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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Cramer's 'Mad Money' Recap: Using the Right Investment Tools

Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.


This program last aired on Dec. 27, 2012.

NEW YORK (TheStreet) -- Jim Cramer opened his investing toolbox to help make his "Mad Money" viewers become better investors.

He said a good investor knows to expect the unexpected, which is why diversification is still the only way to invest.

Cramer start off with a lesson in humility -- he admitted that sometimes he gets it wrong. Sometimes his stock picks just simply don't work out. That's investing. Any investor putting together an investing portfolio needs to be prepared, said Cramer, because sooner or later something won't work out.

But how should investors prepare for the next market catastrophe or stock pick gone bad? Cramer said not by being bearish, but by being smart.

Being a bear, he continued, means shorting stocks hoping they go down. While that's a valid investing strategy, it limits one's profit potential since the lowest a stock can go is zero.

But compare that to bullish investing, betting that stocks go higher. Their potential profits are limitless, he said. Investors who invested in Apple (AAPL) in 2009, for example, realized a 580% gain over the next three years.

Beyond having a positive outlook, Cramer said the most important rule to managing your money is diversification. He said that means not having all your eggs in one sector basket. A portfolio with five stocks must have only one technology company, one health-care name, one energy company, one industrial, etc. Two or three of a kind is a quick way to get caught off guard, so no more than 20% of a portfolio can be in a single sector.

Being diversified is more than just investing in different sectors, however. Cramer said the new rules of diversification also require owning some gold in your portfolio, along with a high-yielding dividend stock, as well as a growth stock, a speculative stock and one that's firmly rooted in a healthy geography.

Check the Dividends

Cramer said the most important category of stocks that must be in a diversified portfolio is a high-yielding dividend stock. He said that every portfolio needs at least one, possibly more, dividend payers.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
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 16,915.07 -70.54 -0.42%
S&P 500 1,964.68 -8.15 -0.41%
NASDAQ 4,396.2040 -22.83 -0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

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