was someone else's fault. for the poor and the sick, will this president can tell us that honor and respect the elderly, the next four years he'll get it and will give a helping hand to right. but this president cannot tell us that you're better off today those in need. than when he took office. that america is the best within each of us. that america we want for our children. if i'm elected president of these united states, i will work with all my energy and soul to restore that america, to lift our eyes to a better future. america's been patient. americans have supported this that future is our destiny. president, in good faith. that future is out there. but today, the time has come to it is waiting for us. turn the page. our children deserve it. today, the time has come to put our nation depends on it. the disappointments of the last the peace and freedom of the four years behind us, to put world require it. and with your help, we will aside the divisiveness and the deliver it! let us begin that future for recriminations. to forget about what might have america tonight! been and to look ahead to what can be. thank you so very much. now is a time to restore the may god bless you. promise of america. [ applause ] may god bless the american people. and may god bless the united states of america! [ cheers and applause ] ♪ many americans have given up on

this president, but they haven't ♪ living in america ever thought about giving up. not on themselves, not on each other, and not on america. >> romney spoke for 37 minutes. what is needed in our country we're waiting for the balloons today is not complicated or to come down. profound. it doesn't take a special larry kudlow, mitt romney slowed government commission to tell us what america needs. his delivery down at some points, put more emotion in. what america needs is jobs, lots he said it's time to turn the of jobs. [ applause ] page from president obama. he appealed directly to women. he also, to show a little looseness, he even said go to hell at one point. in the richest country in the history of the world, this obama but two words he did not say, economy has crushed the middle tax cuts. >> that's correct. class, family income has fallen by $4,000. you know, the five points he but health insurance premiums are higher. listed on energy and trade and food prices are higher. utility bills are higher. education and balanced budget and tax cuts, we've heard this gasoline prices, they've doubled. before. there was nothing new in the today, more americans wake up in speech. poverty than ever before. you're quite right. he was not specific on the tax cuts. as you know, i think that's a nearly 1 out of 6 americans is big mistake. living in poverty. >> were you disappointed? >> very disappointed. look around you. he talked about the first thing these aren't strangers. he's going to do is a jobs tour.

these are our brothers and sisters, our fellow americans. i don't know what the hell that his policies have not helped is. people need jobs, not him create jobs, they've depressed touring around. them. this i can tell you where i don't think we heard anything new to suggest to people that president obama would take mitt romney can solve the america. his plan to raise taxes on small economy. i think we heard a lot of business won't add jobs, it generalization. but one thing i really like, though, and i think this is would eliminate them. [ applause ] going to help him, is something that ryan said last night, and that is, this is a country that celebrates success, not punishes his assault on coal and gas and oil will send energy and success. >> you mentioned paul and janet manufacturing jobs to china. [ applause ] ryan. they've taken the stage with mitt romney. his trillion dollar cuts to our it seemed to me that paul ryan military will eliminate hundreds might have captured this hall more than mitt romney did of thousands of jobs and put our tonight. what did you think? >> i thought the speech was security at greater risk. fantastic. he did what we needed to do, his $716 billion cut to medicare which was present an uplifting case for america, for the future to finance obama care will both of america. hurt today's seniors and depress and i think he met the test. innovations and jobs in he was strong, confident, and he medicine. [ crowd boos ] delivered a great speech tonight. >> we've also got jared

and his trillion dollar deficits, they slow our economy, restrain employment, and cause burnstein, former economic adviser to vice president biden. wages to stall. tell me what you thought of the to the majority of americans who speech and do you think larry is now believe the future will not be better than the past, i can right to be concerned he wasn't emphasizing that 20% across the guarantee this -- if barack board tax cut he's talked about? obama is re-elected, you'll be right. [ applause ] >> i think that tax cut is reckless in terms of deficits. if he wants to achieve a sustainable budget, those tax cuts are a bad idea. i'm running for president to that's the conclusion of lots of help create a better future. a future where everyone who nonpartisan analysis. wants a job can find a job. if he cut those taxes, he would have to raise taxes on the where no senior fears for the middle class. look, i felt the speech was a security of their retirement. little flat in the way larry did an america where every part in terms of lacking any specifics. again, just like the other night when we talked about chris knows their child will get a good education. christie, i'm looking for things unlike the president, i have a that independence can latch on plan to create 12 million new jobs. [ applause ] to and understand how he's going to fix the tough economy they face. i'm just not seeing a lot of air there. >> the other night when chris christie was -- i'm sorry, when ann romney was reaching out to

women voters, some people thought she was trying too hard. mitt romney made a very paul ryan and i have five steps. determined effort to do the same thing. talked about his mother. first, by 2020, north america how effective do you think he will be energy independent by was reaching out to independent taking full advantage of our suburban women? >> he was effective on two oil, our coal, our gas, and our fronts. he talked about women being more renewables. likely to start a small business than men today. and about in the economy we live in, what he's going to focus on is not abortion or contraception, but making the economy work for people taking second, we'll give our fellow risks. he also did something very citizens the skills they need important, as did marko rubio. for the jobs of today for the it's okay that you like barack careers of tomorrow. when it comes to the school your child will attend, every parent obama. barack obama is a good guy. he's a nice family man. should have a choice and every but he's done a bad job. child should have a chance. [ applause ] and it's okay to turn the page. >> why is that important to do? >> he's got to make it okay for democrats and independent leaning democrats to vote for mitt romney. >> i know. third, we'll make trade work for america by forging new trade >> let me say one thing here, hold on. agreements, and when nations treat in trade, there will be i thought his narrative and

unmistakable consequences. [ applause ] biography was pretty good. i want to say that. i think what you saw was a humble man. there was a lot of humility to and fourth, to assure every it. and i think that's going to help him in this likability business, entrepreneur and every job which i still think is a red creator that their investments herring. >> jared, what about that point that larry makes, that he showed in america will not vanish, as have those in greece, we will some humility, talked about his cut the deficit and put america life in a way we hadn't heard on track to a balanced budget. before. >> i liked the aspects of the speech that weren't about economic policy. and i sort of agree with sarah in terms of his comments about obama in terms of their neutralizing effect. but factually, i thought they were way, way off base. and fifth, we will champion this president arrived, when the small businesses, america's economy was on fire and his engine of job growth. initiatives put that fire out. that means reducing taxes on you can absolutely make the case business, not raising them. it means simplifying regulations that the economy should be growing faster and part of that that hurt small business the has to do with congressional most. and we must reign in the gridlock and blocking the president's plans to improve skyrocketing cost of health care by repealing and replacing obama things. but the fact of where we were

care. [ applause ] and where we are, in many ways it should work in obama's favor. >> you know, it just troubles me, just a little bit. i just want to say this. he says, jobs, jobs, jobs, okay? he's exactly right. i don't know what a jobs tour is. and i hope someone explains that to me from the romney campaign. in other words, what i'm today, women are more likely than men to start a business. suggesting is, his big problem they need a president who respects and understands who they do. is not that people understand the economy has gone south. let me make this very clear -- people know that obamanomics has unlike president obama, i will not raise taxes on the middle class of america. [ applause ] not delivered. sarah, i'm sorry, but i don't think for independents, for reagan democrats, for clinton democrats, i don't think he told them how he is going to fix an as president, i'll protect the economy that obama himself has sanctity of life. failed to fix. i'll honor the institution of marriage. >> larry, except for the -- >> i find that very troublesome and i think he wasted an opportunity tonight to help us

understand precisely. and i will guarantee america's in other words, i don't think he made the sale. first liberty, the freedom of that's my view. religion. [ applause ] and i think he's got more work to do on this. >> larry, hold that thought. we're going to have to take a break. after the break, more reaction from tampa and washington and political insiders from all over the united states, reacting to president obama promised to the speech. we're coming right back. begin to slow the rise of the oceans. [ laughter ] and to heal the planet. my promise is to help you and your family. [ cheers and applause ] [ wife ] your dad's really giving him the business... the designated hitter's the best thing to happen to baseball! but it's not the same game!

[ wife ] wow, he's really gonna get us a good deal. it's better! no it's not! the pitcher comes up and he's out! [ dealer ] he can bunt! whatever. [ applause continues ] but we're good with 0% apr for 60 months? oh yeah, totally. thank you so much. that must've been brutal. [ male announcer ] the volkswagen autobahn for all event. at 0% apr for 60 months, >> i will begin my presidency no one needs to know how easy it was to get your new volkswagen. with a jobs tour. that's the power of german engineering. president obama began his presidency with an apology tour. there's natural gas under my town. it's a game changer. ♪ america, he said, addicted to other nations. it means cleaner, cheaper american-made energy. no, mr. president, america has but we've got to be careful how we get it. freed other nations from dictators. [ applause ] design the wells to be safe. thousands of jobs. use the most advanced technology to protect our water. billions in the economy. >> usa! at chevron, if we can't do it right, we won't do it at all. usa! usa! we've got to think long term. we've got to think long term. >> every american -- ♪ [ crowd chants "usa" ]

>> every american was relieved the day president obama gave the order and s.e.a.l. team 6 took out osama bin laden. [ applause ] on another front, every american is less secure today because he's failed to slow iran's nuclear threat. so, what's the problem? in his first tv interview as these are hot. we're shipping 'em everywhere. but we can't predict our shipping costs. president, he said we should talk to iran. dallas. detroit. different rates. we're still talking, and iran's well with us, it's the same flat rate. same flat rate. centrifuges are still spinning. boston. boise? same flat rate. he's thrown allies like israel alabama. alaska? with priority mail flat rate boxes from the postal service. under the bus, and released sanctions on castro's cuba. if it fits, it ships anywhere in the country for a low flat rate. he abandoned our friends in dude's good. poland by walking away from dude's real good. dudes. priority mail flat rate boxes. starting at just $5.15. missile defenses. but gives president putin of only from the postal service. russia the flexibility he desires -- after the election. under my administration, our friends will see more loyalty

and mr. putin will see a little less flexibility and more backbone. [ cheers and applause ] >> we will honor america's democratic ideals because a free world is a more peaceful world. this is the bipartisan foreign policy legacy of truman and reagan and under my presidency, we will return to it once again. [ applause ] you might have asked yourself if these last years are really the america we want. >> no!

>> the america that was won for us by the greatest generation. welcome back to our does the america we want borrow continuing coverage of the a trillion dollars from china? >> no! republican national convention and mitt romney's acceptance of >> does it fail to find the jobs the republican nomination. this is our confetti and balloon needed for 23 million people and portion of this speech. for half the kids graduating we are welcoming in robert costa from college? >> no! with the national review. he's here in tampa. >> are those schools lagging david goodfriend was an adviser behind the rest of the developed world? >> no! to president clinton. he's a democratic strategist in >> and does america that we want succumb to resentment and washington tonight. robert, how effective was the division among americans? >> no! speech and how concern are you that mitt romney did not make >> the america we all know has the emphasis on tax cuts that been a story of the many larry kudlow was talking about? >> look, mitt romney had to becoming one. uniting to preserve liberty, introduce himself to the country tonight. uniting to build the greatest this is one of his better economy in the world. uniting to save the world from speeches. romney showed heart. he often times has the up speakable darkness. appearance of a former bain everywhere i go in america, there are monuments that list capital executive. he really can't make the case those who have given their lives for america. for himself on a personal there's no mention of their letter. so he needed to talk about race, their party affiliation, business, talk about his family, or what they did for a living. and that's what he did here tonight. [ applause ] >> one thing i would say here on this -- again, i agree that the

narrative was good, and i think he came off as a humble, likable guy. but on taxes, one thing he they lived and died under a didn't do, he did not mention the personal individual tax cut. single flag fighting for a this troubles me. single purpose. they pledged allegiance to the he has a 20% tax cut, lower united states of america. rates for everybody across the that america, that united board. now, he did say he would not america can unleash an economy raise taxes on the middle class. that will put americans back to but he did not say that he would work, that will once again lead cut taxes on the middle class, the world with innovation and productivity and that will and his 20% tax cut does that, restore every father and and i think he got all fouled up mother's confidence that their in that. children's future is brighter than even the past. that america, that united he missed the whole point. >> he told a lot of personal america will preserve a military stories. that to me is reaganesque. that's so strong, no nation would ever dare to test it. we had a video of ronald reagan [ applause ] that came on and mitt romney was able to personalize his economic agenda. for romney, he's the son of a governor, son of the former head of american motors. to talk about the hurt of people, 23 million jobless people around the country, that america, that america, that that's important. >> guys, can i jump in here -- united america will uphold the

>> before i ask you about rights that were endowed by our romney's speech, you got to tell me what you thought of clint creator and codified in our eastwood. constitution. i thought that was an unusual piece of stage craft in this stadium. >> i wrote down one word -- that united america will care bizarre. that was one of the weirdest things i've ever seen in a political convention. the gag with the chair was just weird. i don't think he did anything for his party. but look, i do think that mitt romney delivered a good speech and i want to give him that. i thought his best line of the night was about obama saying he was going to slow the rise of the oceans and heal the planet. but my goal is just to help you and your family. that was a good line and i give him that. but we have to ask what was the burden of proof, if you will, that mitt romney faced tonight? what was the context going into this? and the context was that he has one of the lowest approval ratings, likability ratings in modern political history. that was a very high hurdle for

him to meet tonight. and i have to agree with larry, i don't think he closed the deal tonight. i don't think he met that hurdle. it was a good speech, it was not a great speech and he needed a great speech tonight, because he's got these head winds in his likability factor unlike any candidate in modern history. >> it's fascinating that you agree with larry kudlow. i've got to read a tweet that mark cuban, owner of the dallas mavericks just put out. wow, larry kudlow is killing mitt romney on cnbc. that is shocking. >> mark cuban is a great businessman. >> this is what i call tough love. and i'm guilty of tough love, because i think you have to build a solid economic growth agenda in order to govern properly. i think that's very important. that's something i learned from ronald reagan. but again, i would like to know what a jobs tour is. i would like to know why he didn't talk about the personal tax cuts, which include middle class tax cuts.

i think those things would have helped him. mark cuban is right, maybe i'm being tough, but i think middle class tax cuts would have helped him, why doesn't he talk about his 20% supply side tax cut. it's out there. why doesn't he talk about it? >> because he can't -- >> hold on. we've got an electorate very locked in. how much of a bounce can you expect for mitt romney? >> he needs a real bounce. the polls are in a dead heat right now and what romney needs to do is come out and go to the swing states. here he's going to have a jobs tour. he needs a jobs tour now. go to ohio. he talked about free trade and american virginia. he's going to go to ohio and talk to them. >> is he going to get a bounce with barack obama following on his heels next week? >> the polls show that he did get a couple points already out of the convention. but it's interesting to note that both barack obama and mitt romney are below 50% in those

polls. and they're well within the margin of error. i don't think there's a bounce out of either convention. i think we're going into this homestretch in a dead heat. i want to associate myself with something jared burnstein said earlier. when mitt romney takes the ronald reagan line and asks, are you better off today than you were four years ago, he has to be careful. in states, swing states like florida and ohio, guess what? people are better off. the unemployment rates are better in those key swing states than four years ago. >> we'll have to leave it there. that's all for tonight from the republican national convention in tampa. next week, the democrats in charlotte. cnbc's coverage restarts at 4:00 a.m. for continuing coverage, go to cnbc.com. good night.

i'm jim cramer. welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you some money. my job is to entertain, educate, coach. to teach. call me at 1-800-743-cnbc. investing ain't easy, but it can be easier and less daunting than you probably think with a little instruction. the whole business of managing your money is made more confusing and difficult because of all the arcane terminology. i call it the authentic wall street gibberish. if you're not clued in, it can sound like the pros are speaking a different language. you've got to remember there is an industry of people who want

you happily convinced that investing is too hard, head-scratching. that ordinary people like you and me can't do it and the safe thing is to give your money to a pro. now maybe that is the right thing to do for some of you, particularly the time constrained. if you put in one hour of homework per week per stock at least i know you can beat the professionals. the fact is that many of the pros are after your fees. more interested in taking your money than making you money. that often means keeping you ignorant about the market so you will stay in your stock chains. i like to compare them to the wizard of oz. they don't want you peeking at the man behind the curtain. they don't want you to understand. if you did, then you might very well take control of your own finances. pick your own stocks and not pay someone else potentially

exorbitant fees to do things that you are perfectly cape an of doing yourself. that's where i come in. tonight i i'm explaining everything. while authentic wall street gibberish sounds complex it's not rocket science, not brain surgery. you don't need to go to business school or work in an investment bank to understand it. you can comprehend all the mystical sounding vocabulary we throw around as long as you have a translator, a coach like me who can explain what the darn words mean. think of me as a defector, someone who used to work for the other team who's now playing for you, teaching you to navigate your way through the mine field of the stock market every night on "mad money." forget "the da vinci code," the enigma. to be a great investor you have to break the wall street code. i'm here to help you crack it. that's why tonight i'm giving you my wall street gibberish to plain english dictionary.

consider this a grossary of the most important terms you absolutely must understand if you're going to actively manage your own portfolio, words and concepts that many people in the financial industry don't want you to get your heads around. since then you might feel empowered enough to pull your money out of the mutual funds and stop handing over your fees and commissions. even if you're a pro, you may not know enough. i want to take advantage of my 30 plus years of investing experience and give you an edge. let's start with a couple extremely important ideas that go hand in hand. these are the things that baffled me. i had them explained after listening to ten years with the late great lou rukheiser. the two terms -- cyclical and secular. you hear them all the time but no one except me bothers to explain what they mean even though they are crucial when it comes to picking the right stocks. cyclical has nothing to do with

the spin cycle or wagner's ring cycle. some good music there. secular isn't about the separation of church and state or public versus parochial schools. we say a company is cyclical if it needs a strong economy in order to have earnings grow. it depends on the business cycle. who is? u.s. steel. they need the economy. newcor. they fall in this category. caterpillar. ingersol rand, dupont, ppg. that's the pittsburgh plate glass. these companies, even though they are well run, all of them are hostages to the economy. when it heats up, oh, man, there's no stopping them. do you know what they do? [ ka-ching ] they earn a ton of money and we'll pay more for the earnings. when it slows down -- [ sell, sell, sell ] -- when we shift into recession mode they earn less and

investors pay less for the shares. a secular growth company is one where the earnings keep coming regardless of the economy's health. think of eating, sleep, use for medication, brush your teeth with. you have procter and colgate, general mills or kellogg, drugs like pfizer or merck. these are the classic recession resistant stocks. you want to buy them when the economy slows down and investors flock to stocks that can generate safe, consistent earnings. you don't stop eating food or brushing your teeth because of a recession. but then again we know the stocks don't outperform the others, don't do better when the economy is in full speed motion. why is this secular versus cyclical distinction so important? why is it the first piece of wall street jargon i'm translating for you? it helps you understand how much companies will earn. it matters to the big institutional money managers who have so much money to throw around they are buying and

selling and it drives stocks up and down. that's the anatomy of the game. the single biggest determinant of where prices go in the short term. the whole hedge fund play book is about when to buy and when to sell cyclical stocks and when to buy or sell secular growth stocks based on how economies in this country or around the world are doing. this is what drives the decision-making process. remember, about 50% of any individual stock comes from the sector, the performance. 50% of it. which is a fancy word for a segment of the economy the stock falls into like tech, energy, machinery, health care, finance. when it comes to sectors much of the moves are driven by whether they are in secular or cyclical. you don't want to own much in the way of cyclicals when the economy is slowing, breaking. those stocks will be crushed. they always do. there is nothing you can do about it. it's etched in stone. by the same token when business heats up and cyclicals are doing

well, nobody wants the boring consistent recession-proof stocks. soap stocks, smoke stocks. you will not make money. you could lose it even though you think they are a consistent growers. this could help you understand a piece of investing technology, what's known as a rotation. that's when money flows out of one of the cyclical groups into a secular group. that's what happens. we call them rotations. has nothing to do with volleyball. this is completely antithetical to what you have been told about the way to invest. if you're going to pick your own stocks, something the conventional wisdom regards as the height of idiocy and loonacy you should find high quality companies and stick with them through thick and thin. that's the conventional wisdom. if you hold out long enough maybe you will make some money. this is the brain dead philosophy of buy and hold that i spend so much time trying to debunk.

a strategy that's not worked for 10, 20 years. they never think it goes out of style. it's a zombie ideology that refuses to die even though it's been discredited by the actual empirical performance of the market. as i explain in the first three chapters of "getting back to even" to get you to deal with the tough market we are in. once you recognize how powerful the secular versus cyclical distinction is you can see why buy and hold is silly. if you're going to own stocks through thick and thin you need to be prepared to lose money in cyclicals when they are out of favor. most people can't do it. you need to tread water or decline a little in the secular stocks while cyclicals are roaring. why take the pain when you can avoid it? most people can't take the pain so they sell at the bottom. doesn't mean you should play the rotation game and only own the group in style. no. not at all. remember the need for diversification. another important piece of

investing vocabulary means making sure you have all your eggs in one sector basket. to me you are diversified with no more than 20% of your portfolio in a single sector. that way you won't get annihilated. for example a sector rotation takes down cyclical stocks because you have secular growth names that will hold up much better or make you money. here's the bottom line. yes, investing isn't easy. but it doesn't have to be mystifying. you just need to learn the language. know the difference between cyclical and secular. recognize the secular rotation when you see one and always stay diversified. don't miss a second of "mad money." follow on twitter. have a question? tweet cramer. send jim an e-mail to madmoney @cnbc.com. or give us a call. miss something? head to the website.

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tonight, i'm helping you translate the cryptic and occasionally unfathomable terminology that makes owning stocks difficult.

i'm giving you the phrase book to navigate through the world of investing. you know what? i call it the cramerica dictionary but it's a michelin guide to fine stock dining. consider it the televised encyclopedia cramerica for tearing back the cloak of mystery that can make managing your money seem like an impossible task when it really is -- [ house of pleasure ] picking stocks shouldn't be as difficult as conducting triple bypass heart surgery on yourself. you don't have to be stephen hawking or einstein to figure this out. although with a lot of the pros, when they talk about stocks, i bet even einstein would have trouble figuring out what they are saying. i explained the difference between cyclical companies, smokestack business that need a healthy economy versus secular growth companies and there we are thinking about corn flakes and toothpaste that expand the same pace regardless of if we are in an upturn or a downturn.

i told you how to sell cyclicals and buy secular growth stocks when the economy starts slowing down. then you have to do the reverse as it picks up steam. why do i tell you this? it's the play book the hedge funds use and they can often behave like hurt animals who buy and sell the same stocks at the same time, they -- the playbook, it works and i can teach it. the reason for that has to do with another piece of wall street gibberish lexicon that you absolutely must know if you're going to pick your own stocks. don't blank out on me. you hear it all day and you are probably wondering what it means. the price to earnings multiple or the p.e. multiple or in total shorthand just the multiple. you will hear it. oh, the multiple is too cheap, expensive. they refer to the same thing and it is the way we compare. in fact, when you hear talking heads pontificate about a stock that's overvalued or undervalued

do you know what they are talking about? they are talking about the multiple to earnings and whether it is too high or too low. when someone says pepsi is more expensive than coke, they don't mean coke is cheap because it's trading at 55 while pepsi is pricey trading at 65. that's a common mistake people make. no! the share price tells you nothing about a valuation vis-a-vis another stock. to make a true comparison, you have to step back. when you buy a stock you're actually paying for a small piece of a company's future earnings stream. so to value a stock you have to look at where it's trading relative to the earnings per share, which you'll often see rendered as eps, earnings per share. that's what the multiple allows you to do. here is the basic algebra. it's not even math. it's algebra. i believe that most people in high school can do it. maybe middle school. middle school, we had it. the share price, p, equals the

earnings per share e times the multiple m. e times the multiple, e times m produces what the share price is. that's how we figure out how stocks get a price. the multiple tells you how much investors are willing to pay. we don't care that coke stock is 55. we care that it sells for 15 times earnings per share. we don't care that pepsi is at 65. we care that pepsi sells at 14 times earnings we are share. that's how we compare. the multiple is the special sauce of valuation. the main ingredient -- growth. how much bigger the earnings will be next year than they were this year. by the way, not the previous year. we don't care about that. we care about the future, not the past. we care about earnings the year after that and so on. companies with stocks with faster growth get rewarded with higher multiples. why? remember, the multiple is all about what we are willing to pay for earnings and the more rapidly a business grows the

bigger the future earnings will be. if a fast grower like chipotle, the mexican fast food place, sells for 24 times earnings it doesn't make it more expensive than a slow but steady grower like pepsi at 14 times earnings. why? chipotle deserves a higher multiple because it has a 24% growth rate versus 8% for pepsi. we are comparing growth rates using the multiple analysis. this is where it gets interesting. multiples aren't static. another confusing thing for people. in different markets people pay more or less for the same amount of earnings. when they pay more, we call that multiple expansion. we pay more when the multiple goes higher. when they pay less it's multiple contraction. two more terms that sound more complicated than they are. if you are going to own stocks you have to understand them. that's what hedge funds are trying to gain with a sector rotation. of course, the earnings aren't

static either. when you buy a stock you are either betting that the e, the earnings or the m part of the equation is headed higher. what goes into the earnings? how do you make sure they are increasing and aren't about to collapse? here's more vocabulary. when you hear people talking about a company's bottom line or profits, they all mean the same thing, earnings. we call it the bottom line because the number is the bottom fig on an income statement. to figure out how quickly earnings grow in the future you have to look for clues when it reports quarterly results. that's why i tell you to listen to conference calls. if you want to do it yourself, you have to do the homework. that means to look at the top line. i'm translating everything tonight. it's interchangeable with revenues which is the same as sales. you hear the words. they should say only go to sales but they mean the same thing. you want to see strong revenue growth, strong sales growth which tells you there is demand

for the product. this is the key to the ability of most businesses to grow earnings long term. makes sense, right? that's why it is important for younger smaller companies to have fast growing revenues. investors will pay for accelerating revenue growth. that's arg. another term of art. that means sales are growing at a higher rate than the previous years. with a more mature company it should turn revenues into profits by cutting costs and returning the profits to shareholders in the form of a dividend or potentially a buyback, but we think dividends are more attractive as they put money in your pocket and the other helps only when you sell a stock. beyond the top and bottom line consider the gross margin which is in no way disgusting and not the least bit marginal. it tells you what percentage of every dollar of sales is profit. it's super important to figure out how much money a company can make. to figure the gross margins you have to consider the competition, cost of production,

the cost of doing business in general. businesses with cut throat competition like supermarkets or airlines have terrible margins while microsoft has margins that are down right obese. in some ministries the margins can vary widely. in oil the margins swing up and down with the price of crude. here's the bottom line -- you need to know the vocabulary before you look at a stock. you need to look at the growth rate, the top line, the bottom line and the gross margins. that's how we do it. you can do it, too. stay with cramer. [ male announcer ] it's a golden opportunity to experience the ultimate expression of power... control. [ engine revs ] during the golden opportunity sales event,

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welcome back to the wall street gibberish to plain english translation guide edition of "mad money." this is the book in hardback. i prefer the tv version. all night i've been explaining investing concepts and financial jargon. i'm trying to bust it. so what else do you need to know? here's one of the most dreaded and poorly understood terms in

the business. ready? the correction. what a euphemism. a correction is when after the market has been roaring, it turns around and gets crushed. maybe a decline of as much as 10% is a correction. making you feel like the world is ending and you never want to own another stock again. that's precisely the wrong reaction. it may feel horrible, but stocks can and do come back from corrections. they bounce back from the big decld declines all the time. think of it like this, when the market goes on a 56-game hitting streak and then doesn't get on base the next day, that doesn't mean you'll never make money again with it, does it? it doesn't mean all your holdings will be pulverized. it's just what happens when we go up too far too fast. that's why i want you to build it in. expect corrections. they can happen to an individual stock, the whole market. they can happen to bonds and you will most likely never see them

coming. so you shouldn't beat yourself up for not anticipating them. selloffs are a natural feature of the market. we need to acknowledge they will happen no matter what. so don't get so flustered and i never want to see, because no one ever made a dime doing it, panic. when they smack you or whip you in the face. finely, i've got one last piece of vocabulary that you must master, the idea of execution. this is a tough one. when we talk about execution, we mean management's ability to follow through with its plans. ones that have been laid out at the board meeting. when you own a stock, there are all kinds of risks associated with execution. messed up mergers, failed new product launches, bad cost controls. the number of ways that a bad management team to screw up a company is infinite. that's why i like companies with

proven management teams. because they're much less likely to make these kinds of unforced errors. and it's a big reason why it's so important to pay attention when i bring ceos on the show. nobody knows a company better than the people running it. since you probably can't get the ceos on the phone yourself, you want to see what they have to say about the businesses firsthand on "mad money." almost always with proven executives, hard to find a best of breed in the first year of an executive's career, i don't like ceostness their first year, too dangerous. best of breed stocks are almost always more expensive, so people get fooled. it's worth the price. >> does the market have you

stumped? don't fear, cramer's here. just e-mail him. >> i like to say there's always a bull market somewhere and i promise to find it just for you here on "mad money." i'm jim cramer. see you tomorrow. this country was built by working people. the economy needs manufacturing. machines, tools, people making stuff. companies have to invest in making things. infrastructure, construction, production. we need it now more than ever. chevron's putting more than $8 billion dollars back in the u.s. economy this year. in pipes, cement, steel, jobs, energy. we need to get the wheels turning. i'm proud of that. making real things... for real. ...that make a real difference. ♪ nothing complicated about a pair of 10 inch hose clamp pliers.

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