Mad Money

Market madhouse: Cramer’s total no-win situations

Herbalife's a circus: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

The market can be madhouse. And reflecting on the worst of it, Jim Cramer often finds valuable lessons that inform his decisions in the future.

Perhaps the most glaring lesson in the market right now is to avoid battleground stocks.

"Those are total no-win situations. What counts as a battleground? Right now the biggest, bloodiest combat zone is Herbalife," Cramer said.

That is, widely followed hedge fund manager has been a very vocal critic of Herbalife.

Adam Jeffery | CNBC

At a recent presentation, Ackman compared Herbalife's sales practices and tactics to those of Enron, the mafia, drug dealers and even Nazis. He also lashed out at the company's advisors as well as former Secretary of State Madeleine Albright, for speaking at company events.

"He effectively predicted a total shutdown of Herbalife. So, sure enough, shares plummeted 11 percent on Monday," Cramer noted. Then, one day later, shares surged 25 percent with investors largely viewing Ackman's assault as more of a dog and pony show than anything else.

"The back and forth has been going on for quite some time, and I think this is a situation that must be avoided at all costs, because no one is going to stop Ackman from making these charges," Cramer said. "It's become a circus. The fundamentals mean nothing," and Cramer doesn't like owning stocks in which fundamentals mean nothing.

Another lesson, is to be cautious of earnings headlines. "Wait until you get to the guidance portion of the conference call to make a judgment. And listen to the questions in the Q&A session," Cramer said.

Earnings from General Electric, which reported on Friday, illustrate that lesson.

"When I saw the headlines, I was jumping for joy because my charitable trust owns GE. Others were too, as the stock initially ticked up 20 cents at one point."

However, after digging into the meat of the results Cramer found that revenues were light. "And as I listened to the conference call I found GE was missing numbers in areas where other companies were blowing away the estimates, areas like oil and gas, which are simply on fire, or distributed power, where so many are doing just fine."

In fact, after sifting through results with a fine tooth comb Cramer found healthcare was also weak as was GE's appliance revenue.

"But what I hated most was when GE said the transportation team continued to execute well in a pretty tough environment. Huh? The transports have been hitting new highs over and over again. The rails are booming. What tough environment? I could see the stock go lower as the words were spoken."

Read more from Mad Money with Jim Cramer
8 reasons the market isn't worse
Hot trade: From Cramer's point of view
Rock solid recovery stocks?

As noted above, the market can be a madhouse. However, Cramer is committed to preserving investor sanity. And he thinks by avoiding battleground stocks and resisting the urge to make snap judgments, individuals should be able to avoid some of the worst of the many pitfalls.

Call Cramer: 1-800-743-CNBC

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