Cramer Theory

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Stocks that go to $80 a share in a bull market tend to go to $120, as long as the bull market keeps going, Jim Cramer told viewers of his "Mad Money" TV show Monday.

Although this thesis might seem "totally bogus," Cramer said he has the empirical data to prove it is correct.

Larry Tisch, one of the great investment minds of his generation, was mystified by the "runaway bull market" of the 1980s, Cramer said. Tisch liked "out-of-favor assets" in which he could take a longer-term view and make billions, but at the same time, he didn't like to miss out on easy money, Cramer said.

When Cramer was young, Tisch asked him what he liked in the market. Cramer told Tisch at the time that stocks were in a "dramatic" runaway bull market and that people had to be in the most-obvious stocks because they were the ones going higher.

He said he told Tisch he liked stocks that were at $80, and when Tisch asked why, Cramer told him that stocks that go to $80 go to $100. Further, if they go to $100, they tend to go to $120

Even though Tisch laughed at Cramer then, the next time Tisch saw him, Tisch told Cramer that he had been keeping track of his thesis and it was working.

Leading stocks attract money, and money sends them higher, cementing their status as leaders, Cramer explained. This keeps the virtuous circle going.

Right now, we're in a runaway bull market, and Cramer believes his rule of thumb in 1984 should work just as good now as it did then. In fact, looking at just last year, it seems his theory was proven right in the S&P 500.

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