Spurned them, either because i didnt believe they could help, or because they cut off my upside. Even if they cushioned the inevitable downside. In other words, the rules kept me from making a huge amount of money when things were going gangbusters in order to keep me from losing big money when things went badly. The house of pain. The rules i am discussing tonight keep you in the game, even when you even when things are tough and you make those mistakes. The rules protect you against your own bad judgment about whats going on in the companies you own or whatevers happening in the market overall. But if you were going to make money using stocks because you just cant get much of a return anywhere else these days thats pretty much the case. You are going to have to work harder with your money to do so. And that requires discipline. Discipline. Because once you start buying and selling stocks, you can make more mistakes than if you just but if you do nothing with your money youll have a whole lot of nothing to show for it. Thats why we are doing a show tonight on how to trade and invest responsibly to make your money work for you. How to tend it, how to make it grow. Were kind of gardeners of money tonight. How to keep it growing from what we call active money management. Its not a sin. And a lot of you practice it. I want you to do it right. Before we dig into the ways to make your money grow by being hands on about it, i want to delve intoit of stock ownership. One question i am asked repeatedly when people stop me on the street you know i go back and forth from this street to squawk on the street and wall street or they ask me jimcramer on twitter is, dont you worry about your stocks . Now, it is true that i dont own any individual stocks. I invest just for charity with all profits and dividends given away to charitable causes. More than 2 million in the time since i set up my charitable trust. Much money to charity asi can. Plus, since i disclose everything i own and tell you and explain what im going to do before i do it as part of the bulletins for actionalertsplus. Com, you bet i am concerned. It can be downright embarrassing when i get it wrong. Yep, im always worried about the trust stocks, especially when they go down. Im doubly worried when they go down when the market as a whole is going up. Thats a sign to me that somethings wrong. Someone knows something that i dont know. And then i better find out, or i wont be able to take advantage of the weakness to buy more. Ill have to sell instead. Thats the chief reason why im always bugging you about reading the news releases, going over the Conference Calls, particular that part right before the q a, the guidance, and going to the websites for more information. You cant be informed if you dont try to inform yourself. I know that those who dont know what they own and cant articulate what they own and dont know what a Company Makes so they dont know whether to buy or sell until a big selloff. However, we are talking about psychology here. They psychology of the mind when all that homework doesnt pan out. Believe me, it is frustrating. When we select a stock on this show to highlight, we do a massive amount of work on it, every single time, the same amount i would do at my Old Hedge Fund if not more so. It is really difficult to see it go down. But there are plenty of times when there is, say, something you cant detect. Chicanery. Chicanery in the numbers. Therpl and we dont really know the truth. Ive talked many times on this show about press releases that make things sound much better than they are. The ones that start by saying, we are pleased to report that sales increased by 12 . And it sure sounds good. Except the consensus was looking for 20 . Which means with that 12 , youve got a hideous shortfall. Boo or worse than that kind of truth and you dont. Maybe someone found out about the truth playing golf with an executive. You know that stuff goes on. Maybe some hedge funds paid under the table to get the truth, as weve seen time and again for years and years. Theres many of these Hedge Fund Titans that ended up in jail for doing it. In other words, the insiders had the call. You didnt. There are also tons of times where you simply own too much stock in the market versus what the markets going to do. We call this being too long. You are too long, as the of buy any more stock on the way down because youre so out of capital, so youre gonna lose money, or at least on paper. Or worse, you were borrowing money to finance your portfolio [ buzzer ] which i think is just a terrible idea. Stocks arent houses. You cant fall back and live in them if you have a mortgage on them. They just get taken away by the margin clerks. Sell, sell, sell how do you manage your portfolio under conditions where things go wrong with the stocks you own all the time and things go wrong in the market all the time, wholly a part of whats going on at the individual companies in which you own shares . There are no magic bullets. But i believe that when in doubt, this one principle is key. Discipline trumps conviction. Memorize that term. Discipline trumps conviction. I stared at a yellow postit with those words for mye when i was managing money professionally to remind myself that things go wrong, and you need to have a scheme to help you deal with those situations when things go wrong, as they inevitably do. Yep, i put a discipline trumps conviction sign right on my personal computer to remind me of what to do in the stock market when things go awry. One of my best forms of protection is to recognize that if youre not tough on your own decisionmaking, and you like equally, you cant be flexible. You cant change up when things go wrong. Thats bad, people. Thats why ive come up with a system of ranking my stocks when things are good and times are placid. As hedge funds against yourself these are hedges against yourself for when things get tough. You know, when its really calm out there, you can really do some good decisionmaking. Remember, not all stocks are created equal. You have to be willing to circle the wagon, just like a wagon train going out west in the 1800s, around a few good stocks. Buy themn basis or average price for your holdings. Why does this matter so much . Because we must expect corrections, and we must expect declines as a matter of course. More than that later in the show. We must anticipate the days where we wake up and hear the good people on squawk box saying the futures are down. Theyre down a great deal, and the market looks to open down a half a percent or down a percent. Come on, youve heard that so many times. We have learned so much over the years about what triggers corrections. To have a game plan where you know that even when youve done all the homework and have the tremendous conviction, discipline dictates that you must assume there is something you dont know going on with your individual stocks or that there is something happening in the world that is beyond the control of your acumen, and youre just being victimized by the events of the moment. My ranking system will indeed get you through the chaotic times, allow you to stay cool and methodical about your money when all others are around you are fumbling and fretting and deciding they just cant take it of dodge at the exact worst time. So heres the bottom line. In order to be able to deal with the decline in your stocks or in the stock market as a whole, you have to accept that something is wrong at the companies you own shares in that you might not know about, or maybe theres something happening in the stock market that you didnt foresee. Therefore, you must be ready with a game plan that can bail you out shortterm and keep you in the market longer term so that your money works for you frank in new york, frank. Caller jim, i understand why a company goes public, to raise capital for various different reasons. But why would a company want to go private . All right. This is a great question. Typically i want a company to go private because they think its worth a lot more than what the stock market is currently paying for it. When you see a company go private, that is typically because the owners of the the managers of the company recognize theres so much value and the stockholders and buyers dont. They take it private. They make it look better, and then they tend to bring it public again. How about ann in california, please. Ann. Caller hi. I havent seen any prospectus on stock books lately, and im curious if theres any way to tell when a company is going to split their stock. No, there isnt. Companies tend to be very close to the vest about it. Remember, when you split a stock, you only get two pieces of the same company, so it doesnt necessarily create any wealth at all. It happens to be exciting, and i investors then get a chance to buy. All right. That they didnt have otherwise. So i am pro split, but it does not create any wealth, and they tend not to signal when it will happen. Discipline isnt fun, but it is necessary if you want to make big money in the stock market. When theres a decline, you have to accept the facts and always have a game plan ready. Ill help you out. On mad money tonight, there are trades, and there are investments. Ill explain why understanding from a world of hurt. Then headlines may be black and white, but investing on their every word could have you drowning in a sea of red. Ill help you spot the true story. Plus a correction is always lurking around the corner. Ill help you protect yourself when it strikes. So stick with cramer. Announcer dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Madmoney cnbc. Com or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. You know your heart loves megared omega3s. But did you know your eyes, your brain, introducing megared advanced 4in1. Just one softgel delivers the omega3 power of two regular fish oil pills. So give your body mega support with megared advanced 4in1. Whatcha got there . New cheezit sandwich crackers made with real cheese ummmm. Sammiches sandwich with a d sammich. Sandwich Sammich Sammich see ahahaha for our cheese to mature, in our new cheezit sandwich crackers. Sammiches. Anything meant to stand a body without proper foot n support can mean pain. N. The dr. Scholls kiosk maps your feet and recommends our custom fit orthotic to stabilize your foundation and relieve foot, knee, or lowerback pain from being on your feet. Dr. Scholls. Whatcha doin . Just checking my free credit score at credit karma. What the . Dont you know that checking your credit score lowers it. Check out credit karma today. Heres a little healthy advice. Take care of what makes you, you. Right down to your skin. Aveeno . Daily moisturizing lotion with 5 vital nutrients for healthier looking skin in just one day. Aveeno . Naturally beautiful results . Honey, arent we having friends over . It reeks in here. I know [goat noise] i stole the other teams mascot for good luck. We need to wash this room. Wash it . E things you cant wash, use febreze fabric refresher wow [inhales] it really smells great in here. Dog barks and try pluggable febreze, with up to 4 times the freshness in one refill. Pluggable febreze and fabric refresher tonight we are going over the rules. The rules make it so losses can be palatable. Rules that keep you in the game when others are freaking out. I used to talk about these rules all the time when i was managing money until they became Second Nature to me. But that was years ago now, and when i think about it, its usually in response to a tweet jimcramer that asks a question that the rules answer, and they answer kind of axiomatically. Thats why i got to dust them off here, make sure that people realize im not ducking their format to flesh them out than 140 characters where i cant be thoughtful. I want to be thoughtful on twitter, but its really hard. This is the format. So heres a typical question. Someone will mention a stock, an oil driller say, that has had a hideous decline. Theyll ask, what do i do now . I often turn the table on the person asking, why did you buy it in the first place . The followers tend to regard that answer as either arrogant or flip, but what im really trying to dofi they bought it as an investment, which means it might be fine for them on a longer time horizon and they should buy more, or did they do it for a trade, and perhaps they should cut their losses. Why does this matter . Because one of my cardinal rules is to never turn a trade into an investment. If theres one concept you must take away from this show, its that you must never, ever turn a trade into something that it wasnt meant to be, a longterm investment. Before you pull the trigger. When i decide im going to buy an oil driller, okay, i have to declare right up front to myself whether i am buying it for a trade or for an investment. Whats the difference . A trade means that i am buying it because of a specific catalyst, a reason that will drive it higher. That catalyst might be a data point, a recommendation, a belief that things are better than expected when the earnings come out, or some news about a restructuring like we always several pieces or some other material event that could occur. In other words, theres a moment to pull the trigger. A moment to buy. Buy, buy, buy. Perhaps because you think that oil is about to spike because of a shutdown of the spigot in russia or maybe some problems in the middle east. And then theres a moment to sell, sell, sell. When the event occurs and youre done. But you must declare first before you buy and heres why. The vast majority of you will buy a stock for a reason. The stock. So then youll decide, darn, ill just call it an investment. I wont worry about it. Ill buy more if it goes down. Or perhaps the reason never occurs that you bought it for, and you decide to hold on to it because, well, whats the worst thing that can happen . The answer, of course, is plenty and almost all of it bad. The answer is that you would never have bought it in the first place if you didnt think the reason was going to occur. So now there is no reason for you to own it in the first place. I have seen a myriad of investors turn trades into investments, developing a themselves that theyre doing the right thing. Thats because they dont make the distinction between a trade and an investment. If the reason i bought the oil company, Higher Oil Prices doesnt materialize, then i really cant say, ill hold on to it because it has a swell dividend. For all we know, the only thing that would have saved that dividend from being cut is Higher Oil Prices. And without them, the idea for the trade is gone, and the dividend [ cutting sound ] company, i buy a small amount of it to start and then hope the market will knock down the stock so i can buy more at a better price. Thats right. I actually, when i invest, want the correction, which is always the way you want to be thinking if youre trying to start a new investing position. Ideally the stock is down already from its highs because you dont want to invest in stock at the 52week high. But there is nothing like a nationwide, marketwide sale to get you better prices on your buys. Trading is the opposite. I put the maximum on at the beginning because i believe the data point or the event is about to occur. I never buy anything for a trade without that defined catalyst. Thats the word we use, catalyst. I never buy anything for trade just hoping it will go higher as there could be no hope in the equation of buying a stock. I buy down, lower prices, when im investing. I cut my losses immediately when i am trading if the reason i am trading the stock doesnt pan thats why i like to say that my first loss can be my best loss. If you buy a stock for trade, not an investment, and it starts going against you in a meaningful way perhaps a decline of 50 cents is meaningful when youre trading you may have a real problem on your hands. Im not kidding. When it comes to trading, i am an extremely disciplined person to the penny. I like to cut my losses quickly and get over them quickly. Thats why i say that my first loss is my best loss. All other losses tend to be from lower levels and at bigger cost to me if i dont operate on this principle. Again, peo a can instinctively feel the trade going awry. But because of ego, pigheadedness, they dont want to heed the thunder, and they stay in only to have to panic out at lower levels when the catalyst doesnt occur and the whole reason to own the darn stock evaporated. So please dont fool yourself. Cut your losses quickly when you put a trade on and it starts to go awry. Sure, theres an occasion or two when its about to pan out and the market doesnt know it. And youre probably going to be wrong. Its just a fact of life. Its a compendium of all the studies ive made. The bottom line, never turn a trade into an investment. Better just to take the loss because, believe me, the percentages say that you will most likely lose money. And if you do so, do it earlier rather than later and save some bucks. Stop fearing the big score, and start fearing the losses because it is the latter that can wipe out all those good juicy gains you have and then some. Hey, theres much more mad money ahead. A stock rising can be quite seductive, but chasing doesnt always have a happy ending. Ill help you know when its ever right to run after a hot stock. Then corrections are as certain as death and taxes. Dont miss my take on how to prepare yourself for the inevitable. Plus its easy to get attached to your holdings. But holding on for too long can burn you in the end. Ill let you know when to cut the cord. Can a toothpaste do everything well . This clean was like pow it added this other level of clean to it. 6x cleaning my teeth are glowing. They are so white. 6x whitening i actually really like the 2 steps. Step 1, cleans. Step 2, whitens. Every time i used this together, it felt like leaving the dentist office. Crest hd. Crest. Healthy, beautiful smiles for life. . . Dry spray . . . Thats fun. . . Its already dry no wait time. This is great. All the care of dove. Now in a dry antiperspirant spray. Awarded best of beauty by allure. . . What . Is he gone . . Finally, i thought hed never leave. Tv character why are you texting my man at 2 a. M. . No. If you want someone to leave you alone, you pretend like youre sleeping. On car insurance, you switch to geico. Its what you do. Tv character taking selfies in the kitchen does not make you a model. We are going over the rules that have gotten me to this point in my career, where i can play for charity at actionalertsplus. Com instead of trading at my own hedge fund, which i retired from. But the lessons of the hedge fund are very much with me, and this special show to help you with your portfolio. Let me give you one thats the height of silliness. If it werent for that darn buy of, and then you fill it in why dont we use himax i would have been up big. Or i would be making a huge amount of money in the market if only i hadnt let blank lets use fireeye run against me when there was all that insider selling. Darn it all. It takes only one or two losers to wreck a portfolio. I try to devote far more of my time analyzing my loseks than my winners, not because of some sort of masochistic streak. Rather, i recognize that sto