Mad Money w/ Jim Cramer 9/25/26

Mad Money w/ Jim Cramer

Jim Cramer provides a comprehensive guide to investing philosophy, emphasizing the necessity of aligning stock selection with personal finan

Key takeaways

Investors must define their objectives—such as retirement vs. discretionary wealth—before selecting specific assets.
Low-cost S&PG 500 index funds should serve as the foundational bedrock for most portfolios.

Main topics

Investment Suitability
Portfolio Diversification

Notable quotes

Buy and homework, not buy and hold.

Conclusion

The episode reinforces that while the market is a powerful engine for

Transcript preview

Speaker 2 (0:00) From gas prices to housing prices, from government spending to consumer spending, from the AI boom to the data center backlash, how will this election hit your pocketbook and your portfolio? Continuing coverage, the Economy Election, CNBC. My mission is simple, to make you money. Speaker 3 (0:19) I'm here to level the playing field for all investors. There's always a bull market somewhere, and I promise to help you find it. Mad Money starts now. Speaker 3 (0:32) Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. I'm just trying to make you some money. My job is not just to entertain, but to educate and to teach you to be a better investor. So call me at 1-800-743-CBC or tweet me at Jim Kramer. Tonight, I want to share some of my accumulated wisdom, and there's a lot to accumulate in this business. There are so many different things you need to balance in order to be a great investor that it can be hard to keep track of everything. Now, and a lot of this stuff is much more important than the day-to-day action in any particular session. This stock went up. This stock went down. Without the right discipline, the right framework, the right, dare I say, philosophy, you're going to get yourself into trouble. And that's why we're all about discipline when we manage the Chappell Trust for the CNBC Investing Club. It's why we constantly fall back on the rules in our investing guide to guide our decision making for every kind of market. And tonight, I'm going to share some of them with you. But I know that the big picture financial advice can be hard to process. A lot of it is downright contradictory. That's a key word. We tell you to have conviction, to stick with the companies you believe in, and then we say you need to be ready to change your mind on a dime if the facts change? You need to be cautious, but you also need to be ready to pounce on opportunities when they present themselves. You need to be skeptical, but you also need to know when to suspend your disbelief. You need to avoid chasing stocks that have run too much, but you also shouldn't care too much where a stock is coming from if you believe it's headed higher. Believe me, I get it. If you take all my rules literally, you're going to be running around in circles while tearing your hair out. How do you think I went, Paul? So tonight we're going to take a step back. Try to put all this discipline stuff in perspective. Now, if you pick your own stocks, which you know I love, in addition to having a healthy balance of index funds, which you know you need, the thing, well, let's just say what you've got to have. is good judgment. But obviously, good investing judgment is not the kind of thing anyone can teach you in an hour of television or even a year of television. That's why I try to help you build good habits. I try to teach you the better ways to think about individual stocks and the whole market. I try to give you the tools you need to develop your own judgment and why I focus on guiding you through the whole process more intensively in my investing club. Now, all my best professors in college focused on teaching us how to think, not teaching us what to think. I've always tried to take my cue from them. I want to teach you how to be a better investor, not just tell you the stocks that I think are good investments. Also, I would have stopped doing this show years ago. The problem is, it's a heck of a lot to process. So what do we got to do? Well, we got to try to put it in context. Now, first and foremost, when you're managing some of your own money before any other consideration, You need to know yourself. Now, I've said this before, and I'll keep saying it because it's so important. You simply can't know which stocks you should buy if you haven't taken the time to really consider what your objectives are. You need to build up your wealth to ultimately make a major life-changing purchase, like a home. Are you just trying to get a decent return as you save for retirement? Do you have enough money to burn that while you're taking a risk on more speculative positions, it won't hurt you? So many people don't do that. They put all their money in speculative stocks, hoping that they'll hit a home run. And then the truth is there's no one size fits all approach to investing. And anybody who tells you it's different is either dangerously misinformed or they're flat out lying to you. probably in order to sell you something. But far too often, people will invest in the stock market with the simple, poorly defined goal of making money. That's right, poorly defined goal. Yet we all want to make money. I want it. You want it. But how quickly do you want that return? What are you willing to risk in order to get there? How much can you even afford to risk in the first place? These are all the crucial questions that you need to ask before you start picking any individual stocks. Why? Because without a clearly defined goal, you have no way to determine which stocks you should be buying. In other words, your 401k or your IRA or brokerage account do not exist in a vacuum. If you're trying to save up for retirement, a stock like Tesla might not be the most appropriate place to put your capital. On the other hand, if you've already got a decent sized nest egg set aside for retirement and you just want some capital appreciation, then higher risk growth stocks all start to look a lot more attractive. In short, before you can start making judgments about individual stocks, you need to figure out what your own internal yardstick is going to look like. That's the foundation of good investing. Judgment. Knowing what you need so you can find stocks that suit those needs. It's called suitability and it's important. may be one of the most important parts of investing. Let's put it another way, just in case that doesn't get through to you. Let's say you want to fly across the Pacific Ocean. You do it in an airplane like a Boeing 747. You don't try to fly across the Pacific in a Ford Fiesta. Now, if you want to pick up your kids from school, taxiing down Main Street in a 747 would be a little impractical, wouldn't it? In that situation, you are indeed better off with that Fiesta. How about if you're renovating your home? Do you need to go to Home Depot for a metric ton of lumber and tiles and paint and maybe some power tools to get the job done? The Ford Fiesta is probably too small. And there's no way you're going to take a 747 to a packed Home Depot. But a pickup truck, maybe a Ford Lightning, maybe that can do it. Now, this may sound simple, even downright obvious, but it's the same way with stocks. When you're saving for retirement, you want low-risk holdings that will give you a slow and steady return. For those of you who don't have time to research individual stocks, you really can't go wrong with a basic low-cost S &P 500 index fund that mimics the performance of the broader market. Look, I've recommended index funds endlessly, and I'll keep doing it because they are phenomenal. At their best, they helped democratize the incredible engine of wealth creation that is the U.S. stock market. America remains a growth country that's very business friendly compared to the rest of the developed world. And when you buy an S &P 500 index fund, you're basically betting on the long term performance of the U.S. economy. Historically, it's been a very good bet. That's why I always say that you need to invest your first 10 grand in an index fund. Don't bother trying to pick individual stocks until you have at least that much money in an index fund and preferably. more. It's the most important bedrock of your portfolio. Now, if you're looking to make slow and steady money over a period of decades. That's retirement investing in a nutshell. You might also consider certain kinds of individual stocks, especially consistent steady-edging companies with big dividends. A 4 % dividend yield may not sound all that spectacular, but even if the underlying stock goes nowhere, that 4 % annual return will double your money in 18 years thanks to the magic of compounding. Of course, you've got to reinvest that money. That is vital. You can get the same thing from treasury bonds, but stocks tend to offer the possibility of more capital appreciation than you'll ever get from a bond. Of course, not every investor is simply trying to fund their retirement. And even if you are, that may not be the only thing you want to do with your savings. This is another important point. You can have multiple objectives. You can and should have multiple pools of money. I like to break things up into your retirement portfolio where you need to be pretty cautious and your discretionary mad money portfolio. The extra money you're not going to need in order to support yourself after what the kids call late stage capitalism has ground you down and you're no longer able to work. That discretionary portfolio is where you can afford to take more risks in order to generate higher profits. But and this is a mighty big but for the vast majority of people, your discretionary portfolio is going to be much less important than your retirement portfolio. Because it's not just retirement. If you want to pay for a house to send your kids to college, you should take a more conservative approach to managing that money. Whatever kind of account you put it in, your strategy for college tuition savings or future house savings should look more like your retirement portfolio than your mad money portfolio. So please get to know yourself before you jump down the rabbit hole of getting to know individual companies, something we always try to emphasize in the CBC Investing Club, as you know. The bottom line, trust me. I get it. When you get excited about a particular stock, you often want to just dive right in. First, though, you need to consider what you're trying to get out of the market. You need to know yourself. The answer to that question is not going to be the same for everyone. But everything else stems from it. You can't make judgments about stocks until you know what characteristics you actually are seeking and you value. Tony in Washington. Tony. Speaker 4 (9:13) Hey, Kramer. Thanks for taking my call. Of Speaker 3 (9:15) course, Tony. What's up? Speaker 4 (9:17) You know, when I was working and contributing to my 401k, the only choices I had were mutual funds. You know, I never made any real money until I started buying individual stocks. I really I don't understand why mutual funds are so popular. Speaker 3 (9:33) Well, I mean, let's give mutual funds their due. I mean, there have been some that have outperformed the market. And the 401k plans tend to have an array of mutual funds that you can pick so you kind of craft your own portfolio. I happen to like individual stocks, and I like the S &P 500 because I like a low-cost index fund that can continue to give me good returns, and I'm a believer in that. So I understand. But I'm not going to knock the mutual funders. There's some very good companies that do a great job. Let's go to... Rambo in California. Rambo. Speaker 5 (10:04) Booyah, Jim. This is Rambo from San Jose. How you doing, Rambo? Awesome. Jim, I've got a question for you. One of the first metrics that I look at when evaluating an investment opportunity is the company's debt and enterprise value. In many cases, I've found that although a company looks attractive on a price-to-earnings perspective, it becomes far less attractive on an enterprise value-to-earnings perspective, especially in this high-interest rate environment. Can you give us a sense of how you factor in a company's debt and enterprise value when forming your investment thesis? Speaker 3 (10:35) I think it's a great question. I'm going to be very cut and dried and very simple. I look at how much money the company has to pay in interest. I look at how much money they make, and I decide if they don't make enough money to cover that interest, then it is a sell, sell, sell. And every time I violate that principle, I go wrong. Look, before you start investing, you have to find out what you're trying to get out of the market. And then you set your goals accordingly for you. And once you know what you need, then you can pick stocks. But not before that. On Mad Money Tonight, from being flexible and having the right attitude, I'm sharing some more investing rules that might help you become a master of this market. And you just can't miss this show. So I want you to stay with Kramer. Speaker 2 (11:24) Don't miss a second of Mad Money.