Its a fact of life and over the years, even as stocks have climbed and climbed, there have been swoons, i mean real swoons, gogoown swoons. Sell sell sell. That drove people out. They went to securities that give you little or no return. Then they watched the big gains from the sidelines. Now i totally understand the aversion to stocks many have these days. We have reasons to be disenchanted. The huge downturns of 2000 and 2001, the blight on stocks when cut ininalf from 2007 to 200 debacles like the flash crash or facebook ipo. House of pain. Insider trading cases an the obvious situations where stocks went down and down and down more. Its clear someone knew something and you didnt. I validate these feelings right now right here. Stocks remain the only game in town. Maybe one day when the economy gets strong enough, Interest Rates will go back to more normal levels, and we can earn a smattering of stocks and Gift Certificates or bonds in whatever might be attractive. Thats not occurred yet and our money work for us. We are like the avis ad on mad money. We have to work harder to make our money grow. Thats what tonights special show is about. How to make your money work harder in a responsible way. And were using different types of stocks to demonstrate how we can do that responsibly and carefully. Thats like get rich carefully. Because, you know, look, what subfuses this show for years and years is the notion of prudent personal investing. We call the shows episodes here. Why . Because each one is actually written and thought about as a different entity on its own. I recognize that because it is something we, meaning me, are fabulous staff at mad money are proud about, this is an episode about better investing for you. Now this show is about managing your own money. Or being a bert client if you have a full Service Broker helping you. If you dont want to manage your own money, over the years, ive come around to this view. With you buying an index fund. You can be in one. Or a couple of index funds. One thth respects the s p 500, or the total returning fund of the smattering of all stocks of ive become jaundice about mutual funds, theyre about raising money rather than doing well for you, so few have beaten the stock market im at the juncture whats the point. If you donon have the time or inclinion, i bless throwing your hands up and buying a fund of the index variety. At the same time, though, i know that many of you tune in because you want to owindividual stocks and im not going to talk you out of that. Im going to make you better at it. Its something youve decided is good fororou. Maybe its a companion to an index fund. Maybe as a way to grow wealth because you think you can do better than an index fund. Something that you know i believe in because in the many years weve been doing to the show, thousands, i mean thousands of people have told me or called me or emailed me that theyve done better than the market using the show and their own knowledge. They nailed the two. The rise of twitter is validated this principle daily. We arent going to debate it anymore. What we are doing tonight is giving you directions about how you can pick your own stocks and still not take one too much risk. Normally we just say hey the way it to do that is be diversified. When we play am i diversified we start to see many portfolios where everything would trade together in unison and usually in a way that could easily be derailed in a downturn. Sell sell sell. Now you know that i cant control the stocks in the world. I mean sometimes i think people think i try but i cant. Thats why often you shorthand to tell the story. Do i want you to own only five stocks like i play on am i diversified. No a minimum of 10, no more than 15, because you cant keep track of them and do the homework. We have done shows about what homework entails but you know itt means knowg what the company does, what youre looking for what the analysts are looking for, how its doing and why its homework is time consuming. Thats not the purpose of tonights show. What i want to do this evening is give you ideas to help you explain it to our classes of stocks within the stock market that arent just by sector. In other words, i am offering tonight a new kind of diversification that can help you guide you to our what kinds of stocks i want you to have if youre going to manage your money yourself like so many are. Youens would be tuning in. First, though, lets go over your mindset. If youre going to manage your own money you have to recognize the value of humility. Please repeat after me. Sometimes im going to be wrong. Come on, say it. Sometimes im going to be surprised. And not in a positive way. And one more, sometimes my stock picks wont work out despite my disciplines. Look, i of all people understand that humility doesnt come naturally to everyone but staying humble is important. Why . Because other than greed nothing has cost people more money than arrogance. Boo if you own stocks you have to accept that t ure going to be wrong, perhaps even off. As the past few years have taught you, painfully, your portfolio will get hit with things you never saw coming, never imagined let alone felt possible. Thats where i am coming from when i talk about this new diversification. Diversifying among sectors isnt enough anymore. You need to work harder than basic diversification than a drug stock or financial or techie. My new diversification recognizes to be a little new age we are at one with the world. Stocks are on the globe and yet trade together these days in good and bad times and thats impactctg our stocks in different ways. Plus, electronic traded funds, etfs link sectors together the way i never dreamed of when we started mad money. You need a portfolio that works in all markets even ones that import the errors and pitfalls of political and geopolitical events to our shores. Becaususthese matter much momo than they used to. Again, ive had to change to i never used to care about the machinations of washington. They were a side show. The Great Recession weve had elections that brought leaders that directly intervene in the markets and with the worldwide linkage its not is just our polititians we care about. Think about it, i started the show, who would have thought that we needed to know what the European Central bank was. What it was going to do. Let alone the persons name who runs it. I didnt used to know that stuff. Who would have thought we would have to gauge the strength or weakness of the chinese economy on a week to week basis or sometimes daily. Its been all strength for three decades for heavens sakes. Suddenly, who would have thought a cold war would be back on the agenda or always be a hot war in the middle east. We need to protect ourselves with things we didnt concern ourselves with when we started the show. Tonights show is an homage to a changed world. The new diversifications about earning the right kind of stocks, exploring tonight five areas you need to have covered for maximum protection and upside. You need gold, i know it can be a complete dog. Ive been there. We will talk about that too. Thats all right. This diversification. It can function as insurance if the world ghost bonkers an inflation comes back roaring as the smart hedge funds say it will. You need a dividend paying stock, growth stock, something speculative and something from a healthy geography. Cover all five bases and you any market which is why im going to explain what makes all five areas so essential. Teach you how to analyze stocks at each one so that you can fill every position with the best possible names. The bottom line, a good investor in this new world knows to always expect the unexpected. That means keeping your portfolio diversified with only 20 of your holdings in any one sector andollowing the new diversification for maximum protection. You need gold, high yielder, growth stock, speculative stock, geographically safe stock. Stick with cramer and i tell you how to bic pick k e best in each crucial categoriri. Start the calls with shawn in florida. Thanks for having me on the how can i help. Caller thank you for inspiring young investors including myself. Im a 21yearold finance major at the Florida State university. [ applause ] caller and i want to get your opinion on Investment Strategies for your 20s. First of all go nols. My first job out of school was to discover Florida State and florida a m their football programs and i loved tallahassee. The people who are in their 20s, must take risk. I say that because everyone is so darn risk averse these days in life that they dont understand. You need to own speculative stocks, high Growth Stocks, and you need to own some stocks that are just Growth Stocks. That would be the mix of diversification. If i were back in my 20s. And by the way, let me just say, in my 20s when i spend all my money it wasnt at big daddys in tallahassee, called beat the clock, i should have put the money in the oil stocks. How about helen in illinois, please. Caller hi. This is helen and im a retired lady and i wanted to know, when you make money in the stock market, is it better to take to take some out and put it somewhere else, or lose it . Okay. I think thats a great question. My motherinlaw when i used to go gambling lets take the winnings off the table and buy a sweater. You should take some of the winnings off the table if you had big moves. Our goal in life is to play it well. Our goals in the Financial Life to play with the houses money. That should be your absolute goal at a minimum if you can do it. It would be fantastic. Diversification, the spice of life. You need gold, high yield, growth stock, spec stock and geographically safe stock. I will help you find the best of each on tonights special show. Stay with cramer. Dont miss a second of mad money. Follow jim cramer on twitter and have a question, tweet email to madmoney cnbc. Com. Give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. I have asthma. One of many pieces in my life. So when my asthma symptoms kept coming back on my longterm control medicine, i talked to my doctor and found a missing piece in my asthma treatment. Oncedaily breo prevents asthma symptoms. Breo is for adults with asthma not well controlled on a longterm asthma control medicine, like an inhaled corticosteroid. Breo wont replace a rescue inhaler for sudden breathing problems. Breo opens up airways to help improve breathing for a full 24 hours. Breo contains a type of medicine that increases the risk of death from asthma problems and may increase the risk of hospitalization in children and adolescents. Breo is not for people whose asthma is well controlled on a longterm asthma control medicine, like an inhaled corticosteroid. Once your asthma is well controlled, your doctor will decide if you can stop breo and prescribe a different asthma control medicine, like an inhaled corticosteroid. Do not take breo more than prescribed. See your doctor if your asthma does not improve or gets worse. Ask your doctor if 24hour breo could be a missing piece for you. See if youre eligible for 12 months free at mybreo. Com. Were all familiar with this, axe daily fragrances. But what you wouldnt have seen is this, axe dry spray antiperspirant. Why are you touching your armpit . I was just checking to see if its dry. Dont, thats weird. The first ever dry spray antiperspirant from axe. I take pictures of sunrises, but with my back pain i couldnt sleep and get up in time. Then i found aleve pm. Aleve pm is the only one to combine a safe sleep aid plus the 12 hour pain relieving strength of aleve. Im back. Aleve pm for a better am. So how ya doing . Enough pressure in here for ya . Ugh. My sinuses are killing me. Yeah. Just wait til we hit ten thousand feet. Im gonna take Mucinex Sinusmax. Too late, were about to take off. These dissolve fast. Theyre new liquid gels. And youre coming with me. Wait, what . you realize i have gold status . Do i still get the miles . New Mucinex Sinusmax liquid gels. Dissolves fast to unleash max strength medicine. Start the relief. Ditch the misery. Lets end this. Tonight im teaching you a novel, a novel way to fill those five slots in your portfolio that i always talk about. The five types of stocks that represent what i call the new diversification, not just by sector. But also by style and strategy. So that if executed correctly, youll always own something that works and holds your interest keeping you in the game when it feels so excruciating. That you dont want to continue playing. At the same time making sure you have some positions which can go much higher when times are good. Whats the most important category . Ive got no question about this. In a world where even when centntl bankers raise rates from such low levels, cans get enough income from bonds or certificates of deposit to le on you need a stock that gives you a good yield. This isnt a fuddyduddy way to approach things in you need to known a stock, at lelet one, possibly more, with a big high yielding dividend. Unlike when we diversify by sector owning two or three high theyre not the same. I wouldnt own five high dividend stocks because you would be vulnerable if the return on longterm Treasury Bonds ever spiked in a big way. You could get hurt. On mad money we respect the bond market and the power it holds to influence stocks. If we dont we are being imprudent investors and when Interest Rates rise fast your dividend related stocks will get smashed no matter what the industry they might be in. Weve seen this time and again. The a new diversification verizon can trade with like proctor and high yielding oil like Conoco Phillips because they have high dividends. Its important to consider that after a period of time, of tame Interest Rates, volatile ones coululroyal all three stocks at the same time. We must be concerned that the favorable tax rate on dividends, well that it could go away, and therefore it would make the most call them a real walking. As it did by the way, the spring of 2013. But if you own one stock with a really large yield, and then one or two of the other names in your portfolio, also happens to support decent dividend thats not a bad thing. Dividend paying stocks may not be what most people consider sexy but you know w at, dividends make you money for heavens sake and it to me, well, to me, thats the definition of sex appeal. Admittedly i have a warped social life so my perspective might be skewed but the fact remains buy high yielders and reinvesting your dividends into the stocks is one of the greatest most reliable ways to make money out there plain and simple because it allows your investment to compound, thats the keyword, over time. In other words, over time, the money from your past dividends pays dividends giving you these compounding returns. Provided you keep reinvesting. Now theres a huge misconception out there about dividends because theyre like 2 , 3 , how can they add up . People think high yielders are only about safety or generated income in your retirement. But lets do a little history here. If you go back to january of 1926, do that about 40 of the return from the s p 500 has come from these reinvested dividends im talking about. 40 . The last decade the percentage is higher. Thats how essential dividends are to capital appreciation. Wall street gibberish for growing your money. I run a Charitable Trust as part of a teaching, action orders. Com where i have to give my dividends away at the end of the year and the inability to compound them in a way has hurt me over time. Hurt the fund. Okay. I dont get the money. Charity does. Dividend stocks arent merely a place to hide when the market gets rough. Although they do represent a fabulous safe haven in difficult times. Theyre not just for retirees who only care about capital preservation, although they do a terrific job on that front. Investing in high yielders is one of the strategies for making money period. Its also one of the safest since dividend stocks have a cue shun called it yield support annihilated. It gets to a level where its too attractive for most investors to ignore. That cushion is the reason why i like to talk about accidental high yielders. Ahys. Whenever you can find them. These are stocks that yield north of 4 not because of dividend boosts but their share prices fall so fast causing the yield to sky rocket. Weve seen stocks bottom at the 4 level even in tougher times. Happened during the financial crisis and industrial stocks hammered by europepe woes, ememging markets downturns and a debilitated china relatively speaking because it still grows faster than most of the yield. Once the yield hits 4 , these stocks it tend to have a magical way of stopping their downturn and they oftft turn out to be fabulous longterm term rgains. I like the stocks of companies that have recently raised their dividends as a dividend hike one of the clearest signals that management can send about the strength of the business. A company that can raise its dividend that has steady reliable growth and equally importanan its a company thatat you can be pretty darn sure wont be cutting that dividend any time soon. You cut it after you raise it. Thats too embarrassing. It can cost a ceo his neck. So dividend increases are serious business. Not easily repealed. Even better are the outfits put through dividend increases for 20, 30, more consecutive years. Thats stability. I emphasize my love for the dividend arrow stow crates like 3m, procter gamble, johnson johnson, long history of dividend raises. Over accidental high yield and dividend boosts how do you analyze a stock. Its not that easy. Just like when learning to drive think safety first. High yields are attractive but a very high yield can be a signal that dividend is unsustainable and will have to be cut. Youll see me throw the red d ag aroundndere. And thats, you know, that takes away lets put it this way, you need a rigorous Safety Inspection if it if the dividend is sound. Maybe the companancan raise it too. If it seems endangered, no, it aint worth it, people. You have to stay away. Consider the Cautionary Tales of what we call the bond arbitrage funds, the munster yielders, 10, 11, 12 based on strategies that involved buying gigantic amounts of bonds with h rrowed money. Boo when rates jumped these variable yields were crushed. Thats why i warn you against them. Dont take the bait. There was nothing accidental about these high yielders in each case the yield was a huge red flag sending a signal that the payout would be reduced in a short period of time. One not t rth risk not worth risking. Dont risk holding on that to capture a juicy dividend. Hey, by the way we saw that happen a couple years ago both with the lamented radio shack and less Supermarket Chain super they had huge dividends. Super value able to bounce back but not until it cut its dividend. By management. When i interviewed him. Given i am biased against what seems to be too good to be true high yielders what do you look for to tell if the dividend is secure. First, above and beyond Everything Else, we look at the earnings per share. The eps. My rule of thumb is that if a company has earnings greater than twice its dividend payout, we know it can sustain a dividend even . Lean times when you think the earnings are going to shrink and that case i see youre home free, dividend secure. If not go to step two look at the cash flow. Especially importata when dealininwith companies that have a lot of machinery or other heavy Capital Equipment investments which cause them to report whats known as high depreciation and amortization costs. Think a place like verizon at t Communication Networks dont come cheaply. The stocks always jim, they cant afford that yield. D. Wait a second. These depreciation and amortization costs dont come out of a companys actual cash but skew the earnings why the cash flow can give you a better idea about the health of the dividend. I know jim cramer on twitter people ask how i can recommend the stocks. Arent i being r rkless when the earnings barely cover the dividends because of the cash flow of the telcos i like them. If you cant understand the concept of cash flow getting back to even go over the drill of how to find out what a companys cash flow is. I maybe want to stick to earnings per share if you dont understand. Look at the Balance Sheet to make sure there isnt a lot of debt coming do you, the 2018, 2019 bond. If money is coming due in the near future and the company cant raise it with a bank or public it may necessitate a dividend cut. Last but not least you need to know how to cocoect the vidend. Forget all the jargon like the declaration date, x date, on mad money we care about only one date with dividends. I call it the must own date. The last date you have to buy a stock to claim the next dividend payout. The x date and thats all you need to know. Bottom l le if you want to embrace the new diversification on top of the mandatory Old Fashioned sector kind we still breach, want to be prepared for every kind of market out there you must own at least one high yielding stock. Dividends protect your stocks and theyre also a terrific way to make money. Whats not to like. Ralph in missouri, ralph. Caller hello, mr. Cramer. Yeah. Caller i thank you very much for all you do in your Charitable Trust. Youre kind. Couple mill given away. Thank you. Caller i know that. I have a son, 35 years old, he has a roth ira with the s p 500. My question is, do you think it might be a good time to sell it and go to a cash position, buy it back, on a dip, or go to a fufu with a dividends and if so his age, i want him to stay in. I dont want going in and out. What happens if that is the one month where the market takes off. Peter lynch taught us the great fidelity manager, one up on wall street, describes if you get in and get out like that when a younger person you may miss the window where the growth happens that year. Stay the course. Dividend and conquer. If you want to be prepared for every kind of market out there make sure you own at least one high yielding stock an, of course, stick with cramer. Mike . Janet . Cough h you can hear me. Dont even tnk about it. I took mucinex dm for my phlegmy cough. Yeah. But what about mike . He has that dry scratchy thing going on. Guess what . It works on his cough too. Cough guess what . It works on his cough too. What . Stop dont pull me spoiler alert she doesnt make i i only mucinex dm relieves bothwet and dry coughs for 12 hours with two4medicines in one pill. Start the relief. Ditch the misery. Americans. We try to live healthy. But many of us dont know there are nutrients that can help support ououmetabolism. Take new one a day healthy metabolism support multivitamin with chromium to help use carbs from food and bvitamins to helpconvert food to fuel. One a day. Were all familiar with this, axe daily fragrances. But what you wouldnt have seen is this, axe dry spray antiperspirant. Why are you touching your armpit . I was just checking to see if its dry. Dont, thats weird. The first ever dry spray antiperspirant from axe. We are in the age of ageless. Age neutral. Age defiant. Age agnostic. Olay is a purveyor of ageless. Only the best 1 of ingredients make it into our products. For transformed skin without expensive brands or procedures. Its the ultimate beauty victory. Nobody has any idea how old you are. With olay, you age less. So you can be ageless. The discipline of a new diversified portfolio always, always trumps your convictions where stocks are headed. By never having all your stock eggs in one basket you never have to suffer through the agony of watching everything you known get crushed when the basket gets run over by a truck. Next you need a good oldfashioned growth name, a secular growth stock. On wall street it has nothing to do with public versus parochial schools. The establishment clause in the First Amendment you know i can live without. On wall street when a company has secular growth it means unlike secular smokestack growers, one that needs a Strong Economy so critical to stocks going higher the earnings for secular Growth Stocks arent hostage to the health of the economy. Even during a slowdown. When you get your hands on a strong secular grower that stock can keep lifting higher and higher, allah Jackie Wilson going on the new high after new high. Think about stocks like apple, google, facebook. Some of the high growth organic natural food stocks, white wave, hain, or biotech names like regeneron, gilead, celgene, the four horsemen of the big pharma, Companies Growing like the Drug Companies of old when big pharma was synonymous with growth. So how do you analyze growth . How do you judge it and find out whats growing well. When we buy a stock were paying for a companys expected future earnings per share. First we have to learn the basic valuation algebra that controls all professional investing the way we arrive at the cost of a stock not just the dollar cost of it. We know we need to understand this because we need to compare stocks on an apple to apple basis. Not just a pepsico worth 90 bucks or cocacola worth 40 so therefore pepsico is 50 worth more than cocacola, not. Apple not worth less after seven for one split is it . So lets go over what a stock price really means. Heres the simple algebra. The share price known as the p, as in the pe ratio, shorthand for how we value stocks, the p equals the e times whats known as the multiple or m. E times m equals p. Like in algebra trying to solve for m what were going to pay for the earnings stream. Whats the multiple were going to pay. The price to earninis multiple is keyes tells us what investors are willing to fork over for a companys future earnings and the most important determinant of that is the vital ingredient that has the most effective on the size of the valuation special sauce is the companys growth rate which is why im constantly talking about growth of sales and earnings. Well pay a bigger price to earnings multiple for businesses with faster growth because that growth means the earnings will get larger and larger in the years ahead. Often you hear a guest say this stock is cheap. And what they mean by that typically is it is cheaper than the average stock in the s p 500. The benchmark for all stocks. And yet it grows faster than the average stock or somehow more special than the average stock because of a catalyst about to occur. Its cheap versus the s p. We use this p e ratio as the backbone f f what we do about thinking about a stockckeing a rgain on mad money. As a rule of thumb when it comes to a high octane secular grower that doesnt need the economy to a multiple as high as twice the longterm growth rate. The percentage gain of a year ovov year Earnings Growth before it gets too expensnse for the vast majority of growth oriented Money Managers who determine the pricing basically. If the company is growing its clip, you know what, these guys would pay as high as 40 times earnings. Thats right. And typically a growth stock wont trade down to a multiple ofofess than 1 times it t owth, 20 times earnings, unless something wrong with the or wont find out about until later. Maybe were in a nasty market that soured on growth for the moment, even secular growth because of a sudden spike in multiples on all Growth Stocks shrink as theyre larger earnings in the future become less attractive relative to the increased yields people get from cash or treasuries. Lower rates make Growth Stocks more attractive and cause multiples to expand. We pay more for that m. In the spring of 2014 when so much supply hit t e stock market. In terms of new offerings and secondaries particularly for Growth Stocks and biotechs, big gobs of stocks sold at once by insiders, that the buyers were overwhelmed and what happened is the cloud internetetnd biotech stocks almost all faltered. Even more important when youre on a high growth stock you need to be sensitive to which direction the earnings estimates are going. And whether those estimates are increasing at a faster or slower pace. These stocks can soar to new highghfter new high but rerein cheap as long as the analylys who cover them keep raising their earnings per share estimates and do it quick. When the estimates have momentum a stock can double over the course of 12 months. We saw that. The price to earnings multiple would be lower than where it started because the earnings estimates increased even faster an the share prices s d go hihier. This kind of momentum allows the stock to resist the downward gravitational pull of an ugly economy. Be very, very careful. Because youre playing with earnings momentum. So therefore youre playing with fire. The truly high octane Growth Stocks out there, if the time comes whererthe estimates have to come down or it looks like the growth is decelerating, i have to tell you it looks like whats at the bottom of this. Its like driving a fast car right into a retaining wall. The moment one of these companies stumbles the stock could fall faster than you could imagine. Witness the great chipotle dropping more than 100 points in a day losing a quarter of its value. Actually a couple days but at one point down 100 when in july of 2012 reported a disappointing quarter that suggested the Company Might be more vulnerable to economic weakness than anyone thought. We thought it was a great grower no matter what. If yououad been riding chipopoe for years you had Massive Gains and bought it when it cratered you made out when the growth of the earnings returned and then some. But after a growth name likep chipotle loses its mojo you have chipotle, the pain can last for years as the stock goes through a painful process that we joke about of George Costanza shrinkage. I like to refer to seinfeld because it seems like a universal language given the endless reruns. It can take years as momentum and growth seeking investors gradually pay less and less for progressively slower earnings managers get shaken out and sinks to levels where value oriented become interested and bottom fish. Thats been what the long ride down has been for old Line Pharmaceuticals like merck. Compression dont hangngn for the full ride down. Just sell sell sell. Sell sell sell. The bottom line build a portfolio that can work in every market you need a fast grower, preferably a secular growth stock with runway ahead of it for years to come and remember when youre dealing with growth its worth it to pay up for a company that is still accelerating and selling a decelerated quickly. Dump it. Once the momentum stock starts to slow down the multiple can shrink for ages before it bottoms and most peoples patience cant hold out that long. Mohammed in texas. Caller hello, how is it going. How about you . Caller im a huge fan. Whats up . Caller i am my question is, i am a near college graduate, graduated for a college for a year now and in the work force and i invest on my 401 k and outside brokerage account and was wondering how should i partition my investments in eacacaccount and how what my investments partitioning should be in bonds and stocks . Okay. No bonds. All right. In 20s first congratulations, graduating. When youre in that age, h hes whatatou do. You pay down your loans viously if they have a high interest rate. You need to be in Growth Growth growth. Because you have your whole life ahead of you if it doesnt wk out you can make the money back with your paycheck. Discipline of new diversified portfolio trumps wherever you believe the market could be headed. To build a portfolio if any market you need a fast grower. Preferably a secular growth stock. Stay with cramer. Olay regenerist renews from within, plumping surface cells for a dramatic transformation without the need for fillers your concert tee might shsh your age. Your skin never will. Olay regenerist. Tonight im focusing on different types of stocks. Showing you how to put together a portfolio diversified by strategy, a toolbox with something that can work in any and every market no matter how tough. So far ive talked about dividends and growth. What else is essential for a truly balanced portfolio. How about something to keep you focussed. Something to keep you interested. In my view you always want to own something speculative, even speculatioiois considered to be the dirtiest word in the business. Except here in crarica. Its part of investing orthodoxy. Not only is it okay for you to own these tempting, risky, broken seaming stocks that trara in the Single Digits its s necessity as long as you follow ply rules and speculate wisely. You need something speculative as a tonic against boredom. With a huge amount of upside if things break your way. High risk high reward stocks are thawing. Undeniable mystic to opening something that trades in the Single Digits. They allow you to stay engaged and make it easier to keep your head in the game. You always hear the speculation the height of irresponsibility but i say a portfolio without speculation without a long shot, is a portfolio that wont capture your fancy, one that will have you bored with your money and anxious to surrender to people who only care about taking your fees or making you so frankly youre just not focused enough to do whats right with the rest of your stocks. Now speculation doesnt just keep you interested when you do it wisely, with the righghrules and disciplines, these stocks can generate gains, truly massive returns almost unheard companies that are often deemed safe. Did you know at one point in the 1980s solid stocks like home company were considered to be ultraspeculative stocks. Homemeepot. Dow stock. Actually failed the first time around. And the idea paying for television w`en you get it with rabbit ears seemed like idiocy. These were brilliant specs. Some of the biggest wins came from speculation. You can see some of them i detail them in real money the equivalele of my teachings to o old researchers who came on to my hedge fund in the old days. A fund i retired from more than a dozen years ago. Of course the corollary is true too. When done wrong swimming in under 10 water can also lead to truly gut wrenching losses. Understand i am not glossing over the risks. How do you identify the winners and oid losers. Two kinds of stock, the hated broken stocks of troubled companies abandoned and left for dead by the big institutional Money Managers and relatively unknown stocks of uncovered companies. In both cases you get an enormous edge, the kind virtually impossible to have in the heavily received intensely followed stocks ofousehold names because so many of the big boys wont touch any stock that trades under 5. Youre benefiting from classic mispricing created by overly pessimistic worry wart Money Managers. See the large instititions the big mutual funds, they dont want to own single digit stocks. They think these are too dangerous. Theyre afraid they will be questioned by their clients about why they own this junk. About why they risk money foolishly when so many safer stocks out there. These Money Managers fear the downside of stocks that lolo broken. Im talking about stocks like sprint which we identified at 2, ride aid, panned out were shoed by any of the big mutual funds throughout. The ramifications of opening single digit stocks that go as so many do. No such overlords looking over your shoulders put pressure on you u t to buy these stockck how do we find them . We examine the bonds of sprint the stock at 2. Often an important part of the equation because sprint had so much debt. The bond buyers considered these instruments investable and worthy and we bet what the bond holders saw would trickle down to the common stock and thats what happened. For rite aid the changing in merchandise. Remodeled stores doing better than older ones an how well rad was doing with private label merchandise through parrygo. Came together in a successful spec. So when the fundamentals at one of the companies starts to turn buy their stocks the at terrific price since so many of the big boys wont go near them since they start climbing at higher levels. Dont like it at 4, wake me at 8. Deals like these dont come around every day. More often we speculate in stocks of Tiny Companies people have never heard of and with them were not trying to catch a turnaround, were looking for sectors that seem like they can capture the imagination of the crowd. Its called fad. Wear allowed to look at fads too and then sweep through the wall street fashion show. Sometimes but not always the fad will be backed up by genuine earnings power which what is we saw with all the little companies thth make cell phone components in 2009. 2010. To name some of the biggest winners of the period we had we saw it again in some of the tiny Oil Companies that turned out to be sitting on huge oil and gas holdings. Or with some small biotechs we like that got bids from Big Pharma Companies or fdfd approvals for important new drugs. These speculative situations do often however have the life cycle of a may fly though. So the trick to first is first always remember to lock in your profits when you them. Dont get burned when Interest Rates when interest wanes. Cut some of ititown. Second, your losses those you got to cut before they become too large when a spec you thought would work wasnt panning out just leave it. When you speculate youre not trying to find a stock that you can hold forever. You want something thats going higher. And as long as youre didiiplined and ring the register doesnt m mter if the stock comes back down later. Dont take that as a license to fundamentals, though. We said, for example, we liked highmention and celldeck a tech and biotech for trades. When we did them on speculation fridays. When lightning struck we said take the gains please. Sell sell sell. They subsequently cratered and we never looked back although callers tell me you loved it. We said we loved it for trades. The bottom line you need to own something speculative a key part of the new diversification, will help you stave off bore dom and rack up huge gains, lots of fantastic stocks start as speculation and because the stock trades at 3 doesnt mean its a three card monte. It could be a triple waiting to happen. Mad money is back after the break. Its the final l untdown if youre the band europe, you love a final cououdown. Its what you do. If you want to save fifteen percent or more on car insurance, you switch to geico. Its what you do. Karl, dont you have friends coming over . Yeah, so . It stinks in here. Youve got to wash this whole room are you kidding . Wash it . Lets wash it with febrezeze for all the things you cant wash, use. Febreze fabric refresher whoa hey mrs. Webber inhales hey, it smells nice in here and try pluggable febreze. To continuously eliminate odors for. Up to 45 days of freshness pluggable febreze and fabric refresher. [inhale exhale mnemonic]. All night ive been teaching trying to show you how to build a a rtfolio for stocks t tt can work in any market f fm a nasty picnic for the bears to a euphoric pamplona Style Running of the bulls. You will own something right for the moment following what ive been calling the new diversification. When i originally came up with the idea of the new diversification, i said that you should always have foreign exposure in your portfolio but given how the relentless mess in europe, the kind of like ongoing slowdown in china and emerging markets get crushed repeatedly and frequently, well, i think we got got to do refining of the concept. What you need is a stock in a safe geographyhy at times when the United States is growing more slowly than the rest of the world you need Something International and not just something that does a lot of business overseas. A an it Actual Company based in a foreign country. Other times when the rest of the world seems to be falling apart and the United States looks good by comparison you need a stock that gives you domestic security, something thats confined within the borders of our country because at those moments being exposed to the rest of the world can be dangerous. What do i mean by the concept domestic security in anything thats usa all the way. You can own a phone company like at t or verizon, electric utility like coned or duke. Pick a regional or National Restaurant chain popeyes or louisiana kitchen. Little overseas exposure not much. Dollar store, dollar general, dollar tree. Macys, home depot pulled back. Its here. How about a Real Estate Investment trust like a federal real estate. A factory outlet. Own the real estate etf. And in times of domestic turmoil where the rest of the world is in much better shape where we were after the financial crisis, for example, then you do want to own a foreign company. Res the bottom line. Always own a stock thats from a safe geography sometimes that means a foreign company, sometimes a domestic security, all american, depending on the outlook. I think youre going to want to go domestic at least for the foreseeable future. Break. It seems that every year, we have to watch out for different types of germs. Which is why its important for your wipes to kill a Broad Spectrum of germs. Lysol wipes kill 99. 9 of germs, including 8 different types of cold and flu viruses. To help protect your family. Lysol that. I asked my dentist if an electric toothbrush was going to clean better than a manual . He said sure. But dont get just any one. Get one inspired by dentists. With a round brush head. Oralbs rounded brush head cups your teeth to break up plaque and rotates to sweep it away. And oralb delelers a clinically proven superior clean versus sonicare diamondclean. My mouth feels super clean. Oralb know youre getting a superior clean. All night ive been talking about the new diversification, a way to diversify by strategy not by stock so you can thrive in any market. Last but absolutely not least you need some gold. Gold has a special property. One that makes this metal precious to any diversified portfolio. I dont want thihito be 20 of your portfolio. That wont work. Its way too much. I think the 10 is the upper limit because i consider gold as an insurance policy and no worth while policy should be 20 of the money youve invested. Why do i like gold . Gold tends to go up when Everything Else goes down, insusunce against economic or geopolitical chaos, uncertainty and inflation that could cause most stocks to decline but also cause the provides gold to rise. Before you curse me because gold has done nothing a couple years you wouldnt own a home without homeowners insurance, car without car insurance. Its also bebe the best performing asset year after year for the last decade racking up gains consistently over a period where at some point every other asset class has disappointed you. Winner for a long time lately. Its cooled. Owning gold is not about the upside, though. It can be considererle. Minimizing your risk to thth downsidede at any g gen moment there willll probably be a whole host of factors that are, you know, they will be sectors from International Minerals that will outperform gold. But none of them work like in the insurance policy. How should you own gold. Etf. Spider gold shares. Mostly people note it as the gld which owns the metal itself and does a terrific job of tracking its price. Some of the metal dealers i deal with say it doesnt always track it. Wont always will. I have faith. You can call your broker and buy bouillon. The physical bars of gold as opposed to the cubes in my soup. That only make sense for investors that can afford to buy it in bulk and pay it to sto it in a depository bank. What aint the gold minors, then it can outperform the commodity for a period of time. Its not going to trade in lock step with the commodity and the same things that m me gold valuable here scarcity the fact its hard to get out of the ground cheaply and arent a lot of new mines makes the business perilous. They can screw things up in ways, debts,s,ining costs, management teams that can and d often do m me mistakes. Virtually every single time ive gotten behind a gold stock ive been burned. Shutdowns at mines, start up issues, and every time things seem to go wrong and then the stock gets hammered even if gold goes up in value. I finally gave u uon the entire group and decided to simply stick with t gld or the physical commodity. The bottom line, if you want only want it you need it, its your portfolio insurance policy, and everybody should have some, then you should just dot easy thing and own gold through the gld. Not some gold miner thats only loosely connected to the price of the underlying commodity. Stick with cramer. Cramer, you super, you are awesome. Im a first time investor. Thank you for inspiring me to get in the game. Yououshow is the best. I am glad youre on n. You have transformed me. Thank you, cramer. If youre taking multiple medications, does your mouth often feel dry . A dry mouth can be a side effect of many medications. But it can also lead to tooth decay and bad breath. Thats why theres biotene, available as an oral rinse, toothpaste, spray or gel. Biotene can provide soothing relief and it helps keep your mouth healthy too. Remember, while your medication is biotene, for people who suffer from a dry mouth. Americans. We try to live healthy. But many of us dont know there are nutrients that can help support our metabolism. Take new one a day healthy metabolism support multivitamin with chromium to help use carbs from food and bvitamins to helpconvert food to fuel. One a day. I take pictures of sunrises, but with my back pain i couldnt sleep and get up in time. Then i found aleve pm. Aleve pm is the only one to combine a safe sleep aid plus the 12 hour pain relieving strength of aleve. Im back. There e u have it the new diversificatatn. Theres always a bull market somewhere and i promise to find it for you here on mad money. Im jim cramer. See you next time