About. Serve eagerly anticipating why . When the vast majority of investors agree something is going to happen that, is priced into the stock market. The real economy moves at its own pace, you got to broer money to build out equipment and use that equipment to manufacture goods and wait for the cost to buy them the stock market has no such limitations. Stocks dont travel the speed of light. Well, how about the speed of thought . They come close. So they decide the economy is slowing or speeding up or flat lining stocks start trading like thats the case. Instantaneously. Usually takes some time to build that consensus which is why you rarely see the moves happening all at once. But once the big institutional Portfolio Managers are on the same page about something, you can be confident that its baked into the averages. I say that week. It will happen that week economists take an ivory you to area proech to the discipline. They have models for how the world is supposed to work. Also they can be very boring they rarely let the facts get in the way of a good story. The data conflicts with the model, economists have a bad habit of throwing away the data, not the model. One of the concepts is known as the efficient markets hypothesis stock prices already reflect all the relevant information in the universe that is out there at that moment. And when some new piece of data comes out, stocks immediately adjust to reflect the new reality. Youll often hear index fund purists saying why it is impossible to get any edge whatever you know about a company is already baked into the share price. Cant get an edge. As far as theyre concerned, markets are efficient. They invest in individual stocks and gamble if everything you know is already priced in in, that means the home work is meaningless and the only thing you can push a stock higher or lower is some new piece of information that nobody knows it has to be something totally unknown. If anyone did know, they would have already acted on already. Ergo would be built into the share price. Index fund advocates adore the hypothesis its impossible for individual investors to consistently beat the averages so if you want equity exposure, the smart way to do it is by putting your money in a low Cost Index Fund that mifr mirrors the spp s p 500. I have no beef with that beyond meat, beef, whatever i have no problem with the index funds. Theyre the best way to invest the market i said that almost since day one of the show. S its hard to be a individual stock investor but its easy to be an index fund investor. Index fund territory can you contribute over time with every paycheck. The u. S. Economy keeps growing over the long haul can you leave that money in the index fund maybe once or twice a month. They can use the ira for stocks. But get back on track, this idea you cant possibly beat the market because efficient market hypothesis tells us the stocks are valued the averages nearly every year at my old edge fund. Given my clients annual return after all fees over the course of the years and markets are not perfectly efficiently. Theyre often irrational they ignore things and make mistakes and disvalue information every single day that is the main reason you can make money while picking stocks. Theyre good for the portfolio it doesnt necessarily work. So the markets hypothesis is such a bone headed idea. Even if it is not streaking empirically, the markets are inefficient. Its still a very useful idea. The iron clad rule of the universe, it can help us as a rough guideline, they can meet us in the right direction they aspire to efficiency. They report a fantastic quarter, they will will spike that can get baked in very quickly. The Federal Reserve changes policy, they wont be raising Interest Rates as previously planned. That is huge news and takes longer to bake we found out the end of 2018 the fed got cold feet about the policy that is weeks and weeks. And there are a lot of them. Instantly soar but it can take days or weeks or even months. And theyre normal it takes time for Portfolio Managers to reposition they have too much more management theyre not going to buy or sell all at once. We do reach a new equilibrium call it a corollary. There is a consensus about anything, be it positive or negative, you have to assume that it is already being discounted by the market so when everyone is feeling euphoric about the strong job market that, is baked into the stock market already theyre worried about the slowdown, its probably baked in when investors are hunkering down in fear of a bad earnings season, dont expect them to get disappointed numbers theyre already into disappointment when all the talking heads in general and media friendly managers are telling you to be afraid of the same thing you dont need to be afraid. Lit everybody else worry for you. From the stob markets perspective, the fact that most investors believe something is going to happen means that in a way its happening already its so easy to fall prey to the group think. When you see all sorts of experts coming on television and saying the same thing, the newspaper is printing similar stories and your friends echo this stuff back you to it is natural to assume it must be true. You no he what very often it is true. But that doesnt mean its going to move stock prices by the time we get any kind of real consensus on an issue, that move is probably over. You missed it. Bottom line, you want to be a better investors, dont tear your hair out fretting about everything else. Instead you should worry about the things other people dont seem to care about, because the real threat is the one you dont see coming dave in virginia, dave caller hi, jim how you doing . Im doing well. I was born in Plymouth Meeting and i was raised in summit oh, my were dop will gangers i love that. Yeah. Caller we want to leave half our assets with certain minimum amount to our two children and retire on the other half they were both in their mid 20s. And we will adjust our lifestyle if we have to in order to leave that minimum now most Money Managers will say that at our age in a normalized Interest Rate environment we should be about 60 in stocks and the kid should be around 85 . So without setting up new trusts, we invest the minimum amount as if it were their money now and if so allocate stocks hatch at 60 and half at 85 i think the 85 all in for younger people is definitely right. For you, assuming youre my age, i think 60 to 65, were going to go longer than the actual table. I prefer always to put a little bit more stock in there than most think st if it you want to go 90 for 20yearolded, i would bust that too. We have to have the long assets in there to make a lot of money over the time. Thank you for the kind comments. Frank in new york. Frank . Caller yes, jim. Thank you very much. This is first time, long time. I like to ask you, what is the difference between general stocks and overthecounter stocks they used to be different they were done by different with my day when i was at goldman sachs, we had had overthecounters different from the listed these days they blended. I wond worry about it. Stay focused on the fundamentals listen up, dont sweat what theyre all sweating Pay Attention to what others are ignoring mad money tonight. To trade or not to trade that is the question ill tell you how to come out on top by pointing the different ways to approach investing then feel like the markets speak different language ill tell you ho you to decipher hidden messages in the tape. And the next time you see a hot ipo, well, should you consider buying the company or not . Not so fast. Ill tell you why. Stay with cramer dont miss a second of mad money. Follow us on twitter have a question . Tweet cramer madtweets send jim an email to madmoney tmadmoney cnbc. Com. Miss something head to madmoney. Cnbc. Com. [spokesman] if youve tried college but never finished, group cheering snhu lets you transfer up to 90 credits toward you bachelors degree. [woman] it doesnt matter how old you are, you can do it, you can finish. [spokesman] finish your degree at snhu. Edu i told you before the break, when you pack into a crowded trade, youre playing with fire. If everybodys on the tame page about a stock or even a whole sector, that means the easy money is already been made, people doesnt mean you cant profit from something obvious that does happen but when youre late to the party, youre going to have lower returners and higher risk. That is the nature of the beast. Nobody is putting a gun to your head that is terrible, right . And following the hedge fund you dont have to think about spotting tops and bottoms if you dont want to. There are a lot of different ways to invest some take less work than others. For example, there is timing you can try to call every jie rags in every average, okay . Buying stocks when they look poised for a near term bottom then selling when they look topee. Can you take a large holding and lighten up on part of it when it gets overextended and buy it back when the stock sells off. Keep your battle on your shoulder waiting for the Perfect Moment where the whole market sells off dramatically give you a chance to buy the favorite stocks for much p less than theyre worth back during hedge fund, i love doing this stop. If you have the time, inclination, resources, its a great way to try to make money if you have a full time job, this approach is lunacy regular people who work for a living dont have time to stair at the tape all day. St if you work the night shift, its not a good use of your precious free time more importantly, its not worth the agitation. Thats why i come in here every night to do the show i focus on the market like a hawk so that you can take a less intense approach to investing. One that lets you go to work and have a personal life how should you approach the market what is the safest way hand to will individual stocks part time for starters, let me just say, again, that index funds are wonderful thing. Wouldnt it be great if everyone says dwoent li dont like index funds if at any point what im describing sounds too daunting or too time consuming, dont hesitate to say individual stocks are not for me. Throw your hands up. Just put most of your mad money, the cash you invest thats not part of your retirement portfolio into a nice low Cost Index Fund or etf that mirrors the s p 500. I tell you this is a lie i tell you this a lot. Its good advice being a savvy stock investor takes work being a savvy index fund investor, it is easy or relatively so sure, if you manage your portfolio well if, you do the home work and stay disciplined, i think can you beat the s p 500 with diversified group of stocks ive seen it happen hundreds of times. But not everybody has that kind of time. Not everybody has the temperment and comfortable taking one morris to being chase a higher return thats perfectly fine. You need to do what is right for you t so keep that index omptio in your back pocket. Lets talk about how you can do that without the market taking control of your life and just constantly living in a ball of worry and confusion. First, from the get go, accept that the best is enemy of the good there is no point in trying to buy or sell stocks at the Perfect Moment nobodys that talented even making at tempt will make you nuts accept results that are good enough rather than trying to chase perfection for example, if a stock you like gets hammered down from 60 to 50 and then pull the trigger then down another couple points before it bottoms and rebounds to 60, dont kick yourself tore making a mistake you could have made a couple extra points but swan waya swin a win i dont believe in buy and hold. No wait a second. Cramers breaking the orthodoxy . No i believe in buy and home work buy and hold to me is reckless buy and home work is prudent meaning, you need to keep researching your companies after you own a piece of them. If something goes wrong, terribly wrong, you have to bail i think its good idea to buy stocks slowly on the wait down and buy them on the way up all that requires a certain amount of active management. Dont be compelled to be too active the last thing you need is to be in and out of stocks with every jie rags of the Broader Market i dont want that. You want to be an investor, not a trader you want to invest in things in and out. Most gains occur in concentrated bursts and libel to miss them if youre on the sidelines. If you have the time and inclination to trade, thats great. However, monthest people dont when you got a full time job and youre trying to manage your own portfolio, you have to be willing to sit tight there will be selloffs there will be rotations out of one group and into another there will be crazy action on a week to week and even day to day basis. You dont have to constantly adjust your holdings based on the moves. Thats wrong if you believe in the stocks you own and shouldnt own anything you dont believe in, just sell them then you should be willing to stick with them when the backdrop gets tough. You cant just bail. Ideally, youre able to trade it out. Like i told you, the best is the enemy of the good. Dont chase perfection in practice, when everybody is panicking, youre going to be tempted to just sell everything. You might even avoid a substantial decline by bailing on a stock market. But sooner or later, you have to get back in. The whole point is side stepping decline is how to sell high and buy low. Unfortunately, its relevant yea hard to nail the timing here if you dump everything, there is no guarantee youll be able to buy your stocks back before something changes. And the market comes roaring back suddenly you saw in the spring of 2019 after fed chief jay powell told us some rate cuts may be on the horizon. Wow. Okay that would breathe new life into the economy. So what is the solution . If you dont want to give yourself a pan ache tack every day, keep doing the home work so you know what you own. When your stocks surge higher, use that opportunity to ring the register on part of the position and raise some cash. After 20 move or more, you need to take something off the table. That is my iron clad rule. A Little Something okay put that kosh to work buying more shares at lower prices. You dont have to nail every short term top and bottom. That is too hard bottom line, to trade or not trade . That is the question if youre trying to be an investor that doesnt need to stair at the tape all day long, its nobler in the mind to suffer the slings and arrows of outrageous fortune you dont need to be perfect at managing your money. You just need to be good enough. You dont need to anticipate every jie rags in the market its too difficult and will rarely prove to be worth it. Lets speak to ryan in new jersey ryan caller hey, bua, jhow zmoug doing good im looking to invest my first 20,000. Im wondering what to do with the other 10,000. I dont have time to do home work i wonder if its a good move to go with index fund and etfs . If you dont have time, you must i dont want those small sector etfs. I prefer total return fund that has all sorts of stocks or a fund with a high growth. I dont want it sector by sector they tend to not make people money because people buy them high and sell them low r riley in georgia. Caller faulk fthank you forg my call. Youre the man what percentage you would recommend of going portfolio either physical gold i think 10 is fine i know that its been terrible but, you know, you just like insurance, you know, you dont want insurance to pay of o, do you . Its insurance and nothing else all right. Dont try to anticipate every jie rags of the market just do the home work on what you own. There is much more mad money ahead. Nothing generates them for the market like a newly minted proceed with caution the next time you see a Company Coming public be at the right place at the right time is essential in investing. Im showing you why. First, hear that its the tape talking. Ill help you separate the signal from the snoiz noisnoiseh cramer you should be mad at airports. Excuse me, where is gate 87 . You should be mad at nonseasoned travelers. And they took my toothpaste away. And you should be mad at people who take unnecessary risks. How dare you, hes my emotional support snake. But youre not mad, because you have e trade, whose tech helps you understand the risk and reward potential on an options trade its a paste. Its not liquid or a gel. And even explore whatif scenarios. Wheres gate 87 . Dont get mad. Get e trade and start trading today. The stock market talks to me i mean that figuratively, not literally. Contrary to what you may have heard on twitter, i dont hear voices periodically i think athat my left mole ar crown does play some music but thats what were talking about. Im constantly listening to tape to get a read on the big institutional Money Managers are up to. And to do that, i need separate the signal from the noise. What i do mean from that on any given day, there might be monster moves in individual stocks the swings are all significant when you see the cloud stocks get killed, forget about it. The natural conclusion to draw and something must be wrong with the cloud. Well when a really low group bounces, its not a stretch to assume that pain is not over but thats just too easy, people the truth is some of the moves are a signal and some of them are noise. It tells you the stock will probably keep moving the same direction. Noise on the other hand is, noid to borrow a line from one of my favorite characters, macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more it is a tale told by an idiot full of sound and fury signifying nothing in other words, while single carries the message, there is no take away from noise shakespeare would have been a dynamite investor. Distinguishing one from the other is much an art as science. How do you tell major stock swings something larger or should be ignored . Before we get into what makes a move meaningful, you need to understand we get major single day advances and declines with no significance all the time good stocks with get ahead of themselves rallying too far, too fast the technical term is overbought the measure with the slowest oscillator or the williams percentage we talk about these on tuesday onz off the charts. When youre overbought, everybody wants the stock at a given level and already purchased it the highest Quality Company have a overbought stock you almost always get a pullback but this overboard selloff doesnt tell you anything. Other than the fact that the stock in question needed to take a braejer and digest the gains at the same time, even bad stocks can rally and for similar reasons. If they get oversold because theyve come down too quickly, you need to get a nice oversold bounce once again this is the rally that doesnt con