Click here to read "Greenberg: This Market's the Greater Fool Theory"

Editor's Note: This article was originally published on Real Money on Sept. 18. To see the latest commentary as it's published, sign up for a free trial of Real Money.

Cramer: Two Sides of Cult Stocks

Lots of times, people just don't understand that it is OK to dislike a company but like the stock. Other times it is OK to think a company's terrific but its stock is horrendously overvalued, and yet still worth buying. This is a debate that is age-old, but is being rekindled -- aggressively rekindled -- now that Herb Greenberg has rejoined the fold.

My logic to this conundrum of when good things happen to bad stocks is simple: I am gaming the life cycle and the process of the "loved" enterprise, not the valuation -- or, more precisely, overvaluation of the stock. I am predicting the mania and harnessing it for profit, and much as Herb Greenberg wants to call this the "Greater Fool Theory" (see his rebuttal here), I think that my way can make us all money, which is why I, of course, promptly renamed it the "Smarter Fool Theory."

I am saying that, if my method works for you, use it. Just be mindful that, when it is done working, it can really crush you. So at all times do it with deep-in-the-money calls to cut off your downside. You buy Netflix ( NFLX), Tesla ( TSLA) and Herbalife ( HLF), or even Ulta ( ULTA), Lumber Liquidators ( LL), and Tractor Supply ( TSCO), with deep-in-the-money calls, so if it does go bad, you are stopped out.

How important is this? You could have saved yourself 100 points of loss in both Chipotle ( CMG) and Intuitive Surgical ( ISRG) when the music stopped. That's the best way to game the process of cult love, even if it is an expensive way to create a stock.

Now, when I was at my hedge fund I used to come on "Squawk" during the Mark Haines days and during the break Mark would ask me what I was thinking about. I would say, "Oh, that company's awful but its stock is going higher" or, "This company's stock is ridiculously expensive but much loved." He never questioned me as being two-faced or lacking in rigor. He never said, "Cramer you are being preposterous, it can't be a bad company yet a good stock." He said, simply, "you know what? I am going to call you a preacher and I am going to call you 'reverend Jim Bob from the Church of whatever's working now.' "

He understood. He got me. He got that I wasn't being a duplicitous joker but I just understood what was working now.

I am no longer at my hedge fund. I run a charitable trust, along with Stephanie Link. It is definitively not about what's ever working now. I don't advise most people to play whatever's working now because when it stops working -- even if I say the day before that it is going to stop working -- people who didn't hear that sell call will be all over me and it will be played on YouTube endlessly as if I never told you to sell.

But when I do a series like the anointed stocks, meaning when I say that Netflix is going to go higher I am not going to pass judgment on Netflix. I am not going to say "it shouldn't be anywhere near here," because that's not the point. The point is that Netflix is working and because it is working the buyers will keep flooding in to it. I have been saying the same thing about Tesla, because Tesla is the definitive "church of what's happening now," stock. Its valuation is absurd but it's been absurd for 120 points, 120 points that I wanted you to catch.

Now, let's take the case of Ulta Salon. Now here's a company that's been red hot, there's no denying it. I am predisposed to like it because, again, it's working. But when I read Herb Greenberg's excellent piece on Ulta and the potential inventory issue, as Herb did some terrific ratiocination about Coty ( COTY) and Ulta's sales I said, ah hah, real red flag, that stock's going to get hammered some day. But the emphasis must be on some day because, given the fact that the company just reported you won't know if Herb is right for a very long time. In the interim I think the momentum funds take it ever higher.

That's an example of a company I don't like that's appended to a stock that is most likely going higher.

Same with Herbalife. Do I like the practices of the company? I don't particularly care for that kind of direct selling model where I think that recruiting can be more important than actual sales of the product. But that model sure works for Tupperware ( TUP), so I don't judge it negatively. Is Herbalife using best practices within its model as I think Tupperware is? I think it wants to. I think it tries to. However, I think it's very hard to police.

Now, here's where it gets really sticky. I have read the brief against Herbalife from Bill Ackman, and I recognize that Ackman paints a picture of a company that should be shut down. I would never, in a vacuum, ever consider owning the stock of a company that the regulators might want shut down and Herbalife has a better chance of being shutdown than just about any company I follow.

But I don't think it will.

Instead, I think it is going to make a lot of money, so much money that it's actually inexpensive. However, I would never recommend a stock that's cheap on the numbers that could run afoul of the regulators. But what draws me to Herbalife is the list of buyers. The first group, centered on Carl Icahn, is all about busting Bill Ackman. The idea is that his investors will be scared of the losses Ackman's fund will generate if there is a huge short squeeze and they will pull their money out. It is entirely possible that this stock becomes entirely impossible to borrow because so much has been taken out of the vault already. Then the brokers might be forced to "buy-in" Ackman and believe me If that were to happen the buy-in would be completed at a much, much higher level. There could be a combination by which his investors leave and he is stuck having to cover the shares because he doesn't have enough capital to stay short.

Those are all good reasons to own a potentially bad stock. Now, throw in the fact that a very savvy investor, Bill Stiritz, the man who has had such a good history with Ralcorp -- now owned by ConAgra ( CAG), has just bought $300 million worth of stock and you have a new complexity. The hedge funds that have been buying Herbalife are really just doing it because they know that at a certain point Ackman will have to cover unless he gets his way to have the company shut down.

But Stiritz? I think he's buying it because it is cheap and something is going to happen to bring out that value. I think he owns Herbalife for the fundamentals.

Now, you always have to do your own homework. You can't rely on Stiritz. Hey, maybe he sold it today.

Who knows?

But if there is any stock that comes under the category of "the church of what's happening now,." it is Herbalife.

Understand it is very easy for me to say "Herbalife, Netflix, Tesla, Ulta, they all stink, you should sell them they are worthless or they are overvalued." But how about if I have studied them and believe they fit a pattern of stocks that work higher because of the mechanics of the market? What if I recognize that this pattern has led to great gains like they have been in Netflix and Tesla which I have said are cult stocks and can go higher.

And what if I tell you to buy them using deep-in-the-money calls so that you are stopped out at a certain level?

What's wrong with that?

Why do I have to be such a purist like everyone else when my work on the mechanics of the market say something goes higher? Would you like me, instead, to say "technically it looks good?" Would that make it/me more legit?

Oh, one more thing. Do you think I like the process by which certain stocks go higher even as I think it's not right? Isn't that what happens every time you sell a stock and it goes higher. You always think you are right when you do something but it might be wrong that you did it.

For Netflix it was wrong to sell it at $50, and $150 and even $250. It wasn't right. It was wrong. Most of the people I deal with would say it was right to sell it. They either don't regard the points as legitimate or they don't think they are worth getting.

To me that's preposterous. That's like saying that a team lost in football because it was an ugly win. No, it's a "W" either way, ugly or beautiful.

Sometimes being a purist is wrong. Sometimes figuring out that Herbalife has to go up because of the behind the scene dynamics is right.

It is not contradictory to dislike Herbalife's business and like the stock. It is not illegitimate to say that Netflix is overvalued but it can go higher.

I no longer ask people if they understand what I am saying. It's not worth it.

But that does not keep me from saying it. And as long as I think I can "game" this process, I am gaming it.

You don't like it?

Guess what: Go against me.

It's a free country.

At the time of publication, the authors had no positions in the stocks mentioned.