Surround the trade 16. 25, 17. 10. Whoa. Whoa. Pete . Not only did i win our street fight tonight with csx, but selfproclaimed victory. I like that. But look at that name right there. Canadian pacific. Its going to go a lot higher. Great manager and toot toot, this things going higher. Giddy up. Lets go. Ride the train. All right. Im melissa lee. Thank you for watching. See you tomorrow, 9 00, squawk on the street. More fast money here at 5 00 tomorrow. Thats all right here on cnbc. Im jim cramer. Welcome to my world. You need to get in the game. Go out of business and hes nuts, theyre nuts they know nothing. I always like to say theres a bull market somewhere. Mad money, you cant afford to miss it. Hey, im cramer. Welcome to cramerica. Im trying to save you some money. My job, entertain you, coach you, teach you. Call me at 1800743cnbc. Im itching to go tonight. Because im on a mission. A mission to take you from the forces that want you to lose money. Including alas, yourself. Yet, tonight im using the bully pulpit here on mad money to preach against one of the worst of all excesses when it comes to investing the sin of arrogance. When you own stocks you have to be humble. Humility, people. Although i of all people recognize that humility doesnt come naturally to everyone. You have to recognize youll be wrong. Perhaps often. As the past three years have taught you painfully your portfolio will get hit with things that you never saw coming. Things you never imagine. Let alone never thought possible the house of pain. The one thing you can be sure of when putting a portfolio together, at some point something is going to go off the rails. Something is going to hit you, totally out of left field. A baseball analogy. Thats why its important to prepare yourself and your stocks for the next unexpected catastrophe. Maybe it is time to make money in that catastrophe. Or make money when things are going smoothly. How the heck do you get ready for a calamity when you dont know what it will look like . Do you expect the unexpected as an investor . Look, well never necessarily when the market is down gancally, well get hit. And one word diversification. Its the single worst in investing. Its the key to avoiding enormous losses and making sure you can stay in the game. A lot of people got blown out because they werent diversified in the last couple of down turns. Why i talk about it ad nauseam. If your portfolio is properly diversified you can come back from any disaster. Those who arent diversified, stopped watching the Program Years ago. Fools. When i talk about diversification, making sure all that your stock eggs arent in one sector basket. Just to go ever this again, because i can never say it too many times, it means no one sector or segment of the economy should account for 20 of the portfolio. One sector, 20 . Lets say you own five stock. Only one can be a tech, only one can be a health, only one can be an energy or a food and beverage, but what if youre not sure . I need you to err on the side of caution. Weve played this game so many eyears a lot of people were not sure. If two stocks trade together, if they succeed or fail based on the same failure, then youre not diverse philadelphia. Take a look at their stock trading history. Go the graphs are everywhere these days. Are they in tandem . Pick one, drop another. If the oil producer is the same sector. And im not doing this to be arbitrary and capricious or make it more difficult to invest. These arent big technicalities people. When you get too concentrated in one area, then the moment something bad happens youll want the throw yourself off the bridge. The losses will be enormous. Imagine if you own too Many Health Care stocks right before they got whacked by congress. How about banks in the financial Regulatory Reform that congress produced in response to the crisis . And this soured too many people, too many tech stocks going to the dotcom bust or perhaps you own many stocks you dont think are alike. We know zynga is aligned with groupon. How about if you own a pipeline company, they will trade down as i found out when my trust got dinged badly when oil talk a header. The goal of diversification is to spread your money across stocks. You can go higher. Look, a whole market selloff is one thing, but if its just oil and youre in oil big, youre blown out. Thats what happens. Thats the traditional view of diver diversificati diversification, its mandatory. You have to make sure your stocks dont overlap, i have something new here. You want a portfolio that works in all kinds of markets. So ill talk about the new diversification. How to make sure it works in the unforgiving investing environment where diversifying by sector loan is not enough. Things have gotten out of control or irrational. You need five different areas covered. You need some gold. You need a dividend paying stock with a high yield. You need a growth stock. Need something speculative and something foreign. Particularly in a year when the dysfunction in capital is so darn palpable that you have to protect your portfolio from the chaos washington is putting us through. We have gone from being incredibly business Friendly Company to one that is capable of wrecking just about any business if congress and the president put their minds to it. Isnt that the lesson of the partisanship and acrimony over the tax wranglings and the spendath spendathons. Cover all five markets and you with win in any market. Ill teach you how to analyze stocks so you fill every position with the best possible names that you feel comfortable with and i feel comfortable with. First, what do we need . Well, look, i did them first. We need gold. Need gold because gold has a special property. One that makes this metal precious to any diversified portfolio. Gold tends to go up when Everything Else goes down. Its your insurance against economic or geopolitical chaos, uncertainty, inflation. All things that cause most stocks to decline and causes the price of gold to rise. I like to think of it as a stock insurance. You wouldnt own a home without homeowners insurance. They wont let you buy the house without a mortgage. Its reckless. So should. Invest without some gold exposure. It pays off when Everything Else fails. Including whole currencies. And when it was doubt in 2010 and 2012, it was acceptable for all the countries. What is the current attempts to get the yen to be worth less up by the japanese government . Golds a handy antidote for savers in the debating countries. Dont forget for a minute if this country doesnt get its finances in order, gold will be the best safe haven as a defense to washington. This is not by the way about upside. Its really about minimizing your risk to the downside. At any given moment theres a whole host of sectors that are poised to outperform gold. None of them work like an insurance policy. Heres the tricky thing because you have not heard the height right way to do it. How do you own the gold . The easiest and least risky weight is through an etf, called the spider gold shares, but mostly known by gld. Which owns the metal and does a terrific job of tracking the price. You can also potentially call your broker and buy bouillon, the actual physical bars of gold. That makes sense for those who can buy gold in bulk and pay to store it in a depository bank. It is better to go with the gld than the gold miners like the gold corps gg or abx. Those are Great Companies but they have screwed up things in countless different ways. Debt issues, mine shut downs, just make mistakes. Well, the proof is in the pudding. Gold court is down in 20012. Gold still has another year up. 12 in a year. Usually they didnt capture the movement with the stock. Dont feel compelled to pick a gold miner. The gld is fine as an insurance policy against inflation and economic chaos. Well, while im blessing precious metals, you can own silver through the slv. Im not against that allocation because, well, remember, it does have more silver has more industrial use than gold. Its use can be year cyclical. Its more hostage to the worlds growth or lack of it. We want gold because it has no exposure of that kind. The bottom line, to make sure your portfolio works in any kind of market you need to own some market, either the bouillon or the etf. Remember, its your insurance against the economic chaos and that at times that can overwhelm you and your portfolio. Elizabeth in florida, elizabeth . Can caller hey, cramer, listen, several months ago you laid out a blue print for new way of achieving diversification steeped in strategy versus allocation. Im having a problem with one of the parameters. And thats the one of choosing a stock from a safe geography. Cramer, i have an investment window of 6 to 12 months. Where is my safe bet geography be . I think the safest geography in the world is canada. And i think that because its got a pro business government. That is not going to be derailed by what i call a religion of orthodoxy of the environment. In other words, theyre what i regard as being practical about the environment, thats important because they have a lot of resource businesses that will not be hurt by willynilly laws that could be passed that really do exappropriate nate a lot of their property. Thats a little bit of a conservative view, but thats the way it take it. Lets go to john in ohio. Caller hi, jim. How should i play a spinoff . Should i spell the Parent Company or sell the company that was spun off or hold case by case, i typically like to keep the parent and sell the sub. But in some situations like abbott, i like abbott more than abv. Its case by case and if its for instance, i spend a huge amount of time trying to describe what is better. I do my best on this show to tell you too. You want your portfolio to shine in any market, you have to own gold. I prefer the gld over the bouillon. But both give you insurance against chaos. And please dont buy the individual stocks of gold miners. Stick around more more new diversification strategies. Mad money will be right back. Dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer madtweets. Send jim an email to mad money cnbc. Com. Or give us a call at 1800743cnbc. Miss something . Head to madmoney cnbc. Com. What types of stocks should you own to help insure that you can make money in any environment . What strategies will work regardless of the state of the economy or if the market is in bear or bull mode . Or washingtons eagerness to wreck your Balance Sheet like it wrecked the nation . Unless youre a professional money manager own no more than ten or fewer than five stocks in your portfolio. More than ten, you have to spend too much time on the homework. I prefer a couple of hours a week if you can spare it. Do less, i dont know. Less, you wont be diversified. If you have just four stocks youll be in an unsafe position. Youll be overexposed to one industry or company that can do some damage to your nest egg. You have to get something in between. I used to say an hour per position, but now that the information is so available you dont. But you need to do homework on your stocks. Tonight ill teach hue you tow if ill the five types of stocks that represent the style and strategy. No one else is thinking like this. If you execute this correctly youll always own something that works and hold your interest both matter. Keeping you in the game i even when it feels so exkrooshuating as it did in 2008, 2012, you wont keep playing. At the same time, need to make sure your positions which will go much higher around the market is in bull market mode also wont fall apart when the market is in bull market mode. Its very hard to have stocks that fit that description. But lets go over what i already told you. You want to own some gold as insurance against chaos. Including the shenanigans in washington. And a surrogate currency. Because it tends to go up when almost every kind of stock goes down. Whats next . All right, take a deep breath because you want to own something speculative. Even a speculation is supposed to be the dirtiest word in the business. Where its paret of investing orthodoxsy. Im saying right now its a downright necessity as long as you follow my rules and you speculate correctly. I know that this is the exact opposite of everything you have been told by the usual purveyors. The gray beards who tell you to focus on big stocks like the Dow Jones Industrial average because its filled with allegedly blue chips names. Funny, how being blue chip didnt help citi or General Motors when they went under. And the professionals who give you the advice presume that home gamers like you are brain dead. That youre incapable of analyzing the prospects of publicly traded companies on your own. They dont think you can pick your own stocks. Something that they could they think you wouldnt even pick your own nose. I mean, theyre totally, totally contemptuous of you. So they assume youll do less damage to your wealth if you only play around in big household names and stay away from speculative stocks that you never heard of. Believe me off the desk, go out for a cocktail, have dinner, heres what they say. Well, first of all, they think that most of you dont know the difference between a stock and a bond. Thats the smug conventional wisdom on wall street and among the intelligentsia. But as a grizzled veteran, i have been around, i put my first i bought my first stock in 1998, ive been around. Im telling you that their view is totally bonus. These pros who dismiss speculation are completely ignoring what i call the human element. The emosul component of investing. The fact is a lot of people invest poorly because they arent engaged. They find it boring. They dont stay on top of what they own or they get worn out on the futile politics that can distract you from investing. Thats why you neglect your portfolio. If you dont have the motivation to do the homework then you wont do too well either. Buying stocks without homework is no better than gambling. Gambling is kind of fun and if legal could be more fair. And thats where speculation comes in. Just like you need some exposure to gold as an insurance against inflation and economic chaos, you need something speculative as a tonic against boredom. High risk stocks are conpell and an undeniable mystique to something that trades in the single digits. They let you keep your head in the game. I say a portfolio without speculation, without a long shot is a portfolio that wont capture your fancy. One that youll be bored with, okay. Youll be bored with your money. And anxious to surrender it to people who only care about taking your fees and keep your statement in the drawer because youre not frinterested. Speculation doesnt just keep you interested and when you do it with the right rules and disciplines, these stocks can generate massive returns in the stocks o. Well more wellknown and wellliked companies that are deemed safe. Some of the biggest in my career came in biggest speculation. Im know trying to sugarcoat the process. How do you identify the winners and losers . Okay, two kinds of stocks that trade in single digit territory. Thats the companies who have been abandoned and left for dead and the relatively undiscovered companies. In both cases you can get an enormous edge. The one is the intensely followed stocks of the household names because the big boys wont trade anything under five bucks. So youre benefiting from the classic mispricing created by overly pessimistic Money Managers. The large institutions, the big safe mutual funds, the Pension Funds and insurance companies. They dont want to own single digit stocks. They think they look too dangerous. Theyre afraid to be questioned about why they bought this junk, why do they own it, why do they risk money foolishly. Heres the big issue for them, especially if the stock does go to szero, how do they explain that . Thats how you get fired, people. When there were safer stocks out there what were you doing in the 4 stock, thats what the money manager fear. They fear the downside of stocks that can look broken. They know they can lose they job if they buy them. Nobody is looking over your shoulder. So when the fundamentals of the company starts to turn, you can buy at terrific prices. The big boys wont buy until it goes higher. And bank of america, 3, generational sallie mae, it was at 6 bucks in 2009. And regeneral aaron hit pay dirt or sprint in 2012, back from the bad. All of these stocks were supposed to be trash. Okay. They were indeed in the dumpster. But if you went dumpster diving you caught doubles or triples in all of them. Deals like these admittedly dont come around every day though. We speculate in tiny stocks in companies that people never heard of too and thats okay too. Were looking for sectors that seem like they can capture the imagination of the crowd. The next hot fad that will sweep through the wall street, were trying to get ahead of that. Thats not a crime, ladies and gentlemen. Thats a good goal. Sometimes, but not always, it will be backed up by genuine earnings powerme. We saw it with the Small Companies that make components. I recommended the mobile, Sky Works Solutions and cirrus logic. They were big winners. Theyre part of the apple iphone. They became discovered and then became obvious. When we liked them they were off the radar screen. We liked arm holdings when it was of the radar screens. They were torpedoed by expectations that were so high. And they could never equal the expectations. So all i can tell you is dont stick around but in an interim they made a lot of dough. Cirrus and sky works and arm Holdings Even with underlying longterm trends, speculative fads usually have the life cycle of a may fly. Okay . So drop i like that like our mr. Son, remember to lock in your profits when you have them. So dont get burned when interest wanes. Cut your losses before they come too large. When a spec you thought would work doesnt turn out. Youre not buying a stock to hold and hold on forever. No. As long as youre discipline and ring the register it doesnt matter if it comes down later. That doesnt mean to hold on to the deteriorating ones. Its the essence of irresponsible investing. You must believe in the fundamentals. Heres the bottom line. You need to own something speculative. Thats a key part of the new diversification that im offering you tonight. Something that will help you stave off boredom, allow you to rack up huge gains, lots of farns thattic stocks either beaten down stocks that should have been beaten down on companies that dont have any sponsorship and got lost in oblivion. It could be a triple waiting to happen. John in michigan, john . Caller hey, jim, youre awesome and im confused. About the strategy for buying and selling stocks during earnings season. Whats your best advice, buddy . I looked at the period from 2008