Mad Money w/ Jim Cramer 9/23/26

0:00There are three kinds of investors that listen to this show. Those protecting what they've got, those looking for solid returns, and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores. Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell. Go to VectorVest.com slash mad. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. If you're a small business, the right hire can be make or break. Indeed Sponsored Jobs gets you quality candidates when you need them most.

0:37Join the 3.3 million employers worldwide that use Indeed to connect with quality talent that fits their needs. Listeners of this show will get a$75 sponsored job credit to help get your job the premium status it deserves at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed Sponsored Jobs. My mission is simple, to make you money. I'm here to level the playing field for all investors. There's always a bone market somewhere, and I promise to help you find it. Mad Money starts now. Hey, I'm Kramer. Welcome to Mad Money.

1:19Welcome to Kramerica. If you want to make friends, I'm just trying to make a little money. My job is not just to entertain, but to put it all in context. So call me at 1-800-743-CBC or tweet me at Jim Cramer. 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, no matter how enthralled you are with the underlying story, if the rules say sell, you sell it. One thing I've learned from my investing career, no matter how much you might believe in something, you violate the rules of the road at your own peril.

1:54That's why we obey them religiously with the Chattel Trust. And they become our core guide for the CMBC Investing Club, which I want you to be in. But where the heck do these rules come from? It's not like they were handed down from on high and carved in a stone tablet. Hey, they're not the lowest five commanders for the history of the world, part one. They're not like the laws of physics. You can't just deduce them from observing the way markets works that you can do, say, 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.

2:28In 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 to lay out some of the most important rules for investing, and they are indeed timeless. Some of this stuff may seem basic, but again, you forget the rules in your own peril. Back in my old hedge fund, I occasionally convinced myself that it was okay to make an exception. to have a cheap day, so to speak, 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.

3:04It's like that old joke about the doctor, the guy who goes to the doctor and he says, Hey, doc, doc, listen to me. It hurts when I stretch out and shake my hand around. To which the doctor says, don't do that anymore. So what exactly should you be doing or not doing, as the case may be? All right, let's tick down my most important rules for investing. 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 that's because so often in my business, I've seen moments where stocks went up and up and up so much that people were intoxicated with their gains.

3:44They were geniuses. However, it's precisely at that point of intoxication that you need to remind yourself that you don't want to act like a pig. I first heard this phrase from the old trading desk. Legendary Stein, our partner is an amazing old hedge fund. I've been having a big run in some stock, and the brilliant Michael Starnett would tell me that 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 just grateful that I caught a major gain. Of course, not that long ago, not that long after, we got a vicious sell-off, and I gave back everything I made and then some.

4:21And that's when I enshrined 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 buttons to tell the whole story. The bull, the bear, the pig, and of course, the gatekeeper. Just to be clear, bulls don't have a monopoly on pigishness. The same idea applies to investors who press their bets too aggressively on the short side. We've had some major declines over the years, but other than the dot-com bust in 2000, then the financial crisis 2008-2009, most stocks bounced back pretty darn quickly.

4:54Even in the Fed-induced meltdown that started at the end of 2021, you had to turn positive by the fall of 2022, because if you pushed your luck by staying short too long, you got sent to the slaughterhouse. So the question is, how do you know when you yourself are being a pig? Look, allegedly there's no such thing as stupid questions, only stupid answers. But honestly, you really don't need me to tell you when you're being a pig. The Nasdaq more than doubled from March of 2020 to November of 2021. If you didn't feel greedy up there, you didn't need an investment foster. You need a psychiatrist.

5:27If you took profits, you sidestepped a huge decline. If you let your winners ride, well, you gave a lot, if not all the money back. The financial crisis was even more stark. If you were walking around owning a huge amount of stock in 2008 as the bank started dropping like flies, well, you were beyond piggish. 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. It's holding on through the difficult periods, taking short-term pain so you can have long-term gains, which is what's happened in stock market for a century.

6:02The people got wiped out in 2022 or 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. And so they got slaughtered. being cautious and ringing the register near the top ended up keeping you in the room. Notice I said near because catching the ultimate top is just so impossible. Just catching you the top, that's great. That's why I remind people every day, have you taken any profits? Have you booked anything? Or are you being a pig? Because you never know when the stocks you own are going to crash.

6:32You 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 fame. Everyone would own stocks if that were the case, and we know they don't because it's so risky. Sure, there'll be times when stocks just going up and up and up. They just keep going. When I coined the term FAANG over a decade ago for Facebook, which became meta platforms, Amazon, Netflix, and Google, which became Alphabet, I loved them all. But I did give up on Amazon after an incredible run.

7:06I was trying to be disciplined, yet it did continue to move up another 50%. I did feel felt like a pig after the stock's extremely popular run. But when I felt like I felt like a fool after I kept Gallup, you've had the feeling, you know what it's. That's just the price you have to pay for following the rules. I had been a pig, but the pig kept running, didn't get slaughtered. Fortunately, we got back in Amazon for the travel trust when then President Trump kept bashing them for ripping off the post office. You remember that? Probably even don't. But it was torture to watch it go up without me and it was terrific to get back in.

7:40Now, you need to recognize, though, that for every huge pile of cash that gets left on the table with a situation like Amazon, you're sidestepping gigantic losses that the kind of which you would have had if you had left everything on the table in 2000, 2008, or late 2021. Experiences have turned two generations of investors against stocks. And hopefully I'm trying to preserve the last one. So never forget, bulls make money, bears make money, but pigs? No, pigs. Yeah, you get it. And I'm going to keep repeating that forever. I'm going to use the sound effects because it is just that important.

8:13How about rule number two? This is one that people, I see them on the street. Almost everyone says this to me when I ask them if they've made some sales. Rule number two is 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 to paying taxes on stock market winnings often borders on the pathological. So many times people have gigantic gains, but they simply 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.

8:45Wall Street's littered with the broken hearts of investors who made this mistake. Several years ago, for example, I went to a presentation from a prominent hedge fund manager who recommended buying Macy's because of its real estate value. The stock had already run a great deal before the presentation, and it was ripe for some profit taking regardless. But I know people who'd owned it for years with hefty profits, and they did want to ring the register because they would have to write a check to Uncle Sam. And, of course, they were thinking about how much that real estate was worth. Next thing you know, Macy's saw its stock get cut in half.

9:13And it wasn't a two-for-one split. The whole shopping mall space had hit a tipping point courtesy of competition from the Amazon. And the darn thing got a Blu-ray. Those who didn't want to share their profits with the IRS ended up with no profits at all instead of hoping a stock would go to$100 because it might have a lot of real estate. So I want you to make your peace with the tax man. 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.

9:47When it's time to sell, sell. In short, stop fearing the taxman. Start fearing the lost 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 taxman on profits that you've earned. Let's go to Tyler in California. Tyler. Hey, Big Blueyot from California. How are you doing, Jim? I am doing well. How about you? I am doing good. Thank you, sir. I don't know how many times I've sold a 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?

10:28Okay. I think that this is a terrific question. And don't feel bad because I obsess in losses for the travel trust. And I know and I bother Jeff Marks endlessly. We're down on this. We're down on this. We've got to do this. No. What you do is try to look at it once a week, okay, just once, because I don't want you to get down. You're going to miss other opportunities. And what you're looking for is a change at the margin. It's something said 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.

10:57Wait for something definitive. And if there is a bump up, don't be afraid to trim the position no matter what. How about Robert in Minnesota? Robert. Hey, Jim. Thanks for taking the call. My pleasure. Yeah. When I retired, my company let me keep my 401, which is 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 big in favor of the S &P 500 index fund. I think that'll be terrific. That's what my retirement's in.

11:37That's what your retirement should be in. I think that'll be fine. I love 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 Kramer.

12:12Don'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.

12:59at 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision crafted performance. That's Acura.

13:32Something amazing is happening. Despite a citywide blackout, this company is still up and running. That's because CDW deployed and managed a cost-effective Eaton Triplight Series SmartPro UPS to safeguard equipment easily and reliably. Keep the power on and protect your IT equipment from electrical challenges. Triplight by Eaton and CDW. Make amazing happen. Find out more at cdw.com slash triplight.

14:28Which brings me to my next commandment, and this is a really important one. Never buy all at once. I can't stress it enough. Do not, under any circumstances, buy your whole position at once. This is something you can see us put into practice constantly in child trust. One more reason I think you should join the CBC Investing Club, shameless promotion. Buying all at once is your folly, yet no broker likes to fool around with partial orders. No financial advisor has the time to buy stocks pathology over time. The game is to get the trade done at one level in a big way. Make the statement buy. Boy, do I hate statement buys.

15:00Get the position on 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. Instead, I need you to stage your buys, work your orders, try to get the best price over time. Why? Okay, when I first started as a professional money manager, I really wanted to prove to everyone just how clever and smart I was and how right I would be. So if I felt like buying Caterpillar, okay, I said, by golly, I'll buy it now. Big. All at once. Make a statement. Because I was so sure of how right I was.

15:32Put me up on 50 ,000 cat, I'd scream, as if I were the smartest guy in the universe. When I think back about that young Kramer, mostly full head of hair, by the way, all I can say is that I was one arrogant son of a gun. Arrogant and wrong. What was my mistake? If you wanted to buy 50 ,000 shares of Caterpillar, you don't pick them all at once. That's pure hubris. What happens if it goes down? You feel like a dope. And it might go down. That's my rule. 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.

16:05You put it in a small position, then you cross your fingers, hope it goes down so you can buy more at a lower level to get a better cost basis. Hear what I said? I don't mind when a stock goes down, if I can buy more. Now, I no longer trade institutionally, as you know. I no longer say trade in size, as we used to call it. Probably still do. But I still invest in my travel 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. That's right. We like it if our stocks go down so we can get an even better cost basis.

16:36And we lay out this whole process to members of the club. It makes sense. When you buy all at once, you're basically declaring that the stock absolutely won't go any lower. I mean, come on, 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, if they want 500 shares in ExxonMobil, decide to buy it in 100-share increments? Why won't they? I think it's because they want to be big, too. They don't want to waste the broker's time. Your broker wants to get the trade done.

17:05I know why brokers hate it when my old hedge fund would place incremental orders. But it's just plain Ubers to put a major chunk of your net worth into any stock all at once. Who knows? Maybe it'll go into free fall. And, of course, this doesn't just apply to having a broker. It applies just to electronic trading, too. 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. Wrong again. That's why you need to resist feeling like you're making a statement buy when you purchase a stock. I bought and sold billions of shares of stock in my time, both from my old hedge fund and from my chapel trust.

17:35Do you know how often I got in the absolute bottom? How often the last price I paid was the lowest and then it was off to the races? I mean, maybe one trade in 100? And I'm pretty good at this game. So resist the arrogance. Buy slowly. Even buy over a couple of days if you have to, as I do for the Chapel Trust. Humility beats Ubers every time. Next rule. I need you to buy damaged stocks, not damaged companies. Let's say the mall's having a sale, and you pick up a piece of merchandise, only to find out that it's broken when you get home. Maybe it doesn't work. Maybe there's a hole in it. In the real world, you can return that merchandise and get your money back.

18:11There are guarantees and warranties. Glowar 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's no money back guarantee. Caveat emptor. And that's why you need to be very careful to distinguish between broken stocks, names that are down for no particularly good reason, and broken companies, which absolutely deserve to see their stocks trade lower. Sometimes damaged companies can be easier to serve. And look, when nearly everybody got their COVID vaccinations and we put the pandemic in the rearview mirror, all sorts of COVID winners fell by the wayside.

18:43Some of them were unfairly punished, but many of them got obliterated because a big chunk of the business disappeared as we knew it would happen. Take Zoom Video, a company that took the world by storm during the worst days of the pandemic, to the point where it became, well, let's say the very name. It became a verb. We would Zoom, just like we Googled. 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 into something else. They had a huge cash position. Then gradually, its competitors caught up, very tough to go up against Microsoft and Google and Cisco.

19:12So Zoom only plunged from 588 at its all-time high in October of 2020 down to the mid-70s less than two years later. There were points on the way down where people assumed 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's in free fall if the business is changing and getting slower. We saw something very similar to all the financial tech stocks that had roared during the period of ultra-low interest rates that coincided with the pandemic. Lots of buy-now-pay-later outfits. Affirm, which is one of the better ones. But once the Federal Reserve warned that it would start rapidly raising interest rates, the whole business model was called into question, and this group was annihilated.

19:50The worst of these was a company called Upstart, which is merely supposed to facilitate loans, but they started leaving many of these loans, what's known as on the balance sheet, just as the Fed caused the current risk to skyrocket. The stock plummeted, get this, from just over 400 in its late 2021 peak, down to the low T's less than two years later, before eventually rebounding somewhat from its lows. On the other hand, sometimes the stock will sell off for reasons that have nothing to do with the underlying company. It could be caused by ETFs or problems overseas or washing worries. Just because the stock is down doesn't necessarily mean that there's anything wrong with the underlying business.

20:21Damaged stock, not damaged company. So how do you distinguish between a broken company and a broken stock? Complicated. 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. Now, when Wall Street throws a sale with the whole market coming down, we use that as an opportunity to pick up the stocks on our list made in the calm of no trading versus the battlefield of them when the market's open. We know these stocks ahead of time, so we know there's nothing wrong with the underlying companies because we've done the research ahead.

20:53But 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 merely 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's no money back guarantee. The word on the street is caveat emptor. We have money's back emptor.

21:23There are three kinds of investors that listen to this show. Those protecting what they've got. Those looking for solid returns. and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores. Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell. Go to VectorVest.com slash mad. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating.

22:02At Acura, that means looking closely at how every detail could make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. Something amazing is happening. Despite a citywide blackout, this company is still up and running. That's because CDW deployed and managed a cost-effective Eaton Triplight Series SmartPro UPS to safeguard equipment easily and reliably. Keep the power on and protect your IT equipment from electrical challenges.

22:41Triplight by Eaton and CDW. Make amazing happen. Find out more at cdw.com slash triplight.

22:57If you want to build a portfolio of individual stocks, that's a big if, since there's nothing wrong with getting all of your equity exposure from a cheap index fund that mirrors the S &P 500. Well, you've got to be rigorous about it. Which brings me to my next rule. Do the homework. Listen, my kids hated doing the homework. They thought it was punishment. Sometimes when I looked at what they were studying, I could see where they were coming from. I mean, what's the relevance of most of the things they teach in high school? How will it help you later in life? Why even bother? Of course, that's a terrible attitude.

23:26As a parent, I always encourage my kids to study because you never know what you'll turn out to be interested in later in life. But I bring this up because I think many of you have the same attitude to the homework you need to do in your stocks. You suspect it might be just as irrelevant to your portfolio as schoolwork 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 want to 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.

23:57When I remind people that doing the homework means listening to the conference calls, reading research reports, they want no part of it. They look at me as if I'm some sort of old-fashioned teacher who's asking for way too much in this busy 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's the buy and hold school of thought. The idea that you don't really need to do any work, You don't have to keep track of what's happening at the company because, hey, you're in it for the long haul, so so what?

24:27On the other hand, you've got people who just don't have the time to be diligent. For those of you who don't have the time, I've got a simple solution. Get someone else to manage your money, for heaven's sake. Or do what most experts tell you to do and invest in a low-cost S &P 500 index fund. Or there is a third option. Find someone else to help you do the homework for you while teaching you to be your own portfolio manager, which is what we do at the CBC Investing Club. And I still urge members to do as much of their homework as they can. The truth is, if you can't devote a couple of hours per 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.

25:00Investing may not be a full-time job like trading, but it's definitely a part-time hobby. That's it. It's the buy and hold premise that's a lot more pernicious. Back during the 1990s, buy and hold became the be-all and end-all of all investing. You know what? I'm just going to own the buy and hold on to my CMGI because it's got to go back to 100 where I bought it. Yeah, I mean, the experts told you that if you hold things for the long term, everything will work out. Of course, I went to zero. But this philosophy took a real blow during the financial crisis when so many people who practiced buy and hold got obliterated.

25:34That was easy. The house of pain. Buy and hold became popular again during the pandemic. It keeps popping up any time there's just a nice, smooth period. When the market was flooded with cheap money and almost everything worked, right? I mean, made all that money in, buy, buy, buy. Once again, though, it got you burned when the Fed finally started tightening in 2022. and the cheap money just vanished. A lot of people who bought and held the SPACs got crushed because there was nothing worth holding. That was just a travesty, the SPACs. That's why I've always been evangelist for a new concept, which is buy and homework instead.

26:03What is the homework, though? Before you buy a stock, you should listen to conference calls. Go to the company's website. I really like that. I tell you, I haven't started with that lately. Read the research if you can get a hold of research. Read the news stories. That's called Google. Everything's available on the web. Everything. You have so much more info available now. so much more knowledge that there's really no excuse. You're right up there begging at the Goldman Sachs Library for some microfiche statement from three months ago, as I did four decades ago, right down the block here. You have everything right at your fingertips.

26:31But 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 recorders who are actively searching for high-quality stocks all the time. More to the point, I'm quite certain that any index fund can beat someone who does no homework, which is why so many experts tell you, give up on individual stocks and put your money in a cheap S &P 500 index fund. Buy and hold is not a strategy. Like I said, I am in favor of index funds for those who don't have the time, the predilection.

27:01The next rule is another essential that I harp on constantly. Diversify, 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 out there? It's called sector risk. Stocks are the same industry. They tend to trade together, especially at extreme moments. In the old days, only about 50 % of the action in a given sector came down to this, in a given stock came down to the sector. But thanks to the rise of sector ETFs, that number's gotten much, much higher. In some cases, like 80%, 90%. I don't care how great a tech stock was in 2000.

27:33If you had all your eggs in that one basket, you got scrambled. I've got to prevent that. Same with the financials in 2008. I've got to prevent that. The oils in 2014 through 2016, and of course, tech during that discrete period in 2022 that was so horrible. And there's 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. It's the only investment concept that works for everyone. If you mix up enough different sectors in your portfolio, at least five, well, I'll tell you, you won't be wiped out when the one group gets obliterated.

28:07Something that happens far more often than you might think. But diversification is such a no-brainer. If every advisor and commentator under the sun has been telling people to do it for years, how can anyone still be undiversified? I think it comes back to the homework issue. A lot of people simply don't own don't know what stocks they own. They don't understand what the companies do. So they end up with stocks that are fairly similar. I mean, they don't understand that one is a dis-drive company. The other is a semiconductor stock. It just drives me crazy. Hey, you know what? Also, others have zero respect for the history of the bear and how it attacks individual sectors.

28:40I still feel quite a few calls from people who genuinely think that owning FAANG is a diversified strategy. Hardly. With Facebook down, met up platforms, Amazon, Netflix, and Google and Alphabet, you own variations of the same thing. Social, mobile, cloud, and they trade together. That's what I call faux diversification. Or another example, no matter how much I might like the oil stocks at any given moment, I can't count as a portfolio made up of Chevron, Pioneer, Natural Resources, and I don't know. I can use Halliburton or two high-yielding ones and a driller. I always say no to a portfolio of J &J, Eli Lilly, and Bristol Myers, and UnitedHealth Group, even as I like all four companies.

29:16They just leave you way too exposed to health care risks that could overwhelm the whole group all at once. Having an undiversified portfolio is not just an amateur mistake, though. Many professionals don't like to be diversified because of the bizarre way the money management business works in this country. If you concentrate all your bets in one sector, that sector takes off. Well, you'll pretty much beat everybody right then who's in a diversified fund. That is the nature of the beast, even though I think it's still founded. It's why Cathie Wood of ARK Invest could be the best money manager of 2020, then far from the best in 2021 and among the worst in 2022.

29:47Her flagship ARK Innovation Fund went almost all in on high-risk growth stocks. That's not diversified. And those all 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, well, you do get it made in this business. Don't get me wrong. I have no beef with Cathie Wood. She's great at picking high-risk growth stocks, and she's never claimed to be running a diversified portfolio, not once. I just want you to be aware that when you go all in on an undiversified portfolio, it is likely to blow up in your face a couple times in, I don't know, a few years' time.

30:18Here's 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 protects 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. Jim, the second greatest investor of all time, Warren Buffett, says individual investors like me should just buy the S &P.

30:51My 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. So 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 and join the CNBC investing club. If you don't like picking stocks and 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.

31:26And fortunately, I've been very successful. Let's go to Anne in Indiana. Anne. Hi, Jim. Thanks for taking my call. You're quite welcome, Ann. What's up? 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 stock 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 that seem to take a long time to fix? Well, this is a tough, tough one, Ann, because I've made this mistake.

32:06I'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's much more ahead. on putting my four decades of experience to work, sharing the key rules we follow for the CBC Investing Club. Think of it as a glimpse behind the curtain if you're not a member. So stay with Kramer.

32:42I 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 are 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 need to be fighting off your own worst impulses. We're not robots. We have emotions, and those emotions 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. People do it constantly. A stock gets hammered, then investors sell to the hammering. The market gets crushed on a huge down day.

33:18People bail at the end of the day. In short, something gets annihilated and people can't take the pain. So what do they do? They bolt. There's something instinctive about panic, about the desire to flee. If you're a Stone Age hunter-gatherer who accidentally stumbles into a family of grizzly bears, panic is a very helpful strategy. But it's not useful in motion when you're investing in the stock market. The truth is, there must always be a better time to sell than whatever moment inspired you to panic in the first place. And don't I know it. Remember the spring of 2020 when COVID hit? Everything shut down.

33:50The whole stock market collapsed. 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, though, 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, not flee with the panickers. Sure enough, the S &P was making new highs again by the summer. And once the vaccines came along that November, well, the market just never looked back. So the next time there's a big market-wide sell-off and you feel like fleeing and never touching a stock again, I want you to do something for me.

34:30I 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 just don't get that the exit doors aren't as big as they think they are. Mind you, I am absolutely not saying that every stock that gets hit with a panic sell-up is worth buying for the long term. Often when people freak out about an individual company, it's with good reason. But I am saying that 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.

35:02Even 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. Hey, speaking of hideous down days, I got another rule that can help you handle big declines. Ready? When the stock market gets unrelentingly negative, remember that he who defends everything defends nothing. It was when Frederick the Great said that centuries ago. And you know what? It's just as true now. So he who defends everything defends nothing. What exactly does it mean?

35:34It's about how you evaluate your holdings. When the market's 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. But when things get difficult, when you're on the 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's slowing and the market's getting slammed, you can't hang on to everything you might like. If you try to defend all your positions in a market that turns against you, That's a recipe for getting blown out.

36:10And when I say defend, I mean you can't treat a declining market like it's a buying opportunity in 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 rank all my travel trust stocks at all times for investing club members. One's are stocks I buy right now. Two's are stocks I buy in the weakness. And threes, well, threes are outright sales. Sometimes it is some strength, but if you can get out, it's good.

36:46That way I'll know which stocks I should defend when things get tough and which ones I'll cut and run with and use that as a source of capital for something better. So let's say tech's getting hammered, but you think 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'll want to buy into weakness, and toss out the rest to raise cash. Use those newfound cash reserves to buy the stocks of higher quality tech companies at lower prices. That's right, the non-essentials, the ones that have no catalyst and that you only owned because you wanted exposure to a bull market, they get to heave ho immediately when things turn banished.

37:24Sell, sell, sell. We used to call this circling the wagons around your best names in my old hedge fund. The first few times you do it, you'll curse yourself because you might be ending up putting down stocks that you love for quite some time. But eventually, after you experience enough difficult markets, you'll realize just how valuable this process is because it can protect you from a lot of pain. A house of pain. I never try to battle more than a few losing names at once. Don't buy. Don't buy. Don't buy. Don't buy. So remember, you have to take on a lot of stocks that are going against you. I'll wear you.

37:54It'll wear you down. I promise it's just exactly what it's going to do. Make it more likely that you'll crack under your 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, or any of those other cliche phrases that went out of style ages ago, but still sound really solid. The bottom line, great investors know how to ignore their emotions when those emotions get in the way of making money. So the next time the market gets slammed, please don't panic. Nobody ever made a dime by panicking. But also don't double down on your whole portfolio into weakness.

38:26Vicious negative markets can give you buying opportunities, but you need to focus your capital on your absent favorites rather than chasing bargains and third-rate merchandise that actually deserves to trade lower. Mad Money is back after the break.

38:49Welcome 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. But that also means you need to be very careful because you're the one with the most power to derail your financial future. Look, mistakes will always be part of the investing game. I just want to do my best to ensure that you don't make the same mistakes twice or three times or endlessly. That's why I got rules. Rules for investing protect you from the kind of misjudgments I used to make when I was young and inexperienced.

39:22The same rules we preach constantly in the CMBC Investing Club. Rules like don't own too many stocks. Back at my old age, I would spend three hours every day analyzing the mistakes of the day before. I'm not kidding. One reason I'd retire, at least for my own well-being, that was a major task, one that I'd complete every morning before anyone else came into the office, generally between 4 a.m. and 7 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, right? And then try to figure out how I could have, let's say, made more money or lost less money, more importantly.

39:57I was, for lack of a better word, maniacal about it. And after a couple of years, I had an epiphany. I realized that good performance could be linked directly to 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 first taking a different one off the table, even from my travel 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 I know have hundreds of positions.

40:35How the heck are you even supposed to keep track of all that? All the really good managers I know have 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. I know it can be constraining. You'll end up selling some stocks that are good for stocks that aren't as good. It does happen. Hey, hindsight's 20-20. But take it from me. As someone who owns stocks for over 40 years, it's far more likely that you'll be selling marginal companies in order to get bigger and in better stocks. That's how to make a portfolio really work for you.

41:09Hey, by the way, the time I lost the most money as a hedge fund manager, my sheets, that's my position sheets, were thick as a brick. When I made the most money, my sheets were, well, one sheet of paper, double space. And I ran hundreds of millions of dollars. So please remember, when you're a pro or an amateur, okay, either one, it's always possible to have too many positions. Rule of thumb, if you're just investing for yourself and you own more than 10 stocks, you should probably pair something back. So you can have too many stocks, but you know what it's very hard to have too much of? Cash.

41:42Which brings me to my next rule. Cash is for winners. The widespread aversion to cash in this business breaks my heart. At times, cash is such a perfect investment that it drives me crazy how so few people ever recommend it. Nah, they hate the market, so they're only 95 % long instead of 100%. Or they think the market stinks, so they decide to short a few high flyers against their longs. No, no, no. As an investor, that is absolutely the wrong way to approach things. You don't like the market? You don't like any stocks? Then sell stocks. Sell, sell, sell, sell, sell. Imagine, you want as much as you want.

42:13And then raise some cash. Put it in cash. Don't buy put options on the stocks you own or find other stocks you're sure to get your current positions. That's just that stuff that makes it's just too hard for you. The odds simply do not favor you winning on both stocks, 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 Wall Street for a time. And I can tell you that when I bought put options to hedge my positions, I almost always lost money.

42:46When did I make money? when I bought put options to profit from low-quality companies with shortfalls or stocks that seem severely overvalued versus the fundamentals. If you dislike the market, you don't need to bend yourself into a pretzel to hedge against downside risk. Just sell some stocks and go into cash, which is literally short-term treasuries of the less-than-a-year variety. People start talking about how little cash earns, although it's a lot more lucrative when the Fed's 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.

43:17especially if you think that there's a major disaster ahead, and I don't care what interest you earn on that cash. Now, 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 travel trust. Back when I could, I didn't short stocks just for sake of having some short exposure to balance out my logs. 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's nothing compelling to buy in a weakness, then just raise cash.

43:46Go sit on the sidelines and wait for the situation to improve. Believe me, it's never the wrong call. When you don't like the tape or 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 Kramer.

44:22I always say my favorite part of the show is answering questions directly from you. Tonight, I'm bringing in Jeff Marks, my portfolio analyst partner in crime. Help me answer some of your most burning questions. You usually have some tough ones. For those of you who are 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 helped me to do a great job for MadMoney viewers as well as members of the club. Jeff and I do this sort of thing during all our monthly meetings where we give you an in-depth look at our latest portfolio decisions.

44:51We talk about every single stock and answer your burning questions. If you like this to be something to keep up with, I need you to join the club. And thank you, by the way, to people who stopped me on the street who love the club. It means the world to me. So let's start with a question from Michael, my home state of Pennsylvania, who asks, what do you think about dividend reinvestment strategies? OK, so, Jeff, one of the first things I learned and what I taught at Goldman Sachs was 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.

45:25Yeah, 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 on 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 packaged good stock or even tech stocks, too, that offer a dividend. It's a good thing to have. It's another way to dollar cost average into positions as well. I mean, I remember going over this with my late father where he was adamant you just take the money and run. And I tried to show him and managed to convince him, no, take the money and be back in.

46:01Reinvest. Now we're taking a question from John in California. You ask, what are your sources of information related to stocks in the overall market 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 I talk about what may be the most important research calls of the day. So we're blessed with that. All right. Now let's go to Nino in Maryland, who asks, Is there a P multiple that we won't buy above in each sector?

46:36Well, this is really tricky because when you're in tech, we have to use out years. So, for instance, NVIDIA, if I had discipline and said that I wouldn't pay more than 20 times earnings, I would have kept out of NVIDIA for a decade because NVIDIA is about future earnings. Yeah, and I think you also have to look at a company's growth rate, too. It's all relative. P is so you can compare the growth rates relative to their multiples. I don't think there's necessarily one that would keep me out. But also, on the other hand, you can't look at a low multiple in two and say that's a good bargain because sometimes there's value traps.

47:09Value traps, there are low multiple for a reason. They could have declining earnings or there just might be another issue fundamentally. That's a great point. I mean, when people look at the automobile stocks, they have historically had very low multiples and just trade on dividends. If they ever really got the growth of a Tesla, it's not true. So anyway, thank you, Jeff. I'd like to say there's always a bull market somewhere. Promise you're going to find it just for you right here on Mad Money. I'm Jim Cramer. See you next time.

47:59He considers reliable, but neither 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. To every clinician finishing notes at 9 p.m., there is a faster way. Whisperflow is a voice-to-text app. You talk, it types in your EHR, your email, anywhere you type. Say the progress note, the referral letter, the patient instructions, and it comes out clean and formatted with your terminology spelled right. Four times faster than typing and HIPAA ready.

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