>> karen was voted ms. likely to be a bad ass. and that was correct. >> >> yep. >> spr. i think the bottom is in, melissa. >> all right, thank you for watching "fast money." we'll see you back here tomorrow at 5:00. meantime, don't go anywhere. "mad money" with jim cramer starts right now. starts right now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you a little money. my job is not just to entertain, but to put it all in context so, call me at 1-800-743-cnbc newsom or tweet me @jimcramer. i am constantly on this show telling you that discipline always trumps conviction. i tell it to you over and over and over again.

in other words, no matter how much you may love a stock, if the rules say sell -- >> sell, sell, sell! >> -- you sell it. one thing i've learned from my investing crew, no matter how much you might believe in something, you violate the rules of the road at your own peril. that's why we obey them religiously with the charitable trust, and they've become our core guide for the cnbc investing club, which i want you to be in. where the heck do the rules come from? it's not like they were hand down from high. the five commandments from the history of the world part one. they're not like the laws of physics, the way markets works, that you can induce gravity. no. the rules come from my experience. that's right. from my experience. i spent over 40 years in this business. and in that time you better believe i've learned some powerful lessons. in many cases i did have to learn them the hard way. and because i don't want you to repeat my mistakes, because i want you to have the benefit of my whole career, tonight i'm

going lay out some of most important rules for investing, and they are indeed timeless. some of this stuff may seem basic, but again, you forget the rules at your own peril. back in my old hedge fund, i occasionally convinced myself to make an exception, to ignore my discipline just this once. for some reason this seemed compelling at the time. and whenever i broke my own rules, i almost always got burned. it's like that old joke about the doctor. the guy who goes to the doctor and says hey, doc, doc, listen to me. it hurts when i stretch out and shake my hand around. to which the doctor says then don't do that anymore. so what exactly should you be doing or not doing as the case may be? let's take down my most important rules for investors. we're going to start with the first one, which is bulls make money. bears make money. pigs, well, they get slaughtered. look, i say this all the time because so often in my business,

i've seen moments where stocks went up and up and up so much that people were intoxicated. thought they were geniuses. however, it's precisely at that point of intoxication that you remind yourself that you don't want to act like a pig. this phrase in the old trading desk, an amazing old fund. i'd been having some big run and they would tell me i'd made a lot of money, perhaps too much money, and maybe i was being a pig. i had no idea what he was talking about. how do you make too much money? i was grateful i caught major gain. not that long after, we got a vicious sell-off. and i gave back everything i made and then some. [ crying ] and that's why i enshrine the bulls make money, bears make money, pigs get slaughtered thesis as one of my own rules. and it's now so deeply ingrained that i got a barnyard full of sound effect to tell the whole story. the bull, the bear, the pig.

bulls don't have a monopoly. the same idea applies to investors who apply taggressivey on the short side. other than the dot com bust in 2000 and 2009, most stocks bounced back pretty darn quickly. even the fed induced meltdown at the beginning of 2021, you had to turn positive by 2022. if you pushed your luck too long, you got sent to the slaughterhouse. so the question, how do you know when you, yourself are being a pig? look, there is no such thing as stupid questions, only stupid answers. but honestly, you don't need me to fell you when you're being a pig. the nasdaq more than doubled. if you didn't feel greedy up there, you didn't need investment, you need a psychiatrist. if you let your winners ride, you gave a lot, if not all the money back. financial question was even more stark. if you are walking around owning

a huge amount of stock in 2008 as the banks started dropping like fly, well, you were beyond piggish. [ booing ] why is this rule so important? simple. one of my chief goals is to help you stay in the game. that's the hardest part of investing is holding on through the difficult periods, taking short-term pay so you can add long-term gains, which is what happened to the stock market for a century. the people that wiped out in 2022 are the dot com collapse before they tended to be the ones who never took anything off the table. they never felt greedy. and their piggishness, well, they never felt it. so they got slaughtered. being cautious and ringing the register near the top ended up keeping you notice it's near. catching the ultimate top is so impossible. just catching near the top is great. that's why i remind people every day, have you taken any profits? or are you being a pig. you never know when the stocks you own are going to crash. you never know when the market could be wiped out. you can't have certainty. stock market doesn't let you

have certainty. if you assume stocks will keep going up forever in a straight line, well, you are in for -- >> the house of pain! >> everyone would own stocks if that were the case. we know they dent because it's so risky. sure there be times when the stock is going up and up and up. they keep going. when i coined the term faang, i loved them all. but i did give up on amazon after an incredible run. i was trying to be disciplined yet they continued to move up another 50%. i did feel like a pig after the successfully run, but i felt like felt like a fool. you've had the feeling. you know what it's like. that's just the price you have to pay for following the rules. i had been a pig, but the pig kept running. it didn't get slaughtered. fortunately we got back in amazon for the charitable trust. and then president trump bashed it for ripping off the post office. you remember that? probably even don't. but it was torture to watch it

go up and terrific to get back in. for every huge pile of cash that gets left on the table with a situation like amazon, the kind of which had if you had left everything on the table in 2008, or 2021. experiencing two generation of investors against stocks and hopefully trying to preserve the last one. never forget, bulls make money, bears make money, but pigs, no. pigs, yeah, you get it. and i'm going keep repeating it forever. i'm going use the sound effects because it is just that important. how about rule number two? this is one that people -- i see them on the street. everyone everyone asks if they've made some sales. it's okay to pay the taxes. look, no one ever likes paying taxes. i don't, you don't. but like death, taxes are inevitable and unavoidable. yet the aversion of paying taxes on stock market winnings often borders on the pathological. so many times people have gigantic gains, but they refuse to take any profits because they

don't want to incur taxes that cut into their winnings. never mind that capital gains rates are pretty darn low versus ordinary income. wall street is littered with investors who made this nice stake. several years ago i went to a presentation from a prominent hedge fund manager who recommended macy's. the stock had already run a great deal before the presentation and it was ripe for profit-taking regardless. but i know people who had owned it for years with hefty profits because they didn't want to write a check to uncle sam and they were thinking how much that real estate was worth. next macy saw its stock get cut in half, and it wasn't a two-for-one split. it hit a tipping point courtesy of competition from amazon, and the darn thing got obliterated. those who didn't want to share the profits with the irs ended up with no profits at all instead of hoping the stock would go to 100 because it had a lot of real estate. some gains are simply unsustainable. a profit on paper is not the same as a profit in your bank account.

gains can be ephemeral. you haven't made any money until you ring the register. the last thing you need is to be worrying about capital gains and taxes. when it's time to sell, sell. in short, stop fearing the tax man. start fearing the loss man. you won't regret it. the bottom line, remember my first two rules. bulls make money, bears make money, but pigs get slaughtered. don't be greedy. be disciplined. and don't be afraid to pay the tax man on profits you've earned. let's go to tiyler in californi. >> caller: how you doing, jim? >> well. how about you? >> caller: i am doing well. thank you, sir. i don't know how many times i sold the position and the next day or two watched it reverse. so i'd like to know when is a good time to just reevaluate and cut my losses. >> okay. i think this is a terrific question. don't feel bad. i obsess on the losses for the charitable trust. and i know, and i bother jeff marks endlessly.

we're down, no. what you do is try to look at it once a week, okay? just once. i don't want you to get down. you're going miss other opportunities. and what you're looking for is a change at the margin. it's something said on the quarter, on the quarterly conference call. you don't want to just get up in the morning and say you know what? i don't like the way that acts. i'm taking the loss. wait for something definitive. and if there is a bump up, don't be afraid to turn the position no matter what. how about robert in minnesota. robert? >> caller: hey, jim. thanks for taking my call. >> my pleasure. >> yeah, when i retired, my company let me keep my 401 in a time dated fund at the corporate rate which is very cheap, but it has limited choices. my question is should i switch it over to a managed fund with another company like fidelity or et cetera at a higher standard rate, but has more options? >> look, i'm a big favor of the s&p 500 as the index fund. i think that will be terrific. that's what my retirement is in. that's what your retirement

should be in. i think that will be fine. i love the diversification. remember my first two rules. bulls make money. bears make money. but pigs, they get slaughtered. don't be greedy. be disciplined. and don't be afraid to pay the tax man on profits you've earned. we love taking profits. coming up, from portfolio maintenance to learning how to do your homework, i'm hitting my investing rules that i think are the key to mastering this market. you don't want to miss them. so stay with cramer. don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an email to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

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♪ at the end of the day, if you only remember one thing about being an investor, that's it. nobody is perfect. everyone is fallible. it's inevitable mistakes. you need to follow a set of rules, rules designed to protect you from yourself, which brings me to my next commandment, and this is another important one. never buy all at once. i can't stress enough. do not under any circumstances buy your whole position at once. in is something you can see us put into practice constantly in the charitable trust. one more reason i think you should join the cnbc investing club. no one likes to fool around with partial orders. no financial adviser has time to buy stocks over time. the game is to get the trade done at one level and in a big way, make the statement boy.

boy do i hate statement buys. get position in the sheets or in the portfolio now. i don't like that either. where i stand, it's all wrong. 100% wrong. you should never buy all at once, and you should never sell all at once. stage your buys, work your orders, try to get the best price over time. why? when i first started as a professional money manager, i really wanted to prove to everyone how clever and smart i was and how right i would be. so if i felt like buys, say caterpillar, by god, i'll buy it now, big, all at once. make a statement. because i was so sure of how right i was. put me up on 50,000 cat, i'd scream, as if i were the smartest guy in the universe. when think back about that young cramer, mostly full head of hair, by the way, all i can say is i was one arrogant son of a gun. arrogant and wrong. if i'm going the buy 50,000 shares, you don't pick them all at once. that's pure hubris. what happens if it goes down? it might go down. never buy all at once. instead, i should have bought

cat in increments of say 5,000 shares gradually over time during that day, trying to get the best price i could. you put in a small position, cross your fingers, hope it goes down so you can buy more at a lower level to get a better cost basis. i don't mind when a stock goes down if i can buy more. i no longer say trade in size, as we used to call it, but we still do. but i still invest my charitable trust. and whenever we have a new name we buy in small increments, say 500 shares at a time to get say a 2,000 share position over the course of multiple days. preferably, again, at lower prices. we like it if our stocks go down to get a better stock basis. we lay out the numbers to the club. when you buy all at once, you're declaring the stock won't go lower. that's crazy. nobody has that kind of insight all the time. buying gradually in stages is about recognizing that our judgment is fallible. so why don't more people do it my way? why don't investors this f they want 500 shares in exxonmobil

decide to buy in 100 share increments? they want to be big too. they don't want to waste your broker's time. i know why brokers hate it when my old hedge fund would place incremental orders. but it's hubris to place a net chunk of your net worth into one stock ought al once. at the same time, many others simply want to pull the trigger on the whole position and then get it over with. they don't want to agonize over each increment. that's why you need to resist making a statement buy when you purchase a stock. i've bought and sold billions of shares of stock in my time. both for my old hedge fund and charitable trust. you know how i got in the absolute bottom, how often the last price i paid was the lowest and then off to the races? maybe one trade in 100. and i'm pretty good. resist the arrogance. buy slowly. even buy over a couple of days if you have to, as i do for the charitable trust. humility beats hubris every time. next rule. i need you to buy damaged

stocks, not damaged companies. let's say the mall is having sale and you pick up piece of merchandise only to find out it's broken when you get home. maybe it doesn't work. maybe there is a hole in it. in the real world, you can return that merchandise and get your money back. there are guarantees and warranties galore on main street. wall street is different. if you buy a stock that turns out to be a defective company, yeah, it ain't the losses. there is no money-back guarantee. caveat emptor. that's why i don't is to be careful to distinguish between broken stocks and broken companies, which absolutely deserve to see their stocks trade lower. sometimes damaged companies can be easier to discern. when nearly everyone got the covid vaccinations, all sorts of covid winners fell by the wayside. many got obliterated because a big chunk of the business would disappear as we knew would happen. take the company that took the world by storm during the pandemic, the very name became a verb. we would zoom, just like we

google. but once we got quality vaccines, the growth opportunity evaporated and the company struggled to use all the money it made during the pandemic to pivot. it had a huge cash position. very tough to go up against microsoft and google and cisco. zoom punched from 588 at its all-time high down to the mid-70s less than two years later. there were points on the way down that people assume it had to be a bargain. but every time they did, they got burned. because you can't call a bottom in a stock that is in free fall if the business is changing and getting slower. we saw something similar with the financial tech stocks that had roared during the period of ultra low interest rates that coincide with the pandemic. lots of buying and i'll pay later. once the fed warned it would start rapidly raising rates, the whole business model was called into question and the group was annihilated. the worst was upstart. they started leaving many of the loans on the balance sheet as

the fed caused rates to skyrocket. the stock plummeted from just over 400 at late 2021 peak, down to the low teens less than a few years later. on the other hand, sometimes a stock will sell off for reasons that have nothing do to do with the underlying company. it could be caused by problems overseas or washington worries. just because a stock is down doesn't mean there is significant wrong with the underlying business. damaged stock, not damaged company. how do you dish between a broken company and broken stock? complicated question. what i like to do is develop a list of stocks i like very much. i call this the bullpen of my investing club charitable trust portfolio. we give you the bullpen all the time. when wall street throws a sale with the whole market comes down, we use that as an opportunity to pick up the stocks on our list made in a calm no trading versus the battlefield when the market is open. we know these stocks ahead of time. so we know there is nothing wrong with the underlying companies because we've done the research ahead. but the bottom line is, you never really know. that's why this rule works in

tandem with the last one. never buy a position all at once, because what you think is really a damaged stock might turn out to be a damaged company. if you take your time, you're much less likely to end up with a large quantity of broken merchandise. and remember, there is no money-back guarantee. the word on the street is caveat emptor. "mad money" is back.

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you later in life? why even bother? of course, that's a terrible attitude. as a parent, i always encouraged my kids to study, because you never know what you'll turn out to be interesting later in life. i bring this up because many of you have the same attitude of the homework you need to do on your stocks. you suspect it might be just as irrelevant to your portfolio as school work seemed to my kids. when i tell people that they need to listen to the let's say starbucks conference call or know what the analysts are expecting from netflix, they don't hear it. they think i'm being a scold. but that's not true. you need to do the work if you're going to own those kinds of stocks. when i remind people doing the work means listening to the conference calls and reading reports, they want no part of it. they look as me as some sort of old-fashioned teacher who is asking for way too much in this business 21st century world. that's just plain wrong. owning stocks without doing the proper research frankly is lunacy. but people still do it. and they do it for a couple of different reasons. on the one hand, there is the buy and hold school of thought, the idea that you don't need to

do any work, you don't have to keep track of what's happening in the company because hey, you're in it for the long haul. so what. on the other hand you have people who don't have the time to be diligent, for those of you who don't have the time, i have a simple solution. get someone else to manage your money. or do whatever most experts invest in a low cost s&p 500 index fund. or find someone else to help you do the homework while teaching you to be your own portfolio manager, which is what we do with the cnbc investing club. and i still urge members to do as much homework as they can. if you can't devote a couple of hours a week to your portfolio, you really shouldn't be messing around with individual stocks unless you join the investing club, which is what we're meant for. investing may not be a full-time job like trading, but it's a part time hobby. it's a buy and hold premises that's a lot more pernicious. back during the 1990s, buy and hold became the be all end all in investing. you know what? i'm going buy and hold on to my cmgi because it's got to go back to 100 where i got it.

netflix told you if you hold things for the long-term, everything would work out. of course to zero. this philosophy took a real blow during the financial crisis when people who practice buy and hold got obliterated. >> that was easy. >> the house of pain! >> buy and hold became popular. it keeps popping up when there is a nice smooth period. when the market was flooded with cheap money, buy, buy, buy. once again, it got you burned when the fed finally started tightening in 2022. a and the whaep money vanished. a lot of people got crushed because there was nothing worth holding. that was a travesty, the spacs. what is the homework? before you buy a stock you should listen to conference calls. go to the company's website. i really like that. i start with that lately. read the research if you can get ahold of the research. read the news stories. that's called google. everything is available on the web, everything. you have so much more info available now. so much more knowledge that there is really no excuse.

you're up there at the goldman sachs library for some mike feature statement from three months ago as i did four decades ago right down the block here. you have everything right at your fingertips. but if you fall back on a buy-hold strategy for any group of stocks and don't pay attention, i can assure you that you'll be soundly beaten by professional money managers with good track records who are actively searching for high quality stocks all the time. one more point. i'm quite sure an index can fund anybody who doesn't know. give up on individual stocks and put your funds in a cheap s&p 500 index fund. i'm in favor of index funds for those who don't have the time or the predilection. the next rule is i harp on constantly, diversify and diversify and diversify. always be diversified. that controls risk. and managing risk is really the holy grail of this business. what's the biggest risk throughout? it's called sector risk. stocks in the same industry, they tend to trade together, especially in extreme moments. in the old days, only about 50% of the action in a given sector,

any given stock came down to the sector. but thanks to sector etfs, that number has gotten much, much higher. some cases 80, 90%. i don't care how great a stock was in 2000. if you had all your eggs in one basket, you got skrcrambled. the oils in 2014 through 2016 and tac during a discreet period that was so horrible. there is only one thing that can keep you from getting nailed by sector risk, and that is diversification. i always say diversification is the only free lunch in this business. >> hallelujah! >> it's the only concept that works for everyone. if you mix up enough different sec no, sir your portfolio, at least five, i tell you, you won't be wiped out when the one group gets obliterated, something that happens far more often than you might think. but if diversification is such a no-brainer, if every adviser has been saying it for years, how can you be under diversified? i think it come backs to the

homework. a lot of people don't know, they don't understand what the companies do. so they end up with stocks that are very similar. i mean, they don't understand that one is disrupt and another is semiconductors. it drives me crazy. you know what also, others have zero respect for the history of the bear and how it attacks individual sectors. i still field quite a few calls from people that generally think that owning faang is a diversified strategy. hardly. with facebook, amazon, you own variation of the same things, social, mobile, cloud, they trade together. that's what i caught faux diversification. no matter how much i like the oil stocks, i can't see pioneer, chevron and halliburton. i always say no to a portfolio of j&j, eli lilly, even as i like all companies, they leave you have to a health care risk that could overwhelm the group all at once.

having an undiversified portfolio is not just an amateur mistake. many professionals don't like to be diversified because of the bizarre way money management works. if you concentrate in one sector and that sector takes off, you beat everybody. this is the nature of the business, even though i think it's ill founded. it's why cathie wood of ark invest could be the best for 2020 and the worst in 2022. her flagship arc innovation went almost all in on high-risk growth stocks. that's not diversified. and those stocks, they tend to trade as a group. but that one huge year in 2020 made her a household name. and once you're a household name, you do get it made in this business. don't get me wrong. cathie wood is great at picking higher growth risk stocks. i just want you to be a wear when you go all in on a diversified portfolio, it is likely to blow up in your face a couple of times in a few years' time. here is the bottom line. whether you're an amateur or professional, you always need to do your homework and keep your

portfolio diversified. this is the kind of routine maintenance that keeps you from monster losses down the line. remember, if you can keep your losses to a minimum and let your gains run, you almost always come out ahead. but don't try to rationalize those losses because stocks don't always come back to even, or anywhere near that. let's go to trey in texas. trey? >> caller: jim, the second greatest investor of all time, warren buffett says individual investors like me should just buy the s&p. my question for you is what does the greatest investor of all time think we should buy? >> well, first, i'm no warren buffett. i'm a tv guy who tries to do his best to teach you. but i thank you for that. here's what i have to say. i think it depends on your time and predilection. i think you put away your first 10,000 in an index fund. if you like picking stocks, let's do it well together. join cnbc investing club. if you don't like picking stocks, let someone else do it for you. but if you want to be involved,

i will help teach you to be a good investor. i can do that. i've done it for a very long time, and fortunately i've been successful. anne in indiana, ann? >> caller: hi, thanks for taking my call. >> you're quite welcome. what's up? >> caller: i'm a club member, but i've been thinking about this lately, and i wondered if you could talk more about suspending our judgment and letting the market take a step up, even when a ceo does something they said they're not going to do or a company makes a bunch of mistakes, but they have very little competition, or a ceo makes big mistakes but things take a long time to fix. >> well, this is a tough one, anne. because i made this mistake. i've stuck with people for too long. i keep thinking give them another try. almost every case it hasn't been worth it. almost every single case. including situations i'm in now. all right. whether you're an amateur or professional, you always need to do your homework and keep your

portfolio diversified. there is much more ahead. i'm putting my four decades of experience to work, sharing the key rules we follow for the cnbc investing club. think of it as a glimpse behind the curtain if you're not a member. so stay with cramer. join the cnbc investing club with jim cramer. >> it's helped me become a better investor, and helped me become a better financial planner. >> the place to be is the club! >> join the cnbc investing club with jim cramer. go to cnbc.com/investingclub now. hey you, with the small business... ...whoa... you've got all kinds of bright ideas,

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i don't want to go all zen in the art of portfolio maintenance on you, but when it comes to managing your own money, you're often your own worst enemy. don't take it personally. i'm my own worst enemy too. if you want to invest wisely, you constantly seem to be fighting off your own worst impulses. we're not robots. we have emotions and they can really throw you off your game. which brings me to my next rule for investing. nobody ever made a dime by

panicking. panic is not a strategy, and people do it constantly. a stock gets hammered, then investors sell. >> -- sell, sell, sell! >> the market gets crushed in a huge down day, people bail at the end of the day. something gets annihilated and people can't take the pain. so what do they do? they bolt. >> the house of pain! >> there is something instinctive about panic, wanting to flee. if you're a stone age hunter who stumbles into a family of grizzly bears, panic is a very helpful strategy, but it's not useful emotion when you're investing in the stock market. the truth is there will almost always be a better time to sell than whatever moment inspired you to panic in the first place. don't i know it. remember the spring of 2020 when everything shut down. the s&p 500 lost a third of its value in a little over a month. and for months after, almost everybody in the business was convinced the world was ending. that april, legendary market historian larry williams gave us the all clear. he was looking at other countries and realized we'd

mostly be out of lockdown by mid-may. he told you to buy into the teeth of the panic. >> buy, buy, buy! >> not flee with the panicers. sure enough, new highs again by summer. and once the vaccines came along, the market never looked back. [ bell ringing ]. >> the next time there is a big market wide sell-off and you feel like fleeing and never touching a stock again, i want you do something for me. i want you to take the opposite side of your own trade. the most rewarding trades you can make are those where the decks have been cleared out by terrified folks using market orders who don't just get that the exit doors aren't as big as they think they are. mind you, i am absolutely not saying every stock that gets hit with a panic sell is worth buying for the long-term. oftentimes people freak out with good reason. i am saying after a big decline, you usually get some kind of bounce, which gives you a better moment to sell if that's what you want to do. even when things are really bad, bargain hunters will usually take it up from its lows, and

that's when you get out. so the next time you want to dump everything, take a deep breath and wait for the rebound before you sell. speaking of hideous down days, i have another one that will help you handle big declines. ready? when the stock market gets unrelentingly negative, he who defends everything defends nothing. it was when frederick the great said that centuries ago, and it's just as true now. so he who defends everything defends nothing. what exactly does he mean? it's about how you evaluate your holdings. when the market is flying and many stocks are in bull mode, you don't need to worry about most of your positions. the more exposure to a bull market, well, let's just say the better. hallelujah! but when things get difficult, when you're on a defensive you need to recognize that many of the stocks you bought during better times might not fit this new environment. in short, when the economy is slowing, if you try to defend all your positions in a market that turns against you, that's a recipe for getting blown out.

[ gunshot ] when i say defend, you can't treat a declining market like it's a buying opportunity of every single stock in your portfolio. if you do that, you'll quickly run out of capital, leaving you unprepared to buy more if we go lower still, and we usually do. yep, when the market gets negative, you need to get more selective and focus your efforts. that's why i rang k all my stoc for investing club next. one i buy right now, two in a week, and threes are sells. >> sell, sell, sell! >> sometimes some strength, but if you can get out, it's good. that why way i know which ones to sell and which ones to cut and run with and use that source of capital for something better. so let's they say a tech stock is getting hammered, but you it's going to rebound. it's important that you don't try to hang on to the whole complex. pick the best tech stocks, the ones you want the buy on a

weakness and toss out the rest. use the new cash reserves to buy the higher quality tech companies at lower prices. that's right. the nonessentials, the ones that have no catalyst and you only owned because you wanted exposure to a bull market, they get the heave-ho immediately when things turn bad. >> sell, sell, sell! >> we used to call this circling the wagons around your best names in my old hedge fund. the first times you do it you'll curse yourself because you might be putting down stocks you've loved for quite some time. but eventually you'll realize how valuable this process is because it can protect you from a lot of painful. >> the house of pain! >> i never try to baltimore than a few losing names at once. >> don't buy, don't buy, don't buy, it's don't buy! >> remember, you have to take a lot of stocks that are going against you, it will wear you down. it's exactly what it's going to do. making it more likely that you'll crack under pressure and dump everything near the bottom. it's simply human nature. but you have to fight human nature tooth and nail, hammer

and tongs. the bottom line, great investors know how to ignore their emotions when the emotions get in the way of making money. the next time if market gets slammed, please don't panic. nobody ever made a dime by panicking, but don't double down your whole portfolio in a week. vicious negative markets can give you buying opportunities, but you need to focus your capital on your absolute favorites, rather than chasing bargains and third-rate merchandise that actually deserve to trade lower. "mad money" is back after the break.

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welcome back to tonight's check yourself before you wreck yourself edition of "mad money." i'm a big believer in the idea that once you get some money saved up, you are in control of your own financial destiny. that also means you need to be very careful. you're the one with the most power to derail your financial future. look, risk will always be part of the investing gig. i want to do my best to make sure you don't make the same mistakes twice or three times or endlessly. that's why i have rules. rules that protect you from the kind of mistakes i used to make when i was young and inexperienced. the same rules we preach constantly in the cnbc investing club. rules like don't own too many stocks. back in my hedge fund, i would spend three hours every day analyzing the mistakes from the day before. i'm not kidding. one reason i retired, at least for my well-being. that was a major task, one i would complete every morning between 4:00 a.m. and 7:00 a.m. some people are night owls.

i'm an early morning owl. i would analyze every losing trade. you don't need to analyze the winners. they take care of themselves. how i could have made more money or lost less money. i was maniacal about it. after a couple of years, i had an epiphany. i realized that group performance could be linked to directly having fewer positions, owning fewer stocks. in short, when we own fewer stocks, we tended to make more money. that's why ever since i won't buy a stock without taking a different one off the table, even for my charitable trust, which is the only way i can play these days. yet don't just buy shares in more and more companies. you need to limit your holdings. that's a great discipline, and you should adopt it pronto. all the bad money managers know have hundreds. all the good manage verse a few names, and they know inside and out those names. which means they can confidently buy them on the way down.

that's why i say please don't own too many stocks. you end up selling stocks for stocks have aren't as good. it happens. hindsight is 2020. but take it from me. as someone who on the other hand stocks over 40 years, it's far more likely you'll be selling marginal companies in order to get better, bigger and better stocks. that's thou make a portfolio really work for you. hey, by the way, the time i lost the most money as a hedge fund manager on my sheets, my position sheets were thick as a brick. when i made the most money, my sheets were, well, one speed of paper, double spaced, and i made hundreds of millions of dollars. please remember, when you're a pro or an amateur, it's always possible to have too many positions. rule of thumb, if you're just investing for yourself and you own more than ten stocks, you should probably pare something back. you can have too many stocks, but you know what it's hard to have too much of? cash. which brings you to my next rule. cash is for winners.

the weiss man version of cash breaks my heart. at times it drives me crazy how so few people recommend it. nah, they hate the markets so they're only 95% long instead of 100. they think the market stinks. they decide a few high-flyers against their longs. no no. no that is absolutely the wrong way to approach things. you don't like the market? then sell stocks. as many as you want, and then raise some cash. put it in cash. the don't buy putt options on the cash you own or stocks to short your position. that's the stuff, it's just too hard for you. the odds do not favor you winning on both the short and the long. it's a strategy whose goal is mediocrity. but if you can raise some cash and put it to work at lower levels, that's the best way to protect yourself against a lousy market. let me tell you a little story. i was one of the biggest options traders on the wall street for a time. when i bought put options to hedge my business, i almost

always lost money. when did i make money? when i bought put options to profit from low quality companies with shortfalls. or stocks that seemed severely overvalued versus the fundamentals. if you just like the market you don't need to turn yourself into a perez toll hedge against downward business. go into cash which is short-term treasuries of the less than year variety. people start talking about how little cash earns, although it's a lot more lucrative when the fed is tightening. or they say it can't be in cash. that's for losers. no. that's just plain wrong. i say cash is for winners, especially if you think is there a major disaster ahead, and i don't care what interest you earn on that cash. i grew up in a different time. i only shorted stocks when i had an edge. i can't short it all right now by contract, not even for the charity aable trust. i don't care about not having enough exposure. i care about losing money. i was an exception in the money management business. that was my focus. so if you don't like the market, if you think there is nothing compelling to buy in a weakness,

then just raise cash. go sit on the sidelines and wait for the situation to improve. believe me, it's never the wrong call when you can't find anything that truly makes sense for you. the bottom line, always be careful not to own too many stocks. and not to have too little cash. stick with cramer. boo-yah, jim. i love you, man! i've been watching you from day one. >> thank you for all the wonderful buys tyou provide us. >> watch your program every day. love it. >> i always wanted the say boo-yah on your show. >> thank you for being the greatest in the world. we consider you the money market maker, and we thank you for all you do. >> i love your show. >> we think it's the most entertaining program on tv.

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♪ i always say my favorite part of the show is answering questions directly from you. tonight i'm bringing in jeff morris, my portfolio analyst, partner crime to help answer some of your most burning questions because you usually have some tough ones. for those of you part of the investing club, jeff will need no introduction. for those of you who aren't, i hope you will be soon. i would say that jeff's insight and our back and forth help me to do a great job for "mad money" as well as members of the

club. jeff agnd i do this sort of things at our monthly meetings and answer your burning questions. if you would like this to be something to keep up, i need you to join the club. and thank you the people who stop me on the street who love the club. it means the world to me. let's starts with a question from michael, my home state of pennsylvania. what do you think about dividend reinvestment strategies? jeff, one of the first things i learned and taught at goldman sachs, it's one of the great free lunches of our business. you just keep letting it ride. and i have seen in my lifetime the dramatic amount of money you make from the dividend reinvestment. >> absolutely. that's how you take advantage of the power of compounding, by reinvesting those dividends quarter after quarter. now unless you need the income, of course, depending where you are in your life, that may be a reason not to. but always reinvest. and it works for high dividend stocks like a consumer package goods stock or tech stocks too that often a dividend.

it's a good thing to have. it's another way to color cost average. >> yes. i remember going over this with my late father where he was adamant, take the money and run. i tried to show him and managed to convince him, no, take the money and be back in, reinvest. now we're taking a question from john in california who asked what are your source of information related to stocks in the overall market and economy, sources that you go to daily. all right, well, look, i make no bones about it. we have all the research in the world. and it's one of the great things, the luck that we have is we get everybody's research. and i tend to let that control things. as by the way when i do the mad dash and talk about what may be the most research calls of the day. so we're blessed with that. >> yeah, absolutely. but on a daily basis, you can also read annual reports that companies put out, investor presentations, transcripts if you can get your hands on them, not only for quarters, but all the conferences that are happening every single month. >> really important to look at those, particularly after a quarter. i have to tell you, i more and

more have started at the website of the company, for the companies i don't no. i would rather go to the research. because research may have a snapshot summary. but you need more than that to understand things. now let's go to nino in maryland, who asked is there a p multiple that we won't buy above in each sector? well, this is really tricky, because when you're in tech, we have to use outyears. so for instance, nvidia, if i had discipline and said i wouldn't pay more than 20 times earnings, i would have been kept out of nvidia for a decade. because nvidia is about future earnings. >> you also have to look at a company's growth rate. it's all relative p/e, so you can compare the growth rates relative to multiples. i don't think there is one that would keep me out. but you can't look at a low multiple and say that's a good bargain because sometimes there is value traps. they're a low multiple for a reason. it could have declining earnings or might be another issue fundamentally in the company.

>> that's a great point. when people look at the automobile stocks, they historically have very low multiples and trade on dividends. they haven't really got the growth of a tesla. so thank you, jeff. i always like to say there is a bull market somewhere. i promise to try to find it for you right here on "mad money." i'm jim cramer. see you next time. \s right now, "last call", when will this end? house speaker crisis got even more chaotic, we'll go live to capitol hill for the breaking developments. we're going to talk more about tesla, the earnings for tesla. there we go. the numbers are coming out. they are out. there's new on the cybertruck. we're going to have that for a you. plus offshore -- just put it on me. we're going to talk. offshore -- guys, this is last night's show -- that's the start of "last call." this is what happens, folks. i'm bria