This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Cramer's 'Mad Money' Recap: Avoid Common Money-Losing Mistakes

Bottom line is, when a company blames a "tough environment" for its weakness, it's probably just making excuses.

Hype Alert

"Don't believe the hype," was Cramer's fourth rule for investors. He said that not all upside surprises are worth getting excited about.

Cramer explained that any time a company manages to deliver earnings that are more than Wall Street was forecasting, the headlines immediately describe that as an "earnings surprise." But how that company generated that surprise is really what matters, he said, and is often the confusing part for individual investors.

Cramer explained that there are high-quality earnings surprises and low-quality surprises. High-quality earnings beats are organic, while low-quality beats are manufactured.

In a high-quality earnings beat, a company delivers better-than-expected sales, which in turn leads to better-than-expected earnings. That usually means that business is improving or the company is taking market share. In other words, the company is growing, and Wall Street values stocks based on growth.

In a low-quality earnings beat, however, only the bottom line improves, and that is usually brought about by cost-cutting or favorable tax rates or because the company is aggressively buying back its own stock to boost earnings per share. Cramer said there are a lot of companies that employ these tactics, but in the end there is no growth.

Cramer told investors to always do their homework and not to get confused by the headlines. He said the earnings per share number is not the only number that matters -- a company's ability to deliver better-than-expected sales counts for a whole lot more.

Healthy Skepticism

Cramer's final rule for investors: Never assume people on TV who are negative on the markets are telling the truth. Commentators who dislike the markets aren't any more honest than those who talk up the markets, he explained.

Cramer said that to most people, expressing a negative view automatically bolsters credibility, making them seem like they're trying to help you. In reality, most of those who are negative on the markets need those markets to go lower.

3 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs