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tv   Mad Money  CNBC  September 1, 2009 11:00pm-12:00am EDT

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how can you tell when a company's going to revise its earnings estimates up or down? how do you know when money's about to move from one sector to another? in short, how can you tell which way a stock is going to move before it happens? how can you know this stuff ahead of the street, ahead of the pros, ahead of the big wigs? you think you need a crystal ball? tea leaves? think again. all you need's cramer. so pay attention. if you can spot a big move in a stock or the whole market before it happens, you're made in the shade. tonight i'm going to teach you everything i've learned about calling these moves really from my hedge fund. i'm going to put it to work for you in this show. we'll start with bottoms, those times when stocks have hit their low points and are ready to move higher. then i'll tell you about tops. there are all kinds of tops. and you'd better be ready for them because they're dangerous. after that i will explain how i
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try to call earnings revisions and sector rotations before they happen. why should we wait to say there was a vicious sector rotation yesterday? how about predicting one ahead? you'll learn how to do what i do, and you'll have a big edge on the street. so how do we see a bottom coming? if there's one thing i think i've done best in my career on wall street, it's spotting bottoms in the market. no techniques, no formulas, no really hard and fast rules. understand, real bottoms don't happen all that often. but when they do, if you call them correctly, you can stand to make a small -- actually, a not so small fortune. bottoms are great because they represent fantastic buying opportunity with not very much risk as long as your bottom call is right. so how do you call a bottom? first let me tell you the wrong way to do it. and then i'll help you get it
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right. a lot of people want to rely on pure technical analysis. they look at a chart, see that the stock has been knocked down far, and then stop moving. these chartists, even the best ones, are wrong. they're wrong often. sometimes a stock that goes into freefall is only taking a breather before sprinting, sprinting toward zero. >> the house of pain! >> the chart is not enough. you need to look at the fundies too. technical analysis, as they say, is always right. until it's wrong. i have never, ever seen any software package that worked for this, despite what the brokers tell you. they always offer the software that's supposed to show you everything. and a lot of the analysts at major firms get pressured into calling bottoms by their major customers. i've never seen a stock bottom out based on earnings reports, either.
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the thing about a bottom is that too many people see it coming, and then it won't happen. the other crucial fact about bottoms is that they rarely happen all at once. i have found that over and over again the market bottoms in thirds. sector by sector. over a period of days, if not weekend. it's not always the case. but it's how you should approach a bottom. do not get into that thinking that you hear the media say is it a bottom strks a v bottom, is it a u bottom. forget that. bottoms occur in stages. now, here's how i want -- how i work. i just want to talk to you about investment bottoms, really investment megabottoms in the market. you want to see three things when looking for a bottom -- market sentiment must be bad, and i mean front page of the "new york times" bad. not the business section. the front page. preferably the right-hand column at the top.
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when the malaise reaches all the way up there, that's a terrific indicator that we're nearing a bottom. you can also look at the investors intelligence survey of money managers. comes out wednesday. when you have a majority of bears, when there are so many bears that they exceed the number of bulls, good sign you're close to a bottom. when you see mutual funds pulling out of the market in a significant way, that's another signal that a bottom might be nigh. understand, to correctly spot a bottom you need to be right when almost everybody else in the market is wrong. you also want to be looking for capitulation from the bulls who were holding out hope. >> no! >> when they give up, when they jump, you get a massive crescendo sell-off. ♪ hallelujah you'll see lots of volume and sinking prices as the last holdouts give up and recognize where they really live. >> the house of pain. >> and they're doing this -- >> sell, sell, sell! >> that's your chance. you will not have a bottom until
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these investors have thrown in the towel. a crescendo bottom is one of those rare times when the market bottoms all at once, not in thirds. it happens very rarely. and then, yeah, you back up the truck and you start buying. finally, big bottoms usually have a catalyst when market sentiment is in the gutter. when even the most bullish of the bulls are like achilles, off sulking in his tent. and then you get some bad news for the market, subprime lending prices, asian contagion, the yen-dollar, something like that. it's not a catastrophe but has a widespread effect on the market. then. the last couple times war with iraq, exquisite bottom. ♪ hallelujah buy buy buy for everything! understand the market loves nothing less than uncertainty. in the 24 hours leading up to wars i managed to find great bottoms because investors
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couldn't handle the total lack of certainty. even though i knew these wars were going to eliminate the uncertainty once they happened, everybody else couldn't have been more nervous. so i got to buy up a lot of stock for cheap. the bottom line, how do you spot a bottom in don't be discouraged when you see these three things. don't give up when everybody else is giving up. it's a bottom, and you want to be the only guy who knows it. so that you can buy up stocks for next to nothing and then relax as they start to rise afterwards. >> all aboard! >> christina in new jersey. christina. >> caller: hey, jim, love the show. >> oh, thank you. >> caller: i've got a bottom question for you. >> okay. >> caller: are the techniques for spotting bottoms in individual stocks basically the same as spotting bottoms in the market as a whole? >> no. no, because bottoms as a whole often revolve around much more ephemeral and psychological
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reasons, really like trying to figure out how many people are negative versus how many people are positive. a bottom in an individual stock tends to be able to where you get it to where its net worth is so much better than the stock itself that people, either private equity people or the company itself, take matters into their own hands and recognize that the company is way too cheap versus the stock. that does not happen versus the overall market. how about we go to eric in new york? eric. >> caller: hi, jim. how are you doing? >> not bad. thank you for asking. how about you? >> caller: oh, i'm great. i'm at my school right now. i go to batson college. every day we're -- >> i love that school. i taught there. i gave a lecture there. that place rocks! >> caller: batson college? >> yeah. >> caller: it's a business school. everyone loves your show. we all want you to come down. >> really? >> caller: yeah, we all want you to come down. >> man, i love that. look, you never know what can happen.
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what's on your mind? >> caller: well, i recently got really into value investing, like deep value investing. benjamin graham, you know, who they call the father of value investing -- >> right. >> caller: -- has this contest to buy -- this strategy that he had when he wrote his book "security analysis" to buy companies trading below their liquidation value or companies trading below their net current asset value. and my question, jim, is really what exactly is the net current asset value and how can i implement that into my investing strategy? >> okay. if you just close the company, what it would be worth is that value. now, i have to tell you, earlier i described to christina that you like it when you can find stocks that are all the way down so cheap versus -- so cheap versus their worth. notice, though, i didn't say through their worth. i love benjamin graham. i've read everything by the -- you know, by what he wrote when he was around. and let me tell you something. he is unrealistic. stocks used to go to those levels. they don't go there anymore. before they get there, companies step in, ceos step in, buyers
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step in, acquirers step in. private equity steps in. do not wait for his level. you will never, ever pull the trigger, and you will miss way too many opportunities. how about tom in california? tom. >> caller: hey, jim. hey, ba-ba-ba-ba, bubbling surfing and electronics boo-yah from the silicon valley in sunny california. >> perhaps one of the most inventive boo-yahs we've had in the various specials we've done. and what would be on your mind, sport? >> caller: hey, a whole lot of things, by can't tell you about most of them. >> i hear you. there's a lot of stuff going on in here, but most of the guys i'm trying to evict before the lightning round. what's on your mind? >> caller: okay. first of all, i just want to say for two years i faithfully attended class at "mad money" university and have learned more than i even realized and made some great mad money. >> fantastic. >> caller: and in all sincerity i want to say that you are truly a great teacher and a dedicated educator, and i thank you for what you have done to educate an old dog.
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>> thank you. i've got to tell you, i throw a lot at you -- you know, i do this stuff. why does he do that? why does he like wear the big outfit? i haven't worn that in ages. why do i throw things? why do i do this? because i've got to get people into a really boring topic. that's why. let's make money together. what's on your mind? >> caller: okay. you have consistently recommended "investor's business daily," nbd, as a terrific resource. and i agree with you. and i turn to it daily along with your site, thestreet.com, which you can't say is great but i can. >> thank you very much. >> caller: now, admittedly you don't like charting. but ibd seems to be a chart and formula-centric system. and i've noticed that you disagree with them on a fair number of stocks. >> well, you're absolutely right, first of all. i'm not going to disagree with
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those qualifications. i would say this. when you're trading, i like the discipline of what bill o'neil and "investor's business daily" offers. when you're investing, i do it differently. as the stock goes down i like to accumulate, he likes to kick it out. that's the big difference. i applaud their work. i love the pictures of stocks, and most importantly, i love the content, the articles. let's remember, we've got to spot bottoms and we've got to get in on them and we've got to stay with cramer! don't miss a second of cramer. now you can find each full episode on itunes and download it free. take home all of cramer's picks, pans, plus the "lightning round" with you on the go. get "mad money" on itunes today. for more info go to madmoney.cnbc.com. miss out on some "mad money"? get your "mad money" text alert today. text mm to 26221. to get cramer right on your phone.
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for more info visit madmoney.cnbc.com. or give us a call at 1-800-743-cnbc. welcome to progressive.com. you must be looking for motorcycle insurance. you're good. thanks. so is our bike insurance. all the coverage you need at a great price. hold on, cowboy. cool. i'm not done -- for less than a dollar a month, you also get 24/7 roadside assistance. right on.
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special edition "mad money." talking about the tricks of the trade tonight. i'm revealing a small but essential part of my accumulated wisdom. to help you know which way a stock -- a stock. general stocks. okay? a stock will go before it happens. on "mad money" we care only about the future, not the past. >> that's the book. but i'm not here to sell the book! although it wouldn't hurt. we try to divine the future from the past. sure. but it's not the past we care about. how many times have you made fits of impotent rage as you heard about some stock you never owned going up? or one you do own taking a big hit. i'm here to try to help you
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avoid those moments, to help you see how the market moves before anyone else does. so you can get out, get in, ahead of the rest of wall street. we've been through bottoms. now i want to talk about something that could be even more important. perhaps the scariest part of investing. tops. people don't like to talk about tops, not on wall street, especially not in the financial media. when things are good, boy, do we ever hate to talk about a top. sure, the bears will get all ominous and talk about impending doom endlessly. but they do. good or bad, it's always the most dangerous thing in the world, right? the media might try to make negative forecasts. how much do they love to do that? it's what i call recklessness couched in the language of prudence.
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but you hardly hear anybody talking about a top, particularly when it's developing. see, it doesn't benefit the street to talk about tops. the very idea flies against the conventional wisdom. all the time you're told, and i'm often denigrated because i disagree with this and frankly i thirst -- i love the denigration. but that's because i'm strange. you're told to buy and hold. go buy and hold an index fund. yeah, that'll do it. because you can't do your job picking stocks. look, you know i think this stuff is garbage. i believe in buying homework. castigated for that view? oh, please. and one of the biggest reasons for that is the existence of tops. buy and hold presumes they don't exist, that a stock is just endlessly going higher, as if it's some sort of magic projectile. ♪ hallelujah how would you have felt if you took the conventional wisdom and you bought and hold just a
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standard s&p 500 index fund through the crash in 2000? pretty terrible, i bet. but if you'd been able to spot that top, you could have sold and escaped some serious pain. >> the house of pain. >> let's be clear. what exactly is a top? it's when a stock or the whole market reaches some price that is too high and then comes tumbling down. if you try to ride out a top, you could or will lose all your gains and then some. think 2000. these things hurt. they're a key reason buy and hold does not work. and i've said before that they are the bane of investing. they chop your money. they kill it. so how do we see them coming and get out before the top hits? here's how i look at tops. we know they're going to happen, first of all. they are part of the firm amt. sooner or later every stock, every market reaches a point where it can go no higher. and in fact starts going a whole lot lower. it might take years. we know this will happen because
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it's happened historically without fail. if you want a stock and that stock keeps chugging along, going higher and higher -- >> all aboard. >> -- at a certain point you know that you've got to get out. you know you've got to ring the register. you know a top is coming, that a top has to come. but you can't get past the emotion of this thing. who wants to sell a stock that's been a proven winner, a real moneymaker? one you just can't seem to shake. nobody, that's who. but you have to when you see a top coming. and in order to do that you need to be honest with yourself. to admit that there will be a top from the moment you buy a stock. and you'd better be looking for it. that's not how the street usually approaches tops. for a lot of the institutions, probably your broker too, this -- >> sell sell sell! >> -- is a dirty three words. it's just a temporary breakdown,
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some mild turbulence that will eventually be overcome. maybe things will turn around tomorrow. yes, sun, tomorrow. okay? but tomorrow never comes. when i first got to goldman sachs, i remember asking my co-workers when i should tell a client to sell. i wanted to give them an exit plan. all the gray beards would tell me when the stock gets downgraded, that's when you sell. who wants to sell after a downgrade? after the stock has already hit its top, after it's come down. not cramer. but how do you know when that top is coming? i'll tell you the biggest cues i use to spot a top before it does its damage. first in this segment and then after the commercial. one of the best ways you can tell that i stock, especially one that's had a lot o momentum, is played out is when the bears start disappearing, when all the analysts who cover the stock have upgraded, when there are no or very few sell
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sell sells left. when everybody hears -- >> buy buy buy! >> -- you've got to reconsider. that's a great sign in the momentum stock that you're about to run smack into a top. the reason? there are no bears left to convert. no sellers left to turn into buyers. everyone's in the pool. no people standing on the sidelines left to convert either. everyone who wants the stock owns it already. no one can come in and buy it higher, and that means the buying will stop soon. with no more buying you've got a top. time -- >> sell sell sell! >> -- to sell. time to ring the register. the second reason to abandon the stock -- even when you know and like, not love -- remember, these are just pieces of paper. is competition. you might not want to believe that competition matters, especially if you've got a history with your stock. but i'm begging you to be objective. the only way you can tell that
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the competition's about to come in and destroy your company's business is being vigilant. the price of profits is internal vigilance. it's not enough merely to do homework on your stock. you need to monitor the whole section. you need to make sure there aren't any up-and-comers ready to gobble up your market share and send your stock hurtling down. i'd say a solid 70% of the top size is competition. raw competition coming in from where you least expected it. competition as much as anything else is the reason it's imperative that you spend one hour per week doing homework. it's a huge drag. it will save you money. otherwise, i can practically guarantee you that you will get blindsided. isn't it funny? the only guarantees i can offer on the program are that you will lose money if you don't do the work. that i can guarantee you. your stock will top and then you'll lose money. the bottom line -- we don't like to think about tops. they're scary. they're sad.
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but we know they exist. you can't be in denial about them. two of the best ways to see them coming are by keeping an eye on the analysts. if they get too bullish, you sell. and by watching out for competition, which most of the analysts aren't looking at because they're really just following the company. after the break i'll tell you more ways to spot tops before they happen. but first, how about some calls? how about we go to wayne in new york? wayne. >> caller: jim. ba-ba-ba-ba ba-ba-ba-boo-yah. >> boo-yah back at you. >> caller: thanks for all the great advice. my question is -- one things that's tough for me is maintaining my focus and investment philosophy when a stock goes down. i buy a stock, it goes down 10%, fundamentals run changed, it goes down more, so i buy another 10%. do you have any advice on how to maintain this kind of discipline when your stock's sinking and conversely to keep that discipline on the top when -- >> you're approaching it wrong, wayne. you have to use those declines as ways to get your stock, which
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you've done the homework on and you know you like, at a more cheap price. that's why i advocate over and over again. those of you who put a stop position on all at one price are arrogant. you are showing hubris. you are not skeptical enough. when i start a position, like when i start one for actionalertsplus.com, my charitable trust where i run through thestreet.com, where i'm biggest shareholder, i always like to say my first buy is probably going to be wrong. the market's going to send my stock down further. or people don't understand my theory so, let's buy them pyramid style, start here as it gets lower we buy more. that first 10% say godsend. the second 10% is hallelujah. sherry in california. >> caller: a big boo-yah to ya, jim. >> boo-yah back to you. what's on your mind in. >> caller: thank you.
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hey, jim, do certain sectors bottom reliably at certain times of the year? >> yes. historically, and this is of great confusion to people, but i'm going to tell you why, and it's kind of complex. the cyclical stocks, the big mineral stocks, the big steel stocks, aluminum stocks, chemical, paper, they bottom at the end of each calendar year. why is that? because beginning in january the analysts will come out and say really positive things. they give you their next year outlook. that usually is a high. that's when we watch the cyclicals creep up and then you sell them come february. we also have a top in tech in the first week of january. and traditionally a bottom in tech in july, august. why is that? in january everyone's real bullish, too bullish. in august everyone's too bearish. those are great times to buy technology. let's go to tom in georgia. tom. >> caller: jim, hotlanta peach state happy to be a citizen of the united states of cramerica boo-yahs to ya. >> i'm glad you -- look, this is
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one of the few places in america where you don't need to show a passport. i welcome everyone. and i thank you. i do not need to see your papers, but i do need to hear yu question. >> caller: my investment philosophy is all about going back to first principles. so i've been really glad to read and follow the rules in your last two books about how to select and value a stock because those rules, jim, are solid gold >> thank you, man. look, remember where those rules came from. from my mistakes so you don't make them. how can i help you? >> caller: well, i know how to select a stock based on the rules. do the homework, read the reports, listen to the conference calls, compare p/es to competitors. >> right, right. >> caller: but once you've got a candidate, you've got to figure out entry and exit prices. >> right. >> caller: now, i already know don't pay more than twice the growth rate and i should schnitzel in and schnitzel out. but other than this can you give me a little more guidance on how you determine entry and exit prices for a position, especially exit prices? >> my mom taught me this stuff. exit price. are you being greedy?
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are you being a pig? you're trying to take off -- look, i like to sell as a stock goes up, even great stocks. let me give you an example. when i see a stock that becomes more than if i have a diversified portfolio of ten stocks, and each has got 1/10 of the money in it, when one of them gets to 2/10 and you haven't taken anything off you're being greedy. if a stock goes up 25% and you haven't taken anything off, you're being greedy. it's greed that determines it, not the fundamentals. that's what would have happened in so many great rallies, had people realized they were being greedy they would all make much more money. coming up, we can't call tops per se. we can sell as pops develop. i want everyone to watch the analyst s when they get too bullish, you've got to run because that's going to happen. and when the competition comes calling, you be ready so you know, time to go. more "money" after this break.
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you're extra lucky tonight. because i'm opening up my playbook from the hedge fund and teaching you the secrets of my crystal ball. how do i know which way a stock will move before it happens? it's simple and easy. i pay attention, do my homework, and remember my disciplines. tonight's show is entirely about how we spot moves in stocks before they happen. so we don't get caught with our pants down. now, see, in the old days, before i became a statesman, i would have just lowered my pants right now. we don't want our pants down. and spend days or weeks frustrated that we didn't see something big coming like a train wreck. i've been talking about pops. why you need to be ready for them. and how you can see them coming and bail on a stock before they hit.
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i have five key tells. write them down. five things that will let me know a stock has reached or is about to reach its top and it's time to bail. i've given you two of the cues. when all the analysts become bullish and there are no bears left to convert, everyone's here. and when competition comes in and starts to wreck the. 's business. you can watch for these and catch them before they cause a top if you do the homework. that's what it's about, the homework, the homework, the homework, keeping up on who's coming in. now i'll tell you the three other causes of tops. three things that mean it's time for you to sell while the selling's still good. first, and it's bane of my existence and no doubt yours, accounting irregularities. i say this in "jim cramer's real
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money: sane investing in an insane world," and now i am saying it again. accounting irregularities equal sell. no matter what. no exceptions. i don't care who you think of a company. i don't care how well it's worked for you in the past. when you see a company messing around with its financials, the holy grail of what we do, you know it's in trouble. it's not just that lying about the numbers is illegal. it's that the only companies that screw with their numbers are the ones that can't make them. not every company with an accounting scandal is an enron waiting to happen. although i'll note if you'd sold enron when the first news of their accounting scandal broke you could have made it out of the stock with some of your money intact rather than with nothing. the irs accounting
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irregularities broke at around 40. the last ones broke at 0. when you see accounting irregularities, i'm going to say it again, you have to sell. sometimes you'll be wrong, but far more often you'll be right. i know far more people feel that rule kept me out of making x or y. no, that's the wrong way to look at it. that rules prevents from you having a black hole in your portfolio. and no, an options backdating problem is not an accounting problem. it's a compensation problem. let's understand an accounting problem means the numbers are phony. but companies that backdate options for the officers don't do it because business bad, like companies that lie about their financials. they do it because business is good and getting better. those executives would rather take stock than cash because of the future. if anything, options backdating problem can be a reason to buy a stock, not sell. and we proved time and time again on this show that that's exactly what you should have done. next year you can see a top
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coming a mile away. overexpansion. on "mad money" we like growth. it's like crack to wall street. people can't get enough of it. the street tends to love acquisitions and rapid expansion, and those are the easiest ways to make growth happen. sometimes an acquisition is great, but sometimes it's a problem. a sign of overexpansion. a sign of growing too fast. can't be managed. growth that can't be contained and can't be controlled that's just out of control. a sign you should get out. the same with frenetic store openings or office expansions. it's hard to execute these things properly. and if a company can't pull it off, your stock lend up peaking rather than going higher. i always, always watch for a company that is growing so fast that it takes your breath away. the code for overexpansion on the street -- yeah. we call it integration problems. when you hear a management say
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those two not so magic words, "integration problems," top coming. when you read them, when you hear them, it's time for you to run -- don't walk. >> sell sell sell. >> it's easy to spot overexpansion in retailers. >> we like retailers to grow their store cap. but when you see them put up a massive number of stores relative to their base all at once, shoot first, ask questions later. >> that's a retailer that's asking for trouble. it's a sign of weakness. rather than strength. masking something. just watch the same-store sales numbers to see how much the existing business gets hurt by overexpansion. you'll know the top is coming. i happen to really like to look at the same-store sales numbers of older stores to see if that's a problem. the other problem retailers have with overexpansion is saturation. when you see a retailer already has stores in all 50 states. i'm calling a top right there. no growth means the stock is about to take a long, maybe permanent slide down. remember wal-mart.
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the last sign of an impending top is government action. the government at the federal or state level can do more to hurt the company than any competitor. how do you spot this kind of top? check out the front pages of the "new york times," the front pages of the "wall street journal," the "usa today." i've seen a bunch there. and "washington post." i start my day with them electronically, inserting my stocks' names in their search engines to see what articles come up. please don't just stick to the business section because it never pays enough attention to washington. bottom line, if you want to spot a top and get out before it happens, watch for accounting irregularities, overexpansion, and worst i think, government intervention. how about we go to darren in arizona? darren. >> caller: what's up, buddy? >> you tell me, chief. >> caller: oh, i'm just rocking out. >> all right. let's make some money, though. >> caller: hey. i noticed in addition to looking at the nuts and bolts of a company you like to sometimes pay attention to what you were just talking about, the psychology behind the traders in
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the market and what's going on in the news. >> right. right. >> caller: i wanted to get your take on the stuff that robert prechter's been doing with the eliot wave principle, which use this is idea of a mass psychology almost exclusively. >> well, you know what, i actually used to listen to his calls constantly in the '80s. but you know what? he kind of stayed too negative, and i would have left out a lot. i guess what i'm saying is i dismiss him. i don't want to pay lip service to people i don't listen to on the show. do i want his friendship? i say at the top of every show, not about friendship. about money. he doesn't make any for me. watch for accounting irregularities. they equal sell. watch for overexpansion, they equal sell. watch for government expansion, they equal sell. and stick with cramer to find out how to make even more "mad money." when i was told i had diabetes,
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i felt amazingly boxed in. (announcer) joe uses the contour meter from bayer. (joe) my meter absolutely adapts to me and my lifestyle. i'm joe james, and being outside of the box is my simple win. (announcer) now available in five vibrant colors. (announcer) we understand. you need to save money.
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if there's one lesson i want you to take away from this very special show, it's that you absolutely must keep yourself ahead of the game. i've got to keep you smarter than the hedge fund guys where i used to live. got to keep you smart yes than the mutual fund guys, the analysts, everybody else out there. anybody who watches "mad money," i want to be smarter, i want you to be smarter than everybody else. i want you to know how to act on the business cycle and stick to your discipline in the face of morons telling you different. man, i'm such a statesman. i used to say blank morons. you think this is just wall street gibberish? wrong. spotting a sector rotation when money moves from one sector or group of sectors into another because of the business cycle is of the utmost importance. it's one of the key moves you need to spot before it happens if you want to make money in the market. how huge? how about the fact that 50% of the stock's move depends upon
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the performance of the sector it's in, not the company? do you understand what that means? if you can call the sector, you can call half the gains or losses in a given stock, any stock. why is this true? because most of the big fund managers are committed to sector-based thinking. and they're the buyers and sellers who set prices. this is not complicated. you've got two kinds of companies out there, cyclical businesses do well when the economy is growing fast. when the fed has rates low. and they don't do so well when the economy slows down. here's the groups. airlines, autos, raw materials, consumer durables. think washing machines. heavy equipment. that kind of thing. then you've got your secular stocks, your secular growers. in addition to not keeping the sabbath these companies are sensitive to the underlying strength or weakness of the economy. a generous mills, procter &
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gamble, brothers johnson, any of these utilities, these are secular growers. although the utility obviously a slow secular grower. they won't be affected by the cycle because they don't stop buying band-aids just because we're low on cash. how do you spot these sector rotations before they start moving the stocks? how do you buy the secular growers before they go higher? how do you avoid the cyclicals before they go lower? easy. at the top of the cycle, before you think a downturn is coming, maybe because the fed is raising rates, you load up on your secular growth stocks. at the bottom you swap out of all that for some beaten-up cyclical. let me repeat. when the economy is humming along with high growth, you sell cyclicals and buy secular growth stocks. i know it's counterintuitive. i don't care. when the gdp growth is in the gutter but you think it's done going down, then you move into the heavy-duty stocks, the cyclicals. the reason this is actually difficult, the reason you can
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make money off of this playbook, is that it's kind of just the opposite of what you thought would happen. when cyclical stocks start to bottom, everyone cuts their earnings estimates for them. remember, this is the bottom of the cycle. so the companies are suffering. so the estimates get slashed. but the companies hit bottom, won't go much lower. i actually describe this in detail in "real money: sane investing in an insane world." because i find it so hard for people to grasp. see, this makes stocks seem expensive when the estimates are cut. but it's not the price we care about at that point. it's the price to earnings multiple. when these companies are at their most expensive at the bottom of the cycle, then you've got to pull the trigger. then you've got to buy. >> buy buy buy! >> you buy because you know that the earnings are going to increase as the economy picks up. and you'll never be able to buy them so low after we get a little steam in the economy. the bottom line, play defense.
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buy secular growth stocks at the top of the business cycle and go on the offense, the cyclicals when the economy is so bad that you need to take away the tie and the shoelaces. don't get killed by the idiots out there who can't think a little counterintuitively. you be counterintuitive. you make the mad money. and you stick with cramer. >> open the window. he has no idea how bad it is out there! how can we have the options, how do people get away with this?s >> i'm taking on a social issue. a hurtful, suicidal one. so you can get a fund that matches your objectives instead of someone else's. announcer: before investing, consider the fund's investment objectives, risks, charges and expenses. contact td ameritrade for a prospectus containing
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so you will have an edge on the street. now i want to tell you how the sea moves predicting how, when companies and analyst s going t
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cut earnings or bump earnings up. earnings revisions that's this segment. figuring out when and how a company's earnings are going to change before anybody else does that's wall street's holy grail. it's hard to do. time consuming. but, man does it pay off. how do we know when a company or group of companies in a given sector are going to change? there is the -- ivan boskey plan. i like to avoid crime and punishment stuff. no, we don't cheat. just to go off on a cautionary tangent. most guys who trade on inside information, get sloppy, lazy and cowardly. it hurts their game when they don't have the info. because they're scared to act without it. plus, the jail thing, really bad. sorry for a little digression. back on target. there are a couple of ways we can spot changes in earnings. you can start from the bottom. the horatio alger model. with retail you can go to the
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stores, watch the registry, count the transactions. you have got to do this in more than one store. at more than one time. this is not a mistake, it's not too time consuming. if you want to get in retail this is a pretty good way to judge things. when something is fleeing off the shelves at a pace that isn't reflected at earnings estimates, buy the stock of who ever makes it. pull the trigger for heavens sake. i did this with reebok during the aerobics boom at goldman sachs. it is time consuming if you are retired like i am, and have a lot of free time, go for it. if you don't have the time to sit in the store and watch the register you can try to anticipate spending cycles. the airlines have an incredibly predictable spending cycle. when you see boeing is getting orders, buy the stock of boeing suppliers. yeah, the bea aerospace, precision cast parts. honey well which makes the cockpit. real simple isn't it. people don't see it. as soon as analysts start loving the stocks you get out. when semiconductors do well they
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look to raise money to buy equipment. when you see them doing pretty strongly, but before they place the orders you load up on suppliers and think applied materials, and novelis. some things happen when the telephone companies do well. they buy equipment. see them doing well. swallow your pride, buy nortel, cisco before they place orders. same deal as before. you sell when analysts start to rub up against your picks. don't listen to analysts, friend. or me. you watch the indicators, stay disciplined. the rest of the market will follow you. that is the situation you want to be in. bottom line, the lead dog might feel lonely but he has the best view. more mad money after the break. a
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now you can call bottoms, tops, sector rotations and most importa importantly, the holy grail. you know how to, sometimes, see earnings estimate revision before it hits. you have got your edge, now what i want you to do is go out there and beat wall street. at its own game. because you have exactly what i had when i performed at my hedge fund. yeah, you've got the playbook
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now. i always look to say there is a bull market some where. i promise to find it just for you right here. i'm jim cramer. thank you for watching special edition. see you next time. pothole:h no...your tire's all flat and junk. oh, did i do that? here, let me get my cellular out - call ya a wrecker. ...oh shoot...i got no phone ...cuz i'm a pothole...so....k, bye! anncr: accidents are bad. anncr: but geico's good. with emergency road service. ding!
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live from the nasdaq marketsite, this is "fast money." i'm melissa lee. september begins and the selling starts. how do you protect yourself if this is the start of a correction? these guys got your winning plays. also on tap tonight, bears on parade. neural roubini, peter schiff, and david rosenberg, "fast" with the exclusive take tonight from three of the most notable bears on the street. that was supposed to be a bear. but first let's get to the word on the street. very deep sell-off -- oh, there they are. >> there they are. >> better late than never, right? but let's talk about the sell-off today, guys. this is the start of a correction. we have paul jones writing to his investors that this was a bear market rally, which may seem to indicate that this is perhaps over at this point. >> he's on his game. you know what, we like to say, stocks don't lie, people do. and i still think we're headed lower. you heard the comments out of wells fargo. i'm sure we'll talk about that in a couple minutes. but i think this is a prelude of things to come. i think we go down to 970, see if we hold there. close below 970 gets us to

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