and an end to alzheimer's disease. and that? that would be big. grab your friends and family and start a team today. register at alz.org >> my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. i promise to help you find it. "mad money" starts now! >> hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm just trying to make you money. my job is not just to entertain you. it's too teach you. call me. 1-800-743-cnbc. every night i come out here and help you find well quality stocks well worth earning, stocks that i think will reward

you by going higher, or paying juicy dividends or often both. perhaps because of my four decades in the business, i leave way too much unsaid and take too much knowledge for granted, knowledge you need to know to be the best investor you can be. so tonight, i'm taking the time out to impart some of that knowledge in a special show about the way stocks really work and how they interrelate or don't with the companies they stand for and are supposed to represent. on "mad money," we analyze companies, try to figure out what makes them tick. what should we be watching for? what goals should we meet? we don't trade these companies. we invest in stocks. you should never forget they are not the same thing. it's obvious. the kind of thing that should go without saying. people equate a company with its stock. and it's the kind of mistake that can wreck your portfolio, especially in volatile markets like these, many trade off of

big picture data about the broader global economy rather than what's known as the micro, getting information about the actual individual companies behind the stocks. macro still rules, when it's good, it goes higher, when it's not, it goes lower. we see this play out all the time. a stock gets crushed. we assume something must be wrong with the company, otherwise, why else would the stock be pounded? on the flipside, when it surges, we assume it has to be doing something special, something right. it's simply not how markets work. often companies will have big moves, up or down. that's okay. it happens all the time. it doesn't mean the market is crazy or irrational. what's irrational, though, is believing there will always be a straight line, a lock step between the performance of the company, there wouldn't be "mad money." we wouldn't have much to explain. shouldn't stocks trade based on

changes in the stocks in the underlying company. isn't that the way the markets should work when it isn't broken? do we spend time analyzing companies, figuring out what makes businesses better than others, teaching you how to identify situations where companies are improving or at least doing better then people think. the increases in earnings estimates for the underlying company. nothing correlates more strongly with the rise in share price than estimate increases. increasingly, i equate future success with dividend boosts. why isn't it enough to study companies and buy the stocks of the ones that look like they have the most to grow earnings faster than expected? why isn't it enough to invest in home? because we can't boy companies, unless you got hundreds of

millions of companies to go around. simply not an position. shares of stock. shares that trade on an open market where you have lots of buyers and sellers who mate have different motivations from you. when you find a high quality company, you can't assume shares of the company will go higher sense you need to take into account the stock, the way the stock trades. the way it trades in the market. up and down. don't get me wrong here. over the long haul the best way to pick winning stocks is to identify winning companies. ones growing faster than anyone expects, are improving dramatically. i'm not changing my mantra one bit. that is still the way to go. but, you should call me on a day-to-day basis? it doesn't work. these stocks on a day-to-day basis can trade wildly with no relation to what's happening at the company. those movements may be confounding, so confounding you sell low or buy higher, or give up entirely. you know i think you need to stay in the game if you are going to augment that paycheck and save money for retirement, vacation, tuition. all the necessities of life.

if you assume everything makes sense, you will end up passing some opportunities to buy merchandise marked down for irrational reasons, you know what, you will miss when you should sell stocks that are run up too much courtesy of market mechanic, rather than anything related to the company. in recent years, we've witnessed the rise of a ton of factors that can cause a stock's performance to differ more radically from the underlying company. at least in the near term. over the long term, they do tend to diverge, over days, weeks, maybe even months, you have all sorts of things that can make a stock of an improving company fall or a deteriorating company rise, these ways they change to get exposure. some etfs allow them to buy or sell or selling bang for their buck. this needless proliferation of

etfs means that some stocks in the sector can trade in lock step with each other. the good moving in complete tandem with the bad and the mediocre even as ultimately the facts are out because they're in that basket, stocks that shouldn't go up do go up. now a business sector has always been an important determinant of a stock's performance. if a stock is a house, then the sector is the neighborhood and nobody wants a good house in a lousy neighborhood. >> house of pain! >> but these days, the influence of these etfs, i think has become noxious to those of us trying to discern the wheat from the chaff. it's too important. plus you also have the high frequency traders who can hijack an entire market, causing massive across the board moves that make no sense from the fundamentals, especially at moments of extreme volatility.

these new waves all distort the stock, from the flash crash and myriad other short-term blips down. of course, when times get tough for companies, they can get much tougher for their stocks. i spent the problem of foretelling on the show, financial institutions that own them are in trouble. they desperately need to sell, sell, sell, in order to raise cash. you see this happen every time a bunch of hedge funds make the same bet. you saw it in banks, you saw it in gold recently. the thing doesn't go their way, europe lost when the euro zone sovereign debt crisis, they didn't have to sell the european assets. they had to sell everything, totally unrelated stocks, too, because they got hurt so bad. especially when they were clamoring to get their money back. this is what happened in 2008, 2009 when selling begat forced selling. it took them back to that generational low in march of 2009 the reverse happened in

2012 when those who bet against european stocks, almost all stocks, particularly the financials had their heads given to them when they put their foot down and re-inflated banking institutions and lending money all over the place. bank stocks soared. it didn't matter whether the bank was solvent or insolvent. they all blew up together. in an investing world dominated by hedge funds, most of which have to make bets for and against stocks and home markets every day, their influence must be taken to account. we understand how the stock can differ from the common underneath, when they get hit with unexpected good news, you can get what's known as a short squeeze that propels the stock to absurd heights that sellers have to buy to close the positions. a lot of people feel that's what happened to tesla. elon musk company. remember, the market is well a mark, which means it is dominated by supply and demand.

so when there is not enough supply of a given stock or kind of stock to satisfy that demand, you could see a stock rise beyond what you'd expect based on the fundamentals of the companies. when is there is too much stock relative to demand, shares get hammered well beyond where you thought they could go. we saw a lot of this with the chinese internet ipos in 2010, 2011. first these deals were staggering. everyone got so excited. they wanted nothing but china. but the gains became smaller and smaller and smaller as we got more and more chinese dot-coms coming public. ultimately, they flooded the market with supply, the same thing that happened at the end of our dot-com bomb. with the deluge of social media deals in 2011 and 2012, we saw it again. in the end, no chinese deal is worth anticipating. demand is well oversaturated. this is one of the reasons the chinese ipos reached their

lowest level in a decade, two deals completed. an 83% decline from 2010. in the end, the buyers of the last social media companies out of the chute, the groupons and zyngas. they were crushed by insider bailing seemingly at any price imaginable. the public was first fascinated and then turned on them with a vengeance that i haven't seen since 2001. and, of course, the fundamentals were never any good to begin with. boy, did that have buzz. the bottom line, recognize what's happening with your stocks doesn't reflect what's going on with the underlying business. use that fact to your advantage. when a company that's in terrific shape sees its stocks smashed for reasons unrelated to the fundamentals of the business, that can be an amazing buying opportunity. remember it can sometimes take a long time for the action in the stock to sync up with the performs it represents a tiny piece of.

you won't be frustrated with what you thought you heard moodily. instead, you can wait until the market gets smart and rewards your stock with the move it deserves. let's go to dave in virginia, please. dave. >> yes, how are you today, jim? >> i'm real good, how about you? >> i am doing real well. i have a question about after market trading, i was curious what exactly is it? who gets to participate in it? what are the ups and downs of it? >> anybody can participate. the market doesn't really close anymore at 4:00. there is bids in their offers. i don't like it. i don't like it because it's unregulated so to speak. there is not a lot of depth to the market. you can buy something too high, sell it too low. i encourage homework, no snap judgments. stay away. jay in texas. jay. >> hey, boo-yah, jim. coming from south texas. >> how are you? >> caller: just fine, thank you. the question i had for you, jim,

is if there is distribution in a stock throughout the day, meaning more sellers than buyers, how is it that many times the stock can defy gravity and close up for the day? >> well, i mean the sellers do sometimes complete, and while the sellers are selling, buyers are getting lined up by brokers who say, listen, i got a big seller. what happens is the stock goes down. when the final piece trades, all these buyers converge. they end up overwhelming that last piece. stock goes higher. that's what happens time and time again. look, sometimes the stock's performance doesn't match the company's underlying business. i know that can shock you. it can take a while for the two to sync up. if you get a bargain, please be patient. wait. your rewards will beckon. "mad money" will be right back. hmm...fifteen minutes

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or more on car insurance. yep, everybody knows that. well, did you know some owls aren't that wise? don't forget i'm having brunch with meghan tomorrow. who? meghan, my coworker. who? seriously? you've met her like three times. who? (sighs) geico. fifteen minutes could save you...well, you know. [ male announcer ] the day building a play set begins with a surprise twinge of back pain... and a choice. take up to 4 advil in a day or 2 aleve for all day relief. [ male announcer ] that's handy. ♪ these are sandra's "homemade" yummy, scrumptious bars. hmm? i just wanted you to eat more fiber. chewy, oatie, gooeyness... and fraudulence. i'm in deep, babe. you certainly are. [ male announcer ] fiber one.

>> welcome back to tonight's special edition of "mad money." stocks often diverge from the fundamentals of the companies they purport to represent. i know this confuses you mightily. i see this @jimcramer on twitter. i talked about the need for investors to get familiar with how stocks trade. you need to learn more about the traders and watch short-term moves and stock prices, but to take advantage rather than pretending these short-term gyrations in stock prices are beneath their notice and will somehow pollute your gains. may we never be so self-important or arrogant to think that entrance points don't matter. they control your ability to

outperform the market. they affect our profit margins. we care more about prices at the supermarkets than the price of stocks we buy. so how do we square the idea when you buy the stock, it can become unglued from the fundamentals? the facts about the business, how do you balance that with my insistence that you do your homework, read quarterly conference calls, transcripts, myriad research pieces now readily available on the web, and the news stories. stock prices you probably think are going to bounce around anyway. they're at the mercy of macro factors, etfs the companies can't control. does it sound familiar? or stocks remain hostage by big institutions and trade them. why am i giving you the focus on learning about the underlying company, given that homework is the least interesting part of the process, am i torturing you? look, the fundamentals matter a

whole lot. more importantly, the reason we focus on the fundamentals is just about anyone that understands it can do it. it's all readily available. in short, while you may think it's tedious and boring, it is easy in trying to predict so much out there that simply is unnoticeable. this stuff is available. it sure wasn't when i got into the business. look, investors are always looking for an edge, a leg up that provides them with an advantage over everybody else. that will never change. not all advantages are of the same scale. just by following my standard homework regimen you should have an edge over the other people that trade the stocks you follow. how on earth is that possible? your homework involves looking at publicly available information. check it out. armchair investors, the fact that the information is out there means it should be baked into the stock, meaning the share price should reflect what you know from your research. we know that's not how the market really works. lots of people are real lazy, lots of money managers are

technicians, they are looking at charts and they dismiss the fundamental also or the quants that don't get down to the nitty-gritty of quarterly earnings calls. you will know more about the stocks than the professionals do. 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 why i focus on it. i know i will get results, not just any results, but the very factual, objective kind that doesn't fall prey to a fiscal cliff that might be irrelevant. a sequester to your stock worries or a federal reserve minutes that don't mean a thing to your position? maybe the homework won't give you that much of an edge. we will give you what direction the stock will ultimately head. maybe it won't protect you from the whims of children in washington, d.c., who play with

the economy willy nilly, our the debt issues in europe or our own country. learning about companies is an all or nothing proposition. i don't think familiarizing yourself should be dismissed as less than useful because it doesn't immediately translate into immediate profit. remember, ultimately as i said at the top of the special show, stocks do tend to drift back into line with where they deserve. they sink, so in addition to knowing a lot of pertinent things about a business, you can assume your stock will probably end up within a certain price range. you got to wait long enough. you got to let it percolate. on top of that, as long as you keep up with the homework, you have a clean way to decide to cut your losses in a stock that isn't working. that's an incredibly valuable tool, especially when you claw your way back at it if the stock went down. you need to know enough to figure out whether you should be a buyer, you need to know whether opportunity is really

knocking or is your head about to be knocked in the canvass. on the other hand, it will give you the conviction to stay in a good stock hammered by the market for wrong reasons. either way, you will always know why you are buying or selling something. you won't be beholden to anyone but yourself when it comes to your investment decisions. can you think over time, how many stocks have dropped because of a quick decline, and you wished you had bought them. you didn't know the fundamentals so you couldn't. the risk changing from good to bad or bad to good, courtesy of the homework, the better the position you will be able make. more calculated, intelligent risks, these skills are useful no matter what. but they are of paramount importance when it comes to investing in stocks, the tension between needing to protect your capital and needing to risk that capital in order to make money. but even though these skills are handy, they aren't what most people call compelling. they may not give you the total picture you need to get where you want to go. and as for the boredom factor, you know what, let me take care of that.

i spent years trying to make investing more accessible, more interesting, more intriguing if not entertaining. no sin, given that so many focus on scaring you out of your shoes. i think i have shown i will do anything with keeping investors gained on their money. i have come out on the set, filmed with a hazmat suit. i have taken a nap on a cozy bed on cheerios by general mills. driven onto set by a lawn mower to intrigue you to look into john deer. i can't put a figure on how many dollars of expensive gizmos i've wrecked. i shed blood on the set to show you the insides of a brand-new boeing. yes, i chipped my tooth telling you not to touch the stock of krispy kreme. i ate peperoni dog food and threw up on the set after the show concluded. so i am not concerned too many will ship the homework. believe me, i will make this

stuff entertaining for you no matter what. we have ways to make you motivated. the bottom line, it is important for you to know why you are doing all this work. what the point is. it's a way for you to build conviction in your stocks. it's a way to get an edge, one that's totally legal. in an era where so many panic at the sight of the president coming onto the podium or the speaker of the house giving a press conference, you need to know that it might be a buying opportunity and not just a selling one like the panickers all around you. i need to go to tom in florida. tom. >> hey, jim, a big boo-yah to you. jim, in january, i invested in a deep in the money july call when the stock was at 43. the stock still seems to be going strong. i'm up 104%. should i close out or hold on? >> you sell common stock against it in a spread up top.

you sell tomorrow, you will sell, you know, a quarter of your position in common stock. you keep selling on the way up. if the stock takes a sudden downdraft, you continue to play with the call. that's how i like to use that strategy. okay. i need you to stop panicking. if there is a panic, i need you to take advantage of it. the only way to do that is to do the homework. it gives you the conviction. conviction gives you an edge. after the break, i will try to make you even more money. ♪

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wow. it's the honey, it makes it taste so... well, would you look at the time... what's the rush? be happy. be healthy. >> i want to tell you about a tool that can help you make money quickly but also carries a certain amount of risk and can be trouble if you don't know what you are doing -- investing in initial public offerings, ipos.

it's impossible to ignore opportunities that present themselves, there's been so many deals. many have gone through a premium and are red hot from the moment they are born, and others that fizzle from the opening bell. these are led in particular by technology and social media names, which have been met with exceptional hype and not enough skepticism. hype doesn't begin to describe the buzz around that facebook ipo. that was super hype, maybe hyper hype for a company that does indeed have excellent long-term prospects. sure, ipos are sexy. you are hardly ever told what to do with them. so i'm going to teach you the basics right now. when you know how to tell the difference between an about to be public company that will soar and one that could go down in flames, let's say you will have the potential to rake in serious profits. the lure of ipos is that when you nail it, when you get in on the right one, you can have gains of 20, 30, 100% in a day,

in a few minutes time. instantaneous nature of these profits makes them incredibly attractive. they can get in the way of your better judgment and cause you to invest in initial public offerings that end up stinking up the room. don't let the brokers trick you into believing buying every ipo, the challenge is making sure your broker can finagle you some shares. wrong, wrong, wrong. the investment banks will always try to slip in some clunkers after they've lulled you into thinking all the deals work. partially the public offerings tends to be all over the map, partially because there isn't that much available information beyond that prospectus. there is a tendency to assume the success or failure of a given ipo is mostly a question of luck, and that is also wrong. i think you can accurately try to figure out what ipos to

write off as uninvestible and which ones appear to be bought, buy, buy, buy. it isn't about luck. it's about analysis. the kind of home that professional money managers do all time and i advocate endlessly and tirelessly on the show. i know the pros have it right. i would analyze them the same way in my hedge fund. i made a boat load of money for myself and my clients at my old hedge fund by investing in ipos. i want you to know exactly how i did it. here's some inside baseball you need to know. i think the investment banks that underwrite all these deals have their own agenda, one i believe is often as much about bringing people, regular people, regular retail investors like you back into the game as it is about helping clients raise money. one of the things i learned on wall street with stocks and bonds at goldman sachs and managing money for myself and the rich people in my hedge fund, is when the market turns south, when it becomes difficult to make money, people sell, sell, sell, you know what those brokers like to do?

they like to throw investors some easy wins, lay-up ipos intentionally underpriced so they will pop when the shares start trading. why do i think they will underprice and short change the investment clients? it's just as important their other clients, the ones that pay them commissions, keeping interested in the market. for most investors, the gains from a sweet underpriced ipo or offerings with a small flow, boost of shares, are a great reason to feel good about being in the stockmarket, about owning stocks, about buying stocks. when times are tough, the brokers want to entice you back into the stock market. hey, that makes a lot of sense, right? they got to figure out ways, their business depending on you buying and the investors selling. by the way, the companies don't mind this, as long as not too much stock is given away. for the anatomy of ipos, i need you to look at linkdin and groupon, that rose 109% and 31% respectively in the first day of trading there.

is no doubt these often talk about a bubble in internet stocks. there is no doubt the issue is the artificial way they were priced, putting out very little stock, a sliver, knowing it would cause a big pop and creating bubble by itself. the brokers knew these stocks would be hot and hype for the group. they knew if they offered a limited number of shares and set the pricing below the hyped valuation levels, demand would overwhelm supply. the brokers tightly control the supply, partially to accounts they believe would thought flip the stock and gave out enough to the large mutual funds that they would be able to start, not finish. way the mutual funds would be whetted and bid, bid linkedin up and get the rest of the positions in, that's why linkedin kept soaring. never forget that the trip to a successful ipo is this rationing process. this syndicate deaths, they're

the ones that allocate the stock to potential shareholders. they know how much the big funds, mutual funds ultimately need to be able to have enough linked in to impact their own performance. so what the syndicate does is they give them a percent annual. usually a third, sometimes half of what they need to own, what is known as half of a full position. that forces the client's hands to finish it in the open market. of course, they could flip the position themselves. ah, brokers have ways to monitor who takes that quick money. they may not be allowed to get big allocations the next time around. you benefit, though, because the syndicate desk almost saves some stocks as they know they are holding on to stock. not play that flipper game. i am actually indifferent. my goal, try to make you money. one thing i don't think you should do ever is go into the after market. listen to me, i don't want you to go into the after market, meaning i don't want you to buy it on the open market after it started trading. particularly at inflated valuation levels.

forget about it if you don't get in. i've got staggering statistics that shows you, you are almost a sure loser if you buy a hot stock after it trades with a couple stocks allowing you to make money. most gigantic losers that could destroy your nest egg. linkedin, a total winner. groupon still remains in the doghouse as so many of the shooting stars of the bygone era. the odds favor losing, not making money in after market investing in ipos. trust me in that. remember, you are in a much better position. you don't need to buy a lot of stock well above the offering price, in order to be sure you have enough shares. you can pick and choose, provided you do enough business with a broker. in the after market, wait until you get a reasonable entry price. performance, details before coming. in like with facebook in the fall of 2012. when everyone feared there will be a ton resell, just when the they got religion, that was the

time to buy, not sell. weakest hands were gone, knowledgeable people jumped in. here's the bottom line, ipos can be a great way to make "mad money." money." if you are you not in the know, it can be a treacherous path. keep these mcnicks in mind. remember, the big guys do not necessarily have you the home gamer in mind. so beware and trust me, never, ever buy in the after market. for every one winner, there are ten losers. 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 the euphoria can cloud your better judgment, as everyone who got in on the aborted facebook deal knows all too well. that's why you need a consistent method to make sure you don't get torn to pieces by something that you don't understand, a deal you can't fathom or make heads or tails of. so here's your primer on analyzing smoking hot deals and ice cold deals, the safer and the dangerous. the first and most important

thing i look for with an ipo isn't what the company does, believe it or not. it's the company's pedigree, yes, the blood lines. i care about who the executives are, who the investors are, but most important, who the brokers doing the deals are. the first cohort, the managers, can often be a relatively unknown group of people. strangely, it's actually the least important part of the pedigree. here's why. it's very interesting. many of the best deals represent technology companies, including social media, and those companies revolve around an invention much more than a management team. look, if you just looked at google's management team, for example, you would have avoided this ipo like the plague. think about it. who the heck are larry page and sergei brin? they're a couple 20-something wildmen. those relative new kids on the block have proven themselves as the new young innovators. do you know more about mark

zuckerberg other than he wore a hoodie and they wrote a movie about him and had struggles with the two tall guys? my second question, who are the investors? it's more of a negative check, a disqualifier if you will and a positive one. we are looking at the investors, i'm concerned about you getting caught up in another investment. one funded by private equity companies simply anxious to cash in on a better market. private equity firms, they have bought dozens of companies in the last few years, in many cases, they paid far too much for them. they badly need to offload these companies into the open market to get them off the books. some will barely be profitable. others will be stinkers they will entice you with. the way i see it, these private equity ipos almost as a rule are difficult to judge. i'm not being that pejorative. some will work, but they're difficult. this brings up another important aspect of analyzing ipos, recognize that just because a

company can be publicly traded, that doesn't mean they can't be junk. there are many that qualify as a sham. some of the smaller social media names fit this category. they don't have to judge the quality of the business of ipos. they make them disclose as many facts as possible so you can judge yourself as home. and the brokers at least when they are dealing with the private equity firms, they do so much business with these outfits, they're hard to say no to. the brokerage houses get immense amounts of money from private equity firms when they take a company private and more fees when the company's spun off as a public entity again, including the large fees associated with the ipo, remember they buy back a lot of debt. they refinance like you do at home. that's why the investment bankers will often bend over backwards to favor the private equity firm issuing shares rather than the brokerage clients who are buying them. you see main investors coming

public, let's call it a yellow flag. it will be a red flag if there is a lot of bad deals. third, i look at the brokerage houses bringing the deal. this is really important. i want them to be major firms. yes, you may not like them. credit suisse and j.p. morgan, why does this matter? i know you don't believe me. they have their reputations on the line. bring a clunker public for the fees. once you have cleared the private equity hurdle, you can write the deal as a fairly good seal of approval for the enterprise, done be you all that jaded, people. i know many are. and it's wrong. why do i think this? let me tell you a story. in the 1980s as a young broker at the goldman sachs, i had personally helped work with the finances of the people behind a young company started really by brilliant inventors out of mit. it's called thinking machines, this company's claim to fame was

it had the fastest computer in the land. remember dow jones used it. it was so good for their back office and stuff. i had done so much work with the principals, when they decided to bring the company public, i was able to convince them to use goldman sachs as their deal manager. it was a big plum. there is only one problem. i couldn't convince goldman sachs to put its name on the deal, despite the immense fees the ipo brings to the firm. the analyst that followed the company, he pored over the financials. he looked at the product. he made a judgment. he made a judgment that the company will have short-term momentum most definitely will not have any staying power. i was aghast. oh, man, i was looking at a big payday. i stood to make a big six-figure ticket for bringing the deal to goldman sachs. this analyst, though, he simply wouldn't budge, reminding me that this was the goldman sachs,

not some schlock firm that put its name on any company just because it was hot. sure enough we passed. in a couple years the company failed. victim of better technology and poor financial management. >> the house of pain! so take it from me. that's why the broker's pedigree matters, that's why i pass on deals done by firms that you never heard of, with little or no track record. it doesn't mean every ipo will be a success. far from it. avoiding the smaller outfits weeds out the failures. in the heyday, every firm good and bad got caught up. so there are never any assurances in an overheated market. checking the deal remains integral. nothing is perfect. that's why i have a checklist, hopefully, one of these will flag you. here's the bottom line. only after i have gone through that three-step vetting process will i consider what the company does, imagine, or what it makes

or how it has done in the past. in part, because it's so difficult to judge these issues. i would rather use the quick filter i went through before i even crack the books on a company. something i will teach you how to do after the break.

>> ah. we've reached the final step, how to analyze the actual company coming public. here you have to assess what the company makes. you have to ask if it's profitable. most important, if you think of hanging onto the stock after the deal, you need to know how big its end markets are. that's so crucial. you have less information to go on. most of it is coming from the prospectus. figuring out what it does can be easy if it has a big bands or is a consumer product business like under armor or crocs. it can involve a sophisticated product, especially with technology. these technology companies, like the ones connected to broadband

or optimization, networking, semi conductor minimization, no wonder warren buffet says, don't go there. if a company is coming public makes a consumer product, first you got to ask yourself, is it a product you like. this isn't the only question, but it does matter. take the ipo years back, a thing called heelies, shoes with wheels on. is a fad i absolutely despised. i predicted it would jump, the craze would soon pass, then a long decline that took it to as low as a dollar and a few change a fewer years later. on the other hand, within a company has a good product, one you like and is profitable and solid financials, then you can catch the gains from the first day, the initial public pop, and from an extended run afterwards. that's what happened with the under armour ipo. that was a truly mouth watering deal. i urged people to hang on, after taking some profits, you have to

take some off the table. remember, it's doubled. even at that higher price, they were valued the same as nike. even though it had a much higher growth rate. that's a classic example of pricing that worked to your advantage. once in a while, you get a thrice blessed ipo. a lot of room to run and a great brokerage house. lulu lemon was a good example, goldman sachs brought public at $18 in 2007. stocks have continued to grow, despite the 2008-2009 sell-off because of the gigantic addressable market, that initially was women, and it extended to all women, not just women athletes and some men, too. some of the best ones from 2012 to think about, organic food maker annie's, discount retailer five below, and enterprise software provider guide wire, son of salesforce.com. they all fit the three-prong test.

in all these cases, the trick is to recognize the size of the market, the power of the competitors and try to figure out how the company is coming public is valued as similar players. deals like under armour or lulu lemon priced at significant discounts, they tend to be the good ones but are rare indeed. the bottom line, to analyze the ipo, including the abstruse technology companies, rate the competitors, see whether the company is profitable. make sure of the broker's pedigree. then you will know whether it's worth it to put in for the deal. "mad money" is back after the brake.

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>> well, cramerica, it's time for your tweets. first from @clarkevans3 who writes the following, why don't more companies split the stock? you are so on point here, clark. i got to tell you. one of the great things about some of the stocks i follow when they split the stock like a salesforce.com, you get a lot of liquidity. it makes it so the stock doesn't trade so herky jerky. there's companies that get to $300, $400, they must think they're imitating warren buffet and berkshire hathaway. it does make it so individuals are much less scared of a stock. maybe that's enough, no value created. but very pro-retail.

here's one from @tswizzlewizzle who writes what's the best advice for a young person. what's the best strategy for going about investing small amounts at a time, quantity or value? i like the stocks below 10 for my first stock, by five shares. i get the feel the pain if it goes down. it's easier, only later do i start getting up to stocks, i know it shouldn't matter what the dollar amount is. i know the way you think. i know you don't feel like a yale professor. you think like i did when i started. you want a little capital. this one says diversified among asset classes or stocks, which should i be most concerned with? >> okay. here's what i care about. i care about baskets. it can be etfs, i don't like etfs. i like to pick the individual stock, or it can be individual

stocks. remember, you have to think about what they do. i care about the end market. that's why i do diversification. if everybody's end market has to do with finance or technology, then you end up being hurt. so consider who the customer is, if you are unsure about whether they're diversified. the next tweet comes to us from @pgallagher3515. what's the best investment book you read? one from wall street, beat the street, two. peter lynch books. they're really terrific. and i think that those are great places to get started. let's go to one from @jehamilton, how many hours do you sleep each night? i tend to get three or four hours, except for friday and saturday night, i sleep twice or three times that. i believe, i know it sounds fanciful that you actually save up the sleep. if you get a lot of sleep on saturday night, you don't need to get a lot on sunday or monday and i don't. another great tweet comes from

writes boo-yah, jim, you just finished your book. you got screwed. great book. i remember them saying why did you call it for? it was spot on about how wall street sometimes can really stab you right in the face as well as the back. "mad money" is back after the break. when we made our commitment to the gulf, bp had two big goals: help the gulf recover, and learn from what happened so we could be a better, safer energy company. i've been with bp for 24 years. i was part of the team that helped deliver on our commitments to the gulf - and i can tell you, safety is at the heart of everything we do. we've added cutting-edge safety equipment and technology, like a new deepwater well cap and a state-of-the-art monitoring center, where experts watch over

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it's your move. >> i like to say there is always a bull market somewhere. i promise to try to find it just for you, right here on "mad money," i'm jim cramer. see you tomorrow. population 1.6 million, playground for the world's wealthy, where the rules of real estate don't apply, and the sky's the limit... >> $4 million is cheap. the apartment is listed for under $13 million. >> ...home to one of the most powerful brokers in the business. >> i've sold over $8.5 billion. >> the rich and famous turn to her to get the job done. >> okay, we're gonna have two unhappy bidders and two unhappy other brokers, but such is life. >> and now she reveals all. >> oh, my god. is that drugs?