>> she loves it. my mission is simple -- to make you money. i'm here to level the playing field for all investors. there's always work somewhere. i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." i'm trying to make you money. my job is not just to entertain you but educate and teach you. call me. of course, tweet me @jimcramer. i'm letting you in on something big, the method of my madness. i mean think about it, a one-man show about business? i know you won't find investing advice this good anywhere else. you know that, too, or else you
unless you're one of those people that tunes in to see if tonight is the night that i actually -- do walk the rail after multiple years of erring, there is always a possibility. keep wishing. i do my best so it doesn't. this show is all about the method or methods to break from strictly quoting the bar to my madness. how do i pick stokdz? what gets on the show? you always ask me that. why do i tell you that some stocks are worth buying now or on a dip than, lai, you know what? that's theheuestion that everybody would like to know. so tonight i'm going to give you pieces of the answer. let's get rolling. one of the easiest ways to identify potential cramer names for "mad money," the stocks that could or end up on the show is by watching my favorite lists from when i was, frankly, a little boy in fifth grade. i used to look at the new high list. i thought it was the guys hitting better than 300 in baseball. stocks in that list, the highest
something going for them. that is true when the market is in bad shape. only the b bt of the best can hit new highs when the market is falling aparar so what's it tell you when a stock hits the new high? either that it's part of a genuine bull market or the company is out for serious earnings or sales momentum or maybe the sector does which is so often responsible for stocks increase. no matter how they get there, many stocks in the new high list often keke going higher becausus 's really a list of a students worth investing in. the a students tend to repeat themselves in the process. just luke the really smart kids in school. in a great bull market like we've had from the bottom in 2009 and any market by the way that doubles from the bottom has to be considered a great bull market even as they know they resist such labels, we saw the high list phenomena over and
after new high. following them is a great way to make money, even as the bears claim endlessly that market was false and couldn't be trusted. listen together bears caused you to miss out on the great rally in history. it is mort exception t tn the rule over time. things have worked well and will continue to work. these stocks typically represent companies that are fast of breed. it is integral to "mad money." i'm not saying that just clas stocks. that would be the foolishness. i'm saying that if you want to identify stocks that will be nners in the future, unless the say big sea change in the market, caused by a gigantic political shift, looking at the biggest winners of the present is a pretty good place to try to figure out the future. let this list do it for you. it's already been scrutinized and scrubbed. that's the thing about the market. it's not always that hard to play once you understand that there is often more continuity than change. things pretty much go -- keep
unless something major shifts. and then do you have to alter course. those courses can be radical though. and that's you always have to be re-evaluating your ideas and should never dig in your heels when the facts change. something we emphasize over and over here and also infuses my columns in real money and all my books i've written, "confessions a street addict," it isn't called " "d money" for nothingng but you know what? to invest in and hunting for the bull market like i always do list is typical. i don't just pluck names because going up. that is lazy and irresponsible. i have a lot of thingsa lot of them are negative. ladzy and irresponsible? i don't know. anyone that sees my insane tweets knows, yes that, is
is that someone else tweeting for you? who else would get up that early? you can't do that. and then, of course, the obligatory, do you ever sleep? no, not for any long stretch. i play the same standards to this show that i used at my old hedge funneled. i rarely recommend buying shots that are on the new high list unless there are special circumstances. what i do like to do when i'm hunting for stocks is wait for the fables pullback from the new high list. that is the best place to put money. the pullback and there i'm thinking about something that could be two, three, 5%. that gives you a good entry. i'm not telling you to chase momentum. you should always be conscious of price and therefore try to buy on weakness, just like you want to sell into strength. most people can't pull the trig wler a stock is going down. i'm telling you, if it's on the new high list and comes down, that's your man. i'm throwing these in because i don't want you to look at the new high list as your shopping list. it's a jumping off point, a very
to get started. pouring over the new high list is a fabulous way identify potential stocks to buy. you only buy stocks that pull back from the new high list if you're confident they'll come back for reasons having nothing to do with the market. you have to do all the same home work you do before buying a stock. it's not that easy. you must have conviction even if it's a cynical conviction the stock is going higher. i do that for a lot of the ipos where i say cynically i know the buyers go crazy about it, i accept they're just pieces of paper. you note big boys can't resist growth stocks. they always come to the support on down days. the biggest caveat of all when you shop for stocks that pulled back from the new highs, make sure they haven't pulled back for a good reason. the selloff is extraneous to the business. don't buy a home builder that is down because they could at least
stock whether it goes down for three straight days. that probably doesn't long on e new high list. look for a stock that has bristol-myers like strength. almomo nothing has to do with bristol-myers. make sure you're deaeang with a damaged stock and not a company that is going down, down, down. how do you tell the e fference? if the fundamentals haven't changed, the stock probably hasn't fallen from grace, it is pulled back for mechanical reasons, panic in the market in general. now more than ever, now that stocks are traded by commodities causing stocks to triple etfs, you seat stocks of good companies pull back from their highs for nothing that had to do at the company. nothing to do with the company or the strength of the underlying business. those are the buys. but if the fundamental picture changes, if whatever made the stock attractive climbed the way
stock is no longer a candidate. the story has to be intact or this method wi let you down. it isn't a hard and fast rule, i like stocks that pull back just enough but not too much, all right, i have to tell you, 8% is the historical opt mall level of a pullback that i really made a lot of money in. less than that, you will be early for some of them, more than that and maybe something is wrong with the stock p you just don't know. 3%, 5%, 8%, those are all important levels that 8% level, man, i made a killing when i buy them down will 8%. bottom line, that's the first methed off cramer's madness. watch for stocks that pull back from the new high list. out of this process. it's my getting to work shopping list. hopefully some of yours can, too. ohio. boo-yah to you. >> boo-yah right back. better insight on mutual funds and i'd like to know are they a good way to diversify?
i have to tell you, here's the problem. a lot of people have 401(k)s where you have to haveveutual funds. you can't pick individual stocks. for thatatthey are. what i like to do isisay 20% international, 50 -- i i going go 50% growth. the rest will be kind of a balanced situationaybe a fund that has some bonds. you have to depend on your outlook and your age. but, yes. mutual funds are fine. try to look at the performance that's what i use. stewart in florida. time to use stop orders after you purchase a position? that. actively, we have to pay attention it to. and if we're not going to trade, we're going to invest. we don't need stop orders. the market can be down 10% in a fwlash day. you'll have sold the stock and it bounces right back. we donon play it that way. we invest onmad money." we're not traders. we invest. all right. there is a methed to this madness.
because of a broader market selloff having nothing to do with the individual stock that you want to pull the trigger on. stay with cramer. >> don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send him an e-mail or give us a call at 1-800-743-cnbc.
head to madmoney.cnbc.com. welcome back to tonight's methods to madness special. i'm revealing the best tricks for buying and selling stocks. next up, how do you find stocks that are great buys? earlier i was talking about picking off stocks that have pulled back from the new high list because you get a cheaper entry point. i said you didn't want to buy names right off the new high list because you're paying too much for them. you can usually get a better deal if tient and wait for weakness, maybe down 5%, 7%. given how volatile the market is, there are very few occasions where buying a sck right off
to it is justified. sometimes the stock is so high you just have to buy it whenever you can, as soon as uk it may not be going lower any time soon. you won't find these often. but whether you find them, you have to remember not to buy all at once. if you want to buy 100 shares of stock, y y think it has so much mojo it won't get a pull back, then buy 25 shares. worst that happens, , goes hihier, you don't get to buy more and you grab a quick k profit. there is alwlws another stock to find. i've got an exception where it is okay to buy a stock right around the high. if you see insiders buying the stock when stocks are up a lot already, i'm going to give you a total buy, buy, buy, green light. it is a rare thi to see ppen. buin my experience, it's rare still that this method of picking stocks doesn't work out. see, i love it when insiders buy after a decent run.
confidence that they think the vun just beginning or there is a big runway ahead. and theyeyre sure that it's lolo lasting.g. remember, you can't flip a stock if you're an insider buyer. you have to wawa six months. government takes ait gains. it's the law. these people are seeing things that they like that aren't going to disappear in six months. normally i iider buying ranges from beingngeaningless to a small but on its own infficient reason to buy a stock. a lot of times you catch insiders buying the stock, they want to give the impression of confidence, create an illusion they're doing better than they are. insiders aren't stupid. if they are seen buying their stocks, the market will smile upon them. they play the system. hey, that's fair. but it means we ignore most tiny insider buying because it could be kind of flim-flam. we used to call it painting the tape. kind of makes it look better than it is. that said, when n u get truly colossal insider buy, you may want to take another look at the stock in question. it is powerful endorse. when the insiders buy a whole
insider buying that declares the sincerity. but we're only focusing on one sort of insider buying, stocks that are running and not perceived as being cheap or low dollar amounts. there is nothing more arrogant and telling than whether an insider backs up the truck for his own stock whether it's been rolling along at a pretty good clip. there say, yeah, we know we rock. our stock has been enffuego and we're going to buy some shares right now. we're'waiting for a pullback, no, we're buying right here. this is bankable. i see it all the time. corporate insiders are not fools with notable exceptions. if the stocks are on a terror, let as assume they're buying and they do know something. not everyone deserves the benefit of the doubt in this business. after the financial crisis in the market meltdown at the end of 2008, i know that a lot of people think that all c.e.o.s and executives for that matter are a bunch of crooks, frauds,
especially those running the old fannie mae or lehman. healthy skepticism is one thing. a total unwillingness to believe in anything positive is something else entirely. if you're going to own stocks, you need to be willing to extend some measure of trust to the people who run the companies that you own shares of. what else could be going on to spur buying? we had a massive amount of consolidation in a host of industries of late. airlines, rental cars, foods, telecommunications, enlts takenment. perhaps they're buying stock becaususthey hear the footsteps. maybe theyeye been contacted by some other company and turned that company down. they happen all the time f executives expect they may be next, it could be a healthy and honest reason to buy. they have to disclose anything that is a serious bid. sometimes you get a phone call and say, no, bye. they do that because the company is worth more than they thought. maybe they think the company
like the old tyco or fortune brands. maybe you see them create value and they just want in on it themselves. they don't it this run is over because they rececnize how much better the company will be whether divvied up. well, for us, buying after big runs can be a bit reckless and lazy. most investors are smart enough to wait for a pullback before they pull the trigger. insider buying after decent runs tells me they don't t ink there will be a pullback a a there is nothing more bullishshhan. thature i want to wait f a pullck after they bought. that is the best of all possible worlds. you usually don't get that scenario. one more methed off the madness, when you see insider buying of a stock that had a solid run, you want to be buying, too. >> caller: jim, steeler boo-yah to you. >> steelers from new york. why not? what's up? >> caller: jim, i have a question about interest rates. when the fed raiseseinterest rates, good companies with attractive dividend yields sud
can you add some clarity to why? >> b bause people extrapolole there, bob. once they see tes go up, they fear they're gng to go up for a while. if that's the case, they want to get out of what they perceive as being a risky yield and go into what is a certainty which is a bond yield. so it is all relative basis. rick in california. rick? >> caller: boo-yah, jim. >> boo-yah, rick. >> caller: how do i add to a position if the stock hasn't gone d dn to the average list price? >> you can't't. i'd say the vast majority, not just a few times, the vast majority of times we pay up above our basis. well, i got to tell you, sell, sell, sell, you got the picture. remember, here's another method of my madness, when you see insider fwhig a stock that already had a big run, think to yourself, i might want to buy
make you even more money. i think we should've taken a left at the river. tarzan know where tarzan go! tarzan does not know where tarzan go. hey, excuse me, do you know where the waterfall is? waterfall? no, me tarzan, king of jungle. why don't you want to just ask somebody? if you're a couple, you fight over directions. it's what you do. if you want to save fifteen percent or more on car insurance, you switch to geico. oh ohhhhh it's what you do. ohhhhhh! do you have to do that right in my ear? i've been on my feel all day. i'm bushed! yea me too. excuse me...coming through! ride the gel wave of comfort with dr. scholls massaging gel insoles.
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you're in luck. you called cramer on a good i'm not going home to sip that cheap scotch on my dirty floor. to dewers. linolium scotch of choice. it is actually good stuff. jajaesons? no, tonight i'm in a great mood. i'm at my best. let's say i'm productive when i'm in high gear. so, make it that i'm revealing secrets and methods to my madness. pull pencil and paper. start jotting things down. i have to tell you something
picks. i'm giving you the best ways i know to pick stocks. i'm teaching you how to invest and trade like cramer. it's not to be like me, i have a emotional things cooking here, but at least emulate me. i mean, you know? so far i have given away two secrets. two of the tools i used in my hedge fund and my travel trustst where i play with an open hand, allowing subscribers to see all my trades before they happen. i look for stocks that have pulled back from the new high list. that is not a reason to buy in itself. but it's a great place to look for potential buys. i like to buy stocks that had big runs, yet, still have substantial insider buying. it says that people running the company really believe the stock has legs and that they b bieve ththe is a -- could be a aood reason for us to believe, too. but, again this is alone not enough to recommend the stock. you have to make sure you like the story behind the company before you dive in and buy. at i'm teaching you to night e what i call tells.s. that's rigig, they're tells. they're signals that a stock might be worth oing.
to go through the boring process of reading through the conference call transcripts and quarterly filings. there are thousands of stocks out there in any method we can use to narrow down the ones that might be attractive is a method worth having. we talked about insider buying at the high. i don't use it as the only way to determine whether or not a stock has got it going or not, there is one other scenario where insider buying makes for incredibly bullish tell and that is whether a stock has a heavy short position. meaning, a lot of people out there are borrowed shares, sold the shares, and are now waiting for the stock to g glower before they buy back the e ares. return them to the bank k ey borrrred them from and collect the difference they sold at first and the price they bought the stock back later, hopefully th sold it high and bought it low. think of shorting as regular investing much it's in reverse. we try to buy low and sell high. shorts turn that around. they sell high and try to buy low. whether a stock has a lot of shorts it in that, means a lot of people with serious conviction. conviction is the stock is only going lower. it takes more conviction to short a stock than go long.
short, the potential down side is infinite. when you're long, it is zero. shorts lose money when it is higher and higher, there is no win. short sellers and there say lot of them and a stock gets some od news, we get whatats called a short squeeze. and it sounds exextly what it is. to bail or close out the positions, the shorts have to buy. there is called covering. a lot of shorts cover at the same time in a panic, the stock will surge because what you really have is a lot of people desperate to bititstock. a loof demand. they have to buy unless they want their years wiped out as short sellers had in the last few swoons when the market refused to quit and went right back up. they didn't bring them in. so where does insider buying fit into the short selling? you have a stock with a high short interest. that is a sign that much of the flow to sell short. then some people that run the companies start buying shares
green mountain, sanlta fay, takes more than a 10% stake indicates it wants more. those are three situations where the shorts kep shorting and they got crushed. they should have done buy, not shorting. it's almost like drawing a line in the sand for the shorts. our stock goes this low and no lower. this is an explosive combination of that kind of insider buying and a stock that is heavily shorted, one that often leads to a short squeeze that sends the stocks much higher. shorts are smart. in fact, a lot of them, a lot of the time they send to be real smart, much smarter for the most part, i found, than what we call long side investors. they don't know more about a business than the insiders who run it f a lot of people are shorting a stock and management is buying it in sizable amounts, not just in hundreds shares worth, you should do home work and usually you're going to want to decide from. that then you can ride it higher and higher and higher and i regard the santa fe and coca-cola buys and monster as being inside light buys.
shares higher in a desperation to cover the positions and you make money. when a company with a heavily shorted stock announce a buyback, that's another line in the sand suation where management is cocoradicting the shorts. companies often repurchase their own shares and why not all buy backs are bullish,h,ome are wastes of money. i teach you how to identify the bogus buybacks in my travel trust bulletins that i issue multiple times each day. a new buyback is often a good reason to take a closer look at the stock. now a note caution. you have to be very careful ether dealing with a aompany the cross hairs thehehorts when people are nervous and the mamaet is in bad shape.. shorts havavthe ability to wreck the stock. even if the fundamentals are faastic. these days the shorts have more
and republicans looks the other way when shorts raids stocks with bogus storyies about accounting issues an management blunders. it's easy to do as a stock owners no longer have the benefit of rules that slowed short selling down and made it harder to create bear rates. an uptick or higher price before can you sese short stock. that was a good d le. somehow the government got talked into a a. bollishing in order to make traileding quicker and more fair for the shorts. a lot of good that did for us. it's a leading reason why so many home gamers left the building. we establish these rules in order to stopt panic, something that happened during the great depression. the government and all the wisdom seems to it this panic is no longer possible. we have to be more careful than ever not to succumb to panic. that has been orchestrate bid short sellers who need prices to go lower. without the protections, the shorts are able to run wild and assassinate the stocks of many financial companies. the shorts c ce back with aggressive negativivy in and again after manufacte the big runs in the last fewears this
triple etfs. so when you're dealing with a heavily shorted stock, you have to learn to tread carefully. can you still find great opportunities in the stocks where the shorts overreached and insiders are buying, i have to warn you, the balance of power shifted in favor of the shorts against regular individual investors. that means even if the short sellers are wrong short term about a company's prospect or long term, they can still demolish the stock, especially if they now campaign against the stock like with herbalife. he was taking on the company and buying back stock and managers on the other side of it, don't underestimate the amount of damage the shorts can do. although remember, the best protection against these rates is offered from stocks that pay good solid dividends, short sellers have to borrow stock to short the stock. the dividends to the real that's a terrific deterrent from those pernicious in the way they go about shorting. dividend 5:00 tacked by shorts and dividend is going higher, a
if they're snapping up stocks inside, too. insider buyingnglus heavy short interest can e eal raging buy as long as you avoid situations where the shorts are determined to question the stock at any cost. like herbalife. let's go to herb in florida. herb? >> caller: jim, great to talk to you. i'm on action alert follower for the past few years. wish i got onboard a lot sooner. >> you're very kind. tough days, i like that, though. you support us, thank you. what is going on? >> caller: i'm recently retired. i saved up well over my lifetime and i've looked at the longevity of my savings and asasong as i manage t tngs well, i'm in good shape. >> g gd. >> caller: my concern right now is an allocation. i have about 65% right now allocated in stocks, split about
you with and the other half in index funds. >> okay. >> caller: and then the remainder is split between bond funds and cash. you know, the cash fluctuates up and down. >> sure. you're doing exactly right. just like we teach you in "action alerts." >> i've been paying attention then. >> thank you. >> caller: thank you. >> you got it dead right. you're doing exactly what i like number criticisms of anything i just totally endorse. that all rht. trying to spot a raging buy? here's a tip. when you see insider buying plus heavy short interest and then a buyback in a dividend, wow, you got something. just be careful and avoid situations where the shorts are simply determined no matter what to crush not just the stock but
stick with cramer. i'm going to s sre a photo of my e eo waffle when it pops up. that's so o teresting honey because i'm going to share a photo of my eggo waffle when it pops up. l'eggo my eggo l'eggo my eggo (answering machine) hey! leave a message. hi, i know you're there, 'cause i can see you. i'm calling you to tell you to l'eggo my eggo! anncr: some things are too delicious to share. golden crispy, warm and fluffy eggo waffles. l'eggo my eggo. choose to move freely. move free ultra has triple-action support for your joints, cartilage and bones in one tiny pill. move free ultra. get your move on. and now try move free night. the first and only 2-in-1
i've been on my feel all day. i'm bushed! yea me too. excuse me...coming through! ride the gel wave of comfort with dr. scholls massaging gel insoles. they're proven to give you comfort. which helps you feel more energized ...all day long. i want what he has. janet? cough if you can hear me. don't even think about it. i took mucinex dm for my phlegmy cough. yeah...but what about mike? it works on his cough too. cough! it works on his cough too. mucinex dm relieves wet and dry coughs for 12 hours. let's end this. (cell phone rings) where are you? well the squirrels are back in the attic. mom? your dad won't call an exterminator... can i call you back, mom? he says it's personal this time... if you're a mom, you call at the worst time. it's what you do. if you want to save fifteen percent or more on car insurance, you switch to geico. it's what you do.
time. it's morphed, so to speak. it is about longer term investing and not trading. if you watch any time in the last five years, you know. that howevererknowing how to trade certainly can make you a better investors. trading around the core position is one of the most basic and useful disciplines out in. many people asasd me about whether what i do mean by? ininarkets like this onenefter very big considered runsnsince we had 2009, it does help to trade around. what does it mean to trade around a core position? first you need a stock. pick one you like, one you have an opinion on. one you have a bias and really want to buy as it goes down. finding a stock that you believe will be going higher over the long term is what matters even as you accept the fact it could
great company with a stock that could get tossed around by market volatility but you believe will get higher if you're patient. if you were just in vesting and sets up a position in the stock, buying in increments because we all know that buying all at once is arrogance and that's not going to be allowed on "mad money." use google as an example. i like that stock very much. over the long term will i tell you that i like it because it's very volatile short term. let's sasayou want to own 100 0 shares of google over time. the way to set up that position is buy 25 shares four times over a period of weeks, or even months. that is the core position as an investor. say you want to trade. i know many of you want to but you feel discouraged because you remember how all that amateur day traders, member the day traders that got blown out whether the tech bubble burst? the key word is amateur. you gamers can make money trading if you do it right like a professional. in the old days, whether commissions were higher, that wasn't true. commissions would eat at your profits. so let's come back to the core long term position strategy. you own 100 shares of google and
share. every time the stock jumps 25 points or 5%, if you want to trade around position to preserve capital, you might want to sell 25 shares. you shave a little off to bring in some profits much once google reaches $5$5, you own 75 shares.s. you keep scaling out the same y although always i love the stock. i like to keep that last 25 shares. then you wait until something happens to knock the stock down to where you bought it as long as the news is in specific to google, thereby damaging their prospect. we're in a world that they can get crushed by factorsrshat have thing to do with thehe fundamenenls, you buy it back in incremenen. since we started with 100 shares, keep using increments of 25. if they come back from -- to $500 from $575, you buy 25 shares. that's if you sold to 50, not just 25 on the way up. take the winnings this way and help buy 25 more if it keeps going lower. you only got to swell 25 before
this might appear to be small potatoes, up 5% to sell 25%, down where you started 25 shares and repeat the process on the way back. up r over time, profits add up. you don't have to do anything. you can just hold it. th is fine with me. people ask a aut what trading around the core position, is that's what it's aut. they say trading is exciti, but if you're good at trading around a core position, it's right to be bored. there is nothing exciting about the plan i laid out. all you're doing is watching the stock, trichling up or adding to your position. trading around a core position is really the how to have a prudent portfoliliadjustment. boring is, good exexting, save it for the stadium. this works best with stocks at lower prices where you can buy more stock and have more room to buy more. but i want to show you that it can even work with google with a $500 stock. even if you own a stock and you like it, you don't need to do anything. this is in response to many questions in twitter about how i used to trade e ether i was at
core. you can scale the numbers depending on how big the position s the basic idea is to avoid putting your snefl a spot where you have too much on the table in case the stock gets swatted down or two little on the table to take advantage of any upside that comes your way. trading around a core position is an important basic trading strategy that you can use evev those of you who find the notion investing to be boring. if you take the trade together there are two chapters on options in getting back to even for the strategy i used in my old hedge fund. i used to think the options to action that some of the material is too sophisticated. i no longer think. that you have to put in extra home work. if you have the time, it's more thth worth the effort, the stock i used to demonstrate it happens to be google, and you can see how my strategy wlaf i call stock replacement and getting back to even works better with options than with the common stock.
risky way to creating a google at a more reasonable dollala amount price that currently sells at. this stuff is hard. i'm reactsing to the requests i get all the time@on twitter, many want to know about the ongss strategy. you can't use options for action owners, so i'm old time on this stuff. they're all there for you to use. by the way, if you don't understand options at all let alone the strategies i lay out in getting back to even, in my firsthand d ok "real money", that's a compilation of what i taught people that work at my hedge funneled, i have what an option is. bottom line. now you know the basics of how to trade around a core position if you're so inclined. get another method to my madness, one that allows you to generate lots of small gains that add up over time. don't need to do it, but now you know how. stay with cramer. if you're approaching 65, now's the time to get your ducks in a row. to learn about medicare, and the options you have. you see, medicare doesn't cover everything -
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i got one more trick to teach you. one more method to my madness. this time i want to talk selling. sell, sell, sell. which along with whether you buy, what price you buy may be most important and undervalued tool. how do you know whether to sell a hot stock? how do you get out before the party ends so that you're not one of the last people around who gets stuck cleaning up the mess? this is a question that needs to be answered because there's a lot of money to be made owning hot stocks with lots of momentum. you have to know when it's time to leave the table. eventually the naysayers are always proven right sooner or later virtually all hot stocks implode except for the ones that
into multiple business streams. this topping process happened big in recenyears with stocks as diverse as chipotle or the cloud or smaller biotech stocks. it usually occurs later rather than sooner. the negative talking heads that kept you out of the stock actually cost you great opportunity to make money. people shy away from the stocks because they don't know where they're going to top out. that's understandable. i'i'ab frayed to buy thetoo, i didn't have a disblin that let me know whether to get out. lucky for you i do have one. d you're about to learn it. first, when i'm talking about hot stocks, i mean hot speculative stocks, stocks in companies with low market capitalizations. usually the stocks begin with very little research covers from the major wall street brokerage houses. they can goup for a very long time. they can catch fire and stay on fire for years without sponsorship. when interest peaked and time to sell is watch the analyst coverage rolling out. you have to use your own judgment.
discovered and has a half dozen analysts covering it, then the run is going to begin to peter out, not get stronger. because it is going to be too big and too well known to continue to go up the way it has. it's the rare stock that doesn't behave this way. you can find out how many guys are on a stock by looking at it anywhere on the internet. this isn't hard to find information. this formula worked for me for as long as i can remember. as far as i can tell, it works because the number of analyst onz a stock is how much interest there is in a name. and names don't get high followed and pushed by everybody. ey got hot because they get discovered by everybody. hot stocks get tapped out. when there's nobody left to be attracted to them. when all the people who would be interesting in buying them have already bought. they came out of nowhere, tracting more and more attention, more and more backers and eventually everyone who wants a piece of the stock has a piece of it. when that happens, the run is over, people, and then you must ring the rister and go home. let me give e u a great example, hanson natural, the old monster
that was the old name. one of the hottest stocks in 2004 and 2005. split adjusted, they went from $18 and change to beginning of 2005 to$200. the whole way up people wewe tellininthat you hanson, a bevera company that got the momentum from the monster energy drink was a fad h to dry out. had to crash. well, it did do that, but as often as the case, it took years for the momentum to run out, not days, not months, not weeks, years. i called the top in hanson back then. i know how the stocks work. it peaked in july of 2006. this was in part because of the fwakt that the company did a five fororne split. even though splits with not supposed to do anything this encouraged people that had were in hanson to take something off the table. i'll tell one or two shares. there was another reason i believed it would peak, and that was it picked up the fourth analyst may 10th of 2006 when goldman sachs started covering it. you had two months to sell
initiation and the stock's peak. there was still upupde left after goldman sachs started the coverage. prudence dictated thate sell once the stock had four analysts on it. better to clear t early with the winnings than to wait for them to fade away. hanson, was pretty much all of the other stocks, hot stocks started to cool off once it that critical massive analyst coverage. incredibly, after hanson fell off the radar screen, people stopped talk bigt and analyst coverage dwindled again and then ultimately coca-cola bought a huge stake in the equity which sent it up further. it was an mazing republican sons. again, a testament that whether analysts stop following a company or do sell on a base thas the company's earnings start percolating again, as was the case with monster that, can happen. it turns out that the fad drink ended up helped the bigger soda brands.
gained, the stock, once so many analyst covered it, it peaked. they dropped it, it bottom. bottom line, small speculative scheming hot momentum stocks are worth ownini. you must know whether to sell. that moment comes when you see too many analysts jumping on the band wagon. use four as a good rule of thumb knowing whether to start selling. stay with cramer. >> we're here to make the very best product in the world that enrich people's lives. >> every t te we raise the value for shareholder, we raise value for our people. >> it's not about making money, fwz serving customers. the resultltou is make money. >> mad money, invest in what matters. but with my back pain i couldn't sleep... so i couldn't get up in time. then i found aleve pm. aleve pm is the only one to combine a sleep aid plus the 12 hour pain relieving strength of aleve.
you got to get some tweets you've been sending me @jimcramer. the first tweet is looking to use technicals more, what are resources you recommend for technical analysis and indicators for the novice. i get most of it from realmoney.com. that is something i did in get rich carefully, pick the best technicianu who explain what these terms mean and then show you th in action and that's what i did in that book. next, tweet from @redsquare27. if i'm trading my roth, should i have my money in an index fund, stocks or both?
that is not the case with 401(k) which is why i like the ira option so much more. next, @haulgthal. i watch you daily for over ten years. daily. u are awesome. you helped massive amounts of people. thank you. i cannot tell you there are so many people who come up to me and they apologize that they want to tell me that they like the show. excuse me, jim, i don't want to bother you, i like the show. no, when you say excuse me, you usually think you're about to , boom. don't excuse yourselel i'm absolutely thrilled that you say you like the show. it means the world to me. i sometimes figure what the heck do i come out here every night for other than the fact that you like it. @clearbaffles. okay. please discuss balance between adding to a position and selling cost basis or cost average. i like the lower the basis by
stock goes down, i buy. then as the stock goes up, i like to selt higher basis, market. i run a traveler trust. but i typically what i'm trying to do is lower the basis as an owner. why i do want to lower the base basis? i don't like chasing and i like buying at a discount. i get a company that i like at a cheaper price than i got it before. the funneled. als are still good. next, you have more followers than wyoming has people. i like your stock advice better, too. wyoming has more oil than i have. wyoming wins. i have a long list of research companies i like to invest in but don't have money for all of them. how do i narrow the list? this is easy. what you got to do is figure out, okay, which of the best at which levels? if you like them all, try to figure out what level would be
buy something? and then stick by it. once stock is coming down, people run from the levels instead of to them. stay with cramer. stay with cramer. degree gave women a motion-activated wristband to understand how much they move,... and created degree with motionsense. the world's first antiperspirant activated by movement, it has unique microcapsules that break with friction to release bursts of freshness all day. keeping you fresher with every move. motionsense.
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it's wednesday, february th, coming up on "early today," the republicans are feeling the pressure as the clock winds closer to the south carolina show down. and president obama lays out a bold plan to nominate his successor to the supreme court while taki direct aim at donald trump. a rare moment of pope francis losing his cool and d e reasononhy as he greets the faithful. plus incredible images of a driver going straight into wicked tornado. and a world class athlete shares her darkest hour. and meet c.j. he beat out more than 3,000 dog fweez names it be named best in show. "early todod" starts right now.w. closingngnon the southth