Mad Money w/ Jim Cramer 8/28/26

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**Jim Cramer** (1:02)
My mission is simple, to make you money.
I'm here to level the playing field for all investors. There's always a bull market somewhere, and I promise to help you find it. Mad Money starts now.
Hey, I'm Cramer. Welcome to Mad Money. Welcome to Cramer. If you want to make friends, I'm just trying to make you a little money. My job is not just to entertain, but to educate and teach you. So call me at 1-800-743-716-Tweet me at Jim Cramer.
You want to know the single most useless thing you can do in this business? Oh, that's easy. The most useless thing you can do as an investor is to worry about what everyone else is worrying about.
The flip side of this is also true. There's no point in getting excited about something that everybody else is eagerly anticipating. Why?
See, because when the vast majority of investors agree that something's going to happen, that thing is already priced into the stock market, priced in. While the real economy moves at its own state pace. For example, you got to borrow money to build out equipment, then you use that equipment to manufacture goods and transport them to retail outlets and wait for the customer to come along and buy them. The stock market has no such limitations. Stocks don't quite travel at the speed of thought, but they come pretty close. So the moment of preponderance of hedge fund mutual fund managers decide that the economy is slowing or speeding up or flatlining, stocks start trading like that's already the case. Usually it takes some time to build that kind of consensus, which is why you rarely see these moves happening instantaneously. But once the big institutional portfolio managers are on the same page about something, you can be pretty darn confident that it's baked into the averages.
This is some basic economics 101 stuff. Now I don't have a ton of use for economists as a professional in this show. They tend to take a totally ivory tower approach to this discipline, meaning they have all sorts of models for how the world's supposed to work, the economy's supposed to work, often very boring models, by the way. But they rarely let the empirical facts get in the way of a good theory. If the data conflicts with the model, economists have a bad habit of throwing away the data and not the model.
However, as long as you keep that caveat in mind, some basic economics is incredibly useful when you're trying to manage your own money. For example, let's take something a little bit difficult, but we're going to get this together. What's known as the efficient markets hypothesis. This theory says that at any given moment, stock prices already reflect all the relevant information that's out there. And when some new piece of data comes out, stocks immediately adjust to reflect the new reality. You often hear index fund purists citing this theory to explain why it's impossible for stock pickers to get any kind of edge, because whatever you know about a company should already be baked into its share price. As far as they're concerned, markets are so efficient that investing in individual stocks is basically the same as gambling.
If everything you could possibly know is already priced into the stock, that means your homework is meaningless, and the only thing that can push a stock higher or lower is some random new piece of information nobody knows about.
It has to be something totally unknown, because if anyone did know, they would have acted on it already. Ergo, it would be baked into the share price. That means under the extreme version of the efficient market hypothesis, the only thing that can move stocks are unknown unknowns, to use the policy of former Defense Secretary Donald Rumsfeld. And if you're merely betting on unknown unknowns, you might as well just be playing roulette. It's more fun. Again, that's why index funds, the fit advocates adore the efficient markets hypothesis. This theory tells them that it's impossible for individual investors to consistently beat the averages. So if you want equity exposure, the only smart way to do it is putting your money into a nice low cost index fund that mirrors the SB 500 Now as anyone who watches the show regularly knows, I have no beef with index funds. In fact, I think they're the best way for the vast majority of people to invest in the market. I've held that position since the year 2000 Even if you've got the time and the inclination to pick individual stocks and manage your own portfolio, you should still direct a big chunk of your savings, if not the plurality of it, into some cheap S&P 500 index fund. It's the safest way to give yourself equity exposure. It's perfect for your retirement accounts. Think of it like this, it's not that easy to be a good individual stock investor. It takes real work, which is why, of course, we try to help you if you join the CME investing club, but it's an incredibly easy thing to be an index fund investor. Putting money in a 401k at IRA, oh, that's index fund territory. You can gradually contribute over time with every paycheck and as long as you believe the US economy can keep growing over the long haul, you can park that money in an index fund and check in on it maybe once or twice a month. But to get back on track, this idea that you can't possibly beat the averages because of the efficient market apothesis tells us stocks are always perfectly valued. And you know what? That's just totally bogus.