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TheStreet Open House

Cramer's 'Mad Money' Recap: Stock Market Survival School

Cramer explained that in the old days, if a company did well its stock was rewarded; if it didn't, its stock fell. But in today's global market, with ETFs, futures and high frequency trading, this is simply no longer the case. Cramer said that makes understanding why the your stocks are falling crucial.

Cramer said in a really tough market it seems like all stocks are trading in lock step, with the good, bad and the ugly all heading lower. Why is this the case? Cramer said it's because ETFs and hedge funds, along with the futures markets, have turned stocks into commodities, baskets that can be traded at will, despite the underlying fundamentals.

But, Cramer noted, when the selling is done and the panic is over, the fundamentals begin to matter again, which is why stocks with great fundamentals are important. He said the "paper risk," or risk that stocks can go down for any reason, is always present in today's market, and investors need to be aware.

Cramer also warned against risks from short-sellers. He said when the Securities and Exchange Commission discontinued the uptick rule in 2007, it allowed short-sellers to gang up on stocks like never before. He said short-sellers have contributed to the failure of banks in 2008, and are at it again, selling European bonds.

Then there are also the double- and triple-levered ETFs, the ones Cramer has railed against many times in the past. He said these funds serve no purpose but to allow big money to make quick gains at the expense of the rest of the market. He said funds like the UltraShort Financials ProShares (SKF), have cost uninformed investors big money because they don't work as advertised.

Cramer said his bottom line is that stocks are not cash, and they don't act that way. Investors need to be aware of market risks, paper risks and the risks of short sellers, before the invest their nest eggs.

You're on Your Own

Cramer said his final words of warning to investors in this choppy market is to always remember that there is no lifeguard on duty at the Wall Street pool. He said the SEC, which should be working to level the playing field and protect individual investors, isn't doing its job.

Cramer said the SEC seems to favor the big money hedge funds and the high frequency traders who turn over their portfolios 11 times a second, over the home gamers trying to invest their 401(k)s.

He said today's SEC bears little resemblance to the Arthur Levitt SEC from 1993 to 2001. He said during that era, the SEC worked hard to make the markets safe for individuals. But under the laissez-faire Bush-era SEC all that changed, and President Obama has done little to roll back the the damage.

Cramer said the SEC does not "have your back" when it comes to investing your IRA or 401(k). He said investors need to protect themselves from the Bernie Madoffs of the world who offer returns that truly are too good to be true. He said the technology has outpaced the human's ability to deal with this newfound firepower. "We don't have to like it," he concluded, "but we do have to get used to it."

To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

At the time of publication, Cramer's Action Alerts PLUS had a position in FB.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC Universal or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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