i legit forgot the name. >> we embrace all peek of all body types here. >> with that said, i'll stay in tim's world with agnico-eagle mines, melms. >> thank you for watching "fast money." "mad money" with jim cramer starts right now. my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you a little money. now, my job is not just to entertain but to teach you. and that's what we're doing tonight. so call me at 1-800-743-cnbc. or tweet me @jimcramer. tonight i'm letting you in on

something big. the method to my madness. i believe you can do everything i do at home if you're willing to put in the time and effort. investing in individual stocks, running your own portfolio rather than dumping your money in some buy and forget it index fund is something i am confident all of you can do by yourselves. i always emphasize the homework and i hope you do the homework for my charitable trust stocks if you join the cnbc investing club. in the old days you needed one hour per week per stock. these days the research is so readily available online i can count on less than an hour a week for five stocks. investing in more than just ten stocks, then i get worried because that can be difficult unless you're managing money full-time. of course if you don't have the time or the inclination to pick stocks then you are better off parking your money in a low-cost index fund that mirrors the s&p 500. and i like those. they're good. i'm in some. but if you're willing to put in

the work regular people can trounce the averages as long as you're disciplined, you follow the rules, rules we constantly highlight as part of the cnbc investing club. how do you start? that's what we're talking about tonight. the show is about the method or methods to my madness. how do i pick stocks? how do i tell you some stocks are worth buying on the dip and some aren't? those are the questions people constantly ask me. tonight you're going to get a piece of the answers. the truth is i've got far too many methods, far too many ways of picking out great stocks to cover in one show. but i want to give you some of the tools of my trade enough so you can start to pick stocks like me on your own. remember, i want you to be a manager, a great manager of your own money. because you can focus on a smaller number of names while i have to follow practically everything. particularly for the "lightning round." at the end of the day this show is about educating you, giving you the ultimate insider's perspective on how the market works and how it can help you try to make money.

i'm not here just to dole out stock picks like the proverbial fish you give to man if you're too busy to teach him to shop for fish at whole foods. but i like to empower you and that starts with me teaching you all the many tricks i use to pick great stocks and invest in them like a pro, methods that have served me well for more than four decades and that allowed me to generate a 24% annual return after fees for 124 years in my old hedge fund. not bad. better than the market. these skills are what guide me as i'm managing my own charitable trust now. a learning exercise that you can follow of course by joining the club. you no let's get rolling. one of the easiest ways to identify potential cramer names, the stocks that could possibly -- i should possibly own but not necessarily end up on the show is by watching a list that comes out every day. it's called the new high list. stocks in that illustrious list, the highest of the high, obviously has something going for them and that's especially true when the market's in bad shape as only the best of the best can hit new highs when the averages are falling apart. what does it tell you when a stock's on the new high list?

either that it's part of a broader bull market because the sector's on fire or the company itself has some serious earnings or sales momentum. no matter how they get there, many stocks in the new high list often keep going higher because it's kind of a list of a students that are worth betting on. they tend to keep getting straight a's on every quarter just like the real smart kids in school. in a great bull market we see this over and over again. the the same stocks hit new high after new high. and following them is a terrific way to make money, even as the bears claimed endlessly that the bull market was false and couldn't be trusted. listening to the bears has caused you to miss out on some of the greatest rallies in history. of course i'm not saying you can just chase any stock that's hitting new highs because they'll keep going higher. that would be the ultimate in foolishness, true bozo the clown behavior. i am saying that if you want to identify potential winners unless there's been a stunning sea change in the market caused by changing interest rates, possibly the political environment, then a good place to start, a wonderful place to start is the new high list. emphasis on start.

that's the thing about the market. it's not always that hard to play once you understand there's often more continuity than change. things pretty much keep going the way they were going until something major shifts and then you have to alter your course. those course changes can be pretty radical. and that's why you always have to be reevaluating your ideas and should never dig in your heels when the facts change. something i emphasize over and over again when i send out these investing club bulletins. now, i rarely recommend buying stocks to trade off the new high list unless there's some special circumstances. circumstances we'll talk about later tonight. what i like to do when i'm hunting for stocks and what you should do is wait for something to pull back from the new high list because that is the best place to start -- >> buy buy buy! >> -- doing your buying. the new high list is not a shopping list. it's an inspiration list. you keep an eye on those names, then wait for them to come down. so that you can pull the trigger. the pullback ideally 5% to 8%, gives you a good lower price

entry point in a stock that likely has a lot of positives going for it that maybe has been pulled down by an overall move in the stock market. that's less than 5% you're probably too early more than 8% something's likely gone wrong. a fabulous way to identify potential. and i stress that word, potential stocks to buy. you only buy stocks that have pulled back from the new high list if you're confident they'll make a. >> back for substantive reasons unrelated to the broader market but related to your stock. you need to do all the same homework you ordinarily do before buying a stock, you absolutely must have conviction. even if it's a cynical conviction the stock's going higher, that it deserves to go higher. and the biggest caveat of all when you're shopping for stocks that have pulled back from your highs, make sure they have pulled back for a good reason. the sell-off needs to be extraneous to their business. don't go buying a home builder that's down because interest rates flew up. because that that could genuinely hurt the numbers. but if a big pharma stock gets hurt by higher rates that's nothing to do with the earnings so maybe it's worth buying.

be sure you're dealing way momentarily damaged stock and not a troubled company that's going down, down, down. how can you tell the difference between a damaged company, damaged stock? the fundamentals haven't changed. the stock probably hasn't fallen from grace. it's pulled back for mechanical reasons. profit taking or some panic in the market in general. now more than ever stocks are traded like commodities by ultra leveraged -- ultra levered hedge funds, frequently causing huge sell-offs that make no sense whatsoever. so you'll see high-quality stocks pull back off their highs for unrelated reasons to their core business. but if the fundamental picture changes in whatever made that stock attractive as it climbed its way up to the new high list goes away, then that stock is no longer a candidate for your portfolio. the story has to be intact or this mlth won't work. here's the bottom line. that's the first method to cramer's madness. watch for stocks that have pulled back from a preselected list. the new high list. especially because a broad market sell-off is sometimes a great opportunity. some of my best picks for the club have come out of the process and hopefully some of yours can too. let's take some calls.

let's go to andrew in georgia. andrew. >> caller: hey, mr. cramer. how is your day? >> good day. how about you, andrew? >> caller: i'm doing well. thank you for haasking. i'm a fairly new investor. i've only been investing for about three years. one i want to say i appreciate everything you do for the new guys. >> thank you. thank you, andrew. that's terrific. how can i help you? >> caller: my question is about earnings. i want to know after earnings announcements how long should you typically wait like when you say the smoke clears and -- like what do you look -- [ audio difficulty ] >> i find that after an ipo you really have to be very careful because what you've got are a lot of analysts who want to say positive things and they tend to

lose their critical faculties. my advice is very clear that when you get a stock that's down substantially from where it opened that's how you look at it because i allot of time the opening's controlled by people who are way too enthusiastic. a company with actual earnings and a good balance sheet that trades at a premium to the stock market but has a premium growth rate, that might be okay. but otherwise no, thank you. i'll find better stocks. how about doretta in west virginia? dreta. >> caller: good evening. thank you first of all for everything that you do. i think you're a national treasure. i have learned so much from listening to your show. >> you're very kind. >> caller: when you want to generate cash, how do you decide what stocks to sell? >> okay. we talk about this a lot in the club and i tend to rate my stocks 1 to 4, following the fundamentals. always willing to sell a 4 or even a 3 on any lift. what i try to look at is i look at it like paintings.

i don't want to buy a new painting without selling an old painting. i don't want to have a museum. and what i look for are companies that reported a bad quarter. okay? that was disappointing to me. that have a little bit of lift that i can start lightening up front. because i don't want to sell a company that just reported a good quarter. i'm looking for companies that disappointed, are always there, and you have to have the discipline to -- >> sell sell sell. >> as hard aas it might be. timothy in new york. timothy. >> caller: yeah, hi, mr. cramer. thanks for taking my question. >> sure. >> caller: i want your opinion on quants. my understanding of quants is that they screen dozens of parameters on thousands of stocks and use algorithms to rank them in terms of valuation, growth, momentum, profitability, revisions and so on. outcomes are graded by hold or sell recommendation. quant portfolios have a very good repeatable performance.

it seems to me that at a bare minimum these are a valuable tool. on the other end why wouldn't an investor use them exclusively? >> that's a great question. i think a lot of times the quants go up and down, trade too much. they recommend stocks and then the chart says no or the numbers say no. i like to buy great companies with great management that have good secular tailwinds behind them. and the quants don't necessarily catch those. but i do think that everything, whether it be quants, whether it be charts, whether it be everything that is from research, i like to include it all. and if certain quants have great records and they share the data that they're using, i'm a buyer too. okay. so now you know the first method to cramer's madness. watch for stocks that have pulled back from that preselected list of companies called the new high list. especially because of a broad market sell-off and not something happening at the company itself. some of my best picks have come out of this process. hopefully some of yours can too. on mad tonight i'm giving you an

in-depth look at many more methods to my madness. if you want a more well-rounded sense of how to yurate your own stock portfolio you do not want to miss the rest of the show. so stick with cramer. >> announcer: don't miss a second of "mad money." follow @jimcramer on x. have a question? tweet cramer. hashtag mad mentions. send jim an e-mail to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

[thunder rumbles] ♪ ♪ ♪ ♪

the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪ ♪ [thunder rumbles] ♪ ♪

is it possible to count on my internet [thunder rumbles] like my customers count on me? it is with comcast business. keeping you up and running with 99.9% network reliability. and security that helps outsmart threats to your data. moaire dida twoo? your data, too. there's even round-the- clock customer support. so you can be there for your customers. hey billy, how you doin? with comcast business, reliability isn't just possible. thanks. it's happening. get started for $49.99 a month. plus, ask how to get up to a $1000 prepaid card with a qualifying internet package. don't wait, call and switch today! welcome back to tonight's methods to madness special where i'm revealing some of my best tricks tfor buying and selling stocks. trying to give you the real sure

ones. you can call it truly timeless investing wisdom for the ages but i'm too humble to say it. i would tell you to think of me as the penn & teller of the stock market with a physique that's a whole lot more like teller than penn. i want to show you how professional it looks for stocks and know what to sell. there's no magic, there's no hidden talent just a bunch of discipline, disciplines that can try to help you make mad money if you master them. you don't have to be a genius. you don't even strob all that smart to be completely honest. you just need to know what the heck you're doing and put in some homework. and that's where cramer the sad clown comes in. let's move on to more important things to find stocks that are great buys. earlier i was talking about picking up stocks that have pulled back from the new high list because you get a cheaper entry point, something that's already been a proven winner. i said you rarely want to buy names right off the new high list because you're paying too much for them. you usually get a better chance, better deal if you're patient

and wait for weakness, 5% to 8%, given how volatile the market can be even when things are going well there are very few occasions when buying a stock right off the new high list can be justified. have some patience. but sometimes the stock's so hot that you've got to buy it even -- whenever you can. as soon as you can. because it's not heading lower anytime soon. i felt that and you've felt it. you won't find these often. but when you find them you have to remember not to buy all at once. you want to buy 100 shares of a stock you think it's got so much mojo it won't get a pullback from the high, how about this? buy 25 shares. worst that happens it goes higher still and you don't get to buy more. so you grab a quick profit and find the next one. believe me, there's always another one coming down the pike. i've got one exception where it's okay to buy stock that's hitting a new high. if you see insiders buying the stock when it's already up a great deal, that's a total green light. don't laugh. it does happen. it's rare but it does happen. in my experience it's rarer still that this method of picking stocks doesn't work out. i love it when i see insider buying after a decent run. that is a terrific sign of the

confidence that the insiders have that the rally may be just beginning or that there's a big runway ahead and they sure think it's going to be long-lasting, fyi, insiders can't flip a stock they buy immediately, they have twoto wait at least six months, otherwise the government takes away the gains. that's the law. so these people are seeing positive things that likely aren't going to disappear in six months' time. boy, do i like that. normally insider buying ranges from meaningless to small but a small bet i want to own and sufficient reason to buy a stock. sometimes you'll catch insiders baying their stock because they want to give the impression of confidence, creating an illusion they're doing better than they really are. insiders aren't stupid. they know if they're seen buying their own stock even small amounts the market will smile upon them. so occasionally they game the system. that's fair. but it means we ignore most insider buying that is not substantial because it could be pure flimflam. what a word. that said when you get truly colossal insider buying even if it's not all at the high, you might want to take another look at the stock in question. when insiders buy a whole lot of

shares what a powerful endorsement. crucially if the volume of the insider buying that really does declare sincerity. we're only focusing on one kind of insider buying, the kind you've seen in stocks that have been running and aren't perceived as being historically cheap or low dollar amount plays. those sometimes can be down there for a reason. there's nothing more arrogant and yet telling than when an insider backs up the truck for their own stock when it's been rolling along at a good clip. think about it. what they're saying is yeah, we know we rock. our stock has been en fuego and we're so darn confident it will keep going higher we're going to buy shares right now hand over fist. arrogant, sure. but it's rare. but it is bankable hubris. corporate insiders aren't fools. with some notable exceptions. plus if stocks are already on a tear there's probably a good chance the executives know what they're doing. of course not everyone deserves the benefit of the doubt in in business and after so many investors got burned by the2021 boom in ipos and spacs, i know

most people see ceos as a bunch of liars. but that's the wrong lesson to draw from the ipo implosion. healthy skepticism is one thing, a total unwillingness to believe something positive is something else entirely. if you're going to invest in the stock market you need to be willing to extend some measure of trust to the people who run the companies you own shares in. otherwise why bother? just go buy the index fund. what else could be going on to spur insider buying? even when the s.e.c. antitrust division are hostile to takeovers, sometimes they'll buy their own stock because they hear footsteps of a potential acquirer. maybe they've been contacted by companies and they turn those companies down. spurned overtures happen all the time. and if executives expect they may be next, well, it's a healthy and honest reason to buy. or maybe they realize that the business is indeed worth more than they thought and could be broken up by priby bringing out value. altria, tyco, even dupont.

we've seen tons of these break-ups over the years and they generally produce long-term gains because wall street likes smaller more straight sfard companies that are easier to get your head around. think about carrier, otis, the old united technologies. maybe the executives see the ability to create value and they want it on themselves or maybe the stock's run just a bit but they don't think the run is over because they recognize how much better the business will be once it's broken up. for me buying after a big rally can certainly feel a little reckless and even lazy. most investors are smart enough to wait for a pullback before they pull the trigger. but insider buying after a decent not run tells me one of the people who knows the business best doesn't believe there will be a pullback. and there's nothing more bullish than that. sure ideally you want to wait after the stock sells off after the insiders have boug but that's the best of possible worlds it doesn't happen that often i've seen it happen in some red hot tech stocks that cool off momentarily and that's a terrific sign to buy. bottom line, one more method to cramer's madness when you see insider buying in a stock that has already had a solid run.

admittedly a rarity, you might want to do some buying too. "mad money's" back after the break. >> announcer: coming up -- need another tool in your belt to help identify the right time to buy a stock? cramer's revealing how short interest in a name could be your telltale sign to buy it. next. ♪ ♪ every day, businesses everywhere are asking: is it possible? with comcast business... it is.

is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too. with the advanced connectivity and intelligence of global secure networking from comcast business. it's not just possible. it's happening.

icy hot. ice works fast. ♪♪ heat makes it last. feel the power of contrast therapy. ♪♪ so you can rise from pain. icy hot. after last month's massive solar flare added a 25th hour to the day, businesses are wondering "what should we do with it?" bacon and eggs 25/7. you're darn right. solar stocks are up 20% with the additional hour in the day. [ clocks ticking ] i'm ruined. with the extra hour i'm thinking companywide power nap. let's put it to a vote. [ all snoring ] this is going to wreak havoc on overtime approvals. anything can change the world of work. from hr to payroll, adp designs forward-thinking solutions to take on the next anything.

you're in luck because you caught cramer on a good night. i'm not going home to sip that cheap stock on my dirty linoleum floor. and by the way, i apologize to dewar's, which i once suggested was the linoleum scotch of choice. it's actually pretty good stuff. you guys ever tried the 18-year-old jameson? sweet. don't waste that one on the dirty linoleum floor either. no, i'm in a great mood, a manic mode even, which is me at my best because let's just say i'm pretty darn productive when i'm in high gear. i'm so revved up i'm revealing many of my secrets, the methods to my madness. better than giving you stock picks i'm giving you some of the best ways i know to pick stocks. i'm teaching you to invest and trade like cramer, if not to be like me because i have some emotional issues that frankly you probably would prefer not to emulate. somewhat off track. so far i've given away two of my

precious secrets, two of the tools that i use in my hedge fund and still use for my charitable trust which of course you can follow by joining the cnbc investing club where unlike lady gaga i play with an open hand, not a poker face. allowing subscribers to see all my trades before they happen. what i'm taecheaching you tonig are really what i call tells, signals a stock may be worth owning, that your time and effort of reading through the quarterly filings to do the necessary homework. there are thousands of stocks out there and any method we can use to narrow down the ones that might be attractive to us is a method worth having. i've talked about insider buying near the high and while i don't use insider buying o'as the only way to determine whether a stock has got it going, there's one other scenario where insider buying makes for an incredibly bullish tell. and that's when the stock has a heavy short position. meaning a lot of people out there have borrowed shares, sold those shares, and are now waiting for those shares to go lower before they buy back the

stock. return them to the bank they borrowed them from and collect the difference between the price they sold them at first and the price they bought the stock back later. you can think of shorting as like regular investing, only in reverse. we try to buy low and sell high, right? isn't that what do? shorts turn that around. they try to sell high and buy low. when a stock has a high short position, that means a lot of smart people have serious conviction that the stock's headed lower. in fact, it takes more conviction to short a stock than it does to go lodng because whe you're short the potential down side is infinite. when you're long a stock stops losing money when it hits zero. shorts lose money when stocks go higher. the other thing about short sellers is if there's a lot of them and a stock all of a sudden gets some great news we get what's called a short squeeze. it sounds exactly like what it is. in order to close out their positions the shorts have to buy. this is calledcoverage. short coverage. when a lot of shorts cover at the same time in a panic the

stock will surge because what you really have is a lot of people desperate to buy the stock to cut down their losses. a lot of demand. they have to buy unless they want the performance to be wiped out. this process is so predictable that sometimes concerted buyers will foment a short squeeze. hey, listen, that's what gamestop was all about. that's what amc was all about. that's what the meme stocks were all about. where does insider buying fit in the short selling equation? let's say you have a stock with a high short interest, then some of the people who run the company start buying shares for themselves or maybe an outsider takes a more than 10% stake in the business and indicates he wants more. it's almost like drawing a line in the sand for the shorts saying our stock goes this low and no lower. this is an explosive combination, people. and one that often leads to a short squeeze that sends the stocks much higher. shorts are smart. in fact, they often tend to be smarter than regular long side investors. but they usually don't know more about a business than the insiders who run it. if a lot of people are shorting a stock and management starts

buying it in sizable amounts, you start doing your homework right then right there. usually it makes sense to side with management. you can ride it higher and higher in true jackie wilson style. higher. lifting me. as the shorts panic and push shares higher. in their desperation to cover their positions, cut their losses and move higher. similarly when a company with a heavily shorted stock announces a gigunda buyback, bigger than any previous one, that's another line in the sand situation where management's conceptradicting t shorts. companies often repurchase their own shashz. some of them are just an outright waste of money. a substantial new buyback in the face of the shorts is often a good reason to take a closer look. now, a note of caution here. you need to be very careful when dealing with a company that's in the crosshairs of the short sellers, especially when people are nervous and the market's in bad shape. know the landscape. the shorts have the ability to reconcile. even if the fundamentals of the underlying business are

fantastic. these days stock owners no longer have the benefit of rules that used to slow down short selling and make it harder to create bear raids. when i got started in this business it was much harder to bet against stocks but the s.e.c. gutted those rules under both democratic and republican administrations all in the name of creating more efficient markets. without these protections we can't smash a stock down the shorts can easily assassinate stocks today, smash them down. anytime something goes wrong. we see it during the financial crisis in 2008. oh, my god, that was such a horrible period. and we saw a smaller version of that during the mini banking crisis of 2023. for the shorts it was like shooting fish in a barrel. so many regional banks traded like they were going bankrupt but other than a few ne'er-do-wells like first republic they were fine. of course in recent years the short sellers have found themselves targeted by bull raids facilitated by social media platforms, so they have to be careful. but only when the meme stock crowd goes after them in force, you never know when that's going to surface. these are highly unusual situations. you can still find great opportunities in stocks where

the shorts have overreached and the insiders are buying. but before going into one of those situations i have to warn you that the balance of power still favors the short sellers. that means even if the short sellers are wrong about a company's prospects they can still demolish its stock. especially if they mount highly visible campaigns against the stock. and look, many times the shorts are right and the stock deserved to be slaughtslaughtered. just don't underestimate the amount of damage shorts can do to a stock. in the end the best protection against bear raids are stocks that pay good solid dividends because when you short a stock you have to pay those dividends to whoever you borrowed the stock from. that's a terrific return. when you see a stock with a big dividend being attacked by shorts and yields going higher that's often a terrific place to be, especially when the insiders are snapping up stock too. the bottom line here, insider buying plus heavy short interest can equal raging bull buy. as long as you avoid situations where the shorts are determined to crush the stock at any cost. let's go to debbiein colorado. debbie. >> caller: ey, jim.

my husband and i are proud members of the club. we absolutely love being members. it's so much fun. >> thank you. i'll pass it on to jeff marks, my colleague. that's fantastic. >> caller: my question for you today is i have a 31 years son and he's finally starting to listen to me. so i was wondering if you had some tips and tricks for us to get him involved in the market. he's got a goodly sum of money to spend and he's really excited about getting involved. >> well, that's fantastic. if he has a science bend, there's so much he can do. i would first look at biotech, which has got some amazing situations. by the way, like danaher because that serves the biotech companies. i like vertex. i think he should look at vertex. that's a terrific company. and you know, let's just not forget, you do want to have a diversified portfolio. it's okay to be able to take a look at some of the stocks that you and i both know like i ahoneywell is still incredibly cheap that we have. and maybe you have a stock

that's a bit of a flyer like a foot locker. so build a diversified portfolio but emphasize the science, i think you'll be in good shape. now we'regoing to go to vincent in new york. vincent. >> caller: hey, cramer. how are you? >> i'm good, vincent. how are you? >> caller: i'm well. what advice would you give a 26-year-old that's been day trading for about two years and is looking to, you know, do better and go as far with this as he can? >> if you're day trading it's a full-time occupation. so what you want to do is put some money in the vanguard total return fund and put some money in the vanguard s&p 500 fund and just keep putting money away every single month. if you have some good day trades and you made a lot of money, take off some of that capital and put it in those vanguard accounts. that's the way i would suggest you do it because i want you to have exposure to the broader market, not just to the stocks you're trading. all right. look, in most cases a stock with insider buying and heavy short interest equals buy. as long as you can avoid a situation where the shorts are determined to crush the stock

that you own. much more "mad money" ahead. i still have some tools in my belt i want to share with you including my method of trading around a core position. so stick around. the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com (grunting) at morgan stanley, old school hard work meets bold new thinking. ( ♪♪ ) partnering to unlock new ideas, to create new legacies, to transform a company, industry, economy, generation. because grit and vision working in lockstep puts you on the path to your full potential. old school grit. new world ideas. morgan stanley.

were you worried the wedding would be too much? nahhhh... (inner monologue) another destination wedding?? why can't they use my backyard!! with empower, we get all of our financial questions answered. so we don't have to worry. empower. what's next.

we earn your trust. maintain our financial strength and stability. and deliver solutions that meet complex needs. massmutual. partnering with financial professionals, benefits brokers, and institutions.

regular viewers know that this show's all about investing. owning stocks for the long haul. not only short-term trading because it's much easier to be a good investor than a good trader. especially when you're doing it part-time. however, knowing how to trade makes you a better investor. and trading around a core position is one of the most basic and useful disciplines out there, especially in markets that often get hit by wild swings. and that's most markets in recent years. so what does it mean to trade around a core position?

let's go through it step by step. first you need a stock. pick one that you like, one you've got an opinion about, one where you have a bias, a stock you believe is headed higher over the long term. what you're really searching for here is a great company with shares that might get tossed around by market volatility. even as you believe they'll ultimately go higher if you're patient. now, if you were just investing and you just have a position in the stock buy in gradual increments because we all know buying all at once is just pure arrogance. and that would be it. by the way, this whole process of buying in increments is something we're constantly showing you how to do if you belong to the cnbc investing club. we also talk about trading around positions. take something like nvidia, that's a chipmaker with a fantastic long-term story because they make the most powerful semiconductors on earth that are needed for cutting edge applications like artificial intelligence. i love nvidia for the long haul but it's got an insanely volatile stock. now, let's say you want to own 100 shares of nvidia over time. then the way to set a position would be to buy 25 shares four times over a period of weeks or even months.

that's your core position as an investor. but let's say you want to trade, something that's hard to do but also cheaper than it's ever been. because home gamers can fit in and fit out, no stock commissions. i wouldn't recommend pure trading something like nvidia. my stance is own it, don't trade it. but trading around a core position, different story. so let's go back. you own the 100 shares of nvidia and let's assume it's sitting at how about $500 for the purpose -- 500. every time the stock jumps another 5% you could sell 25 shares. a quarter of your position. you shave a little off to bring in some profits. so once nvidia's 525 you'd own 75 shares. keep scaling out the say way as on the way up but don't ever sell the final 25 because that is your core position. then you wait until something happens to knock the stock back down and as long as nothing's changed with the underlying thesis you use that stock -- we've done this for the charitable trust. it's going to happen pretty often. since we're in a world where stocks can get crushed by all

kinds of factors, nothing to do with fundamentals, that's what happens. as the stock comes down your original cost basis you buy it back in increments. since we started with 100 shares, let's keep using increments of 25 to buy it back every 5% decline. you can go beyond 100 shares if it comes down low enough too. now, this might be small potatoes, up 5% sell 25 shares, down where you started buy 25 shares and repeat the process on the way back up. but over time your profits will add up. and that's what trading around a core position's all about. now, a lot of people think trading's incredibly exciting. and it can be. but if you're good at trading around a core position, you should be pretty bored. all you're really doing is watching the stock move and then trimming or adding your position accordingly. contra to the image of trading as something that's reckless and irresponsible, trading around a core position is the height of prudent portfolio adjustment. boring, by the way, is good in this business. exciting? save it for the stadium. obviously you can scale these numbers depending on how big your position is.

but the basic idea is avoid putting yourself in a spot where you have too much on the table in case the stock gets swatted down or too little on the table to take advantage of any upside that comes your way. trading around a core position's an important basek strategy that everyone can use. even those of you that find the notion of trading totally abhorrent. because it's less trading and more just a supplement to investing. so here's the bottom line. now you know the basics of how to trade around a core position. yet another method to my madness, one that allows you to generate lots of small gains that i am telling you will add up over time. "mad money" is back after the break. >> announcer: coming up, cramer's revealed his tools to the trade of buying a stock. but what about selling them? cramer's breaking down how to get out of a stock at the right time. when "mad money" returns.

i've got one more trick to teach you tonight. one more method to my madness. this time i wanted to talk to you about selling. how do you know when to sell a stock? you ask me about that all the time. how do you get out before the party ends so you're not one of the last people around to get stuck cleaning up the mess? this is a question that needs to be answered because there's a lot of money to be made by owning hot stocks with lots of momentum. but when you play the momentum game you need to know when it's time to leave the table. there are always naysayers and eventually the naysayers are almost always proven right because sooner or later hot stocks implode. talking about the hot stocks here. remember everything that roared in 2021 collapsed in 2022? that's what i'm talking about. but the collapse usually occurs later rather than sooner.

and all the negative talking heads who kept you out of momentum stocks way recklessness disguised as prudence actually cost you a great opportunity to make money. people shy away from these stocks because they don't know where they're going to stop. they don't know where they're going to top out. it's understandable. i'd be afraid to buy them too if i didn't have the discipline that let me know when to get out. lucky for you i do have one and you're about to learn it. first one i'm talking about hot stocks i really mean hot speculative stocks. stocks of companies up with fairly low market capitalizations. usually these stocks begin with very little research coverage from major wall street brokerage houses. they doechb don't often have erin aings, they may not even have sales. these names can go up for a very long time. they can catch fire and stay on fire for years when they have the wind at their back. the key to figuring out when interest has peaked and it's time to sell is not from the stock. it's by watching the analyst coverage. you have to use your own judgment here but a good rule of

thumb is once one of these hot stocks has at least a half dozen analysts covering it the run is going to peter out because the stock in question is becoming too well known. it's the rare speculative winner that can keep winning after it gets big. you can find out how many guys are on a stock by looking it up online. this isn't hard to find information. this formula's worked for me for as long as i can remember. as far as i can tell it works because the number of analysts on a stock is a good gauge of how much awareness and interest there is in the name. hot stocks get tapped out when there's nobody left to be attracted to them to go buy more. when all the people that would be interested in buying have already bought. they come out of nowhere attracting more and more attention, more and more backers and eventually everyone who wants a piece of this stock has a piece of it already. when that happens the run's over. it's time to go home. and if the meme stock guys get their hands on it, take advantage of their enthusiasm to ring the register. that's a great sign that you want out because they can only push a stock up so much before

they run out of firepower. of course there are other situations where speculative stocks go out of favor all at once. regardless of how much attention they're getting. in 2021 we hay huge run in anything related to electric vehicles. think carmakers, battery plays, charging stations. same goes tore enterprise software stocks. a lot of this was fueled been easy money environment with near zero interest rates. there's a lot of liquidity kicking around back then and it had to go somewhere. which is why so many money-losing companies had red hot stocks. but then the federal reserve declared war on inflation. back in november of 2021. letting you know that the age of near-zero interest rates was coming to an end. at that point we knew the speculative froth was going to be drained out of the entire market because that's what occurs when they tighten rates. instead you want to own real companies that make things or do stuff at a profit. now, i know it wasn't the most elegant way to phrase it but these names held up much better than speculative plays that got obliterated in 2022.

but putting aside the interest rates issue, when the fed's not tightening and it's safe to speculate, you need to watch how many analysts are following these little speculative stocks to know when the run's going to end. bottom line, once a red hot speculative stock gets too much attention it nemeans the rally' on its last legs because there are only so many people who are willing to buy these things and eventually the bulls, they run out of firepower. stick with cramer. fresh, warm hot dogs! when i'm not selling hot dogs, i invest in a fund that advances innovations like robotics. fresh, warm hot dogs, straight out of my torso! one for you, one for you.

oh, you're a messy one. cool, right? so cool. anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. hot dogs! fresh, warm hot dogs! before investing carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com.

i always say we have some of the smartest viewers in television, and i love taking your questions, listening to your pitches and hearing what cramericans want to know about. so joining me today just to do this is jeff marks, portfolio director for cnbc investing club. we're answering some of your burning questions and your hashtag mad mentions. jeff does a great job helping out with the trust, tossing around ideas, doing some great analysis for "mad money" viewers and members of the trust. if you're not a member already, what are you waiting for? so let's start right now with tim in alabama. and i think he has a really good question. how do you decide whether to take profit rather than keep a stock longer to receive capital gains tax treatment? these are always hard issues because i think you have to worry about that kind of thing with your accounting professional because what i care about is whether the stock's going to go up or down. i believe if a stock's going to go down you should take it off the table, even if you have --

that's what matters to me. >> of course you want to see qualified advice for something like that. but for the charitable trust that you can follow along with at home we don't really play the tax game too much because everything gets donated, the gains gets donated to charity at the end of the year. >> yeah, i think -- i've always felt from real money, my first book about investing, that never fear the tax man. fear the losses. all right. next up we're taking a question from russell, who asks i always try to follow your advice to buy stocks in portions rather than all at once. very good. often these stocks never pull back enough to buy more. i end up with small positions in lots of different stocks, making it hard to manage. what would you recommend? okay. this is another one where this is a discipline that i came up with which says that it's a way to figure out whether you missed the move or not. if you come in and the stock keeps going up there's no doubt about it, that you are late. there's just nothing you can do if you don't get it all in.

i've accepted that consequence. if i'm late then all i do is have a small gain. that's just the way i look at it. >> it's a high-quality problem to have. if you're able to continue to do the homework, then you can still hold them, especially if the prospects are quite good. but yeah, it's a challenge because you don't want to spread yourself too thin with a whole different number of stocks. but look, if they're going higher, you know, it's a quality issue that we deal with sometimes. >> it's a discipline. what happens if you buy it all at once and it goes down? good chance that could happen. and we're trying to avoid that. that's the real worry. all right. now let's take a question from randy in ohio who asks "i know when bonds sell off the rate goes up. if bonds do sell off why would it impact stocks?" okay. there are many different ways you can answer this. one is if interest rates go up for something that is risk-free, a bond, then that has greater appeal than a dividend which may be equal because the dividend, you know what? that's only mart of the equation of what a stock returns.

and if the stock goes down big, you wipe out whatever gain you get from the dividend. and then of course there's long-term considerations as you know just about the value of a bond versus stock further out. >> right. it's competition for dollars like you mentioned. but interest rates are also used in a discounted cash flow model where investors look at the cash flows out, they estimate them, they discount them back and when the interest rate's higher they get discounted at a higher rate. that lowers the value of stocks. but there's also things like financing costs if it's used, if a company relies on financing to sell their products, higher rates might hurt their business as well. >> you just have to think stocks aren't as competitive in many different ways than bonds if rates go up. i mean, reallies that the way you have to look at it. even if you don't understand discounted cash flows, you kind of have to take it for granted that that's what occurs.

next, lynn in virginia wants to know if i only have five shares of something remaining and you recommend taking some profits, should i close out the position or let it ride? these are just questions that are so hard because five shares reminds me of like the tail end of when we have some wind. it's a tail end. if the stock goes buy you can buy more. so if the stock goes up and we recommend sell, i would just get rid of it. i really would. i would just say let's move on and find something better. because there's always something better. >> it's absolutely a fair debate. if they are growing the dividend, growing profits, the outlooks are bright, maybe you could sell one or two. but you also don't want to fall into that trap from the earlier question that we just had about managing too many positions. so there's always cross-disciplines happening. >> that's one of the things people don't understand about investing, is that there is no right or wrong. there's often two rights that compete against each other. now i have a question from kyle

who asks do you have a similar approach to investing in index funds as you do stocks where you would wait until the oscillator is very oversold or would you just dollar cost average in index funds? this is very funny because this is where i've got two disciplines. what i like to do if i'm putting money in every month, if there's a month that's down more than 10% i double and put -- let's say august is down 10%. i take july's contribution, keep that. august contribution. and then i take september's contribution and i take september and august together. and i just feel like that's a good level. so you might be -- let's say you have 1/12, 1/12, 1/12 -- 2/12. >> stocks generally should be more attractive as the prices come in. you wouldn't run from a sale at a department store. but on the other hand what i would say if it's index funds it's more about time in the market than necessarily trying to time it oversold, overbought. you just want to be invested --

>> absolutely. and i think that's a really important issue. we do not by my method try to imply that we're necessarily timing the market. just trying to put a little more money in it at that one level but certainly do the rest. well, what can i say? i like to say there's always a bull market somewhere. i grainola one last call, back in business. grab the confetti just yet. going base share's moving big right now. high praise for elon musk. the famed entrepreneur going bullish on a come back for x period late to the party. a wall street bank waking up to one of the hottest stocks out there. utterly mind blowing. you've got to see this. you completely fake ai generated videos and we will show if you of them to you. this will make your night. buckets