i am jim cramer and welcome to my world. >> you need to get in the game. >> they're nuts. they're nuts. they know nothing. >> i always like to say there is a bull market somewhere. mad money, you can't afford to miss it. welcome. i am trying to make a little money. my job is not just to entertain you but i am doing teaching tonight. call me. earnings season. earnings season, i dread earnings season. why? it is overwhelming with so many companies reporting at once and so much data. it is hard to keep track of the expectations and really know what is better than expected. what, the whisper, the real

benchmark that must be beaten. no. i had a really bad back and i can't stand carrying all of those printed out versions of the conference calls as i schlep from downtown manhattan where i do "squawk on the street" to my studio where with i do "mad money." tonight i want to do something different. i got to help you this earnings season. i want to offer you a new way to use earnings season and put it in perspective. most of you watching the show are not day traders that i think high jack a lot of thinking. it has become so difficult to predict. often the initial moves aren't even accurate because of the press coverage or because something nasty just occurred in the overall market because of europe or the election and in other words other than those shorting or going long stocks ahead of the quarter, these earnings reports need a context to make you money. they can't be relied upon anymore because they aren't as predictive of future behavior as they once were.

they are a piece of the puzzle, a part of the mosaic, but only one of many important parts that predicts where a stock will go over the intermedial term. it is a teaching show. i want you to know the metrics i use to pick stocks i talk about and recommend here. i also want to teach you how to listen to these conference calls or read them in the transcripts. at least give you my opinion of what matters on these calls and how i let them factor into my thinking. i am hoping this show will once and for all because this is what i see on twitter constantly tell you how to use earnings season to figure out what you need to trim, what you need more of, let it help your stock selection, hone your way of thinking. it is incredibly important about a host of issues, four times a year, big report cards, not just the trajectory, the estimates. i am so tired of the estimates are bumped a penny or two.

that's not making anybody any money. we can't dismiss earnings season. that would be totally wrong. we have to put it in context. here is how i use the reports we constantly refer to. first, i assess for the predictive value of the year, where analysts go with the estimates after the company reports. do they raise them? do they lower them? do they keep them the same? say apple uses a report that is better than not only the posting numbers but the high, some call the whisper, the high man, the analyst with the most aggressively high estimates on the street. that, people, always causes a raising of numbers for the rest of the year by everyone. if it is the end of the year, for the numbers in the year after. i use that increase in earnings per share, the ones they bump, okay, to figure out several things. first, i try to figure out the increases from real business, actual sales, do they do better, and not just accounting changes

and share changes but the latter fools a lot of people. to do what i like to do, i look more at the revenues than the actual earnings themselves. why is that important? the company can't change the sales line except by increasing demand, producing more, gaining more customers, either at the expense of others or through better sales man ship and execution, making a better job, working harder, working better. a company can easily change the earnings by buying back a ton of stock, not the sales line but the earnings. it changes the number of shares. revenue growth in the quarter, particularly the holy grail, accelerated revenue growth, arg, both quarter to quarter and year-over-year drive my thinking. they allow me to figure out future revenue and earnings. it is what i really talk about on the show. it allows me to figure out what i pay for the stock in the future. lots of people examine the earnings multiple and make a determination of the stock's worth and what i call the pe

vacuum, it sells at 20 or 30 times earnings and the average sells at 11 times the s&p and they say that's too expensive. lazy thinking. you need to figure out the growth rate using the prism i just laid out for you. figure out how fast the company is growing, linked quarter, the previous quarter, and the current one, and then the year-over-year quarter and calculate the trajectory versus the growth rate f a company is growing 20% and the price earnings multiple divided by the earnings per share is 20 or less, you probably have a big bargain on your hands. we call that using the peg ratio. again, fundamental of this show, price earnings to growth ratio, a much more important than the earnings mobile because it puts the mobile into context you can use versus other stocks. we're always comparing other stocks. as a rule of thumb i am willing to pay maybe up to twice the growth rate of the company, especially if there are very few companies growing that fast,

meaning a scarcity value of fast-growing companies and say 70 times for a company growing at 40%, gets me nervous, even at 40% growth is very hard to come by. that's nose bleed territory and there are too many things that can go wrong with the stock when that happens. the con is true, too. when i see a stock that sells for less than one times earnings per share growth i begin to sal evaluate. unless there are other factors going against it, i am drawn enough i have to find other reasons not to buy. the bottom line, i use the actual earnings per share reports to figure out the growth rates of the stock and if the growth rate is high and the price to earnings multiple based on the future projections is equal to or less than twice the growth rate then i am interested enough to proceed with the rest of the work that this special show will detail. i need to go to brad in south carolina. brad? >> caller: jim, i want to give

you a bic ron paul buyaa to you. >> that's aggressive. i will take that. >> caller: i am wondering how to best prepare for the he werings season in terms of all of my research resources. give me the scoop of what you look like as you stay on top of all the market update. >> what i like to do, first of all, i watch cnbc. i am not kidding. they cover earnings season better than anyone. i go to the websites. they are so good. they will have the analyst reports, a lot of projections and i like to look at the news stories to get a sense of what the consensus is and the analyst reports the day after. all of that has to be done if you're going to really sink your teeth in and feel confident. start with the website of the stock. go to dow in california, please >>caller: yes, booya. i have a question. what is meant by a reverse split stock? >> okay. that means there is a million

shares. say they do 3:1 and they get the 300,000 shares. citigroup did one. what it does is if you have 300 billion shares, you divide it by 3, you get 100 billion, it does raise the price, but you have fuser shares. go to tyler in florida. >> caller: i will give you a south florida booya. >> i will do that. i need to go there now. what's up. >> caller: when you talk about the economy, you know, really booting off again, seems like you talk about it in terms of consuming and not producing. i am thinking from the way i think about it, you need something to be produced before it is consumed, so i am wondering why in terms of a growing economy you talk about consumption instead of production. that's what it seems like to me. >> i do because in order to be able to raise price you need demand. if there is a shortage of supply, sure, that can mean

something, but not if there is no demand. if you have shortage of supply of some product that nobody likes, you can't raise price, doesn't mean anything. that's why we focus on demand on the show. a company has the earnings stars before you buy it. use the eps to figure out a company's growth rate and then take it from there "mad money" will be right back. this is $100,000.

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welcome back to "mad money," special earnings season companion show, how not to be overwhelmed by earnings reports and put them in perspective so you can profit from them in an informed and confident way, make money at home. we just went over how i like to use the earnings reports to figure out the growth rate and then relate to the stock price to figure out whether it is too expensive or too cheap against the sector and the rest of the market. the next way i use the earnings report is equally important and in some ways of the etf in the market, even more important than the growth rate and the price of the stock and earnings per share. i measure the stock's earnings growth and against the cohort and figure out whether the whole cohort is worth owning or forgetting about. that's right. for most of the more than three decades of investing i figure it is important when you pick a stock, it matters, and historically it counts for maybe as much as 50%. you know what now?

so many people trade through etfs and they have become so popular for individuals and hedge funds to make decisions and take quick action and the sector superseded earnings at times and oftentimes all but an after thought for individual companies. take for example the way banks traded the last few years. it didn't matter whether they had strong earns or bad earnings. if they were in etf, it didn't matter how well a bank did. a bank like wells fargo, u.s. bancorp, little exposure and very strong management and trade similar to j.p. morgan and morgan stanley with tremendous exposure to the continent. that's why at times i dismiss the earnings per share gains entirely at the moment if the cohort was radically out favored. i never just for got them. steady try to figure out which ones can at times break the tug of the sector, the gravitational

pull and which ones can really shine. if the sector falls back into favor, i have to be ready. remember the 2009 march bottom, we have seen many sectors of retail and individual sectors out perform. i like to listen to all the retailers. at given times i am wrapped by the groups doing the best. by far the top performers have been the discount stores, the dollar stores. when i see that go to retail i go back to the earnings report memory and reach for these two. i know they have the most earnings momentum. i only know that because i keep listening to the calls even though the group may have been out of favor of late. when everyone piles into the retail etf, i am in there with the ones with the best momentum and similarly ross stores, bed bath and beyond and when they grab a sector, they have the

most inexpensive earnings. there is another strategy for more sophisticated investors i want to let you in on. when i know which are the best of the best in terms of earnings because i focus on the call and a huge amount of money was poured into a given sector i might sell the etf and buy the best performers in the etf according to my earnings per share work. if it takes a turn for the worse we get a large macro number and a government number or weakness out of europe and i can lose less than the people just playing the earnings momentum game because i own the best and i am short the rest. sector analysis is particularly important in technology. people confuse these stocks that comprises more than 15% of the s&p 500 constantly. tech is actually a conglomeration of a whole group of sectors, software, cloud, internet, large scale enterprise, hardware makers, telecommunications tech, infrastructure stocks, assemblers, each has a separate

growth rate and here i look at the earnings per share growth rate of the companies i follow versus the individual slices. the sector growth rate doesn't work even though people keep trying to use it. cloud stocks, for example, are highly valued meaning the priced earnings to growth rates are extreme. there is no room for hair as we call it, meaning something is wrong that could upset the growth rate. in 2011 one of my favorite was salesforce.com reported a magnificent quarter but the guidance was later than i was hoping. it was immediately pancaked and stayed ugly for a long time because it under performed its portion of the technology sector even as the growth rate would have been outstanding for say a personal computer related stock or a disk drive, a semiconductor or a cell phone company. these days knowing what the sector is isn't enough. you need to know the subsector. you need to know how your company stacks up against the growth rate of that sub sector and you need to have a good handle where the larger sector is in favor or if it isn't. the bought 078 line, nothing is

worse than owning a bad stock defined by weak earnings in a bad sector neighborhood. nothing is better than owning a good stock in a great neighborhood. if you do not measure them against the sector growth and do not determine first whether the sector is in favor versus out of favor, then the earnings report better than expected or not won't mean a thing. when we return, i am going to give you several more ways to use these earnings reports in the context of stock picking, not just trading, when i have come to see as pretty much of a zero sum game. stay with us. i'm freaking out man.

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season but how to use the reports to put together the ideal portfolio for the long-term, not for tomorrow's trade. we established the importance for that they tell us about the growth of a stock and where it fits inside a sector and the gravitational pull that could overwhelm even the best earnings reports, best house, bad neighborhood, neighborhood wins. now we have to dig further than the headlines and determine what else on the conference call or in reaction to the call that can help us make some money. we don't stop with just a call. what else is important to listen to on these? the wall street analysts tell you the most important concept and predictor is the gross margin. what's left after the cost of sales are subtracted. i like to explain it as a lem lemonade stand. the cost of goods sold easy to understand. you figure out how much those cost, subtract from what you charge, have you gross margin. there are plenty of other that is go into it. we can't have the cost of the table, time to make the sign,

number of people behind the stand, the labor equipment if you paid someone besides yourself and same thing for publicly traded businesses. we try to figure out the cost of goods sold, whether they're going up or down, that's the inflation and deflation component and how much the labor costs, very important in rising salary environment and how much leverage there is meaning if you have all of the labor and costs accounted for how much business can you do? the one that i always like to think, there is not a lemonade stand but it is well known, chipotle. they have fabulous gross margins in each store. they have labor and food and customers. the more customers they can serve per hour, the more leverage they have. the key to the gross margin are the cost of the food, the cost of the labor and most importantly the number of customers they can push through in a given day. of course there are dozens of other inputs advertised and need to have as little turnover as possible because the cost of training new employees is tremendous. it is a huge obstacle to making a lot of money. that's something a former ceo of costco made clear to us on many

occasions on this show. in fact, senegal was legendary for paying employees the most and treating them with the best of benefits because it is so important to keep them happy so that the firm doesn't constantly have to train new people. new people are not known to regular customers and like to see the same hold hopefully smiling faces and new people cost too much money. same for chipotle where the most talented are quickly given promotions and opportunities to run more stores. mcdonald's, similarly, often praised for gross margin improvements because it has the best market muscle, can get low cost goods and good leases and also because it has the technology and innovation on a quick scale and does not befuddle the often lesser skilled employees. gross margin comes into play in every industry, always in different ways. often the key is less to do with the cost structure of the company and more to do with the inventory conditions of an industry or a given company. now we're talking tech. semiconductor companies, for example, often produce flat out

making as many chips as they can 24/7 but at times end demand wanes and the supply chain is glutted and then they often have to cut price and loesh the gross margin and often makes the earnings too volatile to predict and therefore too volatile it on give them a high priced earnings mut i am. that's when you see preannouncements with too much inventory. we like companies with consistent growth and pay higher multiples and we don't want the inconsistent growth that tech gives us and pay lower multiples for them. no one can handle the inventory glut that happens once or twice a year and same for companies like steel and aluminum. at times they produce too much. at times the product from other countries cause a glut in the system and prices are slashed and future earnings per share are crushed. i listen closely on the commodity calls to get a sense if inventory is building anywhere in the system. if it is i can tell gross margins are coming down and i have to get you out of the

stocks quicker than i do. aluminum, steel, copper, i have to work faster. don't you believe for one moment it is just the commodity producers. i listen to every single major pharmaceutical call and larhear about generic contribution. a drug coming off patent that will plummet in price scares me and i tell to you get out. it will trade at a low multiple to future earnings even if it traded at a high one in the past. until a stock discounts that, i have to keep you out of it. few drug companies are immune from this. i steer clear of them as best i can until everybody knows about the patent cliff and then i can go back. finally, there are gross margins in the oil service companies. these are the hardest. they're difficult because you often have to figure out several numbers for the gross margins, how much it costs to drill, get it out of the ground, ship it, refine it. these are complicated companies. many companies in the industry tried to break themselves up to make it easier for guys like many he to figure out the gross

margins instead of being a blend i have to unwrap. i care about finding costs and about end market prices. that's why the natural gas companies, for example, traded at discount to the pure oil companies because the end market price has just been so low for so long and the end market price of crude has been so high for so long. that's what draws me towards an eog or continental with cheap remaining costs for oil and they have expensive prices when they get it out of the ground. the bottom line, the key component after figuring out the earnings per share and the growth related to the cohort is figure out the future gross margins. something that is uniquely calculated only by listening to the conference calls, can't get that in the headlines or any press reports. if you don't know the direction gross margin, believe me, you won't know the direction your stocks are about to take in your portfolio. it is an integral part of the homework. if you don't calculate yourself, you have to get it from somebody. read from the analyst who is do. go to brad in ohio, please.

brad. >> caller: girard, ohio. >> got to get there. >> caller: thanks for taking my call. my question is as an investor interested in specialty retail, i understand the fourth quarter is definitely the quarter with the most significant earnings. >> right. >> caller: how should one evaluate these companies first quarter earnings? >> go back to the rules that i give in the hedge fund. i frankly don't care about the first quarter for retail. it is only the fourth quarter i care about. first quarter is just not meaningful enough, doesn't move the needle. don't have valentine's during that because my dad sells gift wrap. gift wrap is one of those things you and realize the seasons and valentine's doesn't move the needle like christmas. i like the hol holiday season. it is all that matters. i wait to hear the quarters and make my judgment for what the next year will bring. mike in illinois, mike. >> caller: i want to give you a

chicago bear's ba-ba-booyah. if i short a stock how long do i have to short that. >> forever. they may put more money out and that's where people get squeezed. okay. you have to dig deep if you want deep profits. gross margins will guide you in figuring out the direction of a stock. some things will you only find on the conference calls. not the headlines. gross margins, that's on the call. stay with cramer

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. you're hearing tonight for the first time not how to figure out what's a better or worse expected earnings report, a good trade, seems to be a dominant way of thinking but how to put these reports to work for you, select the best stocks and prune those that need to go. we figured out how to compute the growth rate and whether it is too expensive based on the growth rate, something jim cramer on twitter and i keep getting that question. now it is answered. we explained sector analysis as part of the earnings report and learned how to focus on gross margins, something that can only come out of the conference call and now we must address two more pieces, these are really important, dividend growth and home run potential. from pretty much the time since i first bought stocks in the late 1980s until fairly recently dividends were an after thought, ever since i had my hedge fund. companies were enamored with buybacks and to me it is

oxymor oxymoronic. the only real winners with shareholder buybacks except in extreme cases are the executive that is get paid for hitting certain earnings based targets. they do that by shrinking the float through buying back just enough stock to make it so when the share count is divided into the earnings per share, well, it beats the compensation benchmark they were supposed to hit. only a very handful of buybacks do what they're really supposed to do, make it so there are far fewer shares and something that can drive a stock higher if the earnings are excellent. the buyback that accomplishes that goal, i have to tell you, count them on one hand. most buybacks turn out to be a huge waste of money is company that is spend a giant amount of cash buying stock when prices were appreciately higher because they don't know about stocks. what should they do? what are the good companies doing? often more and more bountiful

dividends. buybacks are indefinite. cable being reigned in and dividend are out long-term confidence. now that low rates seem to be upon us for some time, dividends can provide a rate of return that certificates of deposit and you keep trying to make money and of course stocks present more risk than ces and they can go down and they can also go higher. that's often the case with company that is continue to boost their dividend year after year. if you reinvest those dividends, you can augment your return to the point where you are far exceeding a return on bonds. dividends are so important, they have been responsible for almost 40% of the s&p 500 the last ten years and also the main reason the dow jones average with the above average dividend yield far out performed the s&p 5002011 and 5.5% return, how about making a total of 8% if you reinvest the average dividend and the only thing you should be thinking of is reinvesting

dividends and cash in your pocket, safety net during the bad times and a trampoline inned good. what do they have to do with the dividend component we so often seek? simple. we listen for calls that tip management's hand on the dividend, that tell us there is enough excess cash available to boost the dividend. perhaps several times in a short period of time. that's what we heard from general electric in 2011. it was on every conference call they mentioned. conversely if they single a desire to buy back more and reduce the share count by much you have to look at the year before, year before, year before and you should presume it is about management enrichment until proven innocent. they're seeking to contain the damage from the shares and options offered to management. a lot of tech company doos it and i regard that as disgraceful. no one else thinks that. i don't care.

we also need to listen for something breakout, something new on a conference call, something the company is going to do differently or going to announce soon that can serve as an upcoming catalyst. i always talk about catalyst. you need a catalyst to buy a stock. i scrutinize not so much for what happened, that doesn't interest me, but something that will happen and if i hear something that sounds like it could propel the stock in the future, i am anxious to buy it. if someone is disappointed and they didn't beat by enough or guide high enough to please the momentum funds of the stock, i got my opportunity. what are the examples? pharmaceutical companies, they often telegraph what might be going into stage 3, okay? meaning what drugs might be near final approval. they often tell you about expanding usage on the labels for drugs and al ler again has told you more about the future on the call than any other and it has been a terrific buy.

every time it sells off after earnings because of the upcoming catalyst. by the way, celgene, same thing. they give you a call what's coming up and tech companies often tip their hands and there are product initiation that is can make a huge difference in future earnings and pipeline companies, creators of dividend wealth, they tell you about upcoming expansions and the exploration production companies almost always tell what you prospects they're looking for and when you might hear really good news on these calls. i always file those away and wait for the futures to go down. that's what happened last year. clr gave you a chance to get in before it raised guidance from new finds later in the year and we had gone out to the bakken and they were talking about how the storms kept the drilling down and storms ended and nobody cared. then the stock took off when they told you business it big and booming. the bottom line, we look for signals about the future of the calls and particularly about upcoming catalyst that is will

move the stocks later on making them solid buys on short-term decline because it wasn't better than expected. we try to measure confidence about cash flow that can ultimately trigger raising dividends. the best source of wealth stocks can give us. remember, dividends pay us to pat for things to get better and there is no better way to find out about the prospects for increased dividends than to listen in on the earnings calls. ♪ ♪

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earnings season doesn't have to be a gun existing only for hedge funds to profit from. tonight we showed you how you can look for signs of what to do with your portfolio over the

long run because the earnings reports and the subsequent conference calls, the crucial thing, look, here is the deal. they don't have to be shoot first, ask questions later experiences. the opposite. conference calls are ask questions, ask questions, and then ask some more questions and only then maybe take action. we are asking specifically about what the growth of the earnings per share might be and how expensive that would make the stock versus other stocks in the sector and maybe other stocks in the market as a whole usually regarded as being the s&p 500. we want questions about gross margins and whether they're going to be increasing allowing us to judge if earnings estimates might be beaten in the future. we are looking for signs that dividends, these days the most important indicators might be boosted and looking for catalysts that can propel it higher and something big that will happen. it is so important at a time when stocks sell off in knee jerk fashion and specifically because some company didn't beat

an estimate that may not have been informed any way. there are two more items to be gleaned from these and they are new ones that i've had to add to the equation because of structural changes in the stock market over the last few years. the first is geopolitical risk. never really cared that much about it because following america companies america was king. geopolitical risk, linked exposure, not just to the rising price of oil. that can be jostled by the middle east, always an issue but to the sovereign debt and banking debt issues of europe. we need to ask how much exposure to the chinese economy. for example, for most of 2011 it was impossible to own banks, proceed to have linkage to the troubled euro and the accrue tremendous meants and away from the italian bond market or over stressed french and spanish counterparts and got our heads handed to us. similarly, tech, tech is often considered heavily dependent on europe. as much as 20 or 25% of the

earnings of tech are derived from the con nent and typically it is deadly. we know this because they don't dodge it on the conference calls. that's how you learn about it. the analysts won't let them get away with it. listen to q&a. if you're in a company with european exposure you will hear 1 out of every 2 questions about europe. you want preventive earnings season medicine, go through the previous calls of the companies. if the plur although of the questions are about europe, you know you're in for a bruising next time. that's what the analysts focus on and force the companies to talk about. as correlated with europe as many tech and bank stocks are, it is china that controls so many of the cyclicals. listen to caterpillar, joy cummins, peabody, and owning these stocks is like owning a piece of the great wall of china

it has to be such a pervasive worry i have seen down grades like yum because it has a huge chinese business and coach which has been expanding aggressively in china because of worries about a chinese slowdown. can you imagine kfc? the steel company not paying attention to what the chinese are dumping on the markets is like taking your financial life into your own hands. how do you find out all these issues? companies as diverse as corning, 3m, ppg march to the beat of the asian drummer these days. you won't see it in the release. it is all in the pestering by the analyst. listen to the call and don't hang up until you heard the last questioner. read the transcript so you can tell how worried they are about the market that is didn't move the needle a few years ago. one final piece, the earnings season that you have to weather something that i have never talked about before. we have to do this before we are done for the night. one that's obvious will to anyone that watches regularly, i can't believe i have to do this. i am going to say it.

you have to know the chart of the stock ahead of the quarter. so often with he have charters on the off the chart segment that trace out what a pattern might be and where it can break out and why is this so important? you have to recognize that the chart is the expectation game and pick the correct form. when you hear expectations were too high going into the quarter and that's why it sold off, you have to recognize the chart was the gauge of the expectation. you look at the chart, that tells you whether the expectations are high and often it rallies to a particular level in advance of the quarter and typically a level of resistance. if the quarter isn't up to snuff, the stocks can get hammered because of a chart failure. i don't want you to react to this. i want to you use it in your favor which is why i saved this for last? you know what's an ideal stock to buy? one that has rising earnings per share growth and rising gross margin and potential for dividend increase and good news on the horizon that just got re pulsed because it couldn't bust through resistance.

that gets you to get in at a perfect price one that you otherwise wouldn't be able to get because of the chart. why is it so important? no journalist will ever attribute it to a chart and so many hedge funds are reacting entirely to the chart and saying silly action because of it. i am not a chartist but i play like one when i have to. if the question and the answers on the conference call resolve around crisis in europe or asia or anywhere else for that matter, be prepared for a hammering and if they go down big after a quarter you think should be going up later on, remember that it might very well not chart talking. the chart tells you the tale and gives you a chance to get in cheaper than you may otherwise have the chance to do. now you are ready for the rest of earnings season. go get them and tell them cramer sent you. do enin california. dean. >> caller: jim, how are you? hello. >> it is gorgeous out there. how can i help. >> caller: i check my stocks at

the end of the day and usually you see a blurb on the news headlines that says for instance a particular stock has a close or buy in balance at the end of the day. what i want to know is what exactly do these close or buy of balances mean and do they have in i implications for the following day's trading especially to small timers >> i don't think you have to worry about it. a lot may be etf related or some market on close program. it is confusing to people. we care about the fundamentals. maybe it affects the chart. maybe it doesn't. i don't care about the chart that much and i know many people but we care about the fundamentals. that would matter only if you were a big broker working a 100,000 share order and trying to get the best price at the end of the day. it is all in the conference calls, everybody. a company's earnings release is much more than that. i need clues, clues that will single where a company is going and i like to look at the charts. well, call me. call cramer.

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let's do mad mail and yes mad tweets on twitter. hello, jim writes bob in nevada. you often encourage home gamers to do their homework. i dvr every episode and i don't recall you specifying what you suggest should be involved in doing our homework. my version is listen to every word on mad money and check price movements in charts. what else do you suggest we do? first of all, here is what you do with "mad money." that's the starter. you hear a stock that you like. you decide you want to get to know it. you go to the website. the websites have almost everything. you read about the last few quarters. you know what i like? i like to read the annual report. then i like to call what the analysts are saying. i like to see what can be in the pipe. i like to see how the dividend is. these are all part of the process long before i would ever think of pulling the trigger and by the way i always like to think what would make me sell if

if they miss certain things or did certain things and a lot of things for homework and it all starts with the website. here is one from trace. no doubt the -- the fantastic country singer. hi, jim. as we all know the department of defense is planning to down size the military over the next few years as we also conclude our business in afghanistan. do you believe that the large amount of military personnel via have i contractors and other military personnel will flood the job market and increase the demand for goods? no. i don't think it will move the needle. the army and navy don't move that fast. if anything there could be a peace dividend if we ever got to that where we could cut the budget deficit. i don't think you should look at this issue in a way to be able to make money off it. it is really not a needle mover. as a matter of fact, it can be negative for a lot of the defense companies as we know and they have been under a cloud because of these cuts. here is one from danny in new york. hi, jim. i have heard you say when considering playing the downside of an equity you would short the stock rather than buy or put.

i favor puts to avoid the high risk of a short position. if i created misperception i favor shorting stocks, it is completely out of character with my books and what i used to do at the hedge fund or before i had the hedge fund or trading for myself. i always do puts. i very rarely do shorts. as i write in confessions of a street addict i was a victim of horrible short squeezes that lost me a ton of money. use puts. i don't care if there is a premium. let's go to tweets. here is one from kelly 019, covered calls allow me to print money out of large positions without having to sell. why do you hate them? i have to tell you something, i hate trapping my upside, cutting off my up sides. that's what writing a call s you can't make more money than when you write the call. say something goes wrong. you sell the stock. you're really vulnerable doing takeover because you're still short the call. never, ever, ever cap your upside.

that's always been my rule. i would never sell a put. that i think and i have seen it in '87. i saw that put people out of business. i saw it again in 2009. put people out of business. trust me on this. i have been around for more than three decades. trust me on this. here is one from jeff. what is your strategy in looking at hospital stocks in general? how do you approach stocks like this? all i care about is government pay. if the government is not in the mood to pay hospitals, i don't want to touch them. there is not enough hospital mergers that can be done without the government stepping in and saying we have to block that. with hospitals, if the governments are on your side, i could be a buyer. if the government is against you, stay away. stick with cramer. this is $100,000.

we asked total strangers to watch it for us. thank you so much, i appreciate it, i'll be right back. they didn't take a dime. how much in fees does your bank take to watch your money ? if your bank takes more money than a stranger, you need an ally. ally bank. no nonsense. just people sense. nature valley trail mix bars

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