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Cramer's 'Mad Money' Recap: How to Beat the Pros (Final)

This is especially true of stocks at or near the 52-week high list, said Cramer. If a stock is already at sky-high valuations, and insiders are still buying, that is a powerful endorsement.

Avoid paying too much attention to small, token purchases, Cramer cautioned. Look for only large, meaningful insider purchases.

Short Interest

Continuing on the insider buying theme, Cramer's next trick involved looking for a special type of insider buying, one that involves a stock with a huge short interest.

Cramer explained that short sellers must have a lot of conviction in order to bet that a stock is heading lower. The downside of shorting a stock is infinite, while going long on a stock limits losses at zero. Short sellers also risk a short squeeze, a bit of good news about a company that sends shares high enough that those who are short the stock are forced to cover their positions.

The dynamics of short-selling makes insider buying all the more interesting, said Cramer. When lots of people are betting against a company and an executive starts buying, Cramer said that's like drawing a line in the sand and saying "our stock goes this low and no lower."

Cramer said anytime investors see a large short interest coupled with meaningful, not token, insider buying, their ears should perk up and the research should start immediately. While short sellers are smart people, noted Cramer, they often know less than those in charge of running the company.

Cramer offered a caveat to betting against the short sellers, however. He said to avoid hot-button stocks where the short interest is simply too large to overcome. At the height of the financial crisis in 2008, Cramer noted that short sellers were able to overrun many bank stocks, thanks in part to the removal of protections like the uptick rule, which helped to slow these so-called "bear raids."

Home gamers can still find opportunities where the short sellers have overreached, concluded Cramer, especially in stocks that pay a solid dividend, which often helps to deter short sellers, who must pay the dividend on the shares they've borrowed.

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