tonight. >> i like the biotech. morgan stanley. price targets back to you. >> thank you so much for watching. see you tomorrow again at 5:00. go the meantime don't anywhere. 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 some money. my job is not just to entertain but to educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. on big down days, we often wonder what the heck happened to our stocks

how did they get hit so hard when nothing happened? the absurdity of all it can seem preposterous, totally frustrating. market wide selloff makes you feel like the business of stocks at best stupid, at worst corrupt and it drives you away from the entire asset class i wish i could tell you that there's some hidden logic that makes these declines seem reasonable but your inclinations are right. the action often is every bit as stupid as it appears that's way i want to tell you all the ways stocks can be impacted by forces that have nothing to do with the companies themselves so you have some grounding about what might be driving you crazy. the absurdity of your stocks going down when nothing happens at the underlying companies. so we're going to pull apart all the reasons your stocks do go down through no fault of their own. that way you'll have a more certain handle on how to take

advantage of these big market wide declines. because when you know what you're doing, you can make a decline work for you, not against you. at some point markets do go down but feel emboldened -- >> buy buy buy >> not -- >> sell sell sell. >> to be empowered to use these selloffs in a constructive fashion, rather than fleeing from the asset class out of anger and fear >> the house of pain >> let's start off with the biggest determination why your stocks move. i'm talking about the power of the s&p 500 futures, over all individual stocks, including ones that really aren't that in the index. believe it or not, there was a time when there was no s&p futures. when i started trading in 1979, the only impathing that might ic a stock was sector analysis.

back then we used to say a stock's movement was 50% based on fundamentals at the company and 50% based on the sector. those were the two determinants. but in the early '80s, the brokerage industry needed new sources of revenue they recognized the piles of money that institutions were running kept getting bigger and bigger and they wanted to hedge themselves, rather than constantly trading in and out, they wanted to put on a hedge against what they owned. so the brokers and exchanges that worked so closely with each other came one the notion of lumping stocks together in what amounted to be baskets, the same way commodities trade. the brokers didn't give a thought as to how this decision would impact the worth of individual stocks. they were cavalier about it. failing to acknowledge there might be some situation where is the entire net worth of individual companies could get distorted by the futures you see, those were the early days of 401(k)s.

rates were about at that 14%, 13% when i got to goldman sachs in the early '80s. so much cash was flooding into the stock market, it was inconceivable to envision a time when money would flow out of equities instead, the notion of the created s&p futures causing distortion with all this money coming in seemed far-fetched yet, i recall working with a wealthy individual who ran a shoe company back then he called me when his company had just been admitted to the s&p 500. at the time, it was considered a great honor to join that group of companies, a sign that you made it or your enterprise was thriving but he called me to complain about something that seemed pretty darn ridiculous at the time but turned out to be quite visionary. he worried that all of his hard work could be for naught if the

s&p 500 futures went down in value. i said that's ridiculous his company's stock would stand on its own merits. i said this tale of the s&p 500 could wag the tail of the individual stock was fanciful. he disagreed he said there would always be an acquirer lurking, because it was a member of what i called an illustrious group. he envisioned a day when his company could be stolen because the stock had been crushed that had nothing to do with the performance of the company over the long-term, his concerns spot-on. exactly what happened. of course, it didn't happen overnight. but in a few years the prognosis came true. much of the damage came fromth crash of 1987, where the dow fell 500 points in one day that's what caused the crash if you go back to the aftermath

of that period, you'll discover four things that occurred. i want you to know these four. one, stocks went from being absurdly overvalued because of endless overseas buying of the futures by the japanese, to observedly undervalued in a short period of time because of the selling of the s&p futures going into the crash, the s&p was trading at 29 times earnings that ended up being slightly more than cut in half over the course of two weeks. nothing happened fundamentally to justify either the rally or the decline. there was no change in the economy to speak of, other than a short-term decline in consumer spending because of a dropoff in portfolio net worth. it was almost like nothing happened at all, except for the crash. three, a wave of takeovers did occur, just like my shoe executive friend predicted especially from overseas, as our markets had been put on a one-time sale by the cascade

down of all stocks that were connected to the s&p 500 something that spilled over into everything else, given that there was little to justify their sky high valuations once the entire market had gone down. no company was safe, because the fundamentals were so much stronger than the price-to-multiple earnings would indicate four, in the wake of the crash, the buybacks started there had always been companies buying back their stock, especially exxon but some companies recognized that the futures were rt officially depressing their share prices if anything, it became even more ek ev accentuated. so they began to take advantage of this. i recall having a conversation with the then cfo of 3m, the stock was constantly being put

on sale for no reason at all, other than the selling of the s&p 500 futures. the cfo wanted an orderly market for the sock, so that individuals weren't spooked out of it. and he set about trying to create one within the best confines of the law, meaning he wasn't allowed to control the opening and close with his buying no company can do that if only other executives would have been visionaries. but the biggest impact to your stock is often not the company's fundamentals at all, or even the sectors. it's the s&p 500 itself. the futures basket did corrupt everything but because of the popularity of the basket among investors and hedge funds and most importantly, traders, we're never going back to those days where all that really mattered to a stock's price was the sector's interaction with the business cycle, along with the worth of the company and the executives who drove it. let's go to donna in pennsylvania, donna. >> caller: hi, jim it's donna >> hi, donna >> caller: so glad you answered my call.

i've been listening to you for many years, before the financial crisis but it was because of the financial crisis that i got into the stock market, but because of february and all the stocks going low, i wasn't buying and i should have been but i have stocks, quite a few over the years, that i've come in and out of. i have some that are long-term, some that are short-term some that are growth some that are speculative. but what is happening is it seems like i've spread my mad money over too many stocks >> so what would be -- >> caller: i'm wondering what i should do now with so many >> donna, thank you for listening to me. but your mutual funds if you have more than ten stocks. you can't do it. i have 28, 29, but i've got a staff of people that work with me you don't. ten stocks maximum you can do otherwise, default mutual funds.

don in ohio, don >> caller: boo-yah, mr. cramer >> boo-yah >> caller: i have -- was forced to retire at age 59, due to surgery that went wrong. >> okay. >> caller: and i'm concerned with my traditional i.r.a. and would like to know how much of that should be in cash or liquid assets currently, it's 95% stock. >> that's a little too much. i would like to see that taken down to about 60%, no more than that because bonds yields so little but no less than that, because you still need some growth i would make those changes that's a little bit too aggressive for me, sir i'm sorry that you had to leave the workforce because of illness. i hope you come back but let's take that down a little sometimes the biggest impact to your stock won't be what it's actually doing it's all about the s&p 500 itself on "mad money" tonight, my

dissection of the declines continues. thought you were all in this together not always i'll try to tell you how to separate friends and foes in this market. and when there's something strange in the company you own, who are you going to call, your broker don't make a move until you hear how a larger rotation could have more to do with the drop and which metric should you focus on in an uncertain market? i've got the list and what it means for your overall portfolio. so stick with cramer >> don't miss a second of "mad money. follow @jimcramer at twitter have a question? tweet cramer at #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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hey you've gotta see this. cno.n. alright, see you down there. mmm, fine. okay, what do we got? okay, watch this. do the thing we talked about. what do we say? it's going to be great. watch. remember what we were just saying? go irish! see that? yes! i'm gonna just go back to doing what i was doing. find your awesome with the xfinity x1 voice remote. ♪ for those of you who wonder how almost all stocks can go down in a brutal decline, even though the blast zone isn't actually keked to the businesses of stocks you own, this show is for you. we've talked about how the s&p 500 basket can pretty much take

down any company yeah, even when it has nothing to do with the proximate cause of the selloff that's how powerful that stock magnet is. but what else can cause a stock to get crush even when the company is doing fine? these days i like to look at who my co-investors are. it's been ages since hedge fund managers have consistently beaten the s&p 500 that's part of the problem here. so we get these remarkable periods where some stocks seem to be in trouble, regardless of the fundamentals for example, many of the private equity firms that did deals at the height of the great recession have commitments to return capital or keep the stream of dividends going, but they can't do that without selling off stakes in what they do similarly, hedge funds under pressure to raise money might have to sell stocks they believe in that's right, they don't want to but they have to, to have enough cash to meet other demands from their own investors who want their money back both these situations came into play when walgreen's was trading

at $81 after reporting a good quarter. you might have been temperatur d -- tempted to buy the stock, but you would have run into two huge sellers, kkr, and jana, the hedge fund each though walgreen's was in good shape, shareholders caused the stock to get hammered. j, na turned around and told more than 6 million shares at $77.65, another discount next thing, the stock of a high quality company can't get out of its own way. if you don't know better, you would have thought something went awry at the actual company. but that was not the case. walgreen's just had the wrong set of shareholders who needed to sell for reasons that had nothing to do with wall green's itself, which had just reported a stellar quarter. we've seen this happen time and again, during redemption

moments. remember how the market got oh bl -- oh it will rated in 2016 a bunch of hedge funds with the same playbook went bust. and who could forget when carl icahn exited his high profile position in apple and made a point of telling you it was the chinese business that bothered him. hecrushed the stock with his exit i know this because i've been on the other end of it. my old hedge fund in the fall of 1998 if you owned any of the smaller banks, most of which have been acquired at big premiums where i owned them, you know we wrecked those stocks on the way out. the situation was simple fourth quarter of 1998, down a

great deal i communicated that fact to what i thought was my loyal partnership base, a huge percentage decided they wanted their money back >> sell sell sell sell >> i had no ability to say no, because it had been written into their contract with me, that if i opened up the fund for redemptions, everyone had a shot at taking money out, and one investor desperately needed the money. when we looked over the portfolio, the only stocks that we could sell to immediately raise that cash we need, were our 9.8% holdings in a host of community banks. these all had good growth prospects, not to mention takeovers written all over them. we went into each bank, called them, and said we needed to sell a large amount of stock and sell it fast. if one of these stocks was at $18, we wanted a $17 bid for a million shares instead, most of the banks refused to step up and buy that forced us to go into the

open market and unload the stock, so that $18 stock quickly became a $14 stock before the company stepped in and did some buying in the meantime, our holdings were available for people to see, and each one of our banks started trading down in similar fashion, as other hedge funds shot against us. something you can read about in "confessions of a street addict," which is back in print. it was brutal. once the hedge fund sellers materialized, the brokers kept hitting down the same stocks they were shorting them. finally, the brokers would say that they could pay $10 for a million share block of a bank that had been selling at $14 before liquidation started they all covered their shorts on the block at 10, having become natural buyers because they were short hire i never forgot it. for this i look for that kind of block trading activity if i see it, can -- the stock goes down, down, down, and then

suddenly a big volume block trades, that could be the bottom when hedge funds are borrowing money, the brockers tell the hedge funds they have to send in capital or see their positions margined out meaning sold from underneath them so the brokerks get their money back that they're owed the brokers are all in a footrace to make sure they get their collateral back and don't get beaten by other brokers. that's why you see first selling occur around mid morning, as the money has to be wired in by 1:00 p.m. here's the thing this type of forced selling can create tremendous buying opportunities for you. but you have to be careful not to get too bold, because you never have any idea how big the losses are, or how much cash the sellers need to raise. not long ago, the government broke up what needed to be a done deal between pfizer and

allergen to create a huge company with a lower tax rate. immediately allergen, supposed to be worth $360 if the deal went through, went down to the low 230s, as traders scrambled to raise cash. it looked like a golden opportunity to buy but the stock fell another quick 30 points, as the shareholder base kept bleeding and bleeding. that's why when you have a combination of hedge funds who are fighting redemptions and those who borrow money to maintain positions -- now, you know why i say that once a company takes a takeover bid, i want you to ring the register on the stock. the risks are too great. so here's the bottom line,

recognize that they could be at the heart of your stock that has nothing to do with the fundamentals of the company. these stocks that fall victim, just remember the damage can be extensive. much more extensive than the company's shareholders deserved. much more "mad money" ahead. is your stock facing pressure from inferior companies in the space? i'll tell you why it runs ram pant in this market and how to move past it and could the metrics do more harm than good and i've got a word of warning to those who own etfs, just ahead.

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futures have xhodtized so many stocks, that the fundamentals mean little. we've an sized that your co-shareholders could be causing you trouble. but how about a situation where there's guilt by association february of 2016, which got a rare doubleheader of pain -- >> the house of pain >> when a small data an it wil l will -- an it will ticks company and linked in reported disappointing earnings and gave outlooks that were down right frightening. linked in, a company beloved by many, talked about how big picture macro concerns were slowing down their cloud subscription business. the results, they were devastated

tableau's symbol plunged from 81 to 41 in one day but what i want to talk about is the collateral damage to those two, because over the next two days, many stocks that looked like tableau and linked in got pummelled. even if they weren't true analogs, the stock of adobe fell from 87 to 73, because it too is viewed as a big data play like tableau. and there was no way to refute these declineks, because both companies were in the quiet company, you can't talk about your earnings. though the ceo from sales force came on "mad money" to say the business was strong. can't talk numbers you have to understand that when you're dealing with high growth companies that sell in the same arena, cloud, mobile, big data analytics, you have shareholders

that only think for the momentum and can be blown out rather easily still, when they sold, you got a fabulous buying opportunity. what matters here is when you own a high price-to-earnings multiple stock, stocks that traded in a big premium for the average member of the s&p 500. it is vital to remember that these high multiple names make up a cohort of their very own. think of them as their own sector if you only owned high multiple stocks, you are indeed putting all your eggs in one basket. in fact, if you had called into the show during am i diversified, i would have said they trade together, though you could argue that linked in had nothing to do with sales force and tableau had nothing to do with adobe but guilt by association matters. and you have to be aware that it can always happen to your stocks

so prepare accordingly, and be ready to buy more of the ones you like into weakness, if you own some of these high flyers. they're expensive and they have no yeld support. a similar situation can occur when you have contraction of multiples. meaning the shareholders are paying less for the future earnings of the same company than they were not long ago. so take the case of a household name, colloroxclorox. it's a well-run machine with an above average dividend with slow but consistent growth. you'll often find it reporting an excellent quarter but sometimes the stock swoons after. and you won't find a reason. that's because the reason for these declines is, the stock itself and more importantly, the sector, have been rotated out of because of a sea change in the economic landscape nobody wants to own clorox when

the economy is heating up. they prefer something with much better year over year comparisons. so what they'll do is reach for the cyclicals. those companies with more earnings sensitivity to the economic cycle if you want to see how this plays out, go back to "confessions of a street addict" and read act what happened to me when i bought a significant stake in heinz for my hedge fund the setup was typical. as a sales person at goldman sachs, i loved to recommend the stock of heinz how could you not? it's not like it was going to become obsolete like a tech company. you're not going to start eating chinese ketchup. i knew heinz from my years of studying so it was flabbergasting to watch the stock sink every day after i bought it for my hedge fund i made all the requisite calls, read all the available research.

business was strong, the franchise doing as well as ever. i just sat there helpless. at the time, i had a 10% down clause in my hedge fund, meaning if it ever dipped down by 10% in value, i could open up the fund, give my partners their money back it was a doomsday clause, and i knew if i hit that number, i was done what i began to realize is the pressure of institutional money management is very different on you at home. as a broker, i would have had my investors buying more heinz in weakness however, when i bought heinz for my fund, for my hedge fund, i ran into one of these buzz saw sector rotations the ones that go out of the stable stocks into the more cyclical companies paper, steel, materials, woodstocks even though these stocks had

uncertain earnings, the money was flowing out. and blowing in the cyclicals right before the 10% clause hit, right before it kicked in, i pulled out of the tailspin and sold hinlz and i played the rotational game with the rest of the hedge fund managers it did save the day, and saved my buns. so when your stock keeps coming down even though there's nothing wrong with the company, ask yourself if there is a larger rotation going so do you cut and run or buy more if you're an individual investor, i think you do the latter david in georgia, david. >> caller: big southern boo-yah to ya. >> of course >> caller: my question is about

takeovers. the 2015 takeover premium was roughly 30%. does it make sense to target some takeover companies or sectors as part of a balanced portfolio? >> i don't recommend stocks unless they're doing well on the fundamentals no company wants to buy a company that is doing badly. elise in new york, elise >> caller: hello, mr. cramer i'm a senior i would hike to ask you a question about index funds i don't know what they are i would hike to know the benefits and the risks >> what you're doing is buying all the stocks say in the total return fund or an s&p 500 index fund. all 500s are picked by the s&p that way you're diversified and no one stock can bring you down. it's a way to spread the risk over 500 different companies and i recommend it for people who are just starting. beware of the rotation

it can take a stock down no matter what the fundamentals are. but many times that could be an opportunity. much more "mad money" ahead. winning and losing on wall street i'm telling you what you should be paying attention to and there's a major flaw that you should be aware of plus your tweets that's right, go ahead and tweet your questions i might just answer it on the air. so stick with cramer

sometimes the key metrics that control the entire market suddenly changes you have to change with them or you'll never understand why your stocks are going down. earlier we covered you the s&p futureks bring down anything we talked about the dangers presented by your fellow shareholders and the pressure they can put on your stocks by rotation now we have to deal with the notion of the important metrics or the metrics dejour, and how they can wreak havoc on your portfol portfolio. if all starts with the idea that the business of investing in stocks has fundamentally changed over the last few decades.

i got in this business 35 years ago and most investors were fundamentalists. they tried to figure out if the companies were worth more or less than the average stock in the s&p 500. if a company had better growth, and a long way of opportunity and if it sold at a priced-to-earnings ratio less than the average stock in the s&p 500, they bought it. they se as we chronicled earlier, individual stocks started becoming less important with advent of the s&p 500 futures in the '80s the way we judged stocks relative to each other become more and more hand picked by computers using algorithms to predict behavior for example, if you like the stock of delta airlines, you might like the stock of expedia, the travel agent it's how money is now managed in

this country, billions and billions we have to accept it or we miss out. as fewer and fewer individuals invest in the market, more and more large institutions take over this kind of algorhithm -- one of the hallmarks is to identify what most stocks in the s&p 500 will do. very quickly train your guns on that metric. so you think that higher oil correlates with economic growth, then you're most likely set up a basket of stocks that does well when the company is accelerating you can buy that basket every single time that oil goes higher this actually happens. including in that basket would be most likely the airlines which do best when the economy is humming but there's one problem, when oil goes up it's bad for the airlines because jet fuel is the biggest cost the power of the algorithms is

so immense, you'll see the airline stocks pop along with the broader averages they won't go up as much as others, because there are airline specific researchers out there, telling their portfolio managers to dump the stocks since the fuel is getting more expensive. but they'll go up when they should be going down despite the rise in costs. the same thing plays out on the downside when it goes lower, that signals the economy is getting weaker and the airline stocks go down that weakness. these stocks won't fall as much as the others again, because the same researchers will be in there telling the portfolio managers to take advantage of the weakness since cheaper oil is positive for the industry and it's the biggest cost. the simple fact is the key metric itself have made owning some groups of stocks beyond mystifying you could own the stock of a company where the earnings are going higher and the stock is going lower. it can make you feel like the

whole business is impossible i don't blame you. it is difficult. much more difficult than the old days we've seen key metrics change, too. it's not like oil will always be in charge. all that mattered for a long time were bond yields. if they were up, stocks were down if they went down, all stocks went up. but once the fed raises interest rates, that's good news for the bank stocks so they can make more money off of your deposits. the financials can suddenly rally. if you didn't recognize the change, you ended up fighting the bank stocks all the way up we've seen these dominant metric stitches all the time. consider the dollar. when the dollar goes higher, it's terrible for u.s. based international companies. it doesn't matter if they're doing well or poorly, they're all losers in a stronger dollar world. it gives foreign competitors a

leg up in terms of pricing when these companies repatriot their earnings overseas, they get translated back to fewer dollars. so when you see the dollar going higher, it's reasonable to expect that domestic companies and the ones with little exposure to international markets will outperform their colleagues the strong dollar was viewed as a transitory issue but once the fed raises interest rates repeatedly, then the dollar becomes very important. rate hikes make it stronger still, particularly in an environment where in some countries the interest rate has gone down so low they've gone negative another metric worth keeping an eye on in this era of lower oil prices, on fridays, the baker use index of oil rigs comes out. when the index shows an increase

in use, the price of crude will most likely come down, because it means the u.s. is pumping more oil when the rate count goes down, oil prices tend to go up one final metric that's been very good to follow is the baltic freight index this measures the amount of commerce in bulk commodities when the indecision comes down, you have to believe the chinese economy is slower. many of the metrics i've mentioned are given too much power, but because of how important the health of china is to so many companies, there's nothing you can do i find the baltic freight index under estimated as something you want to watch. so if you want to make sense of the day-to-day declines you might be seeing in the stocks, recognize the key metrics that control the whole market like oil, the dollar, interest rates, and even the baltic drive freight index would be playing havoc with your stocks, whether it makes sense or not.

remember, ours is not the reason why, ours is just to accept the fact that these metrics matter, even as the ones that are important can literally change on a dime. ho is ba "mad money" is back after the break. your brain is an amazing thing. but as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. the name to remember.

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♪ any time your stocks go lower, you're always going to be trying to scramble trying to figure out what the heck is causing the decline. i told you about the external factors that can push the stocks down but when all else fails, remember, there has been a hideous number of etfs established that allow you to own or short the specific sector that your stocks might be caught up in. i know people love etfs. so off i hear the industry talk about how you can eliminate single stock risk by participating in one of these. i can still recall the first time i heard about this single stock risk it was about enron a company that went bankrupt because of corrupt accounting.

what did enron really do it defrauded investors because it was a corrupt company run by corrupt people i don't have a solution for that kind of individual stock risk. but the concept took root, but more investors have wanted sector exposure because they thought the sector was going higher again, ifind this reasoning to be circular. you want to be in a stock because it's the best name, you don't want to be in a group of mediocre stocks that will pull down the higher stocks what's going on here this eff-ization is part of the financial industry to find something that people will invest and trade in at a time when individual stocks have lost appeal so there are etfs set up to take advantage of every single trend, cyber security, biotech, retailers. again, i rebel against these

if you think you can pick the best of these stocks, i would suggest that you might not know enough about the sector. if you can't pick the best, you're going to be outsmarted by the etf. it's a terrible thing. worse though, you may have a company doing extremely well, but the stock gets pulled down by the weaker performance of a bigger company than the etf. we saw this happen to h.a.c.k. we've seen it happen with the housing, banking and biotech etfs all you want is a company that has the best prospects regardless of the rest of the industry there's a place for these exchange traded funds. owning physical gold bullion is too expensive. the gold miners often leave you out in the gold. but they track the price of gold as closely as possible but i'm against etfs because they create distortions that can

obliterate even the best of stocks you can find yourself caught in a stock that's pushed up or pushed down by one of these entities that should have never been approved by the government. you have the accept more risk if you own a stock that's hostage in a given etf my final words to the wise how your stock can be brought down that have nothing to do with its own prospects, accept the fact that at any given time the rules can change when the fed raises rates, people pay less for stocks because stocks become less competitive versus bonds all stocks if it's treasuries we're talking about, they yield very little. corporates yield more but you could be taking on more risk think about all the billions lost in mu minnicipal bonds. while it may not be worth it for you, others will make the switch

when the fed raises interest rates and that could leave your stock in a heart beat. even if the company is doing spectacularly well as rates go up over time, this will become the biggest theme out there. the bottom line is you must be ready for it, because while the fed might hold off for the -- up for this or that event overseas say, sooner or later it's coming rates have been down long enough and the great recession is now far enough behind us, that a series of rate hikes might just become the natural course of things in the not too distant future stick with cramer. >> mr. cramer, love to show. >> boo-yah to my kids who are in elementary school. >> boo-yah, mr. cramer >> i know you hear this all the time, jim, but thank you, thank you, thank you so much >> this has been my best year by far and away in the market >> i just want to thank you for looking out for the regular guys

out there. >> i am trying to teach people to be better investors that's the goal here >> great to hear your voice and know that you're there for us. is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley. hey, i'm the internet! ♪ i know a bunch of people who would love that. the internet loves what you're doing... ...so build a better website in under an hour with... ...gocentral from godaddy.

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♪ time to take some questions from the smartest viewers in television if you've got one from me, send it @jimcramer.

gary asks, what would you suggest for grade school kids today? okay, gary, this is important. i suggest you buy an individual share of stock, because i want kids to be involved. pick a stock of a company that they actually use in their life, so that they will be able to stay current and they'll be interested in the stock market use it as a teaching opportunity and maybe it will work out, too. now we have a tweet from brad, who wrote, my 1-year-old loves you for some boo-yah reason. and he sent a little video along with it. >> you like cramer >> boo-yah >> that kid's got horse sense. next up, question, for small-scale traders, how do you determine the number of stocks to purchase to be profitable

this depends on how much research you can do. i don't think anyone is capable of doing more than ten stocks at one time and being able to do all the quality research i think is necessary, to be able to trade. many disagree with me. i don't care that's what i've learned up next, a tweet here asking how to identify opportunities to buy quality where the companies are not broken i detail all the metrics you need if the companies are obviously beating those metrics, even though the stocks have been hammered, that's where your opportunity comes in here we have a tweet, asking what percent of your recurring yearly savings should be in s&p 500 index fund and what percent should be in individual stocks the way i look at it, the first $10,000, all index fund, i can't have you pick a stock, and then lose a lot of money. once you've done that, you can begin to pick individual stocks

in addition to continuing to put money in an index fund why do i recommend individual mutual funds because the managers change. with an index fund, you know what you own and the costs are low. so first $10,000, index fund and then the rest do index fund and individual stock watch the show, find stocks and companies you like and buy them on the way down once you're sure about the fundamentals that's where opportunity comes in the next tweet asks, don't you think the way investors make their decisions is changing to more data driven decisions that could be the case i am telling you what i have experienced that works lots of homework, knowing the companies, buying the stocks of good companies at prices that are reduced, because of trends that happen in the stock market. and that happens all the time. remember brexit? next, i'm looking at a tweet here that asks how much assets should you keep liquid ready to

invest after a downturn? for my charitable trust, we often debate this. because it's a charitable trust, i like to keep a good cash position i've had it be as high as 20 or as low as 3 or 4 what is your intermediate term world view that's what you have to adjust your short term to we make a decision about how risky it seems and then we take more money out i think you have to assess your risk and reward. here we have a tweet asking what is your opinion on dividends get them in cash or reinvest i've been reinvesting. that's perfect i want everyone to reinvest their dividends. don't take the dividends out put them back in that's how you make the really big money. stick with cramer.

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>> welcome to the shark tank, where entrepreneurs seeking an investment will face these sharks. if they hear a great idea, they'll invest their own money or fight each other for a deal. this is "shark tank." ♪ first into the shark tank is j. jones, an american who believes he has perfected a traditional english treat. hi, i'm j. jones from denver, colorado, my company is jones scones. and i'm asking for $100,000 for 25% of my company.