>> 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 save you a little money. my job is not just to entertain you but to educate and teach you, so call me at 1-800-743-cnbc. tonight, i'm letting you in on something big! the method to my madness. i know this show is the

craziest, wackiest, most random, bizarre thing on television. but i also know you won't find investing advice this good anywhere else. you know that, too, or else you wouldn't be watching, unless you're one of those people that tunes in just to see if tonight is the night the show really does go off the rails! which after multiple years of airing is always a possibility on any given night. sorry, guys. there's a tape delay. but keep watching! for those of you more interested in trying to make money than watching me traipse around like the crazy man some say i am, you'll want to keep watching. you can do everythign at home if you're willing to put in the time and effort investing, actively investing in stocks, running your own portfolio rather than dumping your money with some buy and forget index fund, or worse, bond funds. particularly when we had record low interest rates, remember those days? it's something anyone can do as long as you can spend five hours

a week doing the homework researching the stocks. although i'm now condoning a couple hours a week these days, because the research is so readily available if you have a pc. on cnbc.com, thestreet.com, yahoo finance, or the websites of the actual companies you're thinking of buying or keeping up on. i think actively managing your own portfolio is essential, especially in the wake of the crash in 2008, which proved the uselessness of index funds that try to mimic the market. mimicking the market's returns is not enough, especially if you're trying to get back to even. you have to do better, and the only way to do that is by picking your own stocks and actively managing your own portfolio for your own tax consequences. but how do you start? that's what we're talking about tonight. like i said, this show is all about the method or methods to break for strictly quoting the bard to my madness. how do i pick stocks? that's the question everybody would love to know the answer to, tonight you get a piece of that answer. the truth is, i've got far too

many methods of picking stocks to cover all of them in one single show. but i want to give you the tools of my trade, enough so that you can start to pick stocks like yours truly on your own. or do better than i am, because you don't have to follow as many as i do to be successful. and i do follow a lot of stocks. it was recently tested at the inn i own in summit, along with my eggs i serve on sundays, preferably poached, and i do the dishes there. at the bottom, this show is about educating you, giving you the ultimate insider's perspective on how the market works and how it can make you money. i'm not here just to dole out stock picks like the proverbial fish you give a man if you're too lazy to teach him to shop for them at whole foods. what i'd really like to do is empower you. which starts with me teaching you the tricks i use to pick out stocks and trade them like a pro. methods that have served me now for more than 30 years of investing, same method that's allowed me to generate 24% annual return after fees at my hedge fund.

these skills are what refreshes the show, and they guide me as i manage my own charitable trust, which you can follow along at actionsalertplus.com. another labor of love, something i'm proud of, even as the product's really difficult to put out every day as we do. now, let's get rolling. one of the easiest ways i identify potential cramer names, the stocks that could but won't necessarily always end up on the show, is by watching -- oh, my, i can't believe they produce this for you every day, the new high list. stocks on that illustrious list, the highest of the high, obviously have something going for them. and that's especially true when the market is in bad shape, as only the best of the best can hit new highs when the market's falling apart. so what's it tell you when a stock is on the new high list? either that as part of a genuine bull market, or that the company itself has serious momentum. no matter how they get there, many stocks on the new high list often keep going higher. in a great bull market like we had from the bottom in 2009, any market that more than doubles

from the bottom has to be considered a great bull market even as we resist such labels. we saw that over and over again. the same stocks would hit new high after new high after new high. following them was a great way to make money, even as the bears claimed endlessly that the bull market was false and couldn't be trusted, and we were just playing momentum. now, obviously the rally since the bottom was more like the exception to the rule. but things have worked out and continue to work. i'm not saying you can chase stocks that are hitting their highs because they'll keep going higher. that would be the ultimate in foolishness. it's true bozo the clown behavior. i'm not doing that. i'm saying if you want to identify stocks, where do you start? you identify them with what would be winners in the future with winners already, unless there's been a big sea change in the market or a radical shift dramatically higher in interest rates. looking at the biggest winners of the present is a terrific way to start looking at what could be the winners of the future.

that's the thing about the market, it's not always that hard to play once you understand that there's often more continuity than change. things pretty much keep going the way they were going until something major shifts, and then you've got to alter your course. those tectonic course changes can be pretty radical, though. and that's why you have to be reevaluating your ideas and never dig in your heels if the fact changes. i discuss in my books, "getting back to even," still holds up, not just about individual stocks working at the time. i still regard as indispensable. even as we did ultimately get back to even and then some. when you're looking for stocks to invest in, hunting for the bull markets like i do every weeknight at 6:00 p.m. eastern, you've got to start somewhere, and looking at the new high list has always been for me from when i started a terrific way to begin. now, don't just pluck names off the new high list because i think, hey, those stocks will keep going up, that's circular reasoning. why don't i recommend them on

the show? it would be lazy and irresponsible. i'm many things but lazy and irresponsible, no, no, no. anyone who sees my insane 4:15 a.m. tweets @jimcramer, i apply the same standards of rigor at the show i used to use at the hedge fund. 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. see, that's the best place to start. i like new high list pullbacks. the pullback, preferably at least 5% down, gives you a good lower-priced entry point in a stock that's probably got a lot of positives going for it. remember, i'm not telling you to chase momentum. you should always be conscious of price and try to buy on weakness, just like you want to sell into strength. i'm throwing in these caveats because i don't want you to look at the new high list as your shopping list. big mistake. it is a great jumping off point. okay. it's an important one. poring over the new high list is a fabulous way to identify potential stocks to buy.

you only buy stocks that are pulled back from the new high list if you're confident they'll make a comeback. you have to all the homework. you absolutely must have conviction. even if it's a cynical conviction that the stock is going higher, that it deserves to go higher. meaning you know the big boys, the growth funds can't resist stocks of high-growth companies and they always come in and support their stocks after a few down days. they really do do that. and the biggest caveat of all when you're shopping for stocks that have pulled back from their highs, make sure they haven't pulled back for a good reason. make sure that the selloff is extraneous to the business. don't go buying a home builder that's down if interest rates flew up. that could initially hurt their next quarter. it would have nothing to do with the stock of bristol-myers, though. be certain you're dealing with a momentarily damaged stock and not a troubled company that's going down, down, down, down. how can you tell the difference? if the fundamentals haven't changed, the stock probably

hasn't fallen from grace. profit taking or panic in the market in general. those are the two main reasons. now, more than ever, thanks to the fact that stocks are traded like commodities by hedge funds, causing huge selloffs to make no sense in everything, or double and triple related etfs that are more powerful than the stocks themselves, you will see the stocks of good companies pull back from their highs for reasons that have nothing to do with the strength of their underlying businesses, and those are the ones i want you to -- >> buy, buy, buy. >> but if the fundamental picture changes, if whatever made it attractive goes away, that stock is no longer a candidate. >> don't buy, don't buy. >> the story has to be intact or this method will not help you one bit. i tend to like stocks that have pulled back between 5% and 8% from the high. less than that, you're probably too early, more than that, there may be something wrong with the stock and you don't know it. as billy joel said, you may be right, i may be crazy.

but at least there's a method to cramer's madness. watch for stocks that have pulled back from the new high list, especially because of a broad market selloff. some of my best picks have come out of this process and hopefully some of yours can, too. i need to go to robin in new york. robin. >> caller: hi, jim. >> hi, robin. >> caller: i'm a blond who said on your family show that if you're single, i'm interested, and i want you to know that i still am. >> well, hey, you know, you never know. you always got to put it out there. you never know. >> caller: i'm putting it out there. and now i'm going to put out my question, okay. >> okay. >> caller: my question is about ross purchasing more shares of stock. i have a number of stocks i purchased at low prices like eog resources at 30, lionsgate at 11, and i would like more shares of these excellent companies. given that the prices are now exponentially higher than what i originally paid, but i want more shares and the larger positions in these companies, do i buy more or do i wait for another

bargain to come around? >> robin, this is really difficult. i talk about this all the time with stephanie link. it's called violating your basis. let's overlay that with the discipline of, if the stock is down 5% to 8%, i'm freeing you of the idea that you can basically start a new position mentally even though part of an old position physically and buy some of those high-quality stocks. let's go to joe in ohio. joe? >> caller: big brownsburg bulldog boo-yah to ya, jimmy boy. >> of course. >> caller: hey, jim. question for you here. i have some older friends that were given procter & gamble stock when they were very young, and they've kept that stock for 60 or 70 years and it has split many times and they've become quite wealthy. my question is, how do you pick a company with the idea that you're going to hold the stock and watch it grow as it increases in value and splits? >> well, i mean, the main thing,

obviously, we're interested in the fundamentals. as long as the stock has good fundamentals and you're not too greedy, meaning once you've sold off enough to recoup your initial house money, you let it run. that's my philosophy because that's how you really, really win big as your friends have. methods to the madness of the markets, number one. i want you to check the new high list for pullbacks. and as billy joel said, you may be right, i may be crazy. "mad money" will be right back. don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer #madtweets. 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.

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a wise man once said, in a mad world only the mad are sane. and nothing's more mad than the market. and yours truly is crazy enough to know the landscape. tonight i reveal some of my best tricks for buying and selling stocks. methods, if you will, to the madness. that's right, think of me maybe as the penn and teller of the stock market. with a physique that's a whole lot more like teller than penn. i want to pull back the curtains and show you professional looks for stocks to buy and know what stocks to sell. there's no magic, no hidden talent. disciplines that could make you mad money if you master. don't got to be genius or all that smart to be completely honest. you just need to know what you're doing and put in the homework. that's where cramer, the sad but wise clown comes in. maybe less of a sad clown and

more like the fool from king lear. let's move on to more important things like how to find stocks that are great buys. earlier, i was talking about picking off stocks pulled back from the new high list because you get a cheaper entry point. i said you don't necessarily want to buy the names off the new high list because you're paying too much for them. you can usually get a better deal if you're patient and wait for weakness. given how volatile and crazy the market's become, there are few occasions where buying a stock off the new high list is at all justified. but sometimes it's so hot, so sizzling, that you just got to buy it. wherever you can. as soon as you can. because it's not going lower any time soon. when you find them, you have to remember not to buy them all at once. if you think it's got so much mojo that you won't get a pullback from the high, buy it, worst thing, you grab a quick profit and find another stock. believe me, there's always another stock to find, always another train coming into the station and leaving it. >> all aboard! >> now, i've got one exception where it is, indeed, okay to buy a stock on the new high list.

the only time, but i thought i had to give it to you. if you see insiders buying the stock when it is at a 52-week high, that is a clear sign that you do want in. it is a rare thing to see happen. but in my experience, rare, still, this method doesn't work out. i love seeing insiders buying at the high. it's a great sign that they're confident in the business. who knows the business is doing well more than the people running it, right? normally insider buying ranges from meaningless to a small but on its own insufficient reason to buy a stock. a lot of times you'll catch insiders buying the stock because they want to give the impression of confidence to create an illusion they're doing better than they are. they know if they're seen buying their own stocks, then the market will smile upon them. they play the system, that's fair. but it means we ignore most insider buying because it can be flimflam and window dressing and that kind of thing. when you get truly colossal insider buying, even if it's not

at the high, you might want to take a look at the stock in question. it's a powerful endorsement when the insiders buy a whole lot of stock. oh, yeah. it's really the volume of the insider buying that declares the sincerity. we're only focusing on one sort of insider buying right now. buying at the high. there's nothing more arrogant and telling than when an insider backs up the truck for his own stock when it's sitting at the 52-week high list. they're saying we know we rock. we're so darn confident that it will keep going higher, we're going to buy some shares, hand over fist right now. we're not waiting for a pullback. no, we're buying at the high. i have checked this out. corporate insiders aren't fools, with some notable exceptions occupying the "mad money" wall of shame. and if the stocks are on the high list, let's assume they know what they're doing. not everyone deserves the benefit of the doubt, and after the financial crisis and the market meltdown at the end of 2008, i know a lot of people thinks that ceos are liars and

crooks, especially those of you who got burned owning the old fannie mae or lehman brothers. a healthy skepticism is one thing. a total unwillingness to believe anything positive is something else entirely. you need to be able to accept a measure of trust for people you own shares or you shouldn't buy stocks, to be frank. these guys are not going to buy at the high unless they have some unshakable conviction about their companies, or perhaps they've been contacted by other companies for potential purchase, and they have spurned them, betting they can go higher on their own. for us, buying at the high is reckless and lazy, most aren't smart enough to wait for a pullback. insider buying at the high tells me they don't think there'll be a pullback and nothing more bullish than that. sure, i want to wait for a pullback, but that's the best of all possible worlds and doesn't happen all that often. when you see insider buying in the stock that's at the 52-week high, you might want to be buying, too. let's go to karen in ohio. karen. >> hey, hey, jim. >> karen.

>> caller: my husband and i got a letter from a company that we have stock with that wants to purchase back $350 million in shares. they said they were going to pay a minimum of $22.50 a share up to $25.50, which is approximately 14% of the stock they own. when is it a good idea to do this? i'm kind of lost. >> if you need to raise cash. if you really need to raise cash, it's good, otherwise i want to be with them. i want to stay, own, i want to buy, to be honest. let's go with russell in florida, please. russell? >> caller: hi, jim, i was wondering, could you tell me the advantages and disadvantages of stocks versus mutual funds, and which one you would recommend for someone who is nearing retirement for a steady stream of income? >> for a steady stream of income, there are a number of mutual funds that actually are income-oriented funds, and you've got to look at them and look at your three and five-year records. individual stocks i like because i control my tax destiny, my

basis destiny. mutual funds, i'm along for the ride. i really don't know what they own or what price they buy it, which is why i'm always so hesitant to recommend mutual funds. the great conundrum, how to find stocks that are great buys. well, one good step is to follow me and the next is mad method number two. i want you to look for insider buying at 52-week highs. something's going on when you see that. after the break, i'll try to make you even more money. mine was earned orbiting the moon in 1971.

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you're in luck, because you caught cramer on a good night. i'm not going home to sip that cheap scotch on my dirty linoleum floor. and by the way, i apologize to dewars, which i once suggested was the linoleum floor scotch of choice. it's pretty good stuff. i'm in a great mood. maybe a manic mood, which is me at my best. let's say i'm pretty darn productive when i'm in high gear, so i'm revealing many of my secrets in method to my madness. pull out your pencil, maybe some paper. start jotting things down. because what i'm about to tell you could be incredibly useful. 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've got some emotional issues, frankly. you probably would prefer not to emulate it. really. off track. so far, i've been giving away two of my precious secrets. i use at my hedge fund, where unlike lady gaga, i play with an open hand, not a poker face. allowing to see all my trades before they happen. better than pink, although i would never mind raising a glass except when i'm stock picking. i look for stocks pulled back from the new high list. it's a great place to start. it's a launching pad, and i like to buy stocks around the new highs that have substantial insider buying because that's a verification. it says the people in the company believe their stock has legs and it's not a fluke. and if they believe, there could be good reason for us to believe. but, again, this alone, not enough to recommend an individual stock. these are all just cues, places to start, still do the homework and make sure you like the story behind the company before you dive in and buy. what i'm teaching you tonight are really what i call tells. tells.

signals a stock might be worth owning, that it's worth your time and effort of going through the transcripts and the quarterly filings and, of course, the research reports. there are thousands of stocks out there and any method we can use to narrow down the ones that might be attractive are methods worth having, and that's what tonight's show is. we talked about insider buying at the high. i don't use it as a way to determine if the stock has got it going or not, there's one other scenario where insider buying makes me really react -- makes for an incredibly bullish tell. when the stock has a heavy short position, meaning a lot of people borrowed shares, sold those shares and are now waiting for the stock to go lower before they buy them back, return them to the bank they borrowed them from and collect the difference between what they sold it first and the price they bought it back later. you can think of it as shorting as regular investing, only in reverse. buy low and sell high. shorts just try to turn that around. they want to sell high and later buy low! when a stock has a lot of shorts

in it, that means there there are a lot of people who have serious conviction, conviction that this stock is, indeed, going lower, usually much lower! in fact, as i always try to tell people, it takes much more conviction to short a stock than it does to go long. that's wall street speak for buying a stock, because when you short the potential downside it's infinite. stocks can go up and up and up. but when you're long, a stock stops losing you money when it hits zero. shorts lose money when stocks go higher and there's no middleman. the other important note about short sellers, if there's a lot of them and the stock all of a sudden gets great news, we get what's called a short squeeze. and it sounds exactly like it is. in order to bail or close out the positions, the shorts have to buy. this is called covering. 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, a lot of demand. they have to buy unless they want their years wiped out. they'll all get paid at the end of the year. so many short sellers have in the last few swoons, well, they didn't cover, they didn't know when to quit and they got hurt.

so where does insider buying fit into the short selling equation? you have a stock with a high short interest. you can always look that up on these different websites, and some of the people running the company start buying shares. it's almost like drawing a line in the sand for the short, saying, a-ha, our stock goes this low and no lower. and this is an explosive combination. shorts are smart. in fact, a lot of the time they tend to be smarter than regular. they tend to be smarter than regular long side investors, do more homework. they usually don't know more about the business than the insiders who run it. if a lot of people are shorting the stock and management is buying it not just hundreds of shares worth but real -- maybe even $1 million worth, you should start doing some homework and usually you're going to want to side with management and ride it higher and higher, true jackie wilson style. as the shorts panic and push their shares higher in the desperation to cover their positions or close out their shorts.

similarly, when it comes to the heavily shorted stock announces a buy back, that's another situation. companies often repurchase their own shares and while not all are bullish, some of them can be an outright waste of money. and i teach you to identify these at actionalertplus.com, a substantial new buyback in the face of the shorts is often a good reason to take a closer look at a stock. now, a note of caution here. you have to be very careful when dealing with the company in the cross hairs of the shorts, especially when people are nervous the market's in bad shape. the shorts have the ability to wreck a stock, even if the fundamentals of the underlying company are fantastic. these days the shorts have much more fire power than ever. and i talk about this all the time on the floor of the stock exchange. the old brokers, they always believe it. that's because thanks in part to the s.e.c., now under the democrats and republicans look the other way when shorts raise stocks. they put them out on the web,

put them on sites that are unedited, and people read them. plus, it's easy to do. stock owners no longer have the benefit of rules that slowed short selling down and they make it -- used to make it really hard to create bear raids. waiting for a higher price before you can short. that was a good rule that somehow the government got talked into abolishing, in order to make trading quicker and more fair for the shorts, really more fair for the brokers. a lot of good that did for us. it's a leading reason why so many home gamers left the building. we establish these rules in order to stop the fomenting of panic. so we have to be more careful than ever not to succumb to panic that's orchestrated by short sellers who need prices to go lower, and plant stories on websites that people do not check beforehand. they just read it and say, oh, it's on a website. without those predictions, without those protections, the

shorts were able to run wild, practically assassinate the stocks of many companies during the crash of 2008 until the generational bottom of march despite 2009 and that put the bulls back in control and they haven't relinquished that. but the shorts came back with aggressive negativity. this time using weapons of mass destruction like etfs, when you're dealing with a heavily shorted stock in one of these etfs like financials, well, we've learned that you've got to tread carefully. you can still find great opportunities in stocks. but before going into one of these situations, i have to warn you that the balance of power has shifted in recent years in favor of the shorts and against you, the regular individual investor. that means even if the short sellers are wrong about a company's prospects, they can sometimes demolish the stock. although, remember, the best protection against these raids is often from stocks that pay good, solid dividends. short shellers have to buy a stock to short and pay the dividends to real owners. that's perfect return for those who are pernicious. insider buying plus heavy short

interest can equal raging buy, as long as you avoid situations where the shorts are determined to crush the stock at any cost. stay with cramer. mad about "mad money"? immerse yourself into cramer's world while you watch the show with zeebox. on your phone, tablet or the web, get sneak peeks, go behind the scenes and join the conversation. download the free app today for the ultimate cramerican adventure.

welcome back to this methods to my madness episode, the craziest, most enlightening show on television, if i am an egomaniacal person to say myself. and of course, i am. we talk about the tricks i use to find opportunities, pick stocks and know when to -- >> sell, sell, sell. >> all the methods that made me a great money manager on wall street, and help me put together this show every night to help and try to make you money. today we're transcending the usual model to teach you how to do it for yourself. so far we've focused on the methods to pick stocks, now i

want to teach you a way to trade them. this is a discipline that's incredibly useful and incredibly difficult, but is terrific in volatile, crazy markets. it's called trading around a core position. i've used this term. people constantly ask me what does it mean? here we go. i know the rap on me. i'm all about trading, i don't have any advice for regular investors. i'm all about the short-term. you know, i don't know. maybe you just turned it on for the first time, but that's entirely untrue. the show is mostly about longer term investing, not trading at all. to put aside whatever humility i have left, i will admit i was a darn good trader, but now i can only trade for the charitable trust. and there i am a much, much longer term investor than i ever was at my hedge fund. i'm not allowed to short sell or use options. and more important, if you want to be a good investor, it pays to put trading disciplines into practice to buy more shares of the stocks you like at lower prices and sell more shares when they're flying high.

that's the essence of trading around a core position. trading is about profiting from short-term fluctuations in the stock's price. sometimes these moves are caused by catalysts, sometimes the result of a topsy-turvy market driven by etfs, flash crashes and macro data. knowing how to trade makes you a better investor, trading around the core positions is one of the most basic positions out there. 2012 because of european banks, fiscal cliff, and in the bond swoon in the spring of 2013. what does it mean to trade around a core position? why don't we do this step by step? let's go through it. first you need a stock. pick one you really like. one you've got an opinion on, one where you have a bias. find a stock you believe will be going higher over the longer term. you're looking for a great company with a stock that could get tossed around by market volatility, but that you believe ultimately should go higher if you're patient. even with trading, got to have conviction. if you were just investing, you'd set up a position of stock buying. we all know that buying all at

once is arrogance, and that'd be it. let's use google as an example because i like that stock very much. although, only over the long-term for investing, because it's very volatile and gives the quick pitfalls and declines. if you want to own 100 shares of google over time, the way to set that up is the position to buy 25 shares four times over times over a period of weeks or months and your core position as an investor and buy it at a discount each time. i don't want you to buy it all at once. i know many of you want to, but you feel discouraged because you remember how all the amateur day traders got blown out when the tech bubble burst. the keyword here is amateur. you home gamers can make money trading if you do it right, like a professional in the old days. when commissions were higher, that wasn't true. the commissions would eat into your profits and it wasn't worthwhile to trade. that has not been the case for ages. i'm in favor of people who are disciplined traders. it's come back to my core position. we own 100 shares of google.

let's say it's trading at 1,000. every time the stock jumps 50 points or 5%, once google reaches 1,050, it scales up. you wait until something happens to knock the stock down. as long as the reason it's down isn't the company's prospect of damage. a stock can get crushed due to factors with nothing to do with google. you buy it back in the same increments. let's keep using increments of 25 to buy it back. if google comes back to -- from 1,100, you buy 25 shares and another 25 down 5%, that's if you sold 50 and not just 25, so on. you can even take your winnings this way and help buy 25 more if it keeps going lower. you only got to sell 25 before the swoon. i know it might be small potatoes, 25 here, 25 there, but, no, this is all about adding up gains. up 5%, sell 25, down where you started, buy 25, repeat the process on the way up.

over time, your profits do add up, and that's what trading around a core position is all about. a lot of people think trading's incredibly exciting and it can be. if you're good at trading around core position, it's not exciting. it's just not. it's quite boring, very methodical. all you're doing is trimming or adding on the increase or decrease. contrary to the image of trading is something that's reckless and irresponsible. trading around a core position is the height of prudent portfolio adjustment. particularly if a stock went up very big for a short time. that's why you've got to trim some, then you'll be ready when it comes back down. you can scale in and out of positions. the basic idea is to 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 is important basic trading strategy that everyone can use. it's really very prudent capital management. now, if you want to take your trading to the next level, the ultimate level, i did -- i did

two chapters on this, very hard, i have to admit. it's "in getting back to even." this is how i used options as a strategy. i used to think about -- before options action, some of the material was too sophisticated for tv. but that show was before me. and that show, the strategies i'm using are -- they're not child's play, but they're very, very easy. and i no longer think that i can't share these with you, and you have to be willing to put in special homework to do them. but if you have the time and inclination, it is really worth it to look at my option strategies in the book. the stock i use to demonstrate happens to be google and i do what's known as stock replacement. okay? i use calls to replace the stock and with a very high-dollar stock, it is worth it. it's a cheaper and less risky way to what i call creating a google at a more reasonable dollar amount price than it currently sells at. again, if you've watched "options action," you will have no problem understanding my theory. here's the bottom line, now you know the basics of how to trade

around core positions. another method of my madness, one that allows you to generate lots of small gains, and i can tell you from my old hedge fund, they sure do add up over time. stick with cramer. i'm jim cramer and welcome to my world. >> one man, one mission. >> i just want to make you money. >> eight years. >> you need to get in the game! >> tens of thousands of miles traveled. >> this new black gold rush is just getting started. it's the sound of american industry roaring back to life! >> hundreds of ceos. >> my life story can be your life story. >> thousands of callers, millions of your e-mails and tweets. "mad money" thanks cramerica for being with us for over 2,000 episodes. ♪

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move here, expand here, or start a new business here and pay no taxes for ten years... we're new york. if there's something that creates more jobs, and grows more businesses... we're open to it. start a tax-free business at startup-ny.com. crazy? crazy for you. that's right, i'm crazy for you, the home gamer, for you, cramericans. because the market is a crazy place and you may just need a madman like me to get you through it. here's one more method to my

madness, and this time, i want to talk about selling, when to sell, sub rosa reasons to sell, along with when you buy. it may be the most important and undervalued tool in your home arsenal. because talking about selling is somehow verboten. how do you know when to sell a hot stock? how do you get apple before the party ends? this is a question that needs to be answered because there's a lot of money to be made owning hot stocks with plenty of momentum. there are always naysayers. and eventually they're almost always proven right. sooner or later virtually all steaming hot stocks that get very overvalued do implode. this process happened big in recent years with stocks as diverse and chipotle and intuitive surgical. yeah, just you had to get out. and it can happen sooner rather than later. and all the negative talking heads who kept you out of the stocks with the recklessness

disguised as prudence and now it's too late. people shy away from these stocks because they don't know where they're going to top out. and that's totally understandable. and i'd be afraid to buy them, too, if i didn't have a discipline that let me know, that tells me when you should get out. lucky for you, i've got it, and you're about to learn it. first, when i'm talking about hot stocks, i really mean the hot speculative stocks. stocks of companies with low market capitalizations. usually these stocks begin with very little research coverage. these names can go up for a very long time. they can catch fire and stay on fire for years. the key to figuring out when interest has peaked and knowing when it's time to sell is by watching the analyst coverage. you have to use your own judgment here, but once once these hot, relatively obscure stocks has at least half dozen analysts covering it, the run is going to begin to peter out. the run is too big and too well known. it's the rare stock that doesn't behave this way, most do.

you can find out how many guys run a stock by looking it up anywhere on the internet. this formula's worked for me as long as i can remember, frankly. as far as i can tell, it works because the number of analyst on the stock is a good gauge of how much awareness there is or how much interest there is in the name or whether the stock is saturated with buyers or not. hot stocks get tapped out when there's nobody left to be attracted to them. when all the people interested in buying that particular stock have already bought it. that's why i gauge it through the interest of analysts. they come out of nowhere attracting more and more attention, these stocks. eventually everyone who wants a piece of the stock, they have a piece of the stock. when that happens, the run is over and it's time to go home. one of my best examples of how this process plays out is still monster beverage. the company formally known as hansen natural, which was the hottest stock in 2004, then the hottest stock in 2005 and the hottest stock for the first half of 2006. hansen went from $18 and change at the beginning of 2005 to $200 when it peaked in july of 2006. the whole way up, there were people telling you hansen, a

company that got momentum from the monster energy drink, was a fad and it would have to dry out and crash. well, it did do that, ultimately, but it took years for the momentum to run out and that's often the case. how did i know to tell you to get out of hansen? well, i called the top because back then because i know how these stocks work. it peaked in july of 2006. and this was in part due to the fact that the company did a five for one split. and even though they're not supposed to do anything, this encouraged people to take something off the table. that's clue one. but there was another reason i believed it would peak, because it picked up its fourth analyst. a very visible one on may 10th, 2006, when the big firm of goldman sachs started covering the stock. hey, you know what that means, it's become an institutional name when goldman covers it. you had two months to sell between goldman's initiation and the stock's peak. there was good upside left, but prudence then dictated that we sell once the stock had all these analysts covering it. better to clear out early with the winnings than wait for it to fade away. and then hansen started to cool

off once it hit the critical mass of analyst coverage, especially a big-time analyst like goldman sachs. because once goldman's following something, believe me, it is no longer undiscovered. incredibly, after hansen fell off the radar screen, it'd just gotten on to, people started talking about it. people forgot about it again, the stock -- but you know what happened, after it was forgotten and people stopped writing about it, the stock recharged and powered higher like nothing ever happened. it was an amazing renaissance and testament that when analysts stop following a company, the company's earnings start percolating again, you've got a stock that can get its act together, even as this time hansen came back as the name monster beverage company and braved a storm of health worries to power back to an all-time high in the spring of 2012 when it once again was no longer the focus. the bottom line, small speculative steaming hot momentum stocks are often worth owning, but you must know when to sell, and that moment comes when you see too many analysts, particularly of the big-name firms, jumping on the bandwagon.

you know, it's a good rule of thumb to let you know when you got to start scaling out. stick with cramer. hmm. mm-hmm. [ engine revs ] ♪ [ male announcer ] oh what fun it is to ride. get the mercedes-benz on your wish list at the winter event going on now -- but hurry, the offers end december 31st. [ santa ] ho, ho, ho! [ male announcer ] lease the 2014 ml350

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are you ready skedaddy? let's take some tweets @jimcramer. this comes from bison boy. are stock splits a thing of the past? small investors no longer

matter? these are tricky because initially after stock splits on a four for one basis you often get a lot of selling. but i wish a lot of companies would split, because we have a lot of people who want to own stocks, and as soon as they hear about that big dollar amount, even though as it's not marking up the dollar amount, they don't want to be in it. and i can't keep trying to do missionary work and say, listen, it doesn't matter if a stock's at $300. if you want individual investors, major ceos, split your stock, maybe you don't want individual investors. our next tweet says, hi, jim, can you explain why a large institution or analyst upgrades or buys an equity it goes down in price? i think that's too cynical. that's not the case. it often is the case that a stock gaps up when a major firm recommends it. i know there's a belief that, wait a second, all they're doing is taking out their friends. you can get in a lot of trouble if you leak your buy recommendations. it wasn't always the case like that, but now it is. it's not worth it for someone to be able to lose their job. if the stock doesn't go up until they recommend it, maybe because

they have no power. meaning people don't respect them enough. here's another tweet. this one is from yahook. words cannot describe my love and respect for you. you inspire me when i'm down, you pick me up with your knowledge. thank you. i need to do the same for you. it does matter. i leave for the office a lot and say, man, that show was hard. my executive producer, all of them have to bear the brunt when i say, man, that show was hard. but when i get e-mails and tweets like this, it does make it worthwhile. and i thank you very much. here's one from @creditcoach118. this tweeter says, has a bull market ever ended without fed raising interest rates? yes, national calamities. a calamity can create a bear market, as we would expect, because a calamity can change absolutely everything. the fed may have no control over whatsoever. let's take our next tweet from brad vertrees who says does it

hurt the average investor on main street #investing? let me say, point-blank, not only does it hurt the average investor, but if i were the head of the s.e.c., i would call meetings around the country, town halls and say, what makes you not want to be in? what they're going to get is high-frequency trading, which i think should be re-examined and in many cases stopped, because i believe it's actually trading on inside information. stick with cramer. [ male announcer ] here's a question for you:

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so everything works like never before. see, there are methods to my madness. there's always a bull market somewhere, i promise to try to find it for you here on "mad money." i'm jim cramer. i'll see you next time. in a mountain retreat, a con man stalk their prey. >> once i finally came to the realization that this thing is just a scam, it was too late. >> narrator: no victim is too big or too small... >> they took 25 bucks from a 15-year-old paperboy. if you had it to give, they'd take it. >> narrator: ...until a trusted employee decides to bring them down from the inside. >> if i just walked away, nobody would stop them. they would just keep taking money. >> narrator: and later... in a tough real-estate market, hawaiian mortgage broker james lull claims there's big money to be made by fixing bad