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tv   Mad Money  NBC  February 17, 2016 3:00am-4:00am EST

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"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 bueducate 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 wouldn't be watching. 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?
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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 the question 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 of the high, obviously have something going for them. that is true when the market is in bad shape. only the best of the best can hit new highs when the market is falling apart. 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,
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often keep going higher because it'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 over again. they hit new high after new high 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 than 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."
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stocks. that would be the foolishness. i'm saying that if you want to identify stocks that will be winners in the future, unless there 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 going the way they're going. 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
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called "mad money" for nothing. but you know what? when you're looking for stocks to invest in and hunting for the bull market like i always do here, looking at the new high list is typical. i don't just pluck names because i think they're going to keep going up. that is lazy and irresponsible. i have a lot of things, a lot of them are negative. ladzy and irresponsible? i don't know. anyone that sees my insane tweets knows, yes that, is tweeting. 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
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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 important one for those trying to get started. pouring over the new high list is a fabulous way to 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
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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 get hurt with the courter. don't buy a big independent oil stock whether it goes down for three straight days. that probably doesn't belong on the new high list. look for a stock that has bristol-myers like strength. almost nothing has to do with bristol-myers. make sure you're dealing with a damaged stock and not a company
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how do you tell the difference? 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 up the new high list, the next stock is no longer a candidate. the story has to be intact or this method will 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
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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. some of my best picks have come out of this process. it's my getting to work shopping list. hopefully some of yours can, too. let's start with arzella in ohio. >> caller: hi, jim. boo-yah to you. >> boo-yah right back. >> caller: i'm trying to get a and i'd like to know are they a >> well, you know what? i have to tell you, here's the problem. a lot of people have 401(k)s funds. stocks. for that, they are. international, 50 -- i'm going to go 50% growth. balanced situation maybe a fund that has some bonds. you have to depend on your
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mutual funds are fine. records in morning star. stewart in florida. >> caller: jim, what is the best time to use stop orders after you purchase a position? that. actively, we have to pay attention it to. we're going to invest. we don't need stop orders. the market can be down 10% in a fwlash day. it bounces right back. we don't play it that way. we invest on "mad money." we're not traders. we invest. all right. there is a methed to this madness. look for stocks that pulled back from new highs, especially 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."
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tweet cramer, #madtweets. send him an e-mail or give us a call at 1-800-743-cnbc.
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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 earlier i was talking about picking off stocks that have pulled back from the new high 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 patient and wait for weakness, maybe down 5%, 7%. given how volatile the market is, there are very few occasions where buying a stock right off the new high list or that close 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
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if you want to buy 100 shares of stock, you think it has so much mojo it won't get a pull back, then buy 25 shares. worst that happens, it goes higher, you don't get to buy more and you grab a quick profit. there is always 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 thing to see happen. but in 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. that's a great sign of confidence that they think the vun just beginning or there is a big runway ahead. and they are sure that it's long lasting. remember, you can't flip a stock if you're an insider buyer. you have to wait six months. government takes await gains. it's the law. these people are seeing things that they like that aren't going to disappear in six months. normally insider buying ranges from being meaningless to a
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insufficient 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. than it is. that said, when you get truly colossal insider buy, you may stock in question. when the insiders buy a whole lot of stock. it's really the volume of the insider buying that declares the sincerity. but we're only focusing on one sort of insider buying, stocks 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.
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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, and mall banks. 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
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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 because they hear the footsteps. maybe they've 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 could be broken up. like the old tyco or fortune brands. maybe you see them create value themselves. because they recognize how much better the company will be 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
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insider buying after decent runs tells me they don't think there will be a pullback and there is nothing more bullish than. that sure i want to wait for a pullback 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. bob in new york, bob? >> caller: jim, steeler boo-yah to you. >> steelers from new york. all right. why not? what's up? >> caller: jim, i have a question about interest rates. when the fed raises interest rates, good companies with attractive dividend yields sud lyn rapidly go out of favor. can you add some clarity to why? >> because people extrapolate there, bob. once they see rates go up, they fear they're going 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
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>> you can'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. of my madness, when you see insider fwhig a stock that already had a big run, think to here, too. after the break, i'll try to
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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. they're proven to give you comfort. which helps you feel more energized ...all day long. i want what he has.
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it's a new fiber supplement that helps support regularity and includes b vitamins to help convert food to energy. mmmmm, these are good! nice work, phillips! the tasty side of fiber, from phillips'. man (sternly): where do you think you're going? mr. mucus: to work, with you. it's taco tuesday. man: you're not coming. i took mucinex to help get rid of my mucusy congestion. i'm good all day. [announcer:] mucinex keeps working. not 4, not 6, but 12 hours.
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you're in luck.
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night. i'm not going home to sip that cheap scotch on my dirty floor. by the way, i have to apologize to dewers. i wouldn't suggest it was the linolium scotch of choice. it is actually good stuff. have you had 18-year-old jamiesons? don't waste that one. 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 that could be incredible useful. better than give me some stock 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 trust where i play with an open hand,
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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 believe there is a -- could be a good 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. what i'm teaching you to night are what i call tells. that's right, they're tells. they're signals that a stock might be worth owning. it's worth your time and effort 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
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short position. meaning, a lot of people out there are borrowed shares, sold the shares, and are now waiting for the stock to go lower before they buy back the shares. return them to the bank they borrowed them from and collect the difference they sold at first and the price they bought the stock back later, hopefully they 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. wall street speak for buying a stock, because when you're 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 good news, we get what is called a short squeeze. and it sounds exactly what it is.
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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 bite stock. a lot of 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 themselves or coca-cola with 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
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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. the shorts panic, push the 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 situation where management is contradicting the shorts. companies often repurchase their own shares and why not all buy backs are bullish, some 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.
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the stock. now a note caution. you have to be very careful whether dealing with a company in the cross hairs the shorts when people are nervous and the market is in bad shape. shorts have the ability to wreck the stock. even if the fundamentals are fantastic. these days the shorts have more firepower than ever thanks to an sec that under both democrats 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 sell short stock. that was a good rule. 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
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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 came back with aggressive negativity in and again after manufacture the big runs in the last few years this times using weapons of mass destruction like double and 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
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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. and that means they have to pay the dividends to the real owners. that's a terrific deterrent from those pernicious in the way they go about shorting. when you see a stock with a big dividend 5:00 tacked by shorts and dividend is going higher, a terrific place to be, especially if they're snapping up stocks inside, too. insider buying plus heavy short interest can equal 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.
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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 as long as i manage things well, i'm in good shape. >> good. >> caller: my concern right now is an allocation. i have about 65% right now allocated in stocks, split about half way between what i follow you with and the other half in index funds. >> okay. remainder is split between bond funds and cash. you know, the cash fluctuates up and down. >> sure. just like we teach you in "action alerts." then. >> caller: thank you.
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you're doing exactly what i like number criticisms of anything i that all right. trying to spot a raging buy? 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 to crush not just the stock but the business itself. stick with cramer. i'm going to share a photo of my eggo waffle when it pops up. that's so interesting 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.
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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 joint and sleep supplement. 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.
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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. where are you? it's very loud there.
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i'm all about trading. i don't have any advice ready for regular investors. this show has adjusted over 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 however, knowing how to trade certainly can make you a better investors.
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useful disciplines out in. many people asked me about whether what i do mean by? in markets like this one after very big considered runs since 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 long term is what matters even as you accept the fact it could what you really looking for is a great company with a stock that could get tossed around by market volatility but you believe will get higher if if you were just in vesting and sets up a position in the stock, buying in increments because we is arrogance and that's not money." use google as an example. i like that stock very much. over the long term will i tell
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very volatile short term. let's say you want to own 100 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. long term position strategy. you own 100 shares of google and let's say it's trading at $500 a 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 $525, you own 75 shares. you keep scaling out the same stock. i like to keep that last 25
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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 factors that have nothing to do with the fundamentals, you buy it back in increments. 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 the swoon. 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. that is fine with me. people ask about what trading around the core position, is that's what it's about. they say trading is exciting, but if you're good at trading around a core position, it's right to be bored.
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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 portfolio adjustment. boring is, good exciting, 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 whether i was at my hedge fund, trading around a 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 even
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of trading as opposed to investing to be boring. if you take the trade together next level, then i recommend 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 than 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. it's like a keeper and less risky way to creating a google at a more reasonable dollar 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 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
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in getting back to even, in my firsthand book "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 - only about 80% of your part b medical expenses. the rest is up to you. so if 65 is around the corner, think about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, they help cover some of what medicare doesn't pay. and could save you in out-of-pocket medical costs. so don't wait.
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and gather the information now to help you choose a plan later. these types of plans let you pick any doctor or hospital that takes medicare patients. and there's a range of plans to choose from, depending on you needs and your budget. so if you're turning 65 soon, call now and get started. because the time to think about tomorrow...is today.
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i got one more trick to teach you.
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selling. sell, sell, sell. buy, what price you buy may be most important and undervalued how do you know whether to sell how do you get out before the party ends so that you're not one of the last people around mess? be answered because there's a lot of money to be made owning 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 over time are able to develop into multiple business streams. this topping process happened big in recent years 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
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that's understandable. i'd ab frayed to buy them too, if i didn't have a disblin that let me know whether to get out. lucky for you i do have one. and 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. once of the hot stocks gets 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.
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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. they 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 register and go home. let me give you a great example, hanson natural, the old monster beverage. 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 were telling that you hanson, a beverage company that got the momentum from the monster energy
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had to crash. well, it did do that, but as 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 for one 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 between goldman sachs's initiation and the stock's peak. there was still upside left after goldman sachs started the coverage. prudence dictated that we sell once the stock had four analysts on it. better to clear out 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.
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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. again as analyst coverage 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 owning. 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
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stay with cramer. >> we're here to make the very best product in the world that enrich people's lives. >> every time we raise the value for shareholder, we raise value for our people. >> it's not about making money, fwz serving customers. the result you 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. and now... i'm back.
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@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 technicians who explain what these terms mean and then show you them 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? stocks, my friend. 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. you 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
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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 yourself. 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 selling -- what i do is as the 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
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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 the one where you really want to buy something? and then stick by it. once stock is coming down, people run from the levels instead of to them.
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>> there is always a bull market some. where i promise to find it just for you right here on "mad money." i'm jim cramer. i'll see you next time. lights, camera, grammys. undercut your success or take credit for your accomplishments. >> did that play well? did taylor land her kanye
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on the flip side, the whole story behind that, of a friend she beat. who had the great perform performance of the night? we have so much you didn't see. and wait till you hear where adele went to shrug off those audio issues. >> i want a full spin of this. look at this. >> a lot of risk takers working that red carpet. we break down the best and a few of the rest. kendrick lamar had the performance everyone is talking b taylor gave the speech everyone is talking about. welcome to "access hollywood." it all came when kanye called taylor the "b" word and took credit for her success.
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