Cramer's 'Mad Money' Recap: What the Markets Taught Me

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

On a special episode of his "Mad Money" TV show, Jim Cramer celebrated CNBC's 20th anniversary by giving viewers some of his most important lessons he learned in the markets.

He said that experience matters on Wall Street, and nothing is more important than learning from history.

Cramer said his No. 1 lesson learned is that you must always stick with discipline, even over conviction. He recounted how on Oct. 8, 1998, with the markets down over 40% from its highs weeks earlier, he finally gave up, capitulated with the bears, and wrote an article telling investors to sell.

Yet later that same day, the markets soared after the Federal Reserve called a rare emergency meeting on interest rates. It was later revealed that Oct. 8 was the bottom everyone had been hoping for. And while Cramer called the bottom, he called it in the wrong direction.

Cramer said even the pros make mistakes. But the take-away from Oct. 8, 1998, was that that's how to call a bottom. Bottoms are formed when everyone gives up and when there's no one left to sell.

"It's always darkest right before the dawn," Cramer reminded viewers.

Prophetic Credit Markets

"One lesson always rings true," Cramer told viewers. Stocks, he said, always follow bonds. Cramer said the stock market is just a minor league team compared to the credit markets, which reign supreme.

Cramer said in his "rant heard around the world," on Aug. 3, 2007, he emphatically predicted the collapse of the financial markets. How did he know? By looking at the credit markets, which far more accurately predict the health of the economy than stocks and earnings.

Credit is what companies use to buy things and to pay for things, said Cramer. And when that credit dries up, the markets are in trouble. He said back in 2007, it was the Bear Sterns conference call that tipped him off.

On the call, the company said that the billions of dollars in bonds they were holding might not be worth what they has once thought, because mortgage defaults were on the rise. Cramer said he knew instantly that the credit markets were going to be in trouble, and that the stock market, along with the entire world economy, would follow unless drastic action was taken.

Cramer said the credit markets are where all the action is -- and investors need to pay attention.

Just Like Us

Cramer's said the next lesson he learned was all about the big money, and how big money reacts to changing fundamentals.

He said that when you cut right to it, big hedge fund and mutual fund managers are humans just like the rest of us. He said they get scared and get exuberant, just like the rest of us.

Case in point: the months leading up to both wars in Iraq. Before both wars there was much uncertainty, and it was that uncertainty that cause the big money to drive the markets lower, lower, and lower still, he said. So much so that as the wars finally started, there was an exquisite moment to buy stocks, and make substantial gains.

Cramer said in both wars, the big money overestimated how bad things were going to be. But once the uncertainty was lifted, the big money felt better, and the markets began to rally.

According to Cramer, it may still be too early to tell whether March, 2009 will be another of these big money moments, a period in history where the big money got too scared. But if history is our guide, Cramer said the signs point to yes.

Believing in Growth

"Some stocks are like generals, leading the markets higher," said Cramer. In the 1980's, it was Pfizer ( PFE), in the 1990's it was Yahoo! ( YHOO), and in recent years, it's been all about Google ( GOOG), he said.

Stocks like Google have what every fund manger wants: growth, he said. And that's why Cramer's recommended the stock since its IPO in August of 2004, and again as the stock rocketed higher past $200, $300, $400, $500 and $600 a share.

When a stock has growth, pure growth, and even accelerating growth, the big money mangers just have to own it, he said. And even those conventional wisdom kept saying the stock couldn't possibly go any higher, it just kept on roaring.

Cramer said while its always best to buy low and sell high, he said that sometimes investors need to just believe in the growth, and buy high and sell even higher.

He said that obviously as the recession hit in 2007, even the highest of fliers need to come down, but by believing the market generals, investors could have followed Google all the way to $740 a share.

When Cash Is King

"If could teach you one thing, it's that you don't always have to own stocks," he said. He reminded viewers that having cash and sitting on the sidelines is not only an option but it's sometimes the best option.

Cramer recounted Black Monday -- Oct. 19, 1987 -- when the markets plunged further than they ever had before. On that day, Cramer was 100% divested of stocks and was sitting on 100% cash. He credited this bold and unusual move to launching his hedge fund career, giving him the credibility needed to run other people's money.

In recent months, Cramer made similar moves, such as in September, 2008 when he told investors to sell 20% of their portfolios when the Dow was at 11,000. Or when he told investors to take out all the money they might need for the next five years a month later in October, 2008. The Dow then was at 10,000.

"It's never too late to sell," said Cramer. He said it's rare for investment professionals to ever be in cash. But if the markets don't look right, sometimes that's the safest place to be.

Check out the latest edition of "Cramer's Take on Top-Searched Stocks" on Stockpickr.

P/>Want more Cramer? Check out Jim's rules and commandments for investing by clicking here.

Read more of Cramer's Mad Money Lightning Round insights.

For "Mad Money" performance statistics and other links, check out Mad Money stats

If you liked this article you might like

United Technologies: Cramer's Top Takeaways

United Technologies: Cramer's Top Takeaways

Next Week's Market Game Plan: Cramer's 'Mad Money' Recap (Friday 3/16/18)

Next Week's Market Game Plan: Cramer's 'Mad Money' Recap (Friday 3/16/18)

Mixed Messages Mangle Markets: Cramer's 'Mad Money' Recap (Thursday 3/15/18)

Mixed Messages Mangle Markets: Cramer's 'Mad Money' Recap (Thursday 3/15/18)

Merck, Phillips 66, Five Below, Cintas: 'Mad Money' Lightning Round

Merck, Phillips 66, Five Below, Cintas: 'Mad Money' Lightning Round

Capitol to Capital: Cramer's 'Mad Money' Recap (Wednesday 3/14/18)

Capitol to Capital: Cramer's 'Mad Money' Recap (Wednesday 3/14/18)