Investor that it would be hard to keep track of everything you do and a lot of this stuff is much more important than the day to day action. Without the right discipline, the right frame working the right dare i say philosophy, youre going to get yourself into trouble but i also know big picture Financial Advice is hard to process a lot of it seems down right contradictory to most people we tell you to have conviction, to stick with the companies you believe in and say you need to be ready to change your mind on the dime you need to be cautious because its so dangerous out there but you also need to be ready to pounce on opportunities when they spent themselves. You need to be skeptical but you also need to know when to suspend your belief, disbelief you need to avoid chasing stocks that have run too much, but you also shouldnt care too much where a stock is coming from if you believe its headed higher you know the rules, it doesnt matter where a stock has come from, its where its headed to. Believe me, i get it i get it take all my rules literally youre going to be running around in circles while tearing your hair out. How do you think i went bald tonight well take a step back and try to put this dispolicipl stuff into perspective the thing you need above Everything Else is good judgement but thats not the thing anyone can teach you in an hour of television or a year of television for that matter thats why i try to help you build good habits. I try to teach you better ways to think about individual stocks and the whole market i try to give you the tools you need to develop your judgment. All my best professors focused on teaching us how to think, how to think, not teaching us what to think ive always tried to take it from them. I want to teach you how to be a better investor, not just teach you what stocks are good investments. Thats a lot to prok secess lets put it into context. When youre managing your own money, before any other consideration, you need to know yourself i said this before, ill keep saying it because its so important. You simply cant know the stocks you should buy if you havent taken the time to consider what your owner personal objectives are and i cant decide them for you. You need to build your wealth to make a lifechanging purchase like a home or get a descent return for retirement. Do you have money to burn youre willing to take risk on more speculative propositions . Those are different mind sets there is no onesize fits all approach and anybody that tells you differently is dangerously misinformed or flat out lying to you. Probably in order to sell you something, but far too often people invest in the stock market with the simple fine goal of making some money yeah, all we want to do, want to make money, everybody wants to make money but how quickly do you want that return are you willing to risk to get there . How much can you afford to risk in the first place these are really important questions that you need to ask yourself before you start trying to pick any given stock. Why . Because without a clearly defined goal, now have no way to determine which stocks you should be buying your 401 k or ira do not exist in a vacuum. If you try to save up for retirement, stock like netflix might be the most appropriate place to put your capital but if you have a descent sized nest egg and want Capital Appreciation netflix and the rest of its fastgrowing fang cohorts, facebook, amazon, netflix and google look more attractive given that mind set. In short, before you can start making judgments about individual stocks, you need to know what it looks like internally thats the foundation knowing what you need to find stocks that are suitable to your particular needs let me put it another way. If you want to fly across the pacific ocean, do it in a boeing 747. Dont try to fly across the pacific in a ford fiesta if you want to pick up your kids from school in a 747 would be impractical. How about if youre renovating your house so you need to go to home depot for a metric ton of lumber and power tools the ford fiesta is too small no way youll put it in a 747 packed home depot parking lot but a pickup truck would be perfect. This may sound simple but the same way with stocks when youre saving for retirement, you want lowrisk holdings for those of you that dont have time to Research Individual stocks, you cant really go wrong with the basic lowcost s p 500 index fund that tries to mimic the performance of the Broader Market look, i recommend index funds endlessly and will keep doing it because they are phenomenal. They help the incredible engine of Wealth Creation, the u. S. Stock market america remains america is a growing country, its very business friendly compared to the rest of the world particularly the developed world and when you buy the index fund youre betting on longterm performance. You know what youre betting on . Progress historically thats a very good bet. Thats why i always say that you need to invest your first 10,000 in an index fund, dont bother to try to pick individual stocks and more money than that. Again, first 10,000 index fund. If youre looking to make slow and steady money over decades, thats a retirement investment in a nutshell. You may consider certain individual stocks especially consistent steady eddie because of dividends a 4 yield may not sound that spectacular but even if the underlying stock goes nowhere, the 4 annual return will double your money in 18 years thanks to the magic of compounding of course, not every investor is simply trying to fund their retirement if you are, that may not be the only thing you want to do with your savings this is another important point. You can have multiple objectives you can and should have multiple pools of pumoney. Your discretionary portfolio to resupport yourself has groun you down and youre no longer able to work that portfolio is where you can afford to take more risk to generate faster profits. Make sense for the vast majority, the portfolio will be much less important than the retirement because its not Just Retirement if you want to pay for a house, want to send your kids to college, you should take a more conservative approach to managing that money. Whatever account you put it in, your strategy for College Tuition savings or future house savings should look like the retireme retirement portfolio than the mad money portfolio. Get to know yourself bottom line, trust me, i get it. When you get excited about a particular stock, you often want to dive right in ive been there before first, though, you need to consider what youre trying to get out of the market. The answer to the question is not going to be the same for everyone but Everything Else stems from it. You cant make judgments about stocks until you know what characteristics you actually value. Lets go to paul in texas, paul . Caller booyah, jim. Booyah, paul. Caller ive noticed the companies a lot of them will exceed on one and miss on the other in reference to revenue and earnings per share so as a shareholder in the companies im looking for, if they exceed one and miss one, would it be more important for them to exceed on revenue or would it be more important for them to exceed on earnings per share . Holy cow. What a great question. Ive actually done a huge amount of research and thank you, paul for asking its Revenue Growth. We want to see pure Revenue Growth that means that there is demand for the product. The actual earnings per share may be in some cases manufactured literally by tax rate, by buying stock back but you cant read sales. Always consider what youre trying to get out of the market before you dive into a stock on mad money tonight wont help you with the tight flexibility im talking about. Ill reveal the back bends you should be doing to get your portfolio in order and feeling reclemp about your stock why its time to snap out of it and how the late, great maya angelou offered some of the best investing advice ive ever heard so stick with cramer announcer 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. Regular viewers know ive got a lot of rules the result of more than 30 years in the Money Management business versus broker andhedge fund manager. Ive got rules for investing for trading, rules what to do in a rally or sell off for winners and losers that can be a lot octo take in the point is to help you learn from my mistakes and develop your judgment. Why you need to have a clear understanding of your objectives before you buy stocks, something more focused than trying to make money. Lets pretend youve already done some selfreflection and know what youre trying to accomplish now you can buy individual stocks, enough to fill out a diversified Portfolio Five to ten names, right hold on. Before you buy anything i need you to do one more thing first do the homework. Ive covered this before ill give you a quick version now. If you invest enough money in a company for it to matter, you need to know what the heck the company does you need to know how it makes its money and how much money it makes. The internet made this process much easier, certainly when the first started the show this is adele ligh a delight. You can go online and read the filings and listen to or read the transcripts of the Conference Calls, the best way to get familiar with the business and the key met tricks. Feel free to read journalism and listen to opinions to accompany itself and the way the stock trades and ive written half dozen books about this topic, okay how to do the homework the Actual Research is just part of doing the homework. After youve learned what you can and developed a thesis, a theory why you think the stock is set higher, there is one final step you have to explain that theory to another living, breathing human being. Doesnt have to be a professional you can talk to your money, your kids, a friend the important thing here is that you put your thesis into words that you can basically comprehend yourself. Layout why you want to buy this thing and why you think its headed higher. If there are major holes in the theory or youre relying on wishful thinking, a reasonable adult or mature teenager will be able to catch that once youve done that then you are ready to pull the trigger. For those of you tuning me out because you cant stand to hear another word about homework, im done thats it. Thats all ill say about that process preparing to buy a stock because tonight im trying to focus on the bigger picture. Lets fast forward a little. Once you do the homework you can build a portfolio. Any more than ten you likely wont have time to keep up with them all the idea here is that you should be able to do this in your spare turn not that youll spend Money Management into a second or third job. How many stocks that which you can follow along obviously and subscribe because i got two research assistants. Youre doing it yourself lets assume you own shares in a bunch of companies you genuinely believe in you have a thesis for each there is no sector over lap meaning you have five to Ten Companies in distinct industries that dont trade together. In short, you have what in theory is an ideal portfolio whats the most important thing for you to keep in mind . Above and beyond Everything Else you need to know the portfolio wont stay forfeperfect for long unless youre lucky, not all will stay winners. Some will be losers. Some will do nothing some of the companies you liked best will disappoint you what can i say the game is full of heartbreak which brings me to the next rule, always please, please try to stay flexible you have to be flexible because business by its nature is dynamic, not static. Things change. Markets change competitors will under cut existing players on price to take market share. Previously wellrun companies will start executing poorly and weve seen that time and again customers cancel orders. Unforeseen events happen that hurt business and makes some category of stock seem less attractive to the Money Managers who dominate the market. When Something Like this occurs, when the story of a company you own shares in changes, then you got to be willing to alcknowlede things are different you should say this is why you need to explain your picks to another person so that you can recognize when your original idea has stopped being workable. For decades socalled experts peddled the idea when you buy a stock, you need to be prepared to hold on to it until the death of the universe. How many times have you heard someone say buy and hold buy and hold well, ive got to tell you, thats nonsense dont get me wrong i would love to buy a stock and hold it from here to eternity because the story pans out and goes higher. If the story doesnt pan out or after a long time, there are big changes in the industry, you got to be willing to sell. Sell some. Thats why i always tell you its buy and homework, not buy and hold i wish they would adopt buy and homework wed save people a lot of money. I bring this up because people hate, hate, hated a m ed admittn they make a mistake. Once we make up our minds things are great for cocacola, we dont want the facts to get in the way of a good story. You know what . You cant afford to fall in love with a stock when you buy shares in a public traded company, youre not swearing to stick with it in sickness and health for richer or poore epoorer you dont need to go to a judge for a divorce. Acknowledge when something should change. If you buy a stock because you believe it will take a ton of market share and fails to do so, dont move the goalpost and search for reasons to hang on. Just get out of there. You must be willing to recognize companies will take a turn for the worse. Managements make mistakes. Ceos make errors every day. Lets pick one lets pick bed bath and beyond literally spent 5. 4 billion buying its own stock back from 2013 to 2017, through 2017 at no attempt to boost earnings per share so to speak and therefore take the stock price up but it didnt work. The company lost to amazon and the buy back accomplished next to nothing by the summer of 2018, they had a market capization of less than 2. 7 billion they spent twice that amount on the buy back if they put that money in a mattress, the company would be worth twice as much you know what their mistake was . The guys running bed bad and beyond werent flexible. They kept buying back to their own stock in the mistake and belief it would help dont make the same error. When something goes wrong with the company you own, be ready to stop hoping and start selling. Listen, being unwilling to recognize a term for the worse as bad as it might be almost always seems to lead to much larger losses than youve already accrued. The bottom line, lets bring it all together before you buy a stock, do some homework and come up with a thesis a reason why you think that stock is headed higher once you own it, please stay flexible if your thesis doesnt play out the way you expect it to, sell the darn stock dont bash your head against the wall recognize things dont always go your way and then move on. Liam in massachusetts, liam . Caller booyah jim. Booyah liam ca. Caller i had a quick question index funds you said certain stocks buy at certain times like monthly or quarterly or good price. Does that apply to index funds because you say purchase 10,000 yes, im trying to make it so you dont necessarily come in all at once. A lot of people put the money to work i actually like to space things out, maybe try to catch when you get a real downturn, if you put your money in before then you cant take advantage of it thats why i like to be flexible mike in texas, mike. Caller hi, jim, thanks for taking my call. Of course. Caller jim, id like to own some individual names in the tech space. Okay. Caller im finding that the prices of the stocks are too expensive so ive started looking at etfs and mutual funds as an affordable way to gain exposure and id really like to hear what your thoughts are on the matter what do you think . One of the things i dont like, they dont update what they own they may be buying in the same stocks that are too pricey you have the same deal you have to decide that the market is too rich or that group is too rich and therefore not to buy or of course, you just say, you know what . Ill take a long term view and not game it and maybe dont buy all at once but space out the buys matthew in arizona, matthew . Caller hey, jim. This is matt, how is it going . Doing well, how about you caller doing good. Couldnt be better i got a thing for you. Is it a good idea to invest in the government if so, should it be shortterm or longterm. Cash is shortterm investm t investmen investments. Longer term take advantage of higher rates and get in there and use the power of compounding. I think the conservative investor who is older should be thinking about treasury. Some young person, you sound young, they dont fit. Take on more risk. Before you own and once you own it, please stay flexible much more mad money ahead. There is not crying i in investing the best i ever found. There is always a bull market somewhere, tonight, im telling you where to find it stick with cramer. Were zooming out and talking about the big picture, the stuff you absolutely have to do if you want to manage your own money. Before i get back into it, let me say that if you dont feel like reflecting on what you need from the stock market, if you dont want to do the homework, if you dont want to watch the Underlying Companies and give up on the stocks when something goes wrong, nobody is forcing you to do that there is no gun to your head its okay if stock picking is not for you. And thats why van guard invented index funds and the dutch invented bonds for heaven sake if youre going to play the stock market and i use the word play loosely if you invest in it then you should put in the effort to do it right, dont you think . I think stocks are the greatest engine of Wealth Creation inn t history and you can harness that and make it work for you a lot of this comes down to discipline the stuff ive been talking about all night but there is another ultra important component. Call it the emotional side of the equation you need the right attitude toward the market because without the right attitude, stocks will break you. I mean it. There is a brutal game and you need to make sure you have the right head