On a day like Monday, when the averages ended in the red, Jim Cramer thinks it is time to start to dream big with your portfolio. Many stock valuations are trapped by the index to which they belong, the ETF that claims them, or analysts' traditional methods of valuation.
Now, it is time to throw that all out the window.
Cramer thinks that some stocks are undervalued simply because investors just can't think big enough and imagine what could happen in the future. And there could be big bucks in store if investors try to think outside of the box and attribute a small portion of their portfolio to dreaming big.
"They have a literal and linear sense of things, taught at fabulous business schools and then honed at traditional research houses. These quizzical valuations are a product of that upbringing," the "Mad Money" host said.
With this in mind, Cramer used the example of Netflix to show how to think differently about the possibilities that a stock could hold and attribute that to its market capitalization analysis.
Looking back, Netflix pretty much came out of nowhere and is now the dominant way that people consume at-home entertainment. For a small monthly fee, customers have access to a huge library of content. Plus, it has its own programming, which has helped build brand loyalty. The concept that users didn't have to pay for every program that they watch helped Netflix corner the market on binge watching.
However, if Cramer were to value Netflix, he would not do so using the simple boundaries of valuation that are used currently.
"As a private company, Netflix would be thought of as an important form of worldwide entertainment, and if it were up for a new round of financing, I think it could easily be worth double its current public valuation," Cramer said.