Intro
Jim Cramer gives over a full hour of Mad Money to teaching rather than stock picking, working through why a widely held view is already in the price, where the efficient markets hypothesis is useful and where it is bogus, how to run a portfolio part-time without staring at the tape, how to tell a signal from noise, and why a wave of new issues eventually drags the whole market down. Four callers get answers, and Investing Club portfolio analyst Jeff Marks joins him for a closing round of viewer questions.
Host: Jim Cramer
Also on: Jeff Marks, portfolio analyst, CNBC Investing Club; callers Mary in Idaho, Dave in Colorado, Howie in the Bronx and Ned in Ohio
Published: 28 August 2026 on Mad Money w/ Jim Cramer (CNBC) · 44 min
Key Takeaways
Whatever the crowd already believes is in the price
"The most useless thing you can do as an investor is to worry about what everyone else is worrying about."
The efficient markets hypothesis is wrong as a law of the universe and useful as a rough guideline
Cramer says he beat it himself, "giving my clients a 24% compound annual return after all fees over the course of 14 years versus 8% for the S&P"
Index funds are still the right answer for most people, and for most of a stock picker's own savings
Two-thirds indexed, one-third in six to 10 names, is what he tells a caller taking money off a 1% advisory fee
Buy and homework, not buy and hold
"I don't believe in the concept of buy and hold. I believe in the concept of buy and homework."
Discipline has to beat conviction, and the trigger is a 20% gain
"Discipline must always trump conviction."
Trim 5 to 10% of the position at up 20%, then the same again on the next 20%
Most big one-day moves in a stock are noise
The move worth reading is the counterintuitive one: a stock that rises on a downgrade, or gets slammed on a great quarter
A rush of IPOs is a supply glut, and a supply glut is how a bull market gets wounded
Roughly 400 traditional IPOs and another 200 SPAC mergers in 2021, and roughly 600 new companies in the year in total
Being right and being lucky look identical from the outside
Procter & Gamble rallies on bad economic data because it is a recession stock, not because the market finally understood the business
Residential solar was never a solar business
"the whole industry was actually built not on solar, but on financing"
Nvidia is the case for paying up: expensive on every forward estimate, cheap in hindsight
About 10 stocks is the ceiling for someone doing real homework
Marks puts the club's range at 5 to 10, after which the benefits of diversification start to diminish
Cramer's own 401k sits in a total stock market fund because John Bogle told him to put it there
The Most Useless Thing an Investor Can Do
"The most useless thing you can do as an investor is to worry about what everyone else is worrying about." The flip side holds too, Cramer says: there is no point getting excited about something everybody else is eagerly anticipating.
When the vast majority of investors agree something is going to happen, it is already priced into the market. The real economy has to borrow, build out equipment, manufacture, ship to retail and wait for a customer; the stock market has none of those limits.
Stocks do not quite travel at the speed of thought, he says, but they come close. The moment a preponderance of hedge fund and mutual fund managers decide the economy is slowing or speeding up or flatlining, stocks trade as though it has already happened.
Building that consensus usually takes time, which is why the moves are rarely instantaneous — but once the big institutional managers are on the same page, it is baked into the averages.
On why he has little use for economists: they take an ivory tower approach and rarely let the empirical facts get in the way of a good theory. "If the data conflicts with the model, economists have a bad habit of throwing away the data and not the model."
Where the Efficient Markets Hypothesis Breaks Down
The theory holds that prices already reflect all relevant information and adjust immediately when new data arrives, which index fund purists cite to argue that a stock picker can never get an edge.
Taken to its extreme, the only thing left that can move a stock is an unknown unknown — Cramer reaches for former defense Secretary Donald Rumsfeld's phrase — and if you are betting on those, you might as well play roulette, which is more fun.
Markets are not perfectly efficient, and Cramer says they are often irrational. They ignore things, make mistakes and misvalue information every day, and those anomalies are why anyone can make money in individual stocks.
He puts his own record against the theory: "I did consistently beat the averages nearly every year at my old hedge fund, giving my clients a 24% compound annual return after all fees over the course of 14 years versus 8% for the S&P"
"Ironically, this core dogma of free market economics is a lot like communism. Makes a lot of sense in theory. It doesn't necessarily work in life."
The idea still earns its keep as a rough guideline. Markets aspire to efficiency: a fantastic quarter gets baked in within minutes, while a Federal Reserve policy turn — the signal in late 2023 that it was probably done raising rates, or the abrupt change of course at the end of 2018 — can take weeks or months to work through the averages, because repositioning that much stock takes time.
Why Cramer Still Wants Most of Your Money in an Index Fund
He has no beef with index funds and calls them the best way for the vast majority of people to invest, a position he says he has held since the year 2000.
Even someone with the time and inclination to pick stocks should put a big chunk of their savings, if not the plurality of it, into a cheap S&P 500 index fund.
A 401k or an IRA is index fund territory. Contribute with every paycheck, and as long as you believe the US economy keeps growing over the long haul, check in once or twice a month.
The asymmetry is the point: being a good individual stock investor takes real work, and being an index fund investor is an incredibly easy thing to be.
The Mad Money Version: Assume the Consensus Is Discounted
When there is a widely held consensus view about anything, positive or negative, assume the market is already discounting it. Euphoria about a strong job market is baked in. So is worry about a temporary Fed-mandated slowdown.
When investors hunker down ahead of a bad earnings season, Cramer says, do not expect the stocks to get slammed on disappointing numbers — the disappointment is already anticipated.
When every talking head, journalist and media-friendly money manager is telling you to be afraid of the same thing, that may be the one thing you do not need to worry about. "Let everybody else worry for you."
Groupthink is the hard part of managing your own money. "Emotions are infectious, like a communicable disease." Experts say the same thing on television, the newspapers print it, your friends echo it back, and it very often is true — it just will not move prices, because by the time there is a real consensus the move is over.
The bottom line he gives: worry about the things other people do not seem to care about, because "the real threat is the one that you don't see coming"
Mary in Idaho and Dave in Colorado
Mary in Idaho asked at what percentage gain a person should take some or all of their profit, either to reinvest immediately or to hold back as cash. She also told Cramer she had emailed him about his "conventional stupidity" segment and hoped he would read it.
Cramer reframes the question as a sell-to-buy decision. He ranks his stocks, lowers the ranking when a company misses a couple of quarters, and boots it to buy something he thinks is better — the trigger is a change in the fundamentals from when he bought, not a percentage.
He admits the cost: sometimes a third quarter turns out to be good, he has already sold, and he kicks himself. "But what I've done is create a level of discipline that that's what you should do, Mary."
Dave in Colorado called on behalf of his girlfriend, in her early 60s and retired with a state pension. "She has an investment management firm managing 600,000 in stocks and ETFs in tax deferred accounts, but they're charging her 1% per year." He said the firm has not kept pace with the S&P 500 and has avoided the Mag 7 and growth stocks almost completely.
Cramer's answer: two-thirds into an S&P index fund, one-third into six to 10 stocks with two or three of them overweighted, mostly Mag 7. "Obviously, if they can't beat it, just go for it and join it." And, on the fee, no more 1%.
Dave told Cramer his mom got him into investing decades ago by having him watch a Wall Street television show, and that Cramer is carrying on that legacy. Cramer: "That's how I got involved, too. So, we're in the same boat."
Trading Full-Time Is Not a Part-Time Job
Crowded trades are the danger. If everybody is on the same page about a stock or a sector, the easy money has been made; you can still profit, but late to the party means lower returns and higher risk.
He lays out the active approaches: calling every gyration in the averages, trading around a core position by lightening up when it gets overextended and buying it back on the selloff, or keeping the bat on your shoulder waiting for a market-wide washout to pick up favorites for much less than they are worth.
All of it takes time, inclination and the right resources, and with a full-time job Cramer says the whole approach is just nuts — "And I say that as someone with a terrifying extended family history of mental illness." "Regular people who work for a living don't have time to stare at the tape all day." Even on the night shift, it is not a good use of precious free time.
On why he does the show: "I focus on the market like a hog so that you can take a less intense approach to investing." One that lets you go to work and have a personal life.
If any of it sounds too daunting or too time-consuming, he says, say individual stocks are not for you and put your mad money — the cash outside the retirement portfolio — into a low-cost index fund or ETF. He calls that suitability: what suits you.
Good Enough Beats Perfect
"you need to accept that the best is enemy of the good" There is no point trying to buy or sell at the perfect moment, and making the attempt will drive you nuts.
His example: a stock you like gets hammered from $60 to $50, you buy, it drops another couple of points before it bottoms and rebounds to $60. That is a good pick, not a mistake — a win is a win.
"I don't believe in the concept of buy and hold. I believe in the concept of buy and homework." Keep researching the companies after you own them, and if something goes terribly wrong you may have to bail.
Buy slowly on the way down and sell gradually on the way up, which requires some active management without flitting in and out on every gyration. "You want to be an investor, not a trader."
Most gains occur in concentrated bursts, so a trader in and out of the market is liable to miss them — a lesson Cramer credits to Peter Lynch for putting in his head.
Sidestepping a decline only works if you get back in, and the timing is the hard half. He points to the market bottoming in October of 2023, when long-term interest rates peaked and started heading lower, as something almost nobody saw coming.
The practical rule: when your stocks surge, ring the register on part of the position. Raise a little cash after a 20% move or more — "That's my limit these days" — and put that cash to work buying more shares when they get hit. "Take a page from Jimmy Chill and relax."
Signal, Noise and the Wall Street Fashion Show
Cramer says the stock market talks to him figuratively, not literally. "Contrary to what you may have read on X, formerly known as Twitter, I do not hear voices." He allows one exception: periodically he thinks "my left molar crown does indeed play music" What he is really doing, he says, is listening to the tape to read what the big institutional money managers are up to, which means separating the signal from the noise.
Big single-day advances and declines with no significance happen all the time. A good stock can get overbought — chartists measure it with the slow stochastic oscillator or the Williams percentage R oscillator, named for Larry Williams — which only means everyone who wanted the stock at that level already owns it.
The mirror image applies to bad stocks: come down too quickly, get oversold, get a nice bounce, and go right back down once the bounce is worked off.
"To borrow my favorite line from Macbeth, noise is a poor player that struts and frets his hour upon the stage and then is heard no more." Signal carries a message; from noise there is no real takeaway. "In another life, Shakespeare would have been even a dynamite investor."
He points readers to his own book for how easily a one-point move convinces you something is happening underneath, when all that has changed is the mix of buyers and sellers at that moment.
Plenty of non-fundamental causes look like news: the market simply makes a mistake and rolls it back, a good quarter gets misread as a bad one during a crowded earnings season, or managers dump one group purely to raise cash for a hotter one.
The signal he actually wants is counterintuitive. A blowout quarter that lifts a stock is business as usual. "when a stock refuses to go lower on bad news, it often means that's putting in a bottom and is ready to rocket higher" — and a company that reports a fantastic quarter with great guidance and gets slammed anyway is telling you Wall Street thinks that was its last great quarter.
Take your cue from the fundamentals, not the daily gyrations. Let the fashion show run your decisions and "you end up owning stocks just because they're going higher," which leaves you with no idea what to do when they come down.
Howie in the Bronx and Ned in Ohio
Howie in the Bronx, a first-time caller and club member, said his grandson looks at his portfolio every visit and, thanks to the conference calls and intraday alerts, "he sees gains of anywhere from 60 to 200% of some of my stock." His three questions: when to start trimming, how much to trim, and — because he believes in these stocks — when he can get back in.
Cramer's answer is a rule, not a judgment call. "Discipline must always trump conviction."
"we like to start trimming at 20% up, we'll trim between 5 and 10%, another 20%, same thing" Doing that is what puts you in shape to buy some back; if the cash is already out, let the rest run.
Ned in Ohio relayed something he had heard Warren Buffett say a couple of months ago about high growth rate companies that "eventually forge their own anchor" — the company keeps expanding and the shares keep rising — and asked whether Nvidia is an example.
Cramer says Nvidia is a really great example. On forward earnings or estimates it always looks expensive, then it so far trumps those estimates that looking backward "it turns out that the stock was selling at a remarkably low price" He says that has been the secret to Nvidia literally since 2012.
The IPO Cycle Always Ends in a Supply Glut
A deluge of new deals floods the market with new stock supply, and that supply ultimately drags everything down. The stock market is like any other market, Cramer says: too much supply and prices go lower.
The sentiment turn is what does the damage. While IPOs are making people fortunes there is a palpable sense of exuberance; when the deals start attracting less interest the exuberance turns into hostility, and the whole market gets slammed, not just the new issues.
In 2021 the market took roughly 400 traditional IPOs and another 200 SPAC mergers, with people putting government stimulus checks into the hottest-looking stocks. SPACs were originally meant to be blank check companies making acquisitions over time; startups began using them to come public while evading the stricter rules the Securities and Exchange Commission places on IPOs.
Early in a cycle the hot deals do the recruiting. Cramer's example is Zoom Video, public in 2019 and into the stratosphere in 2020 once the pandemic made its platform essential.
The 2020 electric vehicle and charging station deals were a period of high-risk speculation where anything with the right buzzwords got the benefit of the doubt — reminiscent, he says, of the late 1990s, when anything connected with the internet was beloved until the market was flooded with excess supply and the whole group collapsed in the year 2000.
Cramer says he came out to warn about IPO mania in late 2021. "I said there was one surefire way to wound a bull market and that's by flooding it with lots of supply."
What Happened to the 2021 Class
QuantumScape is the concrete example. Cramer describes it as a company "which in retrospect, was basically a science experiment looking to develop better battery technology for electric vehicles" — a long way from anything it could commercialize, and still without meaningful revenue four years later.
When the SPAC merger was announced, the SPAC's stock more than doubled in two trading sessions into the 20s. In the period of maximum hype the "stock shot up to nearly $132 and that's where it peaked in December 2020"
Short sellers came out arguing it was a scam, Wall Street lost interest in companies with zero profitability, and by late 2022 it was in single digits, since then only bouncing above those levels on what Cramer regards as occasional short squeezes.
The rest of the 2021 electric vehicle class got crushed too — Rivian, which he notes ended up coming back, along with Lucid, Nikola, Canoo, Lion Electric, Lightning eMotors, Lordstown Motors and Faraday Future Intelligent Electric. Nikola, he says, turned out to have some fraudulence, and its founder and CEO was sentenced to prison.
Roughly 600 companies came public in 2021, and by the second half many of the deals were blowing up because there were already far too many newly minted stocks. When the Fed started talking tough about raising interest rates in November 2021 the entire edifice collapsed, and the new issues spent essentially all of 2022 getting eviscerated.
He rates 2021 at least as bad as the dotcom wave, and arguably more damaging in one specific respect: so many of the deals were SPAC mergers, which could make absurdly overconfident long-term forecasts that the SEC would never allow in a traditional IPO.
On the mechanics nobody sees: managers who want to put money into new deals usually have to sell something else to raise it, so "the new tends to crowd out the old" The bulk of new money entering the market goes into index funds, which cannot participate because the new stocks are not in the indices yet.
Doing the Right Thing for the Wrong Reason
You can be right about a stock and wrong about why it is going up, and that is where the next mistake comes from. If you do not understand why a stock is moving, you will be confused when it stops — and confusion makes for lousy decisions.
His worked example is Procter & Gamble: you might buy it for management, for the dividend, or because falling plastic and fuel costs should lift gross margins, which he notes is a huge part of the expense line. Then it explodes higher and it is very easy to tell yourself you nailed it.
"As I've told you before, it's better to be lucky than good." Either way you need to be able to tell the difference.
"Rotation, rotation, rotation." Procter, like the rest of the consumer packaged goods group, is a recession stock whose earnings hold up in a slowing economy, so it roars on lousy economic data — nothing to do with the business you bought.
A win is still a win, and the bank will not refuse profits earned from a rotation. The danger is being suckered into thinking the fundamentals did it when the whole group moved together.
The mechanism is confirmation bias: when new evidence seems to prove your thesis, you believe you were right all along. Cramer says approach that feeling with skepticism, and ring the register before the coincidence goes away.
Residential solar is his cautionary case. The stocks soared in 2020 and 2021 and kept running into 2022 while most growth plays were pulverized, then got obliterated in 2023 — not because renewable energy fell out of favor and not for want of federal subsidies. "the whole industry was actually built not on solar, but on financing" He says it is no coincidence Enphase was roaring in 2020 and 2021, when people could borrow for next to nothing.
Viewer Questions with Jeff Marks: Moats, Conference Calls and How Many Stocks
Cramer brings in Jeff Marks, his portfolio analyst and Investing Club partner, for a run of viewer questions, joking that the callers praising Marks should mind that he can still get through the door.
Asked how to identify the best company in an industry, Cramer's screen is the margin. "I like to see who has the highest gross margins because that means they've got the biggest moat" — it means they can make the most money, and he says people do not look at it enough.
Marks adds two more tests: who is growing revenues fastest, and "read the conference calls of the companies and their peers and their customers. See who's partnering with who." That tells you who is best of breed and who is doing best by their customers.
Cramer agrees, adding that a call tells you whether the analysts are in awe or think something is suboptimal.
On whether you can own too many stocks to keep up with the homework, Cramer recalls arguing with his father, Pop, who liked to hold 40 or 50 stocks. Pop worked a couple of hours a day and spent the rest looking at the market; most people do not have that time. "That's why I usually say that try to keep it to 10."
Marks puts the club's number at 5 to 10. "I think the benefits of diversification, they start to diminish at a certain point if you keep adding and adding and adding stocks" Start with the ones you like, use your power of observation and curiosity, and add as you can do more of the homework.
Viewer Questions with Jeff Marks: Index Choice and When to Cut Bait
Asked to choose between an S&P 500 index fund and a total stock market fund, Cramer answers with an anecdote. John Bogle personally told him to put his 401k into Vanguard's total stock market fund, on the reasoning that "over the long term, you'll get a little bit better performance because you'll be diversified away from the S&P and you'll end up picking some really good young growth stocks that are in the total stock market return"
Marks gives the mechanical difference: the S&P 500 is more of the large caps, while total stock adds the midcaps and some of the smaller caps — and over the long run he does not think there is much difference in returns between the two.
Cramer says there was a very long period where the total stock market fund did beat it, and that he keeps it now out of homage to the late John Bogle.
On the stages of cutting bait, the rule is the same 20% ladder: a little sale up 20%, then another at the next 20%. Cramer says they have been diligent about letting the great stocks run and cutting the ones that are not working.
"if you can minimize your losses and be more aggressive in cutting, you will outperform the market"
Marks' trigger is the thesis, not the price: when the original thesis is not playing out as expected, that is when you may have to make an adjustment, and "we've often learned that our first sale is the best sale when trying to get out of a struggling name"
Cramer closes on the same point, citing a conversation about Roger Federer: there is nothing wrong with admitting a loss, because what matters is that "you just win more than you lose"
Cramer's bottom line is that no view the crowd already holds can make anyone money, so the edge is entirely in the discipline around it — trim into a 20% gain whether or not you still love the stock, keep doing the homework on what you own, and save your worry for the risk nobody on television is naming.
Products, Companies & Tools Mentioned
Nvidia (Ned in Ohio's test case for a company that outgrows its own valuation; Cramer says it always looks expensive on forward estimates and, in hindsight, was selling at "a remarkably low price" — the secret, he says, literally since 2012)
QuantumScape (Cramer's concrete example of SPAC-era hype: "basically a science experiment" with no meaningful revenue four years on, peaked near $132 in December 2020 and in single digits by late 2022)
Rivian, Lucid, Nikola, Canoo, Lion Electric, Lightning eMotors, Lordstown Motors and Faraday Future Intelligent Electric (The rest of the electric vehicle class that came public in the 2021 frenzy and got crushed; Rivian came back, and Nikola's founder and CEO was sentenced to prison)
Zoom Video (Public in 2019 and into the stratosphere in 2020 once the pandemic made its platform essential — the hot early deal that gets a cycle going)
Procter & Gamble, and the rest of the consumer packaged goods group including Colgate and Johnson & Johnson (Cramer's example of a win for the wrong reason: a recession stock that roars on lousy economic data, so a rally may be sector rotation rather than the fundamentals you bought)
Enphase (The residential solar name Cramer says was roaring in 2020 and 2021 when people could borrow for next to nothing, before the group was obliterated in 2023)
Vanguard's total stock market fund (What John Bogle personally told Cramer to hold in his own 401k, and what he still holds out of homage)
Low-cost S&P 500 index funds and ETFs (Cramer's recommendation for the vast majority of investors, for retirement accounts, and for the bulk of a stock picker's savings)
The slow stochastic oscillator and the Williams percentage R oscillator (The overbought and oversold gauges chartists use; Cramer credits the second to "the legendary Larry Williams")
Books & Resources Mentioned
Confessions of a Street Addict – Jim Cramer (His own book, which he calls the canon on stock markets; he points to the passage on how easily a one-point move convinces you something is happening underneath)
Macbeth – William Shakespeare (Source of the "poor player that struts and frets his hour upon the stage" line Cramer uses for market noise)
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