Mad Money w/ Jim Cramer 10/22/26

0:00With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

0:39and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. My mission is simple, to make you money. I'm here to level the playing field for all investors. There's always a low market somewhere and I promise to help you find it. Mad Money starts now. Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Oh, if you want to make friends, I'm just trying to make you some money. My job is not just to entertain, but to educate and teach you.

1:21So call me at 1-800-743-CNBC or tweet me at Jim Cramer. Whenever you're listening to anyone's investing advice, you need to consider the source. And ideally, you want to know where that person is coming from. That's why tonight I'm going to tell you exactly who I am and how I got here. No, not the standard introduction. I'm Jim Cramer, host of Mad Money, co-host of Squawk, and the street chief of the CBC Investing Club. But what I want to do tonight in an extremely special show by even my wacky standards is trace the arc that brought me to Mad Money. Not for some autobiographical ego trip, but to give you some money-making lessons from the phases of my various careers.

1:59And explain, of course, how you can profit from. Remember, in the end, this is Kramerica, and everything we do here is about trying to help you make money. In short, I'm giving you the Invest a Kramer guidebook. I'm going to call that the skinny on how I learned to be a good investor and how I continue to learn every day so I can help you become better than I ever. I want you to be better than I ever want to be. By the way, that's our mission in the investing club, too. Let's start real early. My love of stocks didn't begin after law school or college or even high school. No, my love for stocks started back in fourth grade.

2:27That's right, fourth grade. You see, my dad would bring home the old Philadelphia Bulletin. Boy, that brings, about a long time ago that was. At that point, the Philadelphia Bulletin was one of the largest newspapers in the country. He'd have it when he came back from work every night and give it to me. I wanted the comics and the sports. I was a ridiculous Phillies fan back then. I still am. It's a lifelong affliction, I guess, although I have pivoted hard toward the Eagles. I was also a curious kid. Curiosity's always been both a blessing and a curse for me. Not unlike the proverbial cat that's always probing, looking, and occasionally jumping on some hot stoves.

2:57Anyway, there was always this solid chunk of the paper that seemed impenetrable to me. The business section. It was impenetrable because it had these giant lists and names of an agate type that seemed to go on forever. There were the other tables, different from the batting averages tables and box scores I'd scrutinize with regularity. When I read them from left to right, they made no sense to me whatsoever. Open, range, close? I mean, what's open? What range? What closed? What were these strange things? Why did they matter? I asked my dad, who I knew dabbled in the stock market, because occasionally I hear him get mad when he heard prices that were mentioned on the radio.

3:32In particular, he always seemed to get angry when I heard something called national video and how it went out. I don't know what video did other than go out and why it went out. I don't know if Pop did either, though. But I know it made him furious. I wanted to know why. So he sat me down one day and explained that each of those lines represented the performance of a stock at a company on a different day. The open was where the stock opened in the morning. The range was how low and high it traded during the day. And the close was what it was worth at the end of the day. That fascinated me. I mean, how could there be so many companies, and why the heck did they trade in ranges?

4:06He told me that each day, people tried very hard to figure out which stocks would go up in value, and they wanted to buy them so they could make money from those moves. Frankly, this struck me as downright silly. I told him that when I looked at the baseball tables, I was always trying to figure out who was hot, who'd go up on average, who'd go down, and what it'd mean for the teams I liked, specifically, of course, the Phillies. He said it was pretty much the same thing with stocks. You studied the companies like you studied the players. Some players were doing it just okay. Some were hot as a pistol.

4:30and, of course, others were just plain duds. I told him I wanted to figure out the stock market, too. I wanted to figure out which stocks would go higher, just like everybody else. I wanted to know if I could learn something from just following the ranges and reading the tables. He said, why don't you try? It seemed in my house the radio was always on until Pop put the TV on in time for dinner. We always watched the news while eating, even as I admit I hated it because most of the news was about the war, and that meant the Vietnam War, and it really seemed to be going well at all. But right after the world news on the radio or TV, they always mentioned Dow Jones Industrial Averages.

5:04And they either talked about or showed the most active stocks then, the ones that had done best or worst. National video, pop stock was off from the worst list. And that's why I guess my dad was so angry. So what I did was write down the names that I heard, and I tracked them. Kept them in a ledger I still have. What a terrific game it was, trying to figure out the next move of a stock, not a player. Even as, oh, I really knew it was the name. Most of them were defense stocks, and they went up a lot in tandem with the war. After a year, I decided that was such a cool game that I wanted to introduce it to my fifth grade class.

5:35And so I did, going in, show and tell with the Philadelphia Bolden, showing them the ledger, inviting them to play to see who could find stocks that would end up the most during the week. Meals to say, not everyone was into it, but the darndest thing happened not long after. My dad's company at the time, National Gift Wrap and Box Company, represented 3M, then known as the Minnesota Mining and Manufacturing Company in the Philadelphia area. He sold tape and sashim. That was a fancy ribbon that bowed easily. Remember there was a time when you had to make your own bows? Triple M, as we called it, was always innovative, coming with new product lines, which it still does.

6:08These days it's also plagued, unfortunately, by major litigation issues. Right about fifth grade, Pop came home with a new line of 3M products he was selling. Games! That's right. They got into what was known as 3M bookshelf games. He said, perhaps I might want to learn more about the stock market. And he had two games that he was selling well about business. One was Acquire, about takeovers, and the other was stocks and bonds. I always cry when a good friend bought me this recently. I love that game so much. And at one point, I even asked the old CEO of 3M, bring the games back. Apparently, I don't have the rights anymore.

6:40But the point of mentioning all this from my own mix of stock game to stocks and bonds is the stocks are fascinating enough to get your kids started on them right now. And I'm urging you to do just that. It's easier than ever. Pick some stocks, maybe some stocks of companies that your kids are familiar with. Then have them track those and guess which will do best over time. So here's the bottom line. The bottom line, at least in my childhood stock market obsession, get them started early and they may play for life. Because, alas, the stock market, it's a long term contest. The earlier you get in, the more you can potentially win over the long haul.

7:17Let's go to Dave in California, please. Dave. Hey, Jim, thanks for taking my call. Of course. What's up, Dave? Jim, I'm an older retired investor who's moving most of my stock portfolio gains into T-bonds and CDs. What are the advantages of bond ladders and how do those work? I want you to stay short. No reason to go out in the long end. And you can just keep reinvesting like that. But I also want I'm not sure of your age, but I always want people to remember that I think you don't want to bet against yourself and put too much money in bonds. because stocks still represent the greatest opportunity.

7:51And don't forget, utility stocks, they can play a role, too. They could have multiple years of goodness. Let's go to Philip in Michigan, please. Philip. Booyah, Jim. What's up, Philip? Hey, I wanted to thank you. I've been listening to your show since 2006. One of my co-workers turned me on to the show, and you've made me all sorts of mad money. Oh, fantastic. Thank you for that. Thank you. I'm also a member of the C &D Reinvestment Club, so I enjoyed tuning in to you every day and listening to you there as well. Okay. My question is, so I know that you refer to dividend reinvestment as the eighth one of the world, and I'm totally there with you.

8:35All right. My specific question is, should I involve myself in my brokerage DIP program, or should I take the cash and then put it back to work in a stock? No, I am a huge dividend reinvestment plan person. And as a matter of fact, I wish there weren't an alternative. But for my chapel trust, I have to send the dividends out. And it has really hurt my long-term performance. You can't, you've got to reinvest them. That's where some big money can be made. One of the biggest things I learned from getting interested in the stock market early is that it is a long-term contest. The earlier you get in, the more you can potentially win over the long haul.

9:11On Mad Money Tonight, I'm giving you an inside look at how I got to where I am today, from growing up to Goldman Sachs. From the way, you'll learn the best practices I learned about the market and how you can incorporate these life lessons yourself. So, stay with Kramer. Don't miss a second of Mad Money. Follow at Jim Kramer on X. Have a question? Tweet Kramer. Hashtag Mad Mentions. Send Jim an email to madmoneyatcnbc.com or give us a call at 1-800-743-CNBC. Miss something? Head to madmoney.cnbc.com.

9:52Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases.

10:35That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discovery.com slash 5 for details. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

11:23Welcome back to a bizarrely special, Mad Buddy, where I'm teaching you life lessons in investing from my wife. While I'm not a dollar sign represented by a man or a stock symbol, for that matter, ticker J-I-M, I've stumbled around the stock market long enough to learn a thing or two. So tonight, you're getting some of the wisdom from the School of Hard Knocks that I've enrolled in and passed. Don't you always love it at the beginning of a pro football game where they had the player say his name in a school and some say School of Hard Knocks? Well, that's what I intended when it comes to stocks, and you are getting the made-for-TV version right here, right now.

11:55For law school, I went to Harvard, though. We covered how I first got involved in the market, my fourth-grade obsession with keeping a ledger to track stocks, and then ultimately learned how they trade through the greatest game on Earth. No, not Monopoly, but Socks and Vots, with its little certificates, its game board, and its cards about news that would set a stock higher or lower. I loved that game. I left the stock market games behind by the time I got to middle school, which we called junior high back then, where my obsession became sports. I was the second fastest guy in the school forever.

12:23So I ran track, and then, of course, girls, who my teenage self found far more mystifying than the market. Maybe still do. Anyway, that's the subject of a different show entirely. However, my father did ingrain in me the desire to save money. Early on, I learned that even in high school, I saved us at bus tables at the old Block & Cleaver, which, of course, we called the Block & Cleavage because we were really funny, and we were at the height of adolescent humor. I'd say more working as a vendor at the old veteran stadium, selling first cold soda, then ice cold. That's how I did it. Hey, ice cold.

12:55I got ice cold soda here. Then only graduating to sell an ice cream. Hey, I got ice cream, vanilla and chocolate. Very quickly, I learned the value of market power, specifically cornering the market. And I paid people to give me the exclusive right to sell ice cream. Hey, ice cream here on the 600 and then on the 700th level, which I own by keeping everybody else out of it. Can you imagine how much money can be made if you had the only franchise, the whole upper deck? Well, at least it's the upper upper deck. Even for a team of horrible safilies with one almost no games. I made fortunes, except the one time they gave me strawberry ice cream.

13:25Talk about having to run from a customer after you sold them that stuff. Or when Steve Carlton pitched because Lefty was on the mound. He got parted out so fast that I got stuck to unsold ice cream. I had all this strawberry. You can't take it home real bad. You had to buy it from the company before selling it, so I'd take a beating whenever Carlton was on the mound. That's a business lesson. Talk about learning how business really works. the shelf life of ice cream on a hot July night after the ninth inning is about as short as short can be. By the way, during the lightning round, I might jest with you about your name, calling you, hey, Skipper, hey, Captain, how you doing?

13:55Chief. I learned these names at the ballpark. It's what people called me to get my attention, to buy ice cream. Hey, Chief. And frankly, I loved it and its bizarre intimacy and I never forgot the monikers, bud, I mean partner, and that's why I use those terms on my money. Anyway, I made a ton of money at the advice of my father. I opened an account of Fidelity with the Magellan Fund. I contribute a little every week. It was the top top for mutual fund of its time run by the great Peter Lynch, who's written two investment books, one up on Wall Street and Beating the Street, still available on Amazon.

14:23They are fabulous. Get them. I didn't save enough when I got to college. The money paid was work study anyway, and it went toward my tuition and ruined board. But when I got out of college and after multiple attempts to get a job in the newspaper business, I was rejected by 57 papers. I still have the rejections. I say to everyone, I hate everybody who rejected me. Never mind. I landed position as a general sign reporter in Tallinn. The Democrat making$150 a week. $150 a week was not a lot to really kind of. Well, anyway, I still got a tattered pay stub. I've got it in an old wallet to remind me of how hard it was when I got started.

14:55Nevertheless, you know what? I still saved. I put a few dollars away when I could. A few dollars. I mean, like maybe$4. Not that long after that, I applied and got a job at the now defunct Los Angeles Harvard Examiner. That was a horrible job, paying$179 a week. But as you can imagine, Los Angeles is more expensive than Tallahassee. Soon after my sojourn began in Los Angeles, I found this terrific bungalow apartment in what was known as the Fairfax District, right near Canter's. Pretty sketchy around the corner from Pioneer Chicken, which was way too expensive for me to go to. A few weeks later, I was stalked.

15:24My place was broken into repeatedly, something the cops were helpless to stop. At the same time, I was assigned a story in San Diego, a horrible shooting. And when I returned, everything was gone. everything, everything I had, including my checkbook, which, of course, was cleaned out. So it began my terrible but thrilling six months of living in my car, basically trying to get by. While my ultimate goal was to save enough to get an apartment, I was living hand-to-mouth, and people would take me in now and then so I could get a shower. That's really, it's really important when you live in a car to get that shower, or maybe even a good night's sleep.

15:55But you know what? I never quit saving. I remember cashing my paycheck every other week and then writing a check yes to Fidelity Evangelion Fund for what I could afford. You only have your ghastly car insurance and food expenses if you're living in your car. Turing's saving on homeowners insurance, by the way, which was very expensive back then. News to say it was unsustainable. When I only came down with mononucleidosis and then the attendant joined a sliver, yellow spot about the size of Greenland, you know, and those Mercado projectors on my stomach, I had no health care. The HMO my newspaper belonged to.

16:24I had no branch where I was at last station when the company mercifully put me on the road so I could at least submit some expenses for my day to day. So I had to go to a migrant farm workers clinic to get fixed up. And I still put money away. Even then, even as I was making my weekly trips to the doctor, was one of the best I've ever had. But the upshot of investing is this is a challenge. The whole story is a challenge. And this is what it is. If I was living in my car and I invested, I never want to hear that you didn't see. Never. That's why I went through this. Amazing. With the Magellan fund back then, I was giving money to the best stock picker of all time.

16:59Fast forward 35 years later, I ended up taking advantage of one of the greatest bull markets in history. Magellan money ultimately amounted to a fund well into the six figures, not because of my additional contributions, which, remember, only just a few dollars a month, but purely from capital appreciation and the power of compounding. I never touched it, still have it. I just let it build. I think the takeaway here is that I want you to save, no matter what the excuse. Obviously, the earlier the better, through thick and thin. Listen, when CNBC has those all-star managers on, keep your ear open.

17:30If you don't have enough money or handle the time to own a stock portfolio, you can only own one or two stocks. Send the money in, as little as money as you can, to an index fund, to one of these big mutual funds. If you need help managing your own portfolio, join the investing club. I think that's the best way to go. And here's the real bottom line. If I could still send those checks to the Fidelity Magellan Fund when I was living in my car, sleeping in the back, Jack Daniels and a hatchet and then ultimately a yes pistol sick as a dog joint a sliver. Then what's your excuse for not getting started?

18:01You can put some money away, too. That's the way I was living. They have money back. Coming up, take a trip down memory lane. The hair is gone, but the wisdom tolls on. Stick with Kramer.

18:17Hey, Jim, your mission has been very successful in our family. I listen to your show multiple times a week for investing knowledge. I just want to say thanks. I love your show. Thanks for always looking out for the world back. A huge thank you for all you've done to make me a better investor. I got to call Kramer because I can't make a move without this guy. I want to make people better investors. If they make money, fantastic. Let's go to work. Thank you.

19:11Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discovery.com slash five for details.

20:08Market Update podcast or find Schwab Market Update wherever you get your podcasts.

20:22We're riding the magical money mystery tour tonight. I'm giving you the life lessons I've learned the hard way through decades of investing. Right now, I want to tell you how I got started in individual stock picking, something you know I love and still believe in, even after multiple periods of pain, chaos, and chicanery. Presumably you believe too, or else you wouldn't be watching. If you're picking stocks, playing with real money, not just with a ledger or with a game of stocks and bonds, you need to open an account. When I got started in 1979, there was no such thing as an online account. I had my money with Fidelity, courtesy of my Magellan Fund account, so I chose to put my individual stock account there too.

20:56When I first began, I didn't know where to look for ideas, so I turned to a magazine I liked, Forbes. Now, people at Forbes, please don't take this personally, but I read a nifty article about American agronomics, a terrific orange grower in Florida. It seemed so compelling that I bought 10 shares of it for$9. Week later, Frost hit, wiped out the crop, and my investment was more than cut in half. Like the plot of Trading Places, an all-time great Eddie Murphy movie, if you've ever seen it. Well, what can I say? Pretty similar. I was devastated but not defeated. I sold it out, took the capital, and bought seven shares of Bobby Brooks, a clothing outfit I'd heard of, which, again, Forbes said could be a terrific buy.

21:29Almost immediately, the company reported a bad quarter, and my money had to get. Fortunately, I had a decent job in a magazine called American Water, which had just started. I was making 20 G's and living in a less than swank studio on 44th Street between 1st and 2nd, near the United Nations. The cheap$400 a month rent allowed me to replenish my stock coffers pretty quickly. I was on the road quite a bit back then, and after a particularly hard night on the town researching a story in Kentucky, I fell in love with the breakfast at Bob Evans Farms. Finding out that it was publicly traded when I went back, I visited that huge, fabulous midtown Manhattan, New York public library, You know, the ones with the big lines in front of it and devoured everything I could find about Bob Evans.

22:05They had magazines with articles, micro-fresh of four-month-old financials, investment publications, with write-ups that allowed me to compare Bob Evans with other companies in the industry, which is what you have to do. I knew I had a good one, so I bought 20 shares. Stock went up immediately on a good quarter, a stock split, and I figured out the first good component of investing. Know what you own. What did I know about growing oranges with American agronomics? I mean, who knew? Did I know any about women's fashion? I mean, certainly not me. But a good plate of scrambled eggs and sauces you have to harden down on the table.

22:31Well, that served in an attractive setting, good service, nice enough growth, a big plan to expand the Midwest. That was for me. Next up, SPS Technologies. That's the old standard press steel, an outfit from my old hometown that made fasteners, screws for airplanes, something that Hal Met now dominates. Why SPS? Because a buddy of mine from high school catching up with me told me that they were hiring like mad if I was looking for a job, paying good money. Well, I already had a job, but back to the library for more research. Solid company, no debt, but nothing in print about its hiring push. Wow, ripe for a treat.

23:02SPS doubled not long after, and I caught the bug for good. 23 years later, it would be acquired by Precision Cashports, the preeminent supplier to aircraft builders around the globe, before PCP went on to sell itself to Berkshire Hathaway in 2016. Good bloodlines. So now I'm figuring it out. The best investment ideas come from what you know, melded with information gleaned from public sources, even if they're as late and as hard to access as taking a surreptitious trip to the New York Public Library when I was supposed to be working. I didn't like the random way I was making money. A friend from home's lucky call about jobs available at SPS Technologies.

23:32A hearty breakfast at Bob Evans Farms. I mean, I figured that'd be a more rigorous approach, right? And then it hit me. Look around at work, stupid. At the time, I was covering mergers and acquisitions. Looking at the lawyers who do the deals, profiling some. Following the deals they were on. It seemed like every other deal was in the oil patch. One after another, smaller to mid-sized oil companies were being acquired, and all I was doing was standing around writing about them. So I went back to the library, took out some editions of a thing called Value Line, Stock Research Magazine, and check out the pages devoted to oil companies.

24:01Then I cross-referenced them with other research to find out which ones could be acquired without problems, either because they were publicly traded without a family owning them, or because they seemed to be fit to size, the parameters of so many other deals. So I started on this thing called Natomas, an oil company with a real gusher in Indonesia. Oh, I didn't have long to wait. Kerr McGee struck. Bought them. I must have my money. Another lesson learned. Went and bought takeovers by companies that would do well on their own. Natomas was, but it was under managed, which was the consensus I found by reading the articles about the oil enterprise.

24:31That meant another oil company with bigger scale could do more with Natomas, which was cheaper than it should be if it simply got rid of the existing management. As much as I did some winners, though, I was distraught that I'd given up the ghost in those first few trades. At the time, I'd been hanging around the track on weekends, mostly Aqueduct nearby. And I learned how to handicap by reading the books of Andy Beyer, the legendary horse racing writer. He is something, OK? OK, buyers picking winners is among the best investing books ever written, even as it's betting on the ponies. It teaches discipline how to identify the best thoroughbreds to bet on, how to find the best long shots, going to the out of the way tracks where information was less well known, not betting really knowing on every horse in each race.

25:10Find the ones where the payoff was more sure and bet big. Cut your losses if you're having a bad run. Every one of these lessons can be applied to the stock market, right? I mean, you think you'd swing when you know what you're doing, particularly when others don't on a less well-known stock. Out of the way track. Don't just gamble on stocks for the excitement of it. That is foolish. Most important, be disciplined. Don't let your losses pile up. After five years of professional journalism, I decided to hang it up and go back to law school. The good news? I'd save enough money to pay for my first year on the stock market, as I never would have had enough money to cover the cost if I had just kept my money on a savings account.

25:40So here's the bottom line. You want to get started? Go small. Invest what you know. Research it intensely. Just research, research, research. Back then, I got old data from the Public Library. Now it's as simple as a keystroke and the information is free. including up-to-minute financials, analyst presentations, brokerage research, and, of course, the conference calls that I tell you are musts if you want to actually know what you're doing. Simple? No. Lucrative? You bet it is. Let's go to Michael in California, please. Michael. Yes, Jim. First of all, thanks for taking my call. Of course. I'll try and make this as quick as possible, because I know we've got a lot of people to help here.

26:14This has to concern my two children. I inherited recently quite a deal of money, not a million dollars, but a substantial amount. And I'm looking at a 20 to 30 year time frame here. I've been investing for them since the day they were born. They're doing all right, but I want them to leave them some good, good money. I'm thinking on the lines of Berkshire B. Now, this is putting all this money. A BRIC should be an ETF, a Vanguard ETF or some of that somewhere along those lines. What's your opinion? OK, I think that S &P 500 fund and the total return funds are both really good for that kind of situation.

26:57Vanguard is total return. The one thing I would caution is as much as I like Warren Buffett, I just think that you have to be you have to have a kind of a basket if you do one stock. But if you do the ones I just mentioned, you don't need a basket and you don't have to keep track of them every minute. By the way, if they're young enough, maybe you give them something that they actually want to spend some time learning about. And that could be good, too, to keep them invested and interested in their money. But thank you for those kind questions. And let's go to Loyal in Arkansas. Loyal. Yes, sir.

27:26How are you doing, Mr. Kramer? I'm doing well, Loyal. How about you? I'm doing all right. I want to know, getting back into the market with 11K, what's the best way to have a long-term goal but get a short-term return within a year or two on your investment? Well, you know, that's, it's too risky, frankly. At one time or another, I think in my earlier years, I would have suggested call options and then also some longer-term stocks and mutual funds. But these days, I'm just against the short-term stuff. I can't deliver, and I don't want to encourage trading. But thank you so much. I wish I could do better for you, but it's just not my thing.

28:11Trading thing's not my thing. Anyway, if you want to get started in stocks, go small. Invest in what you know and research intensely. The process may not be simple, but, boy, it can be lucrative. All right, much more Mad Moneyhead, including an inside look at what I learned from my time at Goldman Sachs. Plus, I'm taking your investing questions with my investing club colleague, Jeff Marks. So stay with Kramer. Coming up, how has investing changed since Cramer's hedge fund days? We count the ways, and the answer may surprise you. Next.

28:47Booyah! Jimmy Kill! Your wisdom in teaching has been amazing. You have a talent that is superior plus educational. Yours stands out as being one of the best. I can't help but say thanks for all the good years of teaching. You know, why your show is top around the world? It's because you do your homework. And that's why you make everybody money. You do your homework.

29:21Tonight's show is all about you learning from my attendance at what we call the University of Financial Hard Knocks with a major in investing. I've taken you through the importance of getting started early, saving no matter what. But I've shown you how to spot winners, avoid losers, state discipline, all through looking at my actual examples in my life. Now I want to give you a sense of how you can become a trader. Uh-oh, here we go, a good trader. And I don't normally recommend this. It's not the direction I like to take the show. Man, money has changed time and time again. And after the first few years, I've deliberately skewed it away from trading and trading ideas and much more toward long-term investing.

29:56And that's because there's so many more obstacles to trading than investing these days. When you're a trader, you have to watch your positions like a hawk during the day to the point where it's very hard to do your job and follow the market. There are so many people with such a great set of tools and the ability to access information real time. There are so many different products that allow hedge funds to move stocks around like toys. It's very hard to compete against them. You can't do the one on one, especially when you're doing it part time. But there's some advantages you have now that you sure didn't.

30:24When I started trading in my law school during back in 1981 and I was trading, not investing. First, commissions are nonexistent for home gamers, so you can get in and get out without much friction. Your broker doesn't even take a fee. Second, the information you need is on your personal computer or even your smartphone. Back in the day, I had to call brokers and watch the ticker on FNN. Precursor to CNBC, by the way. And third, trading is lightning fast. Back then, I didn't even know what price I paid for stock or when I bought it, market order, whatever. When I was in class, I had to use payphones and sell.

30:53You often had to wait at one payphone in the classroom building while some kid chatted endlessly and aimlessly to his girlfriend, Maybe some woman called her mom. At the time, though, I had to go with what I knew. I knew individual stocks for all the stories about Harvard Law School, including the movie Paper Chase. I can tell you there was tons of downtime at law school and terrific business school library that had a lot of sell side research. That's the stuff the brokers turned out, along with up to date micro fees quarterly reports. You probably don't know that for those who are too young to remember micro fees.

31:21They miniaturize everything to a little piece of film. And then you had to read it through a machine that was basically glorified microscope. All things considered, I possess the best publicly available information at the time for a student that you get in the early 80s. The first thing I decided to do, though, given the circumstances, was to work on finding one trading idea per week. My reasoning was pretty simple. You can't be all over the map if you're doing this as a hobby, even a time-intensive one. I figured I couldn't take a lot of chances until I really knew what I was doing. A very valuable lesson if you want to start trading.

31:49I discarded a ton of ideas looking for stocks that had catalysts, upcoming reports, or possible mergers, and stock that could rally based on the other parts of the newspaper. An article on the front page might be talking about some breakthrough in medicine. A brokerage report might discuss the potential for a new oil fund. I got on a roll when I started my first writing about the market. It was a newsletter called Mr. Bullish, which I made out only to my parents once a week since no one else cared about what I thought. And it clearly articulated a thesis behind any trade I did. I did not trade if I couldn't explain exactly what the company did and why I liked it and what would happen to the stock.

32:21What was the catalyst to buy? No buying of anything and didn't have a clear exit strategy from the moment I put the trade on. Again, an important lesson. Made disciplined by the insistence of written thesis before I pulled the trigger. When you trade, you've got to trade with confidence. Otherwise, you can easily be shaken out by the broader market. You want to trade with confidence? Well, ask yourself, would you be willing to put a stock recommendation on your voicemail? Yeah, we used to have those and update it every week. Well, at that point, it was a recorder. It was something like this for me.

32:51Hi, this is Jim Cramer. I'm not here right now, but I like monolithic memories at$32 ahead of the next quarter. Yeah, I actually did that. That's the level of conviction I had about my picks of the week. Of course, I was putting my money where my mouth was and managed to augment the winnings with work. I got from my old employer, American lawyer, along with some freelance work for The New York Times, and some legal work for a professor who moonlit it during doing these criminal defense cases. It's kind of a famous guy, but we won't go into that. It wasn't before long that a fellow by the name of Marty Perch, at that point the publisher for The New Republic, also a professor, a teacher at Harvard, tried to get me to write a piece.

33:24I neglected to call him back, so he inadvertently got three weeks' worth of trades for my answering machine, all successful, and he told me to meet him at a coffeehouse nearby. When I did, he said that he made more money for my answering machine than he had with years of professional money managers, and he wanted to give me a half million dollars to manage. I said I didn't think I was capable of handling that well. He said he had confidence in me, and shortly thereafter, when we were having a cup of coffee, he pulled out a check for a half million bucks. That was real money back then. I ran down to Fidelity with the money and set up an account and went right to work trading.

33:54Almost immediately, I lost a ton of it. And I could see how I might have to watch Digimon. He's asked me to mow his lawn for about like 100 years to make back the 70 G's. I'd just blown to smithereens. My mistake, as Clint Eastwood told us in that seminal moving magnum force, a man's got to know his own limitations. You see, you can't trade a huge chunk of money all at once. It's a total violation of all my weekly discipline, right? You can't put it all to work at once. You have to do some. You can only do that after you've done a huge amount of work. You had to have a chance to pan out an entry point.

34:24You had to come up with a reasonable entry point and an exit. In other words, you had to know how to trade. And I didn't. And I had no discipline. I had violated my own rules, and I blew it. I confessed my sins to Marty. He said, I said, please take the money back. Instead, he wanted me to have more money, betting that I'd learned my lesson. You know what? He was right. I reverted to my old style, trying to be right about one idea at a time. keeping the rest in cash, doing a huge amount of homework, going big when I had the most conviction, the way any good trader would. I slowly but surely made it back while I also paper invested a more active but not truly trading portfolio to get a better feel of things.

35:00That would become the beginning of my actual professional investing career. And we made a huge amount of money together. Don't mind saying that. So here's the bottom line. If you're trying to trade, make sure you have a catalyst, an exit point where something's supposed to happen, and then get out of the stock, even if the idea doesn't pan out. Because you're trading, not investing. You need conviction, and you have to ask yourself, would you be willing for the world to hear, hi, it's me, I'm not here right now. But I want you to take a big swing at Disney ahead of the analyst meeting. If you can do these things, start small.

35:32Give it a try. Net Money's back.

35:37Booyah for the Emperor of Cramerica. Honorable James J. Kramer. You got me jumping around my office right now. Thank you so much for all you do for us. I enjoy your show and I find you very entertaining and informative. I watched your first ever episode of Mad Money back in 2005, and I've been watching every single episode ever since. Don't miss Mad Money every night at 6 p.m. Eastern. Plus, join the CNBC Investing Club and stick with Kramer around the clock.

36:14Welcome back to this special edition of Mad Money, where I've been teaching you life lessons in investing from, well, my life. Now we're up to the professional grade when I started at Goldman Sachs. I've been courted by Goldman for three years before I got a job in what was then the security sales department, helping individuals and small institutions manage their money. I've got a ton of history from those years, and if you want to know more about it, I suggest you read Confessions of a Street Adder, my autobiography. But tonight's show, like every show, is about learning how to trade and invest.

36:44So I'll dispense with the anecdotes and try to teach you how to make money from the events that transpired from my time at Goldman. First, that's when I began understanding the process of actual money management. The ability to build a portfolio from the ground up. And I had the best teachers in the world. One of the great hedge fund managers of our time, Lee Coopman, he was the research director at Goldman. And he put on investing clinics almost daily. But you know who I learned the most from? My customers. Cheaply wealthy individuals from all walks of life. At Goldman, I learned something that to this day can't be understood by so many professionals in this business.

37:19Individuals can and do beat the market quite regularly. I have what's known as non-discretionary accounts, meaning that I wasn't allowed to invest anyone else's money with my own ideas unless I could win them over to make the purchase. Remember, I was on commission and made money only with the buys or sells I could convince people to act on. That's where I learned how important it was to talk over a story with an individual and be able to articulate it in a way that made sense to them. Can you do that to someone when you're picking a stock? You had to know your stuff. I often ask my clients questions about whether they knew enough about the stocks that they wanted to buy.

37:52I wanted them to be as educated as possible, too. That's because I knew that if the stock went up, it would be their idea, but if it went down, it would be mine. Hey, come on, that's human nature. What else did I learn? How about humility? It was at Goldman Sachs that I first figured out how humbling this business could be. The great 80s bull market had just started not long before I'd been hired. Almost all stocks had tremendous tailwinds. But when one of your ideas went against you, you had to get on the horn and explain either why the person should buy more or why they should cut their losses.

38:24I also learned to let your gains run while you cut those losses. I learned the hard way. Many of my clients were terrific business people who didn't really know that much about stocks. They've just been fabulous at running their own enterprises. I had a real cantankerous client, a real estate tycoon, who I worked hard to get, trying to win him over for ages. I told him I'd be judicious, work hard and get it right for him. He said he didn't want trades. He wanted long-term investments. At the time, I happened to like the stock of Kimberly Clark. I told him that I thought this one would be a terrific addition to his portfolio.

38:55He agreed, and I bought him 1 ,000 shares. Almost immediately, the stock went up eight points. Oh, I had a winner. So I called him. I said, Bob, I want to ring the register and sell the 1 ,000 shares of Kimberly Clark. I thought he would thank me, but he was furious at me. He told me that I had said that Kimberly would be a good long-term position, that it could have great gains over time, and that he wasn't the least bit interested in only making$8 ,000. Then he questioned my integrity and wanted to know if I was churning him a horrible charge, meaning I was just trying to generate commissions off his account.

39:28You know what? I was scorched. I was burned. But it taught me a terrific lesson. Just as you don't want to turn a trade into investment, because that's usually a sign that you're embracing a loss and trying to invent reasons to stick with it, you also don't want to turn an investment into a trade. When you have a good one, let it run, for heaven's sake. Bob was right. Kibble clock already doubled. And I was vindicated despite myself. Finally, I learned the science behind building a portfolio and understanding how to create long-term wealth. A lot of my business involved contacting people who just came into a great deal of cash, either through inheritance or through the sale of a business.

40:02I regarded my first job as listening to their needs, trying to figure out what they wanted. Were they conservative? Did they want capital preservation? Were they aggressive? Did they want capital appreciation? I tried to get them, I tried to get to know them and urged them to get to know themselves, just as you should know yourself. Can you handle the pain of a market decline? Would you prefer your money to appreciate slowly? You get most of it from fixed income, meaning bonds or from dividends. Do you want to participate in new issues? do you want to try to hit it out of the park with some of your capital?

40:31Of course, many of you are familiar with these lessons. I know that. You've heard me say them time and again on air, preaching them constantly to the CBC Investing Club. I try to teach you how to know yourself, to know what you can handle and what you can't. Finally, this is when I learned the value of diversification. When I first got to Goldman Sachs, the oils were hot as a pistol. I mean, you understand, those were different days. You can have oil companies double and then double again in a short time. As they struck oil, we figured out, wow, how big those fines must be. So everyone got caught up in the oils.

41:05The families I worked for wanted oils. I wanted oils for my personal account. Every day seemed like another great day in the oil patch. Services, drillers, you name it. Then one day, oil plummeted. The Saudis started pumping like bad. Some global tensions that had jacked up the prices were settled. Next thing you know, the bull morphed into a bear. Those who own nothing but oil stocks, including yours truly, were crushed. I learned firsthand the concept of diversification. And while it occasionally violated some of my rules, I never again intentionally avoided diversification. So here's the bottom line.

41:39From my early days at Goldman Sachs, I learned the core principles of investing, finding solid ideas to build a diversified portfolio to create long-term wealth in a way that suits the customer. Consider yourself the customer of this show. Stick with me. Coming up, Wall Street's most reliable tag team squares off to answer your questions. Keep in touch. Mad Money will be right back. Good evening, Mr. Kramer. Thank you. Thank you for everything you do. You've been such a wonderful source of information with your teachings. I have to say thanks. Thank you for all your advice and saving us from ourselves.

42:18Your advice, let me quit a job that I hated. I love you to death. Thank you for everything you do. Thanks for making us money. And more importantly, thanks for keeping us from losing money.

42:48Through this entire show tonight, you've heard me pound the table on how investing in the stock market is a long-term contest. emphasis long term. So you're never too young to start investing, just like you're never too old, but learn new things about the market. I love to teach my viewers and also learn from them, which is why I always say my favorite part of the show is answering questions directly from you. So tonight I have Jeff Marks here, my portfolio analyst, partner in crime at the CBC Investing Club. We're going to answer some of your most burning questions, which are always amazing. Frankly, I learned so much.

43:20I'll also give you an inside look at what we do in the club. By the way, If you're not a member of the club, you can scan the code behind me or go to CNBC dot com slash investing club to sign up. I sure hope you will. All right. Let's take our first question. First up, we have a question from Sandy, who asks, my husband and I are at retirement age. He likes dividend stocks, but I don't like holding them when they lose value. And my original investment is in the negative. I prefer solid growth stocks to continue to build our portfolio. Keep or sell these losers. Now, I'm going to start by by telling you right here.

43:52Retirement age. OK, that's the eye of the beholder. I have been a big believer, contrary to the entire industry, in saying there may not be a retirement age when it comes to stocks. I think that people should always be investing for growth and some for dividend and then some for bonds. So my answer to this one is that you have to kind of at times take the risk, but you just use smaller amounts of your cap. Yeah, I think that there's always a balance to everything. Right. One thing I would point out is without knowing the stock, if the dividend investment is in the red, well, maybe they're not growing their cash flow, their earnings.

44:31Maybe they're not growing their dividends. And that could be a red flag that something's wrong about the company. I mean, for instance, you know that we got involved with Foot Locker and their cash flow declined. And what looked like a good dividend stock became a non-dividend stock. So, Sandy, I think that we unfortunately you have to do a level of homework. Of course, join the club and we will point them out. But then you can say, listen, we missed Foot Locker. You're going to miss things. But what matters is I want you to have more exposure to the stocks than people expect because retirement age may be something that turns out to be 20 years before you need to grow capital for that 20 years.

45:08Next up is Bruce, and he's in Michigan. And he says, how do you set price targets? I am going to defer to my colleague who does a lot of the price target setting. Well, look, I think it's an art and a science, right? There's no one standard rule of thumb to apply. But what I will say, though, when looking for price targets, what you can do is look at some historical multiples of where stocks trade at and try and figure out how much you think the stock will earn out in the future and apply that. But another key consideration, too, is that if the company is improving its margins, maybe taking share, then it would deserve to trade at a premium versus its historical levels or maybe at least catch up, so to speak, the multiple re-rate closer to some peers in this space.

45:53Let me ask you, during the great runs that were Lilly and NVIDIA, how did you go about setting price orders? Well, I mean, look, those are also some of the great momentum stocks in the last couple of years, too. So that, I would say, is a little bit of an art. But again, stocks like that, you also have to look out years out in advance, too, especially in the case of Eli Lilly, where it's more towards the end of the decade is where it's GLP-1 sales will really be big. But just so people know, we take the very serious. Yeah. OK. Now let's go to Lindsay in Oregon, where my daughter had her formative years, who asked, how do you trim a position?

46:29Do you sell shares with the lowest cost basis or the highest cost basis? Well, this is actually, this is an accounting issue. Yeah. There are rules on what you can and what you can't do. We are just, people know, we send everything out, all our capital gains out and all our dividends out. And we often want to try to get rid of the ones that has the worst basis. That's been our kind of stock and trade. Yeah, I mean, look, this is always a question of tax considerations, right? Right, because if you're taking a profit and you're selling a lower tax basis, you'll trigger a higher realized gain. And on the other hand, if it's for a loss and you sell that lower basis, it's a smaller loss.

47:10So it's tax considerations. Now, just so you know, my accountant says, Jim, just take it as they come. Last in, first out. Why is that? Don't ever get in trouble. There's my lesson for the IRS and you. I like to say there's always a bull market somewhere. I promise I'll find it just for you right here on Mad Money. I'm Jim Cramer. See you next time.

47:56Neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Mad Money Disclaimer, please visit CNBC.com forward slash Mad Money Disclaimer. My brother had his identity stolen. My neighbor did too. Identity theft is the number one crime in America. My gosh, my manager? My cousin? LifeLock detects, alerts you to, and fixes identity theft guaranteed or your money back. Wow, that's a lot of people. Kind of makes you think. don't wait to become the one identity theft happens to get LifeLock save up to 30 % your first year at LifeLock.com special offer terms apply