I know this is the most bizarre thing on not just business tv but television in general. Think about it. A oneman show about business . But i also know that you wont find investing advice this good anywhere else. You know that too or else you wouldnt be watching, unless youre one of those people tunes in to see if tonight the nights that i actually do go off the rails, by after multiple years of airing, is always a possibility on any given night. Sorry, guys. Theres a tape delay, but keep wishing. Bound to happen one day although i do my best so it doesnt. This show is all about the method or methods to my madness. How do i pick stocks . What gets on the show . You always ask me that. Why do you tell you that some stocks are worth buying now or on the dip instead of just like, hey, tomorrow. Thats the question everybody would like to know. Tonight im going to give you pieces of the answer. Lets get rolling. One of the easiest way i identify potential cramer names for mad money, the stocks that could but wont necessarily always end up on the show is by watching my favorite list from when i was frankly a little boy in fifth grade. I used to look at the new high list. I thought it was like the guys who were hitting better than 0. 300 in baseball. Stocks in that list the highest of the high obviously have something going for them and thats especially true when the markets in bad shape. So whats it tell you when a stock hits the new high . Either that its part of a genuine bull market or the company itself has some serious earnings or sales momentum, or maybe its sector does, which is so oven responsible for a stocks increase. No matter how they get there, many stocks on the new high list often keep going higher because its really a list of a students that are worth investing in. The a students tend to repeat themselves in the process every quarter just like the really smart kids in school. In a great bull market from the bottom in 2009 and any market by the way that doubles from the bottom has to be considered a great bull market. Even as i know so many resist such labels, we saw this new high list phenomenon over and over again. The same stock would hit new high after new high after new high and following them was a great way to make money, even as the bears claimed endlessly that the bull market was false and couldnt be trusted. Listening to the bears caused you to miss out on one of the greatest rallies in history. Obviously its more the exception than the rule over time in all the years ive followed the market but generally speaking things have worked have continued to work because these stocks typically represent companies that are best of breed. Always remember that phrase because its integral to mad money. I am not saying that just so you can chase stocks that are hitting new highs because theyll keep going higher. That would be the ultimate foolishness, true bozo the clown behavior. Im saying if you want to identify stockers that will be winner in the future, unless theres been a big sea change caused by a shift dramatically higher in Interest Rates, looking at the bigger winners of the present is a pretty good place to try to figure out the future. Let this list do it for you. Its already been scrutinized and scrubbed. Thats the thing about the market. Its not always that hard to play once you understand theres often more continuity than change. Things pretty much keep going the way theyre going until something major shifts, and then you do have to alter course. Those course changes can be pretty radical, though, and thats why you always have to be reevaluating your ideas and should never dig in your heels when the facts change. Something we emphasize over and over here, and it also infuses my columns in real money and all my books ive written save my autobiography, confessions of a street addict, which is more of a score settling tome, settling scores with myself, of course. Hey, it isnt called mad money for nothing. But you know what . When youre looking for stocks to invest in, when youre hunting for the bull market like i always do here, looking at the new high list is a terrific place to begin. I dont just pluck names off. Thats a littazy and responsibl. Im a lot of things, but lazy and responsible, anyone that sees my insane tweets at 5 04 knows, yes, that is me tweeting. Some people say, hey, is that someone else tweeting for you . Who else would get up that early . You cant do that. I mean and then of course the obligatory, do you ever sleep . Well, no. I mean at least not for any long stretch. I play the same standards, though, of rig or that i used at my old hedge fund. So i rarely recommend buying stocks that trade off the high what i do like to do, though, when im hunting for stocks and what you need to do is wait for the fabled pullback from the new high list because that is the best place to put money. The pullback and there im thinking about something that could be 2 or 3, preferably 5 , that gives you a good lower price entry on something thats on that list. Remember, i am not telling you to chase momentum. You should always be conscious of price, and therefore try to buy on weakness just like you want to sell into strength. Most people cant pull the trigger when the stocks going down. Im telling you if its on the new high list and comes down, that would be your man. Im throwing these caveats in because i dont want you to look at the new high list as your shopping list. Its a jumping off point. Albeit a very important one for those tries to get starts. Poring over the new high list is a fabulous way to identify potential stocks to buy. You only buy stocks that have pulled back from the new high list if youre confident theyll make a come back for substantive reasons having nothing to do with the market. You have to do all the same homework you ordinarily do before buying a stock. Its not a you dont get a pass there. You absolutely must have conviction even if its a cynical conviction that the stock is going higher, and i do that for a lot of the ipos. Im really saying cynically, i know the buyers go crazy about it. Me, i accept theyre just pieces of paper meaning, you know, the big boys cant resist growth stocks, right . And they will always come to the support on down days. The biggest caveat of all when youre shopping for stocks that have pulled back from new highs, make sure they havent pulled back for a good reason, that the selloff is extraneous to the business. Dont go buying a home builder thats down if Interest Rates flew up because they could at least initially get hurt with the quarter. Dont buy a big independent oil stock when oil goes down for three Straight Days because that probably doesnt belong on the new high list anymore. Youre looking for a stock thats that bristolmyers like strength because almost nothing has to do with bristolmyers. Be certain youre dealing with a momentarily damaged stock and not a troubled company that is going down and down. How do you tell the difference . If the fundamentals havent changed, the stock probably hasnt fallen from grace. Its pulled back for largely mechanical reasons, profit taking or some panic in the market. Now more than ever causing huge selloffs that make no sense in everything or doubling and tripping related etfs that are more powerful than the stocks themes, you see pull back from highs for nothing that happened to do at the company. Nothing to do with the company or the strength of the underlying businesses. Those are the buys. But if the fundamental picture changes, if whatever made the stock attractive as it climbed its way up the list, than the stock is no longer a candidate. The story has to be intact. While it isnt a hard and fast rule, i tend to like stocks that have pulled back just enough but not too much. I have to tell you 8 is the historical optimal level of a pull back that ive made a lot of money in. Less than that, youre going to be early for some of them. More than that, and maybe something is indeed wrong with the stock. You just dont know, 3, 5, 8, those are all important levels. That 8 level, man, ive made a killing when i buy them down 8 . Bottom line, thats the first method of kracramers madness. Some of my best picks have come out of this process. Its my getting to workshoping list, hopefully some of yours can too. Why dont we start with arzella. In ohio. Caller hi, jim. And booyah to you. Booyah right back. Caller im trying to get a better insight on mutual funds, and id like to know are they a good way to diversify . Well, you know what, i got to tell you, arzella, heres the problem. A lot of people have 401 ks where you have to have mutual funds and you cant pick individual stocks, and for that they are. What i like to do is have 20 international, 50 growth, the rest will be kind of a balance situation, maybe a fund that has some bonds. You have to depend on your outlook and your age. But, yes, mutual funds are fine. Try to look at some of the Performance Records in morning star. Thats what i use. Stuart in florida, stuart. Caller jim, whats the best time to use stop orders after you purchase a position . No, were not going to do that because you see if were going to trade actively, were going to have to Pay Attention to it. And if were not going to trade, were going to invest. We dont need stop orders because the market could be down 10 in a flash day. Youll have sold the stock and then it bounces right back. Youll say what the heck happened. We dont play it that way. We invest on mad money. Were not traders. We invest. All right. Theres a method to this madness and tonight im revealing it all. The first method, look for stocks that have pulled back from new highs, especially because of a Broader Market selloff having nothing to do with the individual stock that you want to pull the trigger on. Stay with cramer. Announcer dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, madtweets. Send jim an email to madmoney cnbc. Com or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. This car is traveling over 200 miles per hour. To win, every millisecond matters. Both on the track and thousands of miles away. With the help of at t, Red Bull Racing can share critical information about every inch of the car from virtually anywhere. Brakes are getting warm. Confirmed, daniel you need to cool your brakes. Understood, brake bias back 2 clicks. Giving them the agility to have speed precision. Because no one knows like at t. Will your business be ready when growth presents itself . American express open cards can help you take on a new job, or fill a big order or expand your office and take on whatever comes next. Find out how American Express cards and services can help prepare you for growth at open. Com. Welcome back to tonights methods to madness special where im revealing some of my best tricks for buying and selling stocks, truly timeless investing wisdom for the ages, i hope. Next up, how do you find stocks that are great buys . Earlier i was talking about picking off stocks that have pulled back from the new high list because you get a cheaper entry point in a stock thats been a proven winner. I said you didnt necessarily want to buy names right off the new high list because youre paying too much for them. You can usually get a better deal if youre patient and wait for some weakness, maybe down 5 , 7 . Given how volatile the market has become, there are very few occasions when buying a stock right off the new high list is justified. Sometimes the stock is so hot, you got to buy it whenever you can because it may not be going lower anytime soon. You wont find these often, but when you find them, you have to remember not to buy all at once. If you want to buy 100 shares of stock, you think its got so much mojo it woengt get a pull back from the high, go ahead and buy 25 shares. And find another stock. Believe me, this is always another stock to find. Ive got an exception where its okay to buy a stock right around its high. If you see insiders buying the stock when stocks up a lot already, im going to give you a total green light. Now, it is a rare thing to see happen, but in my experience, its rarer still that this method of picking stocks doesnt work out. See, i love it when insiders buy after a decent run because thats a great sign of confidence that they think the runs just beginning or theres a big runway ahead and they are sure that its longlasting. Remember, you cant flip a stock immediately if youre an insider buyer. You have to wait six months. Government takes away the gains otherwise. Its the law. So these people are seeing things they like that arent going to disappear in six months. If anything, they havent appear yet. Normally insider buying ranges from being meaningless to a small insufficient reason to buy a stock. A lot of times they want to give the impression of confidence, create an illusion theyre doing better than they really are. Insiders are not stupid. They know if theyre seen buying their own stock, the market will smile upon them, so they play the system. Hey, thats fair. But it means we ignore most tiny insider buying because it could be kind of flim flam. We also used to call it painting the tape. Kind of makes it look better than it is. That said, when you get truly colossal insider buying, even if its not at the high, you might want to take another look at the stock in question because its a pretty powerful endorsement when the insiders buy a whole lot of stock. Its really the volume of the insider buying that declares its sincerity, but were only focusing on one sort of insider buying right now, stocks that have been running and arent her received as historically cheap. These are not value stocks. Theres nothing more ignorant yet telling than when an insider backs up the truck for his own stock when its been running at a pretty good clip. Were so darn confident it will keep going higher, that were going to buy some shares hand over fist right now. Were not waiting for a pull back, no. Arrogant, sure, but this is bankable hubris, corporate insiders arent fuels with some notable exceptions. If their stocks are on a tear, lets assume if theyre buying, they probably do know something. Not everyone deserves the benefit of the doubt in this business. After the market melt down at the end of 2008, i know that i allot of people think that all ceos and executives for that matter are a bunch of crews, fra frauds, especially those who got burned owning say the old fannie mae or lehman brothers. Thats the wrong lesson to draw from the crash. Healthy skepticism is one thing, a total unwillingness to believe in anything positive is Something Else entirely. You need to be willing to extend some measure of trust to people who own companies that you own shares in. What else could be going on in spur buying . Weve seen it in airlines, rental cards, entertainment. Pers these executives are buying stock because they hear the footsteps. Maybe theyve been contacted by some other company and turned that company down. Spurt overtures happen all the time and of course they have to disclose anything thats a serious bid. But a lot of times you just get a phone call and say no, bye. Well, they do that because the company is worth more than they thought. Maybe they think the company could be broken up like the old tieco or fortune brands or ga net. Maybe they see the ability to create value and want in on it themselves or maybe the stock has run just a bit but they dont think the run is over because they recognize how much better the company will be when its divvied up. For us, buying after big runs can be a bit reckless and lazy. Most investors are smart enough to wait for a pull back before they pull the trigger. Insider buys after zeent runs tells me these guys dont think there will be a pull back and theres nothing more bullish than that. Sure i want to wait for a pull back, but thats the best of all possible worlds and you usually dont get that scenario. Bottom line, one more method of cramers madness, when you see insider buying on a stock thats already at a solid run, you probably want to be buying too. Bob in new york, bob. Caller jim, steeler booyah to you. Steelers from new york, all right. Well, why not . Whats up . Caller jim, i have a question about Interest Rates. When the fed raises Interest Rates, Good Companies with attractive dividend yields and Growth Prospects suddenly rapidly go out of favor. Can you add some clarity to why . Well, because people extrapolate, bob. Once they see rates start to go up, they figure theyre going to go up for a while. If thats the case they want to get out of what they perceive as being a risky yield, which is a stock yield, and go into whats a certainty, which is a bond yield. So its all relative basis. Rick in california, rick. Caller booyah, jim. Booyah, rick. Caller how do i add to a position if my stock hasnt gone down to the average no, you cant. Id say the vast majority, not just a few times, not just the majority, but the vast majority of times, we pay up above our basis. Well, i got to tell you. Sell, sell, sell. You got the picture. Remember, heres another method to my madness, when you see insider buying in a stock thats already at a big run, think i might want to be buying here too. After the break, ill try to make you even more money. What powers the Digital World . Communication. Like centurylinks Broadband Network that gives 35,000 fans a cutting edge game experience. Or the network that keeps a leading hotel chains guests connected at work, and at play. Or the it platform that powers millions of ecards every day for one of the largest greeting card companies. Businesses count on communication, and communication counts on centurylink. Voiceohigh blood pressure,sk all day can cause neck and back pain it even slows your ability to burn calories and lose weight. 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