it and electing the buyback stock as it would have been a lot better if they had given you the great yield they could have offered and best gings of the market where you have uncertain growth and seen the same thing with the tech stocks which buy back stock absurd prices, you know what, that did plague cisco. The big Network Equipment seller until it decided to boost dividend which led to the stable higher run that that stock has had. That was a shrewd maneuver. Intel did the same thing buying endless amounts of shares, it doesnt do anything but aggressively instituted dividend policy. Now, maybe the worst offender is exxon, but has little growth and much less dividend protection than fellow oil companies. Thats my least favorite in the group. I dont tell people to sell the darn thing. It has a great balance sheet, whatever, but i like higher dividends and buybacks together. So why do executives seem like like them so much more . A couple of since the earnings per share net income divided by the total number of shares it can create the perception of growth. But its just Earnings Growth. Thats been the case of many of the old pharmaceuticals and packaged Good Companies. The buybacks would be actual anemic growth. Thats how you can see low single digit revenue, you know, in other words, not a lot of growth at all for sales and almost no growth and yet low teens Earnings Growth for many of these stagnant businesses. Yeah, thats right. The sales arent doing anything but because of the buyback per share they go up. So they decide its worth it to keep buying back the stock instead. You know what, i have an idea give it to shareholders and dividends. We want the income and notion that it can help cushion by ensuring theres always a buyer ready to step in and purchase the stock. The evidence shes otherwise. Short sellers can almost overpower any companys buyback even if its trying to pop up the stock even if theres restrictions on how much stock a company can buy on a given day, again, a dividend does a much better job by creating meaningful yield support. Dividends repel short sellers. They pay the dividend themselves and sell it short and whoever borrows the stock must pay the dividend to the real holder. You want futility in buybacks no group is more aggressive and i say irresponsible when it came to buybacks than the banks leading up to the crash of 2008. Buybacks didnt do an ounce of good and didnt hold the stocks up when faced rapidfire of short sellers that hammered down every bank in sight. As soon as the shorts were armed with the newfound power without waiting for a lift the buyback as support game, well, it was over. Gave you little to no downside protection. It was even worse with the bank answer bought it back and had to issue tons more north to meet the regulators demands. The power to destroy stocks via shorting was created by the short sellers by the securities and exchange commission. When repealed called the uptick rule which i remember fondly that had previously forced short sellers to wait for stock prices before they could offer stock. You couldnt stop them with the biggest buybacks especially when fundamentals were deteriorating for some of the largest and best banks out there and see executives call a bottom in their own stocks by announcing major buybacks saying were putting it to work right hire. These attempt at babe ruthstyle called shots almost always fail and turn out to be a big waste of your money. The executives dont understand how the stock market works and should watch the show or dont understand how their own stock works. They pour fortunes into creating the appearance of a bottom. The rare exception apple led by tim cook which buys back a tremendous amount of stock opportunistically. They have to buy back with a brain, yes. Thats about the best buyback i have ever seen. And its a company by a terrific dividend to boot. The combo i want and best products manufacturer in the world doesnt hurt here. Disney is extremely opportunistic as it bought a ton of the stock of its own stock back during the ebola scare in the year of 2014 because people were so worried. Bob iger, he wasnt worried. He was a buyer. Autozone, always a buy on weakness. Auto zone a tremendous buyer of its own stock and shrinks the float and also has worked if you take a look at the longterm term for azo. The bottom line buybacks by themselves are no reason to own a tock and in some circumstances reason to sell it. I think you never want to own a stock of a company wasting the money it needs to survive on useless buybacks or spending money it doesnt have on an activity as fruitless as repurchasing the stock to call a bottom. You shouldnt rely on even the largest buyback to help prop up a stock if the situations dire. The way i see it, these are false signs of health and too often just a darned waste of shareholders money. Mad money is back after the break. Break. You pay your Car Insurance premium like clockwork. Month after month. Year after year. Then one night, you hydroplane into a ditch. Yeah. Surprise. Your Insurance Company tells you to pay up again. Why pay for insurance if you have to pay even more for using it . If you have Liberty Mutual deductible fund™, you could pay no deductible at all. Sign up to immediately lower your deductible by 100. And keep lowering it 100 annually, until its gone. Then continue to earn that 100 every year. Theres no limit to how much you can earn and this savings applies to every vehicle on your policy. Call to learn more. Switch to Liberty Mutual and you could save up to 509. Call Liberty Mutual for a free quote today at see Car Insurance in a whole new light. Liberty mutual insurance. Now, after a selloff in order for stocks to reverse and move higher they need to have fuel. The fuel necessary for a rally and what that fuel, what is it . Its cash. So it comes from Retail Investors taking it off the sidelines and putting it to work back in the stock market. I like that. When the mutual funds buy in endless ways rather than shorting them then youre in the land of the thousand bull dances. Dont have to worry where the fuel for rallies is going to come from. You dont need me for certain. As more and more dough is flowing into the stock markets easy to find groups of stocks that can go higher. When that is fall nothing stocks at the same time as businesses are turning around you got to buy the dips each time they occur. Ill talk about it at night. It can take a long time for regular people to become accustomed to putting their money in stocks again after a serious selloff. Its scary. Now, with no money flowing to the market or even with out flows you can till have powerful moves in the stocks in sectors that are trying to assert their leadership in the turmoil. But the fuel to make those moves happen cant just come out of thin air. Its money and it has to come from somewhere. So if people are still reluctant to investor the money will be pulled out of the least exciting as investors swap out of them and swap into the ones with power, the sexier names, the ones with more lift and people own food and drug stocks will do that to raise cash. Churning move is called a rotation and seen quite a few since 2009. One problem with row takes wiout new money flowing in the advance often becomes zero sum. And ultimately can and probably will run out of fuel. As soon as the selling say in the defensive staples comes to an end leaders run out of steam. Not enough left on the sidelines to drive them higher when it comes in and when on the sidelines something worse can happen and get a rally in the long stocks. Thats right. The stocks that signal slowdowns or even recessions. Namely the food and drug names used as fuel during the previous advance. These stocks can become the markets new leaders and all the cash that investors pulled out of them can be poured right back in because the big money thinks another downturn must be ahead or food and drug stocks would still be going lower. No marit that it just might be because these nondurables are getting so cheap they represent great value. A rotation could be at hand. I want you to be ready. You never want to see any of the Consumer Staples roaring higher in a sustained advance where theyre the only ones going higher. Because it means people think the economy is going to get worse or simply stay in awful shape for a long time to come. Thats why one of the most horrifying things you can see in the stock market is a powerful rally in the socalled wrong stocks. What are the wrong stocks . Want you to think about altria, cocacola, general mills. If thats all thats going higher thats trouble. The bottom line theres nothing more disconcerting than watching a beverage or drug stock plow its way higher without any understanding of the damages its leaving in its wake with the rest of the market until there are vast sums of money coming from the sidelines you need to be more cautious and less aggressive when you see the defensive drug names do the job as generals and leaders. Watch the sector leadership to help give you a read on macro sentiment in order to time when to expect more more of a sustained rally. In the meantime, look for opportunities to buy high quality names where the stocks and not companies are broken. And beware of management tactics like buybacks that artificially pop up stock prices only to see those stocks go right down from unstoppable High Frequency bombers. Remember, the coast isnt clear until the vast preponderance of stock groups actually goes higher. Thats when you know its safe to go back in the water and after the huge run we have had in the averages you know what, maybe its something were waiting for. Mad money is back after the break. Announcer whats better than mad money . How about more mad money. Follow mad money on facebook, twitter and instagram to go oneonone with cramer. What are the questions do we have . Ah. I always tell people you got to start with an index fund because you need you to be diversified. Get more with guests. Go behind the scenes with the moist interactive show on television. If you cant explain in three bullets why youre buying a certain stock, dont buy it. Follow mad money today. My fingers are hurting from battling all the trolls. If only there was an easier way to answer all the nice tweets. Hey, wheres an ad tv show and give my happens a break. Lets start here with at even after i get it who lets us know i let my nose run when listening to at jim cramer on cnbc because when i sniffle, i miss something. May i suggest that you get some mad money clekleenex. Next, is at willing brahms is wondering at jim cramer are there any bennetts to purchasing silver over gold. Not really, silver is a much less worth while commodity and gold is getting harder to find. Bullion is a good thing that hasnt paid off in a long time. Heres one from at tiffany dunn at cripple jameser. You have jump starred my addiction for investing early on in life. Its inspiring than you. I want to tweet that every single day for the rest of your life because it makes up for a lot of trashy trolls i have to worry about. Now heres an idea from at its m1 che1 at jim cramer you should have a short video that reads angry tweets against you. It will be interesting and funny to watch and well do that. Actually well do that regularly. I think its, you know, theres a guy that does it on tv. Its very funny. Looks like alt q1us has a dilemma. What to do. What to do. Have enough stocks in the portfolio but too much cash. Cant do it without violating basis help. At my Charitable Trust i say you have to wait. I know its painful. But youve got to wait. Dont violate basis. Did you know in 2014 i violated basis and it was not a good year and principally attribute that to violating basis or at least not letting stocks come down enough to make the next purchase meaningful remember i like to space out the buys. Heres an at at em flavin at jim cramer. Maybe you can develop tech to charge your apple watch, energizerbunny and want one of those selfcharging tables from, you know, from inter variety t. I. , thats what i really need. Heres at dmj 43 that says at jim cramer my financial buyers warn me about watching the market every day. Its more frustrating than ever. I like to check in on the market if i were to on vacation whenever i check in. Dont be obsessive about it because that is not what youre trying to do. Youre trying to buy Good Companies with stocks that are good at prices you like. Okay, and just to watch it all the time doesnt make that happen. Much better to do homework than final the next idea. Next is at dress wind ler asking for me on how to do home work better. I use google but i think there are many better techniques. Madtweets. I have written whole books about how to do homewould be. The best one is still real money but my most recent one get rich carefully has a whole segment, its the longest chapter about how to analyze stocks. I think that can really help and, of course, stick with cramer. Mr. Cramer, absolutely love the show. We really appreciate you out there, man. Booyah to my kids. Im aidan. Winning so much . Booyah, mr. Cramer. I know you hear this all the time, jim, but thank you, thank you, thank you so much. This has been my best year far and away in the market. I want to thank you for looking out for the regular guys out there. I am trying to teach people to be better investors and dog my darn best. Thats the goal here. Great to hear your voice and snow youre there for us. Or fill a big order or expand your office and take on whatever comes next. Find out how American Express cards and services can help prepare you for growth at open. Com. Find out how American Express cards and Services Americans are buying more and more of everything online. Find out how American Express cards and services and so many businesses rely on the United States Postal Service to get it there. Because when you ship with us, your business becomes our business. Thats why we make more ecommerce deliveries to homes than anyone else in the country. The United States Postal Service. Priority you i always say thats a bull market somewhere. I promise to find it right here for you on mad money. Im jim cramer. And ill see you next time. Male narrator tonight on the west texas investors club. My company is called smartycat kids. We provide Educational Enrichment Services for children. We want to franchise it so other people can open up the same kind of business. Are you willing to show us how you do it . Yeah. Youre gonna listen to professor butch. Now who wants to try . The name of our company is baby vida. Its a smart baby monitor that monitors oxygen level and heart rate from a socklike device. Were asking for 1. 5 million for 10 of the business, plus a 2million line of credit. And youve only been going for four months. 4 1 2, 5 months. [eagle cries] narrator deep in the heart of texas, two men carved a fortune from a harsh and unforgiving land