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nothing can reverse copd. spiriva helps me breathe better. (blowing sound) ask your doctor about spiriva. 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 is 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 trying to save you money. i'm teaching and coaching you. call me at 1-800-743-cnbc. every night i come out here and help you find high-quality companies with stocks that are worth owning, stocks that will reward you by going higher or paying you juicy dividends or maybe even both. but perhaps because of my four decades in the business, i sometimes leave too much unsaid and take too much knowledge for granted. knowledge you need to know to be the best investor you can possibly be. we're taking time-out to impart some of that knowledge in a special show about the way stocks work and how they interrelate with the companies they stand for and represent, two different things. on "mad money," we analyze companies, trying to see what makes them tick, what goals they're supposed to meet, what expectations they are supposed

to beat, the metrics. we don't trade those companies. we invest in their stocks and never forget the company and stock are not the same thing. i know. that might sound really obvious, the kind of thing should go without saying, but people constantly make the mistake of equating a company with its stock. and it's the kind of mistake that can absolutely wreck your portfolio. especially in volatile markets where many stocks trade off the big picture, so-called macro data about the broader global economy, the fiscal cliff, budget compromise, something in europe. that's what's known as the macro. rather than what's known as the micro, meaning information about the actual companies behind the stocks. fact is, it's all too easy to assume that a company and its stock are synonymous. a stock gets crushed, okay? and we assume there must be something wrong with the underlying company. why else would the stock have been pounded? when a stock surges, we presume the company must be doing something right. but that's simply not how the markets work. often shares of a company stock will have big moves up or down for reasons that have absolutely nothing to do with the

underlying business. it happens all the time and it doesn't mean the market is crazy or irrational. what is irrational is believing there will always be a straight line, a lockstep, between the performance of a company and the performance of its stock. why is that wrong? shouldn't stocks trade based on the changes and the prospects of the underlying company? isn't that the way the market should work when it isn't broken? don't we spend lots of time on the show analyzing companies, look at them in a free and fair way, showing them to figure out what makes some businesses better than others and teaching you to identify situations where companies are improving. at least better than people think, right? better than expected bt. i'm always telling you the most important determine every of a higher stock price is increases from earnings estimates. nothing correlates more with rising share price than estimate increase. dividend boosts of decent magnitude.

why not enough to steady companies and buy the stocks that look like they have the ability to grow earnings faster than expected or grow the dividend? we can't buy companies, unless you've got hundreds of millions of dollars to throw around, it's simply not an option. instead, we buy shares of stock in those companies, shares that trade on an open market. we have lots of buyers and lots of sellers whomight have very different motivations from you, when you find a high-quality company with seemingly excellent prospects, you can't assume shares will go higher since you need to take the way the stock trades into account. stock has its own method of trading. like a dna for stock. don't get me wrong. over the long haul, the best way to pick stocks is by identifying winning companies, ones that are growing faster than anyone else expects and improving dramatically in actual performance. especially on day-to-day basis. they can trade wildly with little relation to what's happening with the company. those movements can be so confounding that you end up

selling low, or buying high. or you give up entirely, and you know i think you need to stay in the game if you are going to augment that paycheck. save money for retirement, vacation, tuition, necessities of life, all the things you want to have the money for. if you assume every move in the stock market makes sense, you will end up passing up some incredible opportunities. >> all aboard! >> to buy merchandise that's been marked down for irrational reasons, meaning no reasons whatsoever, and you will miss moments when you should sell stocks that are run up too much courtesy of market mechanics rather than anything that relates to the company underneath the stock. in recent years, we've witnessed the rise of a ton of factors, and at least in the near term, over the long-term, they do tend to converge. that may be longer than you can wait. but over days, even weeks, months, you have all sorts of things this can make the stock

of an improving company fall or the stock of a deteriorating company rise, many use exchange traded funds to get exposure to entire sectors, some allow them to buy or sell, giving them double or triple of the buying or selling back for the original buck. regard this as needless proliferation of etf and we can trade in lockstep with each other. and the good in complete tandem with the bad is ultimately, the facts show out. a determinant. if the stock's a house, the sector is the neighborhood. and nobody wants a good house in a lousy neighborhood. but the influence of etfs becomes noxious, pernicious even it makes the sector more important than it should be,

important than it should be, you have high frequency traders who can actually really -- i have seen them hijack an entire market, causing massive across the board moves that make no sense in the fundamentals of the individual companies, especially moments of extreme volatility, new waves distort the stock picking beach. i hate it, and when times get tough for companies, they can get tougher for stocks. i spend a lot of time talking about foreselling, the idea that stocks can get slammed because financial institutions like hedge funds that own them are in trouble. they've borrowed too much money and need to raise cash in order to send some back to investors. this happens every time hedge funds make the same bet. money managers who bet heavily in europe and lost when the eurozone indebted eurozone crisis, they didn't just have to sell european assets. they had to sell unrelated stocks too. especially if investors were clamoring to get money back, and this is exactly what happened when we crashed in 2008 and

2009. most stocks went down to absurdly cheap levels and it happened again with mf global. they ran out of capital and then the reverse happened in 2012. those who bet against european stocks, all stocks had their heads handed to them, when they put the foot down on their necks and backstopped the financial institutions. it didn't matter, look, if a bank was solvent, insolvent, they flew up together. most hedge funds have to make bets for or against stocks when shorts pile into a stock and get unexpected good news from a company, you get a short squeeze that propels the stocks to absurd heights, since short sellers have to buy to close out positions.

remember, the market is a market, which means it's dominated by supply and demand. not enough supply of a given stock or kind of stock to set that, you will see stocks rise beyond what it is expected to be based on fundamentals and too much supply relative to demand, then shares get hammered beyond what you think they might go to. we saw this with super hot areas like chinese internet ipos. returns were staggering, but gains became smaller and smaller as we got more and more chinese dot-coms flooding the market with supply. same thing that happened with the end of our own dot-com boom before we saw so much insider selling, we saw shares upon shares, it could happen again, deluge of social media in 2011, 2012, a repeat of what happened in 2001, 2002. in the end, no chinese deal is worth participating in.

demand was well oversaturated. this is one of the reasons chinese ipos reached lowest levels in 2012 in a decade. an 83% decline from 2011, 95% decline from 2010. and the last buyers out of the chute, they were crushed by ways of insiders bailing, seemingly at any price imaginable, just like what happened in this country in 2001, 2002. super hot stocks became super cold ones. the public at first fascinated and then turn turned on them with a vengeance even as fundamentals were never really good to begin with. bottom line, recognize what's happening with stocks doesn't always necessarily reflect what's going on with the underlying business and use that to your own advantage. a company in terrific shape sees stocks smashed for reasons unrelated to fundamentals that could be an amazing buying opportunity. sometimes it can take a long time for the action in a stock to sync up with the performance of the company it represents, a

tiny piece of. that way you won't be frustrated with what you thought should happen, after you heard fabulous news and instead, wait until the market gets smart and rewards your stock with the moves that it deserves. larry in massachusetts. larry. >> caller: greetings, rabbi cramer, from boston, formerly pennsylvania, formerly north bergen, new jersey. >> what's up? >> caller: thank you for building the temple for financial wisdom and doing what mom felt was your highest and best calling, and you are gracious to all of us. i'm an enthusiastic subscriber to action alerts. you talk about buying in wide scale, could you go into detail about buying down a good stock with bad news, particularly what percentage drop in the stock price, versus catching a falling knife? >> this is a tough question. whether there is somewhat real money and somewhat in stay mad. what you got to do, look at the

situation and say, look, i want to build a position that's 10% of my portfolio, what if i started buying $20 stock? bought some at $20, some at $15, some at $12, would i be larger than 10% of my portfolio? if that's the case, buy down in a pyramid. that's what i want. a pyramid buy. joel in new york. >> caller: how are you, dr. cramer? >> real good, doctor, rabbi, whole thing covered. what's going on? >> caller: joel from queensberg, new york. a big booyah to my wife gail, who handles all my trading. >> gail rocks. >> caller: what's meant by restricted stock and how does it affect dividends on common and preferred? >> it means you literally have to get it to be free to trade. there are ways you have to do it, it has to do with restrictions that the government puts on it. you don't have to worry about restricted stock.

it doesn't factor into the fundamentals of the company, which we really care about. >> don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to madmoney@cnbc.com or call 1-800-743-cnbc. [ female announcer ] today, jason is here to volunteer to help those in need. when a twinge of back pain surprises him. morning starts in high spirits, but there's a growing pain in his lower back. as lines grow longer, his pain continues to linger. but after a long day of helping others, he gets some helpful advice. just two aleve have the strength to keep back pain away all day. today, jason chose aleve. just two pills for all day pain relief. try aleve d for strong, all day long sinus and headache relief.

we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard. hey do you wanna get a drink later? [ male announcer ] hold packages at any fedex office location. is moving backward. [ engine turns over, tires squeal ] and you'll find advanced safety technology like an available heads-up display on the 2013 lexus gs. there's no going back.

welcome back to tonight's special edition of "mad money," where i try to explain what moves stocks up, what really moves them and how they diverge from the companies they purport to represent. i talked about the need for investors to get familiar with how stocks trade. you need to know about the traders that drive stocks in different directions and watch short-term moves in stock prices, take advantage of them rather than pretending like so many pundits do, that short-term gyrations are beneath their notice and will somehow pollute gains. may we never be so

self-important or arrogant as to think that entry and exit points don't matter. they control the ability to outperform the market and make a lot of money. we care more about prices at the supermarket sometimes than we do about the prices of stocks we buy. that's just plain wrong. so how do we square the idea that when you buy a stock, its price can become unglued from the underlying fundamentals of the company? with my insistence you do your homework? what's the point? keep track of the fundamentals, read quarterly conference calls and myriad research pieces, now readily available on the web to keep current. why bother? if stock prices are going to bounce around at the mercy of macro factors that companies can't control, sound familiar? or if they are held hostage by hedge funds that trade them, why the relentless focus on learning as much as you can about the underlying company? am i nuts? why? especially given that homework

is by far the onerous and for most folks, the least interesting part of the process? the fundamentals matter a whole lot and they are knowable. the reason we focus on fundamentals, just about anyone can do it, and the information is readily available, public, and on the web and in short, when you may think the homework is tedious and boring, it's also easy to predict so much of what's out there that is simply unknowable. investors look for an edge, a leg up that provides them with an advantage. that will never change. not all advantages are of the same scale, but by following my standard homework regimen, you should have an edge over most of the people who trade the stocks you follow. how on earth is that possible? yours involve looking at publicly available information. according to some economists and arm chair investors and a lot of gray beards who are critical of the show, it should be baked in to the stock. meaning the share price should reflect everything you know from

the research already, but you know something? come on, you and i know that's not how the market really works. lots of people are lazy, money managers are technicians, look at the charts, dismiss the fundamentals and don't get down and dirty to the nitty gritty of the quarterly earnings conference. if you keep up with the information you will know more about the stock than many professionals do, and if that's not an edge, i don't know what is. homework is about taking control of your own financial destiny, eliminating as much emotion as possible. that's what we're trying to do. get that out of equation. that's why i focus on the homework. i know it will get results. not just any results, the factual, objective kind, not the fiscal cliff that might be irrelevant to your stocks or federal reserve minutes. they might not mean anything to your position. the homework won't always give you information, enough information to tell you which direction a stock will head, and won't protect you from the whims, yes, call them children in washington that play with the

economy willy-nilly and debt issues affecting any number of rogue nations in europe. but it isn't an all or nothing proposition. i don't think familiarizing yourself with a company should ever be dismissed as less than useful. and i said at the top of the show, stocks tend to drift back in line with where they deserve to trade. in addition to knowing a lot of pertinent things about a business, you can assume your stock will end up with a certain price range, really. if you wait long enough it will happen. it happens a big percentage of the time and if you keep up with the homework, a good, clean way of deciding whether or not to cut your losses in a stock that isn't working, which is an incredibly valuable tool especially when you are trying to claw your way back because your stock went down because of a typical market sell-off. you need to know whether you should perhaps be a buyer, if nothing is going wrong with the company. you know whether opportunity is knocking or your head is about

to be knocked to the canvas. on the other hand, it will give you the conviction to stay in a good stock hammered by the market for the wrong reasons, you will always know why you are buying or selling something. isn't that good? you won't be beholden to anyone but yourself. that's why i teach every night. now, the better you are at avoiding stocks with a risk/reward that's good for bad or bad to good, the better position to take more calculated, intelligent risks, more aggressive with your investments, these skills are useful no matter what, but they are paramount when investing, needing to protect your capital and needing to risk. that's what the fundamental research and investing is. even though these skills are handy, they aren't compelling and may not give you the total picture and the boredom factor. think about what i've done out here.

i've spent years trying to make it more accessible and interesting, even intriguing if not entertaining. no sin, given that so many focus on scaring you out of your shoes, and i have shown a willingness to get investors engaged, keep them engaged, especially on this show. i've filmed while wearing a hazmat suit to compare hasbro to mattel. i've taken a nap on a cozy bed of cheerio's, driven on set on my lawn mower to look at john deere. i can't even put a dollar amount on the gizmos that i have wrecked. i have invoked one-hit wonders and rappers like biggie smalls. i have chipped a tooth not to tell you to touch the stock of crispy creme. i ate pepperoni dog food and threw up on the set all over my wing tips. i'm not concerned that you will

skip the homework because we have ways of making you motivated. bottom line, it's really important for you to know why you are doing the work. what's the point? a way for you to build conviction in your stocks, get an edge. one that's totally legal, volatile or calm with markets. so many panic at the sight of the president coming to the podium. it might be a buying opportunity and not just a selling one like all of those panickers around you. ed in california. ed. >> booyah, this is ed from northern california. >> thank you for calling. >> jim, in your last book, and on your show, you have mentioned on numerous occasions to buy deep in the money calls. >> yes. >> if my memory serves me correctly, you recommend buying these calls about three to four months out.

my question is this -- with the volatility due to the market with several ongoing events is it okay to buy these calls out? >> you go deep in the money, tend not to have a lot of premium, that's fine. remember why i do this, stock replacement, a less risky family. i'm trying to cut off the down side of a google, apple, some multihundred dollar stock and that's why i recommend these. let's go to zach in illinois. >> caller: hey, jim, with the uncertainty with the economy, you know, the fiscal cliff, debt ceiling, all of this, i'm looking for an investment that's etf based and is gold, but is based on the physical. i'm really into like, you know, physical investing and not just straightup normal etfs. >> well if that's the case, you got to be careful. the closest we have is the gld and i'm not backing away from that. i think that is -- i've talked to a lot of gold dealers, some are nervous, some aren't. i think gld does fine. always telling you too do your

homework. why? it's a way to build conviction. leave the panic to everyone else, and i'll try to make you even more money. >> jim cramer, you're one of my heroes. >> i look forward to your show every week night. >> thank you so much for helping beginning investors like me. >> when you talk about the market, i just believe that you're spot on. >> i love it. thank you so much. every night we watch you. i have learned and earned.

we talked about the way stocks diverge from companies. let me tell you about a tool that can help you make money quickly but carries a certain amount of risk and can be trouble if you don't know what you're doing. i'm talking about investing in initial public offerings, ipos, get more questions about this than anything. it's possible to ignore the opportunities that have presented themselves the last couple of years. some are red hot and others fizzle from the opening bell. these are led by technology and in some cases social media names, which have been met with exceptional hype. hype doesn't begin to describe the buzz, almost hysteria, about the facebook ipo. that was super hype. maybe hyper hype. they are sexy, talked about and written, endlessly, but hardly

ever told what to actually do with them. i'm going to teach you the basics right now, because when you know how to tell the difference between an about to be public company that will soar and one that will go down in flames, you have the potential to rake in serious profit. when you get one right, you can have gains of 20% to 30%. the stocks are out of whack with the underlying company. the instantaneous nature of these profits makes them incredibly attractive. but they can get in the way of better judgment and cause to you invest in initial public offerings that end up stinking up the joint. as helpful as those profits can be, don't let brokers trick you to believe that the ipo is a great way to make money. but your broker can always finagle you some shares. wrong, wrong, wrong. some initial public offerings aren't worth investing in. they will try to slip in some clunkers. now partially because new and public companies tends to be all over the map, especially on the first day of trading.

there is not that much available information about the newly public stocks and a tendency to assume that success or failure of a given ipo is a question of luck. also wrong. you can figure out which ipos to write off as uninvestable and which ones deserve to be bought. separating the wheat from the chaff isn't about luck, it's about analysis, the kind of homework that professional money managers do all the time and i advocate tirelessly and endlessly on the show. i know the pros have gripes, because every day i would analyze stocks the same way at my hedge fund, and i made a boat load for myself and my clients by investing in ipos and i want you to know exactly how i did it. inside baseball you need to know about ipos, the investment banks have their own agenda, one i believe that's about bringing people -- regular people, retail investors, you, back into the game, as it is about helping their clients raise money in the equity markets. one of the things i learned on many years on wall street, both

hawking stocks and managing money for myself and rich people in my hedge fund and in the charitable trust, is when the market turns south and people start pulling out altogether, brokers like to throw investors some easy wins, some lay-up ipos that are seemingly underpriced so they'll pop when the shares start trading. why would they underprice the deal and short change banking clients? just as important to brokers as other clients, the one that trades commissions, keep being interested in the market. the gains from a sweet underpriced ipo and the small float that boost shares are great reasons to feel good about stocks in general. they want to entice you into a stock market. for the anatomy of ipos to fit that pattern, look at linkedin and groupon. they rose 29% and 31% respectively on the first day of trading. there is no doubt that the issue

was the artificial way they were priced. putting out very little stock, knowing that it would cause a big pop, because it was just a sliver of the whole -- of all the company, the float was small. creating a bubble all by itself. the brokers knew stocks would be hot, in part because of valuation for the social media cohort and the hype among retail investors, and if they offered a limited number of shares, and put it below the pricing evaluations, demand would be huge. the brokers tightly controlled supply and parceled it into accounts that they believed would not flip the stock, doing this. buy, buy, buy, sell, sell, sell and gave enough to the large mutual funds that they would start but not finish the positions, but the mutual funds were coming to the secondary market, the regular stock market, and bid linkedin up to get the rest of the positions in. that's what happened. the trick to a successful ipo is

the rationing process, allocate the stock to potential shareholders, know how much the big shares need enough to have it linked in to affect the performance. they give them a percentage, sometimes a third, sometimes as much as a half of what they need to own of a full position. a half a full position, say, and that forces the clients' hands to complete the size of the position in the open market. of course, they could flip the positions themselves, but the brokers have ways to monitor who takes that quick money and they will not be allowed to get big allocations the next time around. you benefit because the syndicate desk almost always save a lot of stock for retailer investors and they are likely to buy and hold onto a stock. i'm indifferent to whether you do either. i want you to make money. the only thing you should never do is go into the aftermarket and buy stock of a hot deal. meaning after the market started trading up. if you don't get in on the deal, forget about it. i've got staggering statistics to show you, you are almost a

sure loser if you buy a hot stock after it trades with a couple of stocks allowing it to make money after several months and most just gigantic losers that could destroy your nest egg. a lot of work on this. linkedin. that's thrown in. a long-term winner and groupon remains in the dog house as do some of the shooting stars of the byegone era. and the odds favor losing, and remember you are in a much better position than that of a mutual fund, don't have to buy a lot of stock to be sure you have enough shares. you can pick and choose, providing you do enough business with a full service broker. in the aftermarket, wait until you get a reasonable entry price and performance details before coming in. like with facebook in the fall of 2012. when everyone feared there would be a ton of insider selling when the company got religion about going mobile, that was the moment to buy, not sell. the weakest hands were already gone and the knowledgeable

people stepped in to buy. same thing with raucous, the wi-fi company, after it broke the print, or the initial ipo price. ipos can be a great way to make mad money, but if you are not in the know, it he can be a very treacherous path. remember, the big guys don't necessarily have you, the home gamer in mind. beware and trust me, never buy in the aftermarket. for every winner there are ten losers, and please, please, please, don't be a sucker. stay with cramer.

dealing with ipos can be difficult and dangerous, because the prospect of instant gains is so enticing.

>> that was easy. >> euphoria can cloud your better judgment. everybody who got in on the aborted facebook deal knows too well, you need a consistent method so you don't get torn to pieces by something you don't understand, a deal you can't fathom or make heads or tails of. so here is your primer on analyzing hot from cold and safer from more dangerous. the most important thing with the ipo isn't what the company does, it's the company's pedigree. what do i mean by that? i care who the executives are, who the investors are, and the first call with the managers can be irrelevant and strangely, it's the least important part of the pedigree equation. that's because so many of the best deals represent technology companies, including social media, and those companies revolve around an invention more than a management team, and

maybe just an algorithm. if you look at google's management, would you have avoided its ipo like the plague. who the heck were larry page and sergei brin. a couple of twenty-something wildmen. the new kids on the block have improved themselves and proved them as new young innovators. did you know anything about mark zuckerberg other than he wore a hoodie? who are the investors? a negative check, disqualifier, more than a positive one. when looking at the investors, i am concerned about you getting caught up in another kind of investment, one funded by private equity companies anxious to cash in on a better equity market. and equity firms have taken care of equity firms, they bought many companies and bought far too much of them. they need badly to offload these

companies into the market to get them off the books, some of them will barely be profitable, some will simply be stinkers so they will try to entice you to pick up some with a hope of a rising tide could lift all of these boats, including these dogs. these private equity ipos cannot be trusted. and this brings up another important aspect of ipos, recognize that because a company can be publicly traded doesn't mean it isn't a piece of junk. some would qualify as a travesty of a mockery of a sham. some of the smaller social media falls into this category. they make companies disclose facts and financials as possible. so you can judge for yourself. sunlight is the best disinfectant. they do so much business with these outfits, very hard to say no to. they get immense amount of money from private equity firms when they take a company private and even more fees when the company

is spun off as a public entity again, and you are thinking about large fees from the new fixed incomes, and i think that that is why the investment bankers bend over backward to favor the private equity firm rather than brokerage clients that are buying them. and the main investors in companies that are becoming public. we'll call it, it doesn't mean it says absolutely no. we'll call it a red flag and third, i always look at the brokerage houses bringing the deal. i want them to be along the lines of jpmorgan, goldman sachs. they have a reputation on the line and that makes them less willing to bring a clunker public. you can take this as a fairly good seal of approval for the enterprise. why am i telling you this? let me tell you a story. in the '80s, i personally helped work with the financing of a young company started by some

brilliant folks out of m.i.t., called thinking machines. they had a huge computer that could calculate data faster than any other machine in the world. when they decided to bring the company public, i was able to convince them to use goldman sachs as a deal manager. only one problem. i couldn't convince goldman sachs to put their name on the deal, despite the immense fees that an ipo brings to a firm. the analysts at the time who would have followed the company, pored over the financials and looked at the product and made a judgment that the company, while having short-term momentum, would not have any staying power. i was aghast. i stood to make a big six-figure ticket. that's when six figures meant something. this analyst simply wouldn't budge. reminding me this was goldman sachs, not some slop firm that will put its name on any company because it was hot.

sure enough, we passed and within a couple of years, the company failed. a victim of better technology and poor financial management. that's why the brokerage pedigree matters. it doesn't mean every ipo bought by a broker like goldman will be a success, but avoiding smaller outfits does help weed out some of the failures, and in the heyday of social media, just like with the dot-coms at the turn of the century, every firm good, bad, got caught up. never any assurances that a goldman or anybody else will do the job, but checking names behind the deal remains a good ipo. only after i've gone through the three-step vetting process would i actually consider what the company does or what it makes or how it's done in the past, in part because it's so difficult to judge those issues and i would rather use the quick filter i went through above

before i even crack the books on the company. something i will teach to you do right after the break. stay with cramer. to grow, we have to boost our social media visibility.

more "likes." more tweets. so, beginning today, my son brock and his whole team will be our new senior social media strategists. any questions? since we make radiator valves wouldn't it be better if we just let fedex help us to expand to new markets? hmm gotta admit that's better than a few "likes." i don't have the door code. who's that? he won a contest online to be ceo for the day. how am i supposed to run a business here without an office?! [ male announcer ] fast, reliable deliveries worldwide. fedex. try running four.ning a restaurant is hard, fortunately we've got ink. it gives us 5x the rewards on our internet, phone charges and cable, plus at office supply stores. rewards we put right back into our business. this is the only thing we've ever wanted to do and ink helps us do it. make your mark with ink from chase.

we've reached the final step -- how to actually analyze the company that's coming public. here you have to assess what the company makes, ask if it's profitable and most important, thinking about hanging on to the stock after the deal, you need to know how big its end markets are. that's the key thing. this isn't all that different from analyzing any other stock, except you have less information to go on, less track record. most of it coming from the prospectus. it can be easy to figure out if

it's a brand or has a product. but it can be more difficult to figure out what the company makes if it involves a sophisticated product, especially with technology. broadband, semiconductor miniaturization and networking can be some of the toughest ones. do you like it? that isn't the only question. but it doesn't matter. think about heelies. a fad i absolutely despise. safety! i jump when it came public but get out quickly and you have to get in and get out quickly. it popped into the 30s and began a long, sickening decline that took it as low as a buck and change a few years later. on the other hand, when a company has a good product, profitable, and many ipos aren't, then maybe you can catch both the gains from the initial first day pop and an extended run afterward. that is very rare. that happened with under armour,

and we knew that the steak matched the sizzle. it popped from $12 to $25, i said hang on. break my rule. hang on from taking profits, some, little, but not all, because under armour was being valued the same as nike. but higher growth rate, pricing that works to your advantage. once in a while you get a thrice blessed ipo. profitable entity with lots of room to run, and a great spot, and lulu lemon is a good example. a yoga based apparel company that came public in 2007 and the stock continues to grow, despite the 2008-09 sell-off because the gigantic addressable market. it used to be women that performed yoga, and now it's all women, and some men too. organic food maker, annie's,

symbol bunny, b-n-n-y, five below, and guide wire, they all fit the test. they recognize the size of the market, power of competitors and the value versus similar players, deals which are priced at significant discounts, and you factor in long term growth rates, but they are rare indeed. bottom line, to analyze an ipo, including the abstruse technologies, the ones that have those kinds of technologies that we don't really understand, look at the addressable market, the competitors, historic growth rate of the company, versus the growth rate of the market itself and see if the company is profitable and make sure of the broker's pedigree and then and only then you will know whether it's worth it to put in for the deal. "mad money" back after the break. nobody is more passionate about the market than i am. nobody in the whole country. >> i want to thank you. you have saved my retirement. >> you are why i come out here and do this show. thank you so much. >> the stuff that you're doing

for all of us, it's so important. i want to say thank you. >> my husband and i watch every day, and we count on your help for small investors like us. >> put cramer's 30-plus years of experience to work for you. "mad money," weeknights on cnbc.

now, it's time for some tweets and mail from you home gamers. first tweet comes from @reelsfly. new player to the game. talk about waiting for a pullback. any standard percentage to look for #madtweets, #madmoney. yes, 5% to 8% pullback is what i'm looking for. when i say the market is about to pull back, for individual stocks, if they are on the new high list, you are thinking two to three points for a stock under $50, over $100 has got to be say five to ten points. i'm looking for tighter when it comes to pullback on the stock. for the market, it's 5 to 8. another tweet from @jimmyjenga17. i wonder if you had any advice for a 20-year-old looking to start early. look around yourself. what are people wearing? what are people buying? where are people shopping? what are people eating?

what restaurants are they going to? once you get those, go to the website. it's going to be right there. go to the worldwide web and look at the financials. and look at the conference calls, analyst presentations. those are really important. look at newspaper articles, google news, get comfortable, because i can tell you the first buy you make, it's going lower, it happens to everybody when they're younger. you have the rest of your life to make it up. i have a another tweet. is there a minimum number of stocks you should buy? should you waste your money if you can only buy five shares of a company? absolutely not. that's how i started. and i ended up doing very well. i started out with five, seven, nine. don't be intimidated. i would say to a broker, i want to buy five shares, and i was like please don't make fun of

me. let's take mail. cramer, love the show. a company i invest in and work for is undergoing a one to one conversion. any idea how this affects share price? it simply doesn't matter. i know it seems wrong, but it seems like a big move, but the market has figured out well ahead of time. all right, stay with cramer. ♪ [ engine turns over ]

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