Mad Money

Cramer’s Bristol-Myers theorem: What is it?

Cramer: Know what you own

You always hear Jim Cramer shouting about Bristol–Myers. Well he says Bristol Maaah-yerss. Why is that?

When the "Mad Money" host was running his hedge fund, he would use Bristol-Myers as a milepost in an attempt to make decisions about how to deploy capital, especially during times of market uncertainty.

"We'd have a meeting every morning at 6am," explained Cramer. "And every time we had some kind of scare someone would inevitably say, "what are we going to do, Jim? This nuclear power plant in Chernobyl has melted down, or Iraq has invaded Kuwait. What do we do?"

Cramer always relished those kinds of moments.

"I would scream back, dripping with sarcasm, 'what the heck does that have to do with the earnings of Bristol-Myers?'"

Adam Jeffery | CNBC

In other words, when facing sudden and that had potentially negative consequences for the market, Cramer would step back and try to determine how those events would impact stalwarts such as Bristol-Myers.

"As far as I'm concerned, Bristol-Myers has always generated the most consistent earnings imaginable," Cramer said.

The question became, was the unexpected event so far reaching and potentially catastrophic that it threatened the drug giant. Whatever the answer, Cramer would make his moves from there; hence, Cramer's Bristol-Myers theorem.

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The Mad Money host still applies the Bristol-Myers theorem every time an unexpected catalyst shakes the market, a phenomenon that seems to be happening with great frequency, over the last couple of years.

"Given that the 24 hour news cycle now seems to blow everything out of proportion, I expect the market will face another crisis sooner rather than later," he said.

And in the event that you actually hold Bristol-Myers or some other stalwart stock, the decline may be an opportunity to buy more. "In most cases, if you step back and ask yourself 'how does it impact Bristol-Myers' I don't think you'll be inclined to sell the stalwarts," Cramer said.

Call Cramer: 1-800-743-CNBC

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