Cramer's 'Mad Money' Recap: Invest Like a Pro
Cramer said HMOs including Aetna (AET) and UnitedHealth Group (UNH) are among the worst offenders. He said these companies kept dividends small and instead bought back shares. Yet, the buybacks did nothing to lift share prices and the billions of dollars would have been better spent on dividends.
Cramer said the notion that buybacks help cushion a stock's collapse is false. When the panic starts, the remaining shares will fall just as hard as a larger amount of shares would, he said. In 2008, banks were very active in buying back shares, only to see them plummet towards oblivion.
Cramer said buybacks by themselves are no reason to own a stock, and in some cases are even reasons to sell it. "they are a false sign of health," he concluded, " and are too often a waste of shareholders' money."
Putting Money to Work
Cramer's final thoughts for investors involved fuel -- not for your car but the fuel that makes stocks go higher after a big decline.
Cramer said the fuel that stocks run on is investors taking their money off the sidelines and putting it back to work. When money is flowing into the markets, mutual funds start buying and whole market gets lifted.
It's easy to find groups that can go higher, he noted, when money's coming in just as companies are turning themselves around. Investors need to buy the dips each time they occur in these situations, he said.
But in the reverse case, when panic is sending money out of the markets, that's when investors need to be cautious, said Cramer. He said there will still be groups that are rising higher, but without new money flowing into the markets, these moves come at the expense of other sectors.
That's why investors will typically see defensive stocks, like Altria (MO) and Pepsico (PEP) , heading higher when the market declines, as money moves out of other sectors and into these safer names. But Cramer noted that these moves are not sustainable unless the retail investor has signaled the "all clear" by putting more money back to work.
--Written by Scott Rutt in Washington, D.C.
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