Wouldnt be watching, unless youre one of those people who tunes in to see if tonights the night that i actually do go off the rails, which 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 break from strictly quoting the bard to my madness. How do i pick stocks . What gets on the show . You always ask me that. Why do i tell you that some stocks are worth buying now or on the dip instead of just like, hey, you know what, 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 ways to identify potential cramer names from 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 obviously have something going for them, and thats especially true when the markets in bad shape as only the best of the best can hit new highs when the markets falling apart. 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 often 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 like weve had 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 listening to the bears caused you to miss out on one of the greatest rallies in history. Obviously, the rally since the bottom is more like 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 their new highs because theyll keep going higher. Foolishness, true bozo the clown behavior when i used to have hair. Im saying if you want to identify stockers that will be winner in the future, unless theres been a big sea change in the market caused by maybe a gigantic political shift or a radical shift dramatically higher in Interest Rates, looking at the biggest 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 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 scoresettling 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 way to begin. Now, i dont just pluck names off the high list because i think, hey, these stocks have gone up, so theyre going to keep going up. Thats a little lazy and responsible. I am many things, a lot of them negative, but lazy and irresponsible . I dont know. Anyone that sees my insane tweets at 5 04 jimcramer knows, 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 . I mean, well, no. I mean at least not for any long stretch. I apply the same standards of rigor to this show that i used at my old hedge fund. So i rarely recommend buying stocks that trade off the new high list unless theres some special circumstances. Ill talk about those later in tonights show. 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 pullback and there im thinking about something that could be 2 or 3 and 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 a stocks going down because they think somethings wrong. Im telling you if its on the new high list and comes down, that would be your man. Im throwing these caveats in, though, because i dont want you to look at the new high list as a very important one for those tries to get starts. Poring over the new high list is a fabulous way to identify potential and i stress that word. Its potential stocks to buy. You only buy stocks that have pulled back from the new high list if youre confident theyll make a comeback 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. Ipos i go crazy about where im really saying, listen, 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 their new highs, make sure they havent pulled back for a good reason, that the selloff is extraneous to their 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. By the way, dont buy a big goes down for three Straight Days because that probably doesnt belong on the new high list anymore. I always like to say that youre looking for a stock that has bristolmyers like in 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 . Another key part of my philosophy. 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 in general. Now t like commodities by ultralevered hedge funds, causing huge selloffs that make no sense in everything or doubling and tripling related etfs that are more powerful than the stocks themselves, you see the stocks of Good Companies pull back from their 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 goes away, then that stock is no longer a candidate. The story has to be intact, or this method will let you down. 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 pullback 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. Killing when i buy them down 8 . Bottom line, thats the first method of cramers madness. Watch for stocks that have pulled back from the new high list, especially because of a broad market selloff. Some of my best picks have come out of this process. Its my getting to work shopping list. Hopefully some of yours can too. Why dont we start with arzella in ohio . Arzella. Caller hi, jim, and booyah to you. Booyah right back. Caller im trying to get a better insight on mutual funds, good way to diversify . Well, you know what . I got to tell you, arzella, heres the problem. A lot of people have 401 k s 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, say, 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. 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 miss something . I have asthma. One of many pieces in my life. So when my asthma symptoms kept coming back on my longterm control medicine. Oncedaily breo prevents asthma symptoms. Breo is for adults with asthma not well controlled on a longterm asthma control medicine, like an inhaled corticosteroid. Breo wont replace a rescue inhaler for sudden breathing problems. Breo opens up airways to help improve breathing for a full 24 hours. Breo contains a type of medicine that increases the risk of death from asthma problems and may increase the risk of hospitalization in children and adolescents. Breo is not for people whose asthma is well controlled on a ed, your doctor will decide if you can stop breo and prescribe a different asthma control medicine, like an inhaled corticosteroid. Do not take breo more than prescribed. See your doctor if your asthma does not improve or gets worse. Ask your doctor if 24hour breo could be a missing piece for you. See if youre eligible for 12 months free at mybreo. Com. Whatcha doin . Just checking my free credit score at credit karma. What the . Dont you know that checking your credit score lowers it. Actually, checking your own credit score with credit karma doesnt affect it at all. I guess i could just check my credit score then. Check out credit karma today. Anything meant to stand a body without proper foot n support can mean pain. N. The dr. Scholls kiosk maps your feet and recommends our custom fit orthotic to stabilize your foundation and relieve foot, knee, or lowerback pain from being on your feet. Dr. Scholls. Im here in bristol, virginia. And now. Im in bristol, tennessee. Its tennessee. No matter which state in the country you live in, you could save hundreds on Car Insurance by switching to geico. Look, im in virginia. Im in tennessee. Virginia. Tennessee. And now im in virginessee. See how much you could save on Car Insurance. Or am i in tennaginia . 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 on 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 5 , 7 . Given how volatile and downright crazy the market has become, there are very few occasions when buying a stock right off the new high list or that close to it is justified. But sometimes the stock is so hot, you just got to buy it whenever you can, as soon as 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 that it wont get a pullback from the high, then go higher. You dont get to buy more, and you grab a quick profit and find another stock. Believe me, there 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, iit 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. The 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 appeared yet. Normally insider buying ranges from being meaningless to a small but on its own a lot of times youre going to catch insiders buying their stock because they want to give the impression of confidence, create an illusion theyre doing better than they really are. Insiders arent stupid. They know if theyre seen buying their own stocks, even small amounts, then 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. What a word. We also used to call it painting the tape. It 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 perceived as being historically cheap or lowdollar amount plays. These are not value stocks. Theres nothing more arrogant and yet telling than when an insider backs up the truck for his own stock when its been rolling along at a pretty good clip. Theyre saying, yeah, we know we 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 pullback, no. Were buying right here. Arrogant, sure, but this is bankable hubris. Ive seen it time and again. Corporate insiders arent fools with some notable exceptions occuping, of course, the mad money wall of shame. 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 financial crisis and the market meltdown at the end of 2008, i know that a lot of people think that all ceos and executives for that matter are a bunch of crooks, frauds, and mountebanks, especially those who got burned owning the old, say, fannie mae or lehman brothers. Look, 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. If youre going to own stocks, you need to be willing to extend some measure of trust to people who run the companies you own shares in. What else could be going on to weve had a massive amount of consolidation in a host of industries of late. Weve seen it in airlines, rental cars, foods, telecommuncations, entertainment. Perhaps 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 if executives expect that they may be next, it could be a healthy and honest reason to buy. 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. Weth thought. Maybe they think the company could be broken up like the old tyco or fortune brands or gannett. Maybe they see the ability to create value, and they just 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 pullback before they pull the trigger. Insider buying after decent runs tells me these guys dont think there will be a pullback, and sure i want to wait for a pullback after theyve bought, 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 had a solid run, you probably want to be buying too. Bob in new york, bob. Caller jim, a 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 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 yo