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Cramer's 'Mad Money' Recap: Profit From the Panic

TheStreet.com Staff

03/01/07 - 07:36 PM EST

Click here for an archive of Cramer's "Mad Money" recaps.

People can look at the volatility in the stock market and tear their hair out, or they can learn how to profit on days like today, Jim Cramer told viewers of his "Mad Money" TV show Thursday.

It's a two-step program, Cramer said. The first step consists of learning how not to lose money. The second step is discovering how to make money off the panic.

As market-players see stocks go down, they begin to believe people are selling because something must be wrong. But that is not true, Cramer clarified. Stocks this morning were on sale and selling at a discount not because they were necessarily bad but because people panicked and thought it was time to sell, he said.

Instead of joining the panic, take advantage of the now-cheaper stocks, Cramer advised. When Heinz (HNZ) was down 71 cents this morning, people thought maybe there was something wrong with the ketchup, he said. But investors were just "scared and wanted to unload anything."

Many people believe that any stock going down deserves to, but that is not true, Cramer explained. He has made the mistake of panicking in the past and wants viewers to learn from that. "I never made a dime by panicking," Cramer said.

"Panic loses people fortunes," he said. "There is always a better time to sell than that panic moment."

So if you're terrified, take a break, said Cramer -- otherwise, you'll be selling at the wrong time. Stocks don't always go down because they deserve to, so don't panic-sell, he said.

Now that people know how to protect themselves from panicking, it's time to learn how to play the panic and profit, Cramer told viewers.

Frenzied Foolproof

Some institutions that buy stocks have lists of what they want to buy, and they don't pay attention to the trading floor panic, he said. Similarly, Cramer believes everyone should have a list of stocks he wants to buy, and prices he wants to pay, all compiled from continuous homework.

"Take advantage of the frenzied fools," Cramer said. Plan things in advance, do your homework, make a list, and be ready to buy stocks when they are selling at a discount, he recommended.

Cramer said this method is rational. On the other hand, he believes "the worst time to make a decision is at the end of a rough trading day when your gut is telling you the sky is falling."

When investors make lists, they can make their decisions rationally "without the heat of the moment." So when a day like today rolls around, they can buy stocks at a discount, Cramer said.

A Spot of T

Cramer said he wants people to buy AT&T (T). "Put it on your list and buy it on a day like today," he said. "Play the scared, volatile market" and buy it on the cheap.

"Don't be the prey; be the predator," Cramer said. "Don't be scared; be prepared."

Some People Want to Make Friends...

In his "Sell Block" segment, Cramer explained just how dangerous making friends can be in this game.

When Howard Schultz, the founder and chairman of Starbucks (SBUX), visited Cramer's show in February, Cramer said he respected Schultz and his organization so much that he wanted to become friends with him.

However, he stuck to his guns and resisted the urge to do so, because in the end he cares more about his viewers than making friends. At the end of the segment with Schultz, Cramer advised his listeners against pulling the trigger short term on the worldwide coffee company. And now Starbucks is down 10% since Schultz was on the show.

The growth rate is decelerating, and the stock simply isn't worth buying, Cramer said. Although it looks like a good long-term story, right now it's too expensive, he said.

Making friends with Schultz could have cost people money, and Cramer said he knows that. Therefore, his priority is not to make friends, but to do what's best for his viewers, he said.

Until Starbucks shares go down to $27, it's not coming out of the sell block, Cramer said. Maybe that will be time to buy it, but not now. Starbucks closed today at $30.39, down 52 cents.

Radioactive Play

Cramer welcomed American Ecology (ECOL) CEO Stephen Romano to the show.

"Business is going really well," Romano responded. "Our new contract in Pennsylvania is a cleanup of radioactive materials from processing uranium and thorium. This is what we excel at." It's high-volume material that the company moves by rail to Idaho to the desert, where it's disposed of, he said.

Romano, in response to Cramer's question, said American Ecology is a company that benefits from increased regulation. "Arguably, the nuclear industry is the most heavily regulated industry in the U.S. It is good for our business."

Romano said the company provides an attractive dividend to shareholders and is looking to grow.

Cramer said he supports people buying the stock.

To view Cramer's interview with Stephen Romano, please click here.

Lightning Round

Cramer was bullish on Nymex (NMX), Analog Devices (ADI), Devon Energy (DVN), Hain Celestial (HAIN) , BorgWarner (BWA), Johnson Controls (JCI), Agilent Technologies (A), Sears Holdings (SHLD), Qwest Communications (Q), Level 3 Communications (LVLT), Allied World Assurance (AWH) and American International Group (AIG).

Cramer was bearish on RF Micro Devices (RFMD), Kodiak Oil & Gas (KOG), SunOpta (STKL), Verigy (VRGY), Lowe's (LOW) and Home Depot (HD).

For more of Cramer's insights during the Lightning Round, click here.

Want more Cramer? Check out Jim's rules and commandments for investing from his popular book by clicking here.

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