Transcripts For CNBC Mad Money 20170321

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how did they get hit so hard when nothing happened? the absurdity can seem prepostero preposterous. market wide sale off makes it seem it's the best stupid and worst corrupt and drives you away from the asset class. i wish there was a hidden logic, but the truth is your inclinations are right and the action often is every bit as stupid as it appears. there is no way to think of it other than negatively. tonight, i want to tell you about all the ways stocks can be impacted by forces that have nothing to do with the companies themselves. so you have some grounding, grounding about what might really be driving you crazy. the absurdity of your stocks going down when nothing happens at the underlying companies. so we're going to pull apart all the reasons your stocks do go down through in fault of their own. that way you'll have a more certain handle on how to take advantage of the big market wide declines because when you know what you're doing, you can make a decline work for you, not against you. it's the basic truth bull mar t markets will go down at some point, they always do. i want you to feel emboldened, the power to use them in a construction fashion. that's the rightconstructive, rather than fleeing from fear. let's start with the biggest determination why your stocks move regardless what is going on. i'm talking about the power of the s&p 500, overall individual stocks, including ones that really aren't in the index. believe it or not, there was a time there were no s&p futures and i started trading stocks, the only input that might affect a stock if nothing happened, no earnings, no news, no takeover was sector analysis. back then we used to say a stock's movement was 50% based on fundamentals at company and 50% based on the sector. those were the two determining. in the early 1980s, the broke ca craig industry wanted more and they wanted something they could use to hedge themselves rather than constantly trading in and out of stocks. they wanted to put on a hedge against what they own. so the brokers have exchanges that work close with each other came up with the notion of lumping stocks together in what amounted to be baskets, the same way the commodities trade in baskets, wheat, so i, corn. the brokers didn't give a thought as to how this decision might actually impact the worth of individual stocks. they were cavalier about it. failing to acknowledge there might be some situations where the entire net worth of individual companies could get distorted by the futures. those were the early days of 401 ks and the start of interest rates beginning with the long decline. they were 13, 14% in the early '80s. so much cash was flooding into the stock market. it was inconceivable to imagine money would flow out, something that's been happening for years and pretty much a one-way street. the newly created future causing any distortion with the money seemed pretty farfetched. yet, i can recall working with a really wealthy individual who ran a shoe company back then. he called me one day when his company was bided to the s&p 500 and at the time it was considered to be a great honor, a sign you made it and your enterprise was thriving or wouldn't possibly be accepted to the group but he called me to complain about something that seal seemed ridiculous at the time but turned out to be visionary. he worried his hard work could be for not if the s&p 500 futures went down in value. i said that's ridiculous. this company stock would stand on its own merits. i told him the idea this fail of the s&p 500 could wag the dog of the stock. it was fanciful. he disagreed and dug in his heels and said there would always be an acquire lurking for a stock to trade down in value because it was a member of a group. he envisioned a day his company could be stolen because the stock was crushed by a market wide decline but that had nothing to do. over the long term his concept concerns spot on, exactly what happened. of course, didn't happen overnight. but in a few years, the prognosis came true, much of the damage came from the crash of 1987 where the dow fell from the low 2000s and plunged again before the recovery was almost entirely due to the relationship between the futures and common stocks. that's right, that's what caused the crash. in fact, if you go back to the aftermath of that period, you'll discover four things that occurred. i want you to know these four, one, stocks went from being absurdly over valued because of endless oversees buying by the japanese to observingly under valued in a short period of time because of selling of the s&p futures going into the crash the s&p was trading at 29 times earnings and that ended up being slightly more than cut in half over the course of two weeks. nothing happened fund mentally to justify either the rally or decline. there was no change in the economy to speak of other than a short term decline in consumer spending because of the drop off in portfolio net worth. it was almost like nothing happened at all because of the crash putting light to the notion the stocks were accurate forecasters pretty much forever. three, a wave of takeoverers did occur just like my shoe executive friend predicted from overseas as our markets had been put on a one-time sell by the cascade down of all stocks that were connected to the s&p 500. something that spilled over into everything else, given there was little justified in their sky high evaluations once the entire market had gone down. no company was safe because fund mentals were stronger than the price would indicate. they were bargains. four, in the wake of the crash, the big buybacks started. i remember exactly when they began. there had always become pan knekne -- companies buying back, especially exxon but some recognized futures were artificially depressing share prices, something that didn't go away after 1987 but if anything, became more . i recall having a conversation with then cfo of 3 m about his announcements of a big buy back and he very specifically mentioned he had to do it because of the absurdity and because 3 m stock is one of the most football of all meaning it's constantly put on sale for no reason at all other than the saling. the cfo wanted the market so individuals weren't spooked out and set about trying to create one within the best confines of the law meaning he wasn't allowed to control the opening or the close with the buying, no company can do that. if others had been visionaries, this history would have forgot but the biggest impact to your stock is often not the fundamentals at all or sectors, it's the s&p 500 itself. the future's basket did corrupt but because of the popularity of the basket among investors, we're never going back to the days or all that really matter to a stock's price was the sectors' interaction with the business cycle and the worth of the company and the executives who drove it. let's go to donna in pennsylvania, donna? >> caller: hi, jim. it's donna. >> hi, donna. >> caller: so glad you answered my call. i have been listening to you for many years. >> thank you. >> caller: before the financial crisis but it was because of the financial crisis that i got into the stock market but because of february and all the stocks going low, i wasn't buying and i should have been. >> right. >> caller: but i have stocks, quite a few over the years that i've come in and out of, i have some that are long-term, some that are short-term, some that are growth, some that are speculative, but what is happening is it seems like i've spread my mad money over too many stocks. >> okay. so what would be -- go ahead. >> caller: what i should do now with so many, i can't -- >> you don't want to be mutual fund. donna, thank you for listening but you're a mutual fund if you have more than ten stocks. for action alerts plus i have 28 or 29 but i have a staff of people. you don't, ten stocks the maximum, otherwise default to mutual funds. don, in ohio, don. >> caller: boo-yah. >> boo-yah. >> caller: i was forced to retire at 59 due to surgery that went wrong and i'm concerned with my traditional ira and would like to know how much of that should be in cash or liquid assets currently, it's 95% stock. >> okay. that's a little too much. i would like to see that taken down to about 60%. more than that, bonds yield so little but no less because you still need some growth and i would make those changes. that's a little bit too aggressive for me, sir, i'm sorry that you got -- that you had to leave the work force because of illness. i hope you come back. let's take that down a little. that's a little too risky. sometimes the biggest impact to the stock is not what it's doing but about the s&p 500 itself. on "mad money" my deception of senseless declines continues. thought you and your fellow shareholders were in this together? not always. i'll tell you how to separate friends and fauxes in this market. then, when there is something strange in the company you own, who are you going to call? your broker? don't make a move until you hear how a larger rotation could have more to do with the drop and which met trick should you focus on? i got the list and what it means for your overall portfolio, so stick with cramer. >> don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets or send jim an e-mail to madmoney@cnbc.com or call us 1800-743-cnbc. miss something? head to mad money.cnbc.come. ur iurce company of your totaled necaon't ple the y says youicked the wroninsurance an. no, i picked the wro insuranccompany. with libty mutual new car replacement™, you won't have twoy about reing ur car because yoll t full value back cluding deprecti. anifou have more than mui-pocy dcount, sang you money oyour car and me cover call for a freeuoteoday libey ands wh yo™. liberty tual insurance. for those of you who wonder how almost all stocks can go down in a brutal decline, even though the blast zone isn't actually connected to the businesses of stocks you own, this show is for you. we've already talked about how the s&p 500 can take down any company. yeah, everyone when it has nothing to do with proximate cause of the sell off, that's how powerful the stock magnet is. what else can cause a stock to get crushed when the underlying market is doi ing fine? these days i like to look at who the co-investors are. it's been ages since hedge fund managers beat the s&p 500. that's part of the problem here. we tend to get remarkable periods where some stocks just seem to be in trouble, regardless of the fundamentals. for example, many private equity firms that did deals at the height of the great recession have returns capital or keep a stream of dividends going but can't do that without saling off stakes and what they own. hedge funds that are under pressure to raise money might have to sell stocks they believe in. that's right, they don't want to but have to. simply to have enough cash to meet other demands from their own investors who want their money back. both these situations came into play not that long ago when walgree walgreens, the huge drugstore chain was reporting at $81. you might have been attempted to buy the stock because it was way off highs and doing well. but if you did that, you would have run into not one, but two huge sellers, kkr, the private equity firm, and jana. the fellow shareholders caused the stock to get hammered. kkr sold 15 million shares and not that long after jana sold 6 million dollar shares, another discount. next thing you know, you're looking at the stock of a high quality company that can't get out of its way. if you didn't know any better, you would have thought something had gone awry. walgreens had the wrong set of shareholders that needed to sell for reasons that had nothing to do with walgreens itself, which reported a stellar quarter. we seen this happen time and again during reception moments that are very hard to understand unless you've been in the business. remember how the market got abl obliterated. had to raise capital. the big give ups at the end of 2008, the most vile came after hedge funds with the same playbook went bust and who can forget when carl icahn exited his high-profile position in apple and made a point of telling you that it was the chinese business that bothered him. he crushed the stock with his exhibit but other than comments, there was nothing new to push apple lower. i know this phenomenon because i've been on the other end thanks to a vicious capital in the fall of 1998. if you owned any of the smaller regional banks that my fund owned, most have been acquired at big premiums to where i own them, you know we recked those stocks. came in the fourth quarter of 1998 down a great deal. my first real big decline as a fund manager and when i communicated that fact to what i thought was my royal partnership base, a huge percentage of them decided they wanted their money back. >> sell, sell, sell. >> i had no ability to say no because it had been written into their contract with me. then if i opened up the fund for redemptions, everyone had a shot at taking money out, and i had already opened up because one particular investor desperately needed the money. when we looked over the portfolio, it was clear the only stocks we possibly sell in order to immediately raise the cash we needed were our 9.8% holdings in a host of community banks. not more than 10%, that is the rule. they had good growth prospects. i like them. we went into each bank, called them and said we needed to sell a large amount of stock and fast. if one stock was at $18, we wanted a 17 bid for 1 billion shares. instead refused to step up and by and forced us to go into the open market and unload the stock so that $18 stock quickly became say 15, $14 stock before the company finally stepped in and did buying. in the meantime, our holdings were available for people to see and our banks started trading down as hedge funds shot against us. something you can read about in confessions of a street addict in print. it was really brutal. when a remarkable time. once the hedge funds materializ materialized, they were short. finally the brokers would come in and say they could pay say $10 for a 1 million share block that had been selling at $14 before liquidation. when they agreed to sell, they covered their shorts on the block, on the block at ten having become natural buyers because they were short hire. i never forgot it. and to this day i look for that kind of block trading activity paying close attention to volume if i see it, i can spot the -- in order, stock goes down, down, down and suddenly a big volume block trades that could be the bottom. occasional time is of the essence. when hedge funds are borrowing money from brokers and positions keep going down, the brokers tell the hedge funds they have to send in capital or see the positions margined out meaning sold from underneath them so the brokers can get money back they are owed. given the nature of the beast, the brockers are in a foot race to make sure they get collateral back. that's why you often see forced selling occur around mid morning as the money has to be wired in typically by 1:00 p.m. if you keep the margin clerks at bay and own stocks without them being sold. here is the thing, this type of forced selling can create tremendous buying opportunities for you but you have to be careful not to get too bold because you have no idea how big the losses are or how much cash the sellers need to raise. maybe they don't finish in one day or two days. not that long ago the government broke up what looked to be a done deal to create a gigantic company with a lower tax rate. both sides fully compiled with the laws stated and the government changed the laws specifically to stop this one deal. immediately allergan, which was supposed to be worth $360 if the deal went through traded down to the low 230s as traders scrambled to raise cash and looked like a golden opportunity. cheap company much below. but the stock fell another quick 30 points as the shareholder base kept bleeding and bleeding. you had no ability to tell when the selling would end. that's why you have a combination of hedge funds and jurors who use borrowed money to maintain positions, you have to expect the pressure to be immense if the deal goes south and not be solve in one day or two or three. you know why i say once a company gets a takeover bid, i want you to ring the register on the stock. the risks are too great and rewards are subpar. heed the thunder of fellow shareholders and recognize they could be at the heart of selling in your stocks that has nothing to do with the fundamentals of the company. they can ultimately heal. just remember, the damage can be expensive, much more extensive than the company shareholders deserve. much more "mad money kb" ahead. why guilt by association runs ramped in this market and could the markets do more harm than good? to watch for and a word of warning to those who own etfs just ahead. tonight we're exploring why so many stocks will go down on days there is no news whatsoever related to the underlying company. how the s&p features have c commoditized so much and co-shareholders could be causing trouble because they have liquidation but how about a situation where there is guilt by association? in february of 2016 we got a rare doubleheader of pain. >> the house of pain. >> when tablo software andlin d linked in reported extremely disappointing earnings and gave outlooks down right frightening. tablo's quarter was concerning with the analytics movement and linked in talked about how big picture macro concerns were slowing down their cloud subscription business. the results? they were devastating. tablo symbolled data plunged in one day and linked in from 192 to 108 but what i want to talk about is the collateral damage of the two because over the next two days, many stocks that looked like tableau and linked in got pummelled. the stock of adobe fell because it was viewed as a big data like tableau and salesforce.com that run off on takeover chatter tumbled from 67 to 54 brutal and no way to refute because they were in the quiet period. you can't talk about earnings but mark came on "mad money" and did his best to say business is strong. not much you can say. can't talk numbers. a classic case of lesser companies but you have to understand when you're dealing with high growth companies that sellarena, you have shareholders that own them for the momentum and can be blown out rather easily. still, when they sold you got a fabulous buying opportunity, even one of the main offenders, linked in that went right back up after catching a takeover bid. what matters here is when you own high price to earnings multiple stocks, meaning stocks that traded at a big premium to the average member of the s&p 500 it is vital to remember that these high multiple names make up a kind of cohort of their own. think of them as their own sector, which means if you only own high multiple stocks, you are indeed putting all your eggs in one basket. in fact, if you called into the show during am i diversified with these names, i would say they trade together as you can easily argue linked in had nothing to do with sales force and software nothing to do with adobe because the former does analytics and makes digital media software. guilt by association, people, matters and you have to be aware it can always happen to your stocks so prepare accordingly and be ready to buy more of the ones you like into weakness if you own some of the these high flyers that are prone to swoons because they are expensive and have no yield support. a similar situation can occur with multiple shrinking, construction. meaning their shoulders are paying less for the future earnings of the same company than they were not that long ago. so take the case of a household name clorox, which is the most consistent of all the consumers for a couple years now. it's a well-run machine with an above average dividend and slow but consistent growth. you'll see clorox reporting an excellent quarter and no matter how frantically you search for a reason, you won't find one because the reason for the declines is the stock itself and more importantly the sector have been rotated out of because of the change in the economic land scrape. nobody wants to own clorox when the economy is heating up. clorox is a steady eddie. portfolio managers prefer something with juice and much better year over year comparisons as they talk about in jim cramer's get rich carefully. what they will do is reach for cyclic ls. those companies with more earnings sensitivity. if you want to see how desperately this can play out, go back to confessions of a street addict and read about what happened to me when i bought a significant steak in heinz for my young hedge fund not long after i left goldman sachs just started. as a salesperson as goldman i loved to recommend heinz. it's like a tech company. you won't start eating chinese. the thing was going down like a stone. now i made all the requisite calls and ran the available research. business was strong and franchise doing well. i sat there hopeless at the time i had a 10% down clause in my hedge fund meaning if my fund ever dipped down by 10% in value, i had to open up the fund, give my partners their money back. it was a doomsday close. and i knew if i hit that number i was done. what i began to realize is the pressure of institutional money management is very different from the pressure at one individual on you at home. as a broker i would have had my individual investors buying more heinz and weakness because long-term would be an amazing opportunity, which of course it did however, when i bought heinz for my fund, hedge fund, i ran into one of these buzz saw sector rotations. the ones that go out of the staple stocks into the more cyclic l companies that do well during times of economic expansi expansion. the aluminum, paper, steel, woodstocks even though they had uncertain earnings, the money was flowing out of the steady eddie stocks like heinz or dock cola as well as kodak and scott paper and falling into reynolds metals and a host of metals companies. right before the 10% clause hit, right before it kicked in, i pulled out of the tail spin and sold heinz and i played the rotational game along with the rest of the hedge fund managers. bowing to the world of rotation did save the day and saved my fund, even as it would seem silly from the perspective and individual investor. here is the bottom line, when your stock keeps coming down even though there is nothing wrong with the underlying company, ask yourself if there is a larger rotation. if there is, you have a decision, cut and run or buy more. if you're an individual investor, do the latter but if you're pro, do the former because it's the nature of the beast. david in georgia, david? >> caller: big southern boo-yah to ya. >> of course. >> caller: my question is about takeoverers, the 2015 takeover premium was roughly 30%. does it make sense to target takeover companies -- >> we don't recommend stocks on a takeover basis. we'll end up being in stocks when they report will disappoint. no company wants to buy a company that's doing badly. a white wave, which we recommend on takeover and fund mentals was an easier call. elyce in new york, elyce? >> caller: hello, mr. cramer. my name is elyce and i'm a senior. i'd like to ask you a question about index funds. i don't know what they are. i'd like to know the benefits and the risks. can you help me? >> you're buying all the stocks in the total return fund or s&p 500 and means all 500 are picked by the s&p and you're diversified and no one stock can bring you down or one sector can bring you down. it's a way to spread the risk over 500 different companies and i recommend it for people just starting. be ware of the rotation. it can take a stock down no matter what the fundamentals are but many times that could be an opportunity. much more "mad money" ahead. winning and losing on wall street, i'm telling you which you should be paying attention to and a major flaw in etf investing you should be aware of. i'll reveal it ahead and plus your tweet, go ahead and tweet your question @jimcramer. i just might answer it on the air. so stick with cramer. bpevelop newindust-leading sofar to monitor drilling operations ireime, so o engrs can soproble theost precise tat their erps bee safety is never being satiti and always workingngbe br. sometimes the key met tricks that control the entire market suddenly change. you got to change with them. you have to or you'll never understand what your stocks are doing down when it seems like they don't deserve to. we covered how the s&p futures can bring down things and the dangers presented by fellow shareholders and the pressure they can put on your stocks by rotation or whoas of inferior companies. we have to deal with the notion of met tricks, whatever you want to call them and how they are reek havoc on your portfolio if you don't know what's going on with them. this all starts with the idea that the business of investing in stocks has finally changed over the last few decades. now, i got in this business more than 35 years ago and most investors were known as fundamentalests and kicked the tires of individual stocks, tried to figure out if the companies were worth more or less than the average stock and pursue if a company had weather growth, better dividend prospects and a long runway of opportunity and if it sold at a price to earnings ratio at less than the average stock in the s&p 500 they bought it with tremendous faith the share price would go higher. they seem to think it was in luck. however, as we chronicle, individual stocks started becoming less important with the s&p 500 futures in the 1980s. over time the pools became bigger and bigger and the way we judge stocks became more and more hand picked by computers using alga rhythms to predict behavior. i don't like what happens when ommends a book. it sounds down right stupid but how money is managed in this country, a lot of it, billions and billions, we have to acre set it or we misout on why stocks move the way they do. as fewer and fewer individuals invest and more and more large institutions take over, this investing has become quite assented. one of the hallmarks of investing is to identify a key met trick or index that can predict what other stocks will do, what most stocks in the s&p 500 will do and train your guns on that metric. if you think higher oil correlates with economic growth, you're setting up a basket of stocks that does well and you can buy that basket every single time that oil goes higher. this actually happens. including that basket would be most likely the airlines. which do best when people have lots of disposable income and the economy is humming. there is just one problem. when oil goes up, it's bad for the airlines because jet fuel is their biggest cause. initially the power is so immense you're still going to see the airline stocks pop along with the broader averages when oil goes higher. they won't go up as much as others because there are airlines specific researchers out there who would be telling portfolio managers they should be dumping stocks as soon as the principle fuel is getting more expensive but should be going up as they should be going down despite the rise in cost and the same thing plays out on the downside. when it goes lower thanks signals the economy is getting weaker and therefore the airline stocks go down on the weakness. these stocks won't fall as much as others, again, because the same researchers will be in there telling the portfolio managers to take advantage of the weakness since cheaper oil is positive for the industry, it's their biggest cause, however, the simple fact is the key met trick itself in the traders have made owning some groups of stocks beyond misf mystifying. stocks going lower at the same time. it's pretty insane but that's what happens and it can make you feel like the whole business has become impossible. i don't blame you. it is difficult. much more difficult than the old days. we seen key metrics change. for example, the longest time all that mattered were bond yields if they were up, all stocks went down and if they went down and however once the federal reserve has interest rates and the banks need they can make more money off your deposits. when the fed tightened the change, if they didn't recognize and we seen these switch all the time. part of everyone to recognize when the dollar goes higher, it's plain terrible for u.s. based international companies. doesn't matter they are doing poorly or well. they are all losers in a stronger dollar world. that's because first stronger green back automatically gives foreign competitors a leg up in terms of pricing. and second, when these companies repatriot earnings, they get translated back into fewer dollars than expected so numbers have to come down. the stock prices. so when you see the dollar going higher, it's perfectly reasonable to expect domestic companies and exposure will out perform colleagues with heavy business overseas. this is a metric people didn't care about for a long time as the dollar goes, but once the feds start raising interest rates repeatedly, then the dollar becomes more important because rate hikes will make the dollar stronger typically in an environment they have taken interest rates down so low they have gone negative. if it strengthens, that's bad news for international companies because estimate haves to come down. another met trick worth keeping an eye on in this era, on friday's the baker used index of oil rigs comes out. when the index shows an increase in use, the price of crude will most likely come down, that means the u.s. will be pumping more oil and when the recount comes down, oil prices tend to go up. once final metric, this one measures the amount of commerce and bull commodities, which makes a great proxy for the level of activity coming out. when it comes down, i think many of the metrics i just mentioned are given too much power. but because of how important the health of china is to so many companies, there is nothing you can do. i find the index to be under estimated as something you ought to watch. you got to keep an eye on it. here is the bottom line, if you want to make sense of the day to day declines in the stocks, recognize the key met tricks that seemingly control the whole market like oil, the dollar, interest rates, the big oil rig index and freight index could be playing havoc with the stocks whether it makes sense or not. remember, ours is not the reason why, ours is just to accept the fact these metrics matter, even as the ones that are important can literally change on a dime. "mad money" is back after the break. ♪ we're droing inormati. wher in all ofhis, is the stuhat matts?ti. the stakes are so high, ur finances, your future. how do y sve this? you don't. partner a firm that advises governments d e forte 500, and, can del insight persoto pe, on wt tters to you. morgantanley. any time your stocks go lower, you're always going to be scrambling trying to figure out what caused the decline. i told you about external factors that pushed the stocks down despite not having it happen. ed thie third being a hideous number of etfs that allow you to short the stocks you might be caught up in. i know people love etss because i hear how you can eliminate single stock risk by participating in one of these. i can still recall the first time i heard about the single stock risk. it was about enron, went bankrupt because of corrupt accounting. we heard the idea of a basket of companies but what did enron really do? it defrauded investors because it was corrupt company, many went to jail. i don't have a solution for that kind of individual stock risk and etf doesn't do it and more investors wanted to have sector exposure because they thought the sector was going higher and they didn't want to take the risk they might be playing to play it with the wrong stock. again, when i find this reasoning to be sick lcircular, the best name in a sector growing. you don't want to be in a group that will pull down the high quality stock you've chosen. what's really going on here? i think the move of the financial industry. so there are all sorts of etfs from wind power to european stocks and exposure to cybersecurity, biotech, retailers. again, i rebel against these. if you think you can pick the best, i suggest you might not know enough about the sector to begin with. so if you can't pick them, can't pick the best, you know, you're going to be out smarted by the etf. it's a terrible thing. it really is. worse, though, you may have a company doing extremely well but stock is pulled down by the weaker performance of a bigger company in the etf. we saw this happen several times to the stronger companies and hack, h-a-c-k and housing and banking when all you really wanted with a company of the best prospects. now, i think there is a place for these exchange traded funds and i'm in favor of the track of price of gold because owning fiscal is too expensive because you have to store somewhere, you can't put it in the backyard. however, they track the price of gold as closely as possible. still, at the end of the day i'm against etfs because they create enormo enormous. you can find yourself caught in the stock pushed up or down by one of leverage entities that should have never been approved. you have to accept a lot more risk if you own a stock that's hostage. my final words to the wise about how you stock can be brought down for reasons that have nothing having to do with it's own prospects, except the fact at any given time the rules can change. when the fed raises interest rates, people can payless for stocks than otherwise and become less competitive versus bonds. it been ages since they offered much competition to stocks. if the treasures come, they yield little and corporate may yield little and municipals, we have to be concerned the credit is worth it. think about the billions of dollars lost. watch the debate in states that put pensioners against bondholders. that will be a big story for multiple years and while it may not be worth it for you, others will make the switch when the fed raises interest rates and that could leave your stock in a heart beat even if the company underneath is doing spectacularly well. as rates go up over time, this will be the biggest theme and the bottom line is you must be ready for it because while the fed might hold off for this or that event overseas, say, sooner or later it's coming. rates have been down long enough in the great recession is now far enough behind us that a series of rate hikes might just become the natural course of things in the not too distant future. stick with cramer. time to take the questions from the smartest viewers. what would you suggest for grade school kids today #madmoney. this is important. i suggest you buy an individual share of stock because i want kids to be involved. pick a stock of a company they use in their live so they will be able to stay current and probably want to be interested in the stock market. use it as a teaching opportunity. and maybe it will work out, too. now we have a tweet from brad s 56 who wrote my 1-year-old loves you for some boo-yah reason. and he sent a little video along with it. >> you like cramer? >> that kid has sense. next up an aerospace knight tweeted, how do you determine the number of stocks to purchase or account for trade fees? just depends on how much research you can do. i don't think anyone is capable of doing more than ten stocks, owning more than ten at one time and being able to do the quality research i think is necessary to trade. many disagree with me. i don't care. that's what i learned from personal experience. up next a tweet, asking how to identify opportunities to buy quality where the stocks, not companies are broken. what are the key metrics to assess. detail if they are beating the metrics, even though the stocks are hammered, that's where your opportunity comes in. here we have a tweet, he's asking what percent of your reoccurring monthly or yearly savings should be s&p 500 and what percent should be in vince stocks? the first $10,000 all index fund. i can't have you pick a stock and lose a lot of money. once you've done that, you can also begin to pick individual stocks in addition to continuing to put money in an index fund. why don't i recommend individual mutual funds? the managers change and you don't know what they own with an index fund we know what you own and the costs are low so first 10,000 index fund and then the rest do index fund and individual stock, find stocks you like, find companies you like and buy them on the way down once you're sure about the fundamentals. the next tweet asking don't you think the way investors make their investment decisions is changing to more data driven decisions? that could be the case. i don't care how it's changing. i'm telling you what i've experienced that works. lots of homework, knowing the companies, buying the stocks of good companies at prices that are reduced because of trends that happened in the stock market and that happens all the time. remember brexit? next a tweet asking how much assets should you keep liquid ready for downturn? for my travel trust we often debate this because it's a charitable trust, we like to keep a good cash possession, i've had it be as high as 20. it depends on the way you think about the market. what is your intermediate term world view. a little difficult for the travel trust and intermediate and make a decision how risky it seems and take more money out. i think you have to assess your risk and reward. here we have a tweet from alan monroe asking what is your opinion in dividends? i've been investing. that's perfect. i want everyone to reinvest their dividends, don't take the dividends out. put them back in. that's how you make the really big money. stick with cramer. 's a versimple procere mr. diaz. we're ju goio make one sml incision he, then we' gonna go innd removeou'67 corvette. vette!? it's ju a gall bladdecision he, you don't have.. la paying you c so you might have tsell that sweet litt muscle maine just cover yourent. paymore funny juice.might have tsell that but my papa gave me...that...ca what do you wish you had? afc. ohh, i love doing that. alth can change, b the le you love doesn't havto. keep your festyle healthy with- afc! i like to say there is always a bull market somewhere and i promise to find it for you right here on "mad money." i'm jim cramer. see you nexte. >> welcome to the shark tank, where entrepreneurs seeking an investment will face these sharks. if they hear a great idea, they'll invest their own money or fight each other for a deal. this is "shark tank." ♪ who believe they're on the cusp of the next big fitness craze. hi, sharks. i'm mike hartwick... and i'm sarah ponn... and we're here to present our company surfset fitness. we are seeking $150,000 for 10% equity in our company.

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