Jim Cramer has seen that there is an entire industry of commentators and pundits out there who are devoted to telling investors that it is not possible to beat the market. They say that you can't win, so it's better to just dump your money into an index fund that mirrors the market than to invest on your own.
"I think that's garbage. You can beat the averages as long as you know what you're doing, using the precepts that we teach every night here, and this is particularly important to keep in mind after a selloff period," the "Mad Money" host said.
That is why Cramer spends so much time educating investors about stocks, because he knows that if you do your homework, you can pick your own stocks. That means being able to identify opportunities and avoiding the worst mistakes in investing, especially when the market becomes a battlefield.
One of the most important lessons that Cramer learned over the years is don't trust all buybacks.
"They aren't created equally and they aren't all a place to run to in a selloff. In fact, many buybacks disappear when times get tough and can't be relied upon as we saw when the oils came crashing down when oil plunged in 2014," Cramer said.
Buybacks are when companies repurchase their own shares on the open market in order to take them out of the equation, thus reducing the number of shares outstanding and boosting the earnings per share. Often buybacks are used as a way for companies to reward shareholders with their cash. However, Cramer likes dividends more because of the downside protection and preferred federal taxation status.
Over the years, buybacks have become very popular. Companies spent about $1 trillion more on buying back stock than on paying dividends in the past decade. Unfortunately, Cramer has seen that these buybacks have not given shareholders the value that they expected.
"So, when you see a company with large buybacks and a puny dividend, you should be suspicious rather than bullish," Cramer added.