>> i'm jim cramer and 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 i'm trying to save you a little money. my job is not just to entertain but also to teach and educate. so call me at 1-800-743-cnbc. there's some things i've been keeping from you. it's not fair. tonight i'm going to tell you who i am and how i got here. not i am jim cramer, "squawk on

the street" and founder of the street.com. i want you to know more about me than that. although it did take me two years to learn that avatar is not just a movie. what i want to do tonight is to bring you ways you can profit from them. in short, i'm going to give you the invest in cramer guide book, how i continue to learn every day so i can help you become better than i've ever been and better than i ever will be. my love of stocks didn't begin after high school. my love started back in forth grade. that's right, fourth grade.

i was a phillies fan. if i could go back in time, i would have somehow made it so i was a yankee fan. no one in his right mind would affiliate himself with a team that has the largest number of lows in all of sporting history. i was a curious kid. there was always a part of the parent that seemed inpenetrable to me. it was the business section. when you read them from left to ride, they made no sense to me. open, range, close, open. what are these strange things? why did they matter? occasionally, i would hear my dad get mad. buy, buy, buy, buy.

>> when he heard prices that were on the radio. he would particularly get upset when i heard the national national video on the radio and how it went out. i don't know if pop knew, either, what it did. i don't know. but i know it made his furious, and i wanted to find out more about these things that made him react with such furry. the close was how much it was worth when it finished for trading for the day. how could there be so many companies? what the heck did it mean to trade in ranges and how did it close? they wanted to buy stocks to she could make money from their increases. frankly, this struck me as down right silly. i told him when i was looking at this baseball tables, who was

hot. he said it was pretty much the same thing in stocks, that you studied the companies like you studied the players. some players were doing okay. some were hot as a pistol and some were duds. i wanted to know if i could learn something by following the ranges and reading the tables. it seemed in my house the radio was always on. we always watched the news while eating. i hated it because most of the news is about the war. even when i was 9 years old, my mom was worried that i might have to go to vietnam. they always talked or show the most active stocks. national video was all from the worst list, i discovered, hence

the anger. what i did was write the names down that i heard and i tracked them. i kept them in this ledger, this ledger that i still have. how did klm go out? there's mgm. i would just go over each one each day and put them down. there's a winner. it was a game. i was just trying to figure out the next move of a stock, even all i ever knew was frankly the name continental or the name rca. whatever. most of them were defense stocks. they went up a lot in tandem with the war i heard about. after a year, i thought, this was a cool game, cool game imaginable. i wanted to introduce this to my class, and so i did, showing them my ledger, inviting everyone to play so they could find the stocks that went up the

most the next week. the darnedest thing happened later, the minnesota mining and manufacturing company in the philadelphia area selling tape, ribbon that bowed easily. right about fifth grade, pop came home with a new line of 3m products that he was selling. it was called the bookshelf games. he said perhaps i wanted to learn more about how the stock market worked and stocks and bonds of which i am fortunate enough to have gotten an honest to god real copyright here courtesy of george sanisus who gave it to me for the holidays. this was so great. i almost cried when i saw this.

shady brooks development, i think justin one of our camera people owns that one. anyway, i asked the ceo to bring these back. but the point i mention this is from my own mixture of games, stocks and bonds is that stocks are fascinating enough. i promise you to get your kids started on them right now. particularly when you have games like stocks and bonds. it's easier than ever. pick stocks. maybe not all defense companies. have them track the companies. guess what they'll do over a period of time. here is the bottom line. get them started early. and you know what? maybe they'll play for life. alas, the stock market is a long-term contest. and one i think the earlier you get in, let's just say okay, the more you can win.

lore reason that. >> what steps should a company take when they thought was a solid monthly dividend suffers a steep drop in price and a 50% dividend reduction? hold them or fold them? >> a lot of the monthly ones are oil related. if oil comes back, i think you will have sold at the bottom. don't sl it. do some work. it might just go be the actual bottom. i think that's what you have to be thinking of. john in illinois. john. >> windy city booyah to you, cramer. >> nice. what's up?

>> caller: thanks for all you do for us and thanks especially for helping me get my son through colorado state university. >> congratulations to him and i want to thank my staff for helping your son because it's a team effort here to make things great. how can i help? >> here is my question. i got an e-mail from one of my holdings and they said they were going to do a five to one stock reverse. i know what a reverse is, but my question is, the fact that it's five to one, is that a red flag and should i get out or is that not something to be concerned about? >> the damage is probably done if you're doing a five to one. what's happened is the stock has gone down so low they think it's not investable. if the fundamentals aren't any good, it's going to go back to one. if the company is doing poorly, it doesn't matter, sell, sell, sell. irving in nevada, irving. >> caller: hello. >> you got me, it's cramer.

go ahead. >> caller: look, i'm irving from las vegas. and because of you, and the wuflt things you've been doing for the stock market and for me, i got into the stock market at 90. i've been listening to you for many years, but not doing anything, but at the age of 90, i'm 92 now. >> you're just getting started. what's up? >> which way is the better to buy stock, preferred or common? >> preferreds, actually. a lot of times, you have to figure out what is out of step? a lot of the preferred turn out to be perfect. common has the more upside. i like to follow the common stocks. i give you a figure, better

reward, but, of course, more risk. but i think you're doing terrifically. tonight i'm sharing all my investing memories and give you the lessons that i have learned. hey, why not get them started really early? keep the kids about investing. it's a lifelong skill. mad money will be right back. >> announcer: don't miss a second of mad money. have a question? tweet kraker, #madtweets. give us a call 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

>> caller: booyah. thanks a lot for your passion for stocks. matd money does work for a small investor like me. >> mad money and making me money for college. jim booyah, i love you. >> how many other shows have kids calling in and is saying booyah? >> one booyah tailt.

mad money with jim cramer. weeknights at 6:00 and 11:00 on cnbc. welcome back to a bizarrely special mad money where i was trying to teach you life lessons and investing in my life. i am not a dollar sign represented by a man or a stock symbol for that matter. i have stumbled around the stock market long enough to learn a thing or two. jim cramer, school of hard knocks, that is what i attended when it came to stocks. we covered my fourth grade object session with tracking the stock market. the greatest game, not monopoly, but stocks and bonds with its stock certificates and its game board and is all the cool do dads. about what would send a stock higher? you love that, you keep track?

i left the stock market games behind me by the time i got to middle school. we called it junior high back then. my object session became sports, i was the second fastest guy in the school forever, so i ran track. then, of course, girls. more lucid than stocks. i couldn't win for losing, but that's a different show. however, my father did engrain in me the desire to save. early on, i learned even in high school, i saved even as i bused tables at the old block and cleaver, which we called the block and cleavage because i was hilariously stupid back then. then ultimately graduating into selling ice cream. hey, ice cream, vanilla and chocolate. quickly, i learned the value of marketing power. can you imagine how many money

could be made if you had the only franchise, the whole upper deck? even for a team as horrible as the phillies back then? i made a fortune, except the one time they gave me strawberry ice cream, talk about having to run from a customer after you sold that stuff. when lefty was on the mound, he pitched so quickly and got players out so fast that i would get stuck with unsold ice cream which i had to buy from the company before selling it and i would take a real beating. talk about learning how business worked. the shelf play on those nights were about as lightning as lightning could be. at the ballpark, people called me to get my attention to buy ice cream and frankly, i loved it. i never forgot the monitors. hey, bud. i mean, partner. anyway, i made a ton of money and from the advice of my partner i opened up an account with fidelity. still there. it was the top mutual fund

company of its time. i should be referring you to those all the time. i didn't save enough when i got to college. the money paid was work study anyway and it went toward my tuition, room and board. when i get out of college, after many rejections, i landed a position as a general times reporter making $156 a week. i still kept a tattered pay stub from those days in my wallet to remind me how hard it was when i got started. nevertheless, i contributed a few dollars away when i could. then i applied at the now defect los angeles reporter. not long after my sojourn began in los angeles, i found a bungalow apartment in the fairfex district. pretty sketchy, around the corner from pioneer chicken way too expensive for me to go to.

at the time, i was assigned a story in san diego. a horrible school shooting. and when i returned, everything was gone. everything i had was gone. so it gain, my terrible but somewhat thrilling six months of living in my car, basically trying to get by. the only upside being when you net a woman, it was pretty to end with the query your place or mine. i knew the ultimate goal was to save enough to get an apartment. people would take me in now and then so i could get a shower, clean, change. but you know what? i never stopped saving. i remember cashing my paycheck every other week and writing a check to fidelity magellan fund. how poor was i? yet still putting money away. when i ultimately, of course, got mono numononeucleosis.

no branch where i was last stationed with the company americansfully put me on the road so i could -- expenses and day-to-day. i had to go to a migrant farm clinic, i still put money away. which by the way, i had a doctor who was pretty much one of the best i ever had. the up shot of investing when you're living in your car, amazingly, giving money to the best stock picker of all time, i managed to gather up 35 years later to put enough to way to teach. money ultimately went into six figures. i stopped putting money into that fund years ago, but through the power of compounding, made a ton of money. i think the take away here is what i want you to do is save no matter what. no matter what.

obviously, the early the best through thick and thin. when cnbc has all those managers on, you don't have enough time to handle your own stock portfolio. send the money in, as little or as much as you can. if i can still send those checks to the fidelly miguelan fund when i was living in the back of my car, the most down and out that you can be in this country, you can put away from money, too. stay with cramer. let's go to kentucky. >> how about a big hillbilly ba ba ba booyah. >> here is a big los angeles bing bing bing bing ching ching ching booyah. >> a bit stanton island booyah. >> boston. >> nashville. >> michigan. >> georgia. >> booyahs come from all across america. let cramer help you channel yours. "mad money" with jim cramer.

week nights on cnbc.

we're riding the magical money mystery tour. and i'm giving you the life lessons i have learned the hard way through decades of stock investing. i told you first about how to get your kids started early. okay. and then i told you about how nothing should ever stop you from investing if i could invest while living in the back seat of my 1977 ford fairmont. right now, i want to tell you about how i got started in individual stock picking, something you know i love and still believe. it's still totally worthwhile if not lucrative and, yes, it is the reason i believe you watch, that is, unless you love the funny outfits that i occasionally don and the

outrages -- courtesy of when i used to have a radio show called "real money." if you were picking stocks playing with real money, not just with the ledger or with the game stocks and bonds, you need an account. i got started in 1979. there was no such thing an an online account. i chose to put my individual stock account with fidelity. i didn't know where to put my ideas. i started with toeshs. people at forbes, do not take this personally. i read about a terrific orange grower in florida, and it seemed to be compelling. so i bought ten areas of it for $9. a week later, a frost hit. wiped out the entire crop. my investment was cut in half. i was devastated, but not defeated. i sold it out, took the capital and bought seven shares of bobby brooks which, of course, forbes said could be a terrific buy.

i ever had never heard of it. almost immediately, they reported a bad quarter and i in money havd again. i was living at a less than swank studio in manhattan, the cheap $40 a month rent, albeit twice if rent for a beautiful one bedroom rent in tallahassee, i was on the road quite a bit back then. after a particularly hard night on the town, so to speak, research ago story in kentucky, i fell in love with a breakfast at bob evans farms. when i went back home, i visited the huge fabulous new york manhattan new york public library and devoured everything i could about bob evans farms. they had magazines with articles, microfiche of s.e.c. followings. they were four months old, but take what you can get. i knew i had a good one. i bought 20 shares. the stock went up immediately on a good quarter and the stock

split. and i figured out the good component of investing, know what you own. like it, even. what did i know about growing oranges? women's fashion? but a good set of eggs, a company that had a long tradition of service and plans to expand in the midwest? that was for me. next up, old press steel. why sps? because a buddy of mine from high school told me, listen, if you're in the gym, they were hiring like mad at sps. he said sps is paying good money. i had a job. back to the library, solid income, not much debt. it doubled not long after and i caught the bug for good. 23 years later, sps would be acquired by precision cast

parts. so now i'm figuring it out. the best investment ideas do want come from these magazines. they come from what you know. when you meld that information with information from public sources, even if they are as late and as hard a source as taking a trip to the new york public library that's supposed to be working, that's good enough. now, i didn't like the random way i was making money. a friend from home with a lucky call available with jobs available, a hearty breakfast at bob evans farms, there has to be a more methodical way, don't you think? and then it hit me. look around at work. at the time i was covering mergers and acquisitions. profiling some deals that were on, it seemed that every other deal was in the oil patch. one after another, small to mid sized oil companies were waiting to be acquired. i went back to the public library, took out some edition of value lines and checked out

the pages devoted to oil companies. i then referenced them with other research, magazine articles to find out which ones would be acquired without problems, either because they were public without a family owning them or because they seemed to fit the same parameters that other deals i was reading about. i set on a deal called natomis. i almost doubled my money. if i want to buy takeovers, buy companies that would do well on their own but was undermanaged. that meant another oil company with bigger scale could do more with natomis, which was cheaper than it should be if it simply got rid of the management. as much as i had hit some winners, though, i was distraught that i had given up the ghost of those first few trades i mentioned. mostly aqueduct. starting to take a hit. i had learn how to handicap by reading the books of andy wire. i was addicted to the track.

he wrote two books. they might be the second best investment books to keep disciplined, how do i identify the best thoroughbreds to bet on, going out to the tracks where the information was less well known and, please, don't bet willy-nilly on every horse in each race because you're looking for something to do. find the ones with the payoff, bet sure, big, cut your losses if you're having a bad run. think about it, every one of these lessons could be applied to the stock market. you can take a huge swing when you know when you're doing. don't just gamble for the stocks for the excitement identity. most important, be disciplined. after five years of professional journalism, i sdooit decided to hang it up and go back to law school. the good news? i saved enough to pay for my first year all through the stock market. and by the way, let's be clear, an index fund would have made me nothing, nothing at all.

if you want to go and get started, go small. invest in what you know. back then, i got old data from the public library. now information is free, ubiquitous. including up to the minute analysts, conference calls that i tell you are musts if you're going to know what you are doing. simple? no. lucrative? you bet it is. kiann in new york. >> hi, jim bow. >> yo. >> caller: general question for you the. what could be considered a good rate of return on investment and does it differ depending on asset class? >> i think you're measured against spawns. if you get get a good tax bet on it, in other words, like you have a reduced tax on the dividends or the capital gains, you're going to do real well. if you look, the ten year or measure against the 30 years, say 3, 3 1/2, 4, if you can get 6%, 7%, 8%, you are doing great.

john in north carolina, john. hey, john. >> caller: hey, what's gone on, jim? >> not much. how about you? >> caller: doing good. so i'm new to the market. >> okay. >> caller: and i've been watching the show and reading the mad money book, which has been very helpful. >> thank you. >> caller: my question is, when i'm doing valuations for companies and i'm calculated ppgs, which eps number should i use and which growth percentage should i use? is it previous quarter or previous year or estimates -- >> okay. when you're doing the price earnings ratios, i always like to look at the forward, in other words, income year. i don't like to look at historic because that doesn't make it. you have to go and get the estimates. you get them on yoo-hoo. that's what you use again and that's how you figure out the peg ratio and which a stock is cheap or not. want to get started? look for things you know and research it until you can't research it any more. you're surrounded now by

information. use it. stick around. i've got more or lessons from my investing experience coming right up. stay with cramer. [singing] hoveround takes me where i wanna go... where will it send me... one call to hoveround and you'll be singing too! pick up the phone and call hoveround, the premier power chair. hoveround makes it easier than any other power chair. hoveround is more maneuverable to get you through the tightest doors and hallways. more reliable. hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. most importantly, 9 out of 10 people got their hoveround for little or no cost. call now for your free dvd and information kit. you don't really have to give up living, because you don't have your legs. hoveround replaced the legs.

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tonight, i have taking you through the importance of getting started early. shown you how to stay disciplined all through the actual life charchls. now i'm going to give you a sense of how you can become a trader if you want to. okay? and you want to be a good one. this show has changed from time and time again. it's been years that it's been

on. there are more obstacles to trading than investing these days. you have to watch your position like a hawk where it's hard to do your job and follow the market. there's so many different products allowing hedge funds to move around like they're stocks. there's some advantages you have now that you sure didn't have when i started trading in 19811. first, commission res so, so much lower, so you can get in and is out without much friction and with much more after commission profit. second information is, in your personal computer or even your smartphone, third, trading slightly faster. when i was at kraft within i had to use pay phones, no cell. you often had to wait while some

kid chatted endliless and aimlessly. at the same time, i had to go with what i knew. i knew individual stocks. for all of the stories about harvard law, including the movie paper chase, i can tell you that there was a ton of downtime and a real good business library nearby as well as up to date microfiche, all things i considered i possessed probably the best publicly available information around harvard law. the first thing i decided to do was to work on one trading idea per week. my reasoning was pretty simple. you can't be all over the map if you were doing this as a hobby. i discarded all the of ideas looking for something that had catalysts or stocks that could rally based on the other parts of the paper.

a brokerage report might discuss a new oil find. i wrote a newsletter called mr. bullish which actually i only mailed to my parents. it came out once a week. no buying of anything that didn't have an exit strategy from the moment i put it on. an important lesson made disciplined by a written thesis before i pulled the trigger. when you trade, trade with confidence. you want to trade with confidence? ask yourself, would you be willing to put a stock recommendation on your voice mail, on your answering machine and updata it every week? hi, this is jim cramer. i'm not here right now but i like montu 32 for the week.

i was putting my money where my mouth was and managed to get some additional work. it wasn't long after that that marty tried to get me to write a piece. they were all successful trades of the week and he told me to meet me at a coffee house nearby. when i did, he wanted to give me $500,000 to manage. he said he had confidence in me. shortly after, he gave me a check for $500,000. which by the way was real money back then. i ran down to fidelity and set up to work trading. almost immediately i lost a ton

of it. my mistake? a man has to know his own limitations. you can't trade a huge chunk of money at once. you can't put it all to work at once. knowing that you'd be done, whether at work or not, i violated my own rules and i had blown it. i confessed to marty my sins and said you should take your money back. instead, he gave me more money. i slowly by surely made it back while also paper invested a more active and truly trading portfolio. that would become the beginning of my actual professional trading career and i ended up making a lot more money than anybody ever thought you could. here is the bottom line. if you're going to trade, make sure you have a catalyst where

there was an exit point going to happen. you need conviction and you have to ask yourself, would you be willing for the world to hear hi, it's me, it's not here right now, but i want you to take a swing at disney ahead of the big analyst meeting? give it a try. start small. stay with cramer. nobody has more passion about the market than i am. >> i wanted 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 you're doing for all of us is so important and i want to say thank you. >> my husband and i watch your show every day. >> put cramer's 30 plus years of experience to work for you. mad money, week nights on cnbc.

i'm taking through the importance of starting investing early. the need to stick with putting away money no matter what. the imperative of knowing what you own and the discipline of what it means to be a good trader. now we're up to the professional

grade, my time when i started at goldman sachs. i had been courted by goldman sachs for three years before i got a job this the security sales department. helping individuals and small institutions manage their money. but tonight's show, like every show, is about learning how to trade and invest. my study with me at the university of hard knocks. so i will dispense with the anecdotes. first, that's where i began understanding the process of actually making money. money management, the ability to build a portfolio from the ground up. i had the best teachers in the world. lee cooperman put on a new investment clinic each day. but you know who i really

learned from? my customers. chiefly wealthy individuals from all walks of life. it was at goldman that i learned something that these days can't be as understood. that is individuals actively beat the market. i had nondiscretionary accounts, meaning i wasn't allowed to invest anyone else's money with my own ideas unless i could win them over to make the purchase. that's where i made commissions. i was able to articulate that stock's idea in a way that made sense. you had to know your stuff. i often asked the buyers whether they knew enough about their stocks when they wanted to buy on their own. i wanted them to be as educated as they could about the securities they were buying. i knew if they went up, it would be their idea and if the stock went down, they would be mine.

just human nature. what else did i learn? how about humility? it was at goldman sachs that i first figured out how humbling it could be. it just started a year and a half before i got hired. but when one of your ideas went against you, you had to get on the horn and explain either why the person should buy more or whether they had to cut their losses, kind of like what we hear in the lightning round every night, isn't it? that's why we always have to recognize how fallible investments could be and what to do when stocks go against you. i also learned how to cut your losses and when to cut those losses. i had to learn the hard way. most of my clients were business people who didn't know a lot about stocks. they had been entrepreneurs, investors, that kind of thing. i had a real cantankerous client. i had to work hard to get the guy, try to win him over for ages. i told him i would be judicious.

he said he didn't want trade. he only wanted long-term investments. at the time, i liked kimberly clark. i told him i thought this would be great. he agreed. almost immediately it went up eight points. i had a winner. so i called him and i said, bob, incident to ring the register and sell the shares of kimberly clark. i thought he'd thank me. but he was furious. he told me i said kimberly clark was great for the long-term. then he questioned my integrity, wanted to know if i was trying to churn him, a horrible charge meaning i was just trying to generate commissions off the guy. i was scorched. but he did treat me a great lesson. if you don't want to turn a trade into an investment because that's usually a sign that use basing a loss and trying to cement why you're in it. you don't want to turn an investment into a trade. if you have a good one, let it

run for heaven's sakes. kimberly ultimately doubled and i was vindicated. a lot of my business involved contacting the people who had just come into a great deal of cash. they tend to be rather unsophisticated about the cash management. i regarded my first job as listening to their needs, trying to figure out what they wanted. they were conservative? okay. were they aggressive? did they want capital appreciation? i tried to get to know them and urge them to try to get to know themselves and the risk levels of tolerance. how about dividends? do you want to participate in new issues? do you want to try to hit it out of the park with your capital? i'll try to teach you what to know yourself.

when i first got to goldman sachs, i tried to get to oils, the oil seblther. you have to understand those were different days. you could have them double and double again in very different times. there are still humans place necessary this country that no one has discovered oil in yet. the families wanted oils, i wanted oils. every day seemed like a great day in the oil patch. services, drillers, you name it. some global tensions had jacked up the price. the next thing you know, the bull morphed into a bear. i had understood first hand the contest of diversification. i never again intentionally avoid diversification. here is the bottom line. i learned the core principles of investing, finding solid ideas to create long-term wealth in a way that benefits the customer. all of my investors consistently

beat the market on ways of their own aided by people like me who worked with them to consciously put a plan into action. mad money is back after the break.

our tour of the early lessons of my life's journey into the market is drawing to an end. you followed my love affair with stocks. show the importance of getting started early in investing. do you live with me with my 22 caliber pistol in the back of a car? saw me invested in mutual fund no matter what the circumstances to understand the need for me to save no matter what. you saw is discipline needed for good home gamer trading and you stumbled along with me to find the goodness of long-term investing. i hope you've been able to take away a ton of information, been able to glean some insights from my mistakes. best of all, i want to wish you success in trading and investing and to remind you when you hear from the great beards that say you can't make money at home and have to give the money to a

professional or index fund, that the story of my life at every turn is very much the opposite, and that you can make money in different ways with managers and brokers and, yes, by yourself. stick with cramer.

where will it send me... one call to hoveround and you'll be singing too! pick up the phone and call hoveround, the premier power chair. hoveround makes it easier than any other power chair. hoveround is more maneuverable to get you through the tightest doors and hallways. more reliable. hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. most importantly, 9 out of 10 people got their

hoveround for little or no cost. call now for your free dvd and information kit. you don't really have to give up living, because you don't have your legs. hoveround replaced the legs. and now every hoveround comes with this handy tote bag and cup holder for access to your favorite items. and right now, get this limited edition hoveround america travel mug free with your hoveround delivery. [singing] hoveround takes me where i wanna go. call or log on to hoveround.com to find out where a hoveround can take you!