couldn't get out of its way. >> guy? >> the ovx over 50 and commencement move to the downside in oil. that's what i'm watching. >> i'm melissa lee, thanks for my mission is simple. to make you money. i'm going to level the playing field for all investors. there is always bull market somewhere and 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 trying to make a little money. my job is not only to entertain you but to educate and teach you. so call me. or tweet me @jim cramer. tonight i want to take a step back and talk about the big picture. my ultimate goal on this show is to teach you how to become better at managing your money.

not just investing, but every aspect of your financial life. and sometimes that means we need to take a deep breath, step back from the day-to-day nitty-gritty of the market and no cuss on the educational side of things what i call investing 101 honestly, if any university was ever crazy enough to give me tenure, i could teach an entire semester's worth of classes on just the basics. but, of course that, presupposes that any institution of higher education here in america would be interested in teaching how to manage your money. a topic that's a little quintinian for the ivory tower types that run most colleges, you can get a bachelor's degree in economics without knowing how to balance a checkbook. that's not going to change, but we can do our best here on "mad money" to help. so investing 101. what's the first item on my sill syllabus of the class? we need to thank you about

savings. if you don't save, you will spend the rest of your life to a slave to your paycheck or the hostage to the social security system. for throws in your twentsz, who knows if social security will be around by the time you need it. more importantly, i can't teach you how to invest your money if you don't have money to invest. that's why it's really crucial that you save and save consistently. look, i'm not going to tell you all the reasons that make sense to tav i save money. you don't need one more person badgering about the obvious, whether it's to buy a house or you can retire or more than social security. which you will need more than. trust me. for most of you, when you hit retirement, social security, it's not going to be enough. plus, social security will be altered or taken away by washington, which makes it inherently unreliable. it wasn't so long ago the president and congress were willing to change the way social security keeps up with inflation. something that would have meant serious cuts in benefits for those of you expecting to collect them 20 to 30 years from

now. these changes didn't actually happen. nobody in washington can agree on anything, anyway. but if things ever get more amicable in the capital, kind of like a one-party thing going, you should be prepared for them to tinker with your social security. i have to tell you, i don't think it will be in a good way. that's all the nagging i will do today. honestly, from my perspective, the best reason to save is not that i will insure you have to insist on cat food in your old age? no the real reason to save money, a reason is that for the vast majority of people in this country, you are never going to get rich from your paycheck alone. look, that's just a fact. for everybody who's worried about income and equality or the growing lack of social mobility out there, there is not much you can do to fix our system of playing stage capitalism on your own, but there are still ways you could help yourself. mainly, you can increase your wealth pretty dramatically by

saving part of your paycheck and investing that money in stocks as long as you invest it wisely. that's my reasoning. if you don't save or save enough, then you are at best a hostage to your paycheck and your boss and if you are living paycheck to paycheck, you don't have the prospect of quitting your job. your 18 p only "options action" are to keep doing something that makes you miserable or go broke and possibly lose everything, including your home, which is even more miserable as i can tell you from my personal experience. trust me the back seat of your car is a lousy place to live. so on confessions of a street addict, i don't need to go over it anymore. but you can see, i know where i speak. however, if you save and invest your money, year-to-year, if you grow your assets and for those of you in the dark about how to do that, i suggest you pick up a copy of "get rich carefully," then eventually you will have real independence. you won't be hostage to anybody. it may not be fair, but we live in a world where wealth is

synonymous with freedom. it's pretty darn good reason to save 15% of your pay clek if you can afford to or at least 10% if you are really strapped for cash. once you start saving money, though, you have to know where to put it. that's an issue we don't spend a lot of time talking about on "mad money." let's say you are saving 15% of your income, where should you invest that cash in that's optimal. how much should go into a tax retirement account loik a 401k or regular brokerage account. these are the questions i get all the time. my rule of thumb here is to invest for retirement first. because to best against retirement is to bet against your own longevity. for those of you who are decades away from retirement age, i recommend putting half to two-thirds of your savings into retirement accounts like a 401k or individual retirement account. remember, these are tax favored vehicles.

meaning you don't pay any taxes on your accounts or profits within the account. you only pay taxes once you decide to withdraw the money after you are retired, at which point you withdraw it as ordinary income. i told you about how to use these accounts before. so i will not belabor the point. half or two-thirds of your savings should go into retirement. the rest of your money goes into a "mad money" account. that's a normal brokerage. i recommend a low commission. there are two reasons why you should have parallel accounts like this. the first simply is to rise 401k means your money gets all special tax savings. you can take advantage with money you intend to spend before retirement, unless you use a roth ira. in the case of a roth, your contributions are tax going in. we'll you are allowed to withdraw those contributions early without penalty, you still get hit for a penalty for withdrawing any of your profits early. if you don't feel you have

enough capital by keeping two separate accounts, then a roth ira is a good way to square that circle. especially since the roth is more favorable to younger people with lower incomes than a regular ira. there is a second reason i recommend using two different portfolios, though. you are supposed to take fewer risks with your retirement money. can you tike i take more risks with your discretionary "mad money" portfolio. when you are young, there is much less difference. if are you the age of 30 you can afford to take risks with all your money because as i tell you all the time, have you your whole life ahead of you to make back any income losses. ♪ hallelujah heres the bottom line. don't think of saving money as the responsible way to make sure you have a comfortable future. no. think about savings as an investment for the stockmarket. investors done correctly to free you from the shackles of your paycheck and maybe make you, especially rich. that's why you should have a retirement portfolio to make

sure you have enough money once you stop working. you should also have a discretionary portfolio where you can take more risks and use your gain to have some fun before you turn 65. debra in california. debra! >> caller: hi, jim, thanks, so much for the show. love it! >> of course, thank you so much. >> caller: my question is, i frequently hear you and other analysts say to buy a stock on a pullback. >> right. >> caller: but nobody ever says how to determine hutch of a pullback we should be looking for. so how do i determine how far it has to pull back? >> okay. this is a great question. i have an answer. i always say it's a five-day percent from the 52-week high is where i would start buying. that's what i have been doing for my charitable trust. i don't like to get started before then because i don't want to rick that the next move down will force my hand. five day percent and atlanta little bit off room rather than

two to 3% down. 5-to-8 is my rule. alan in new york. alan. >> caller: boo-yah, professor cramer. >> thank you so much for that degree. how can i help you? >> caller: hi. i know that you always say that when you are ahead you should take some profits off the table. when you have profit on core holdings that still have big upside, you keep or sell on investing something else. my goal sense i started investing, my first trade in 1978 is to play with the house's money. take your time scaling out of a core holding. you can tap it as a franchise player. but when you have a double, i need some money to come off him when you have another double you need money to come off t. goal is to play with the house's money and never touch it again. because you just can't lose. that itself the way it should be played. trust me, that's how it's done. debbie in i'd hodaho.

keb by. >> caller: he, jim, we have been getting a financial presentation that usually includes a free consultation. while we have been successful at accumulating money in our 401ks over the years with the emphasis of somebody we trust. we have moved and we are considering a change. soar with now getting close to 60-years-old and are looking for a different plan, one that includes income distribution, social security maximization and tax savings. so what should we look for in a financial or an ad advisor at this stage of our life? >> okay. you have got to get invested in your community. a civic activity, a ymca, which i support. you know, some organization locally and then get some feedback. i demand that people have some sort of contact with friends who use these people.

because referrals are the only way to be sure. not advertising. not seminars. but referrals. okay. a penny saved is a penny earned. think about your savings as fuel for your investments. you don't have to be held hostage to your paycheck and "mad money" will be right back. now, on "mad" tonight, how many is too many? find out how many stocks you should own and i'll show you how to master the art of diversification. then what's the stock really worth? i'll show you how to figure it out. how much lesser cash you should carry around in your portfolio. why don't you stick with cramer?

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but mattress price wars ends sunday at sleep train. ♪ sleep train ♪ your ticket to a better night's sleep ♪ . i kicked off the show by telling you you should save 15% of your paycheck, 18 and split it before a more conservative retirement portfolio using a 401k or ira and using a discretionary money portfolio that you can manage out of a regular brokerage account. beyond dividing your savings into two streams. how do you get involved in the stockmarket? where do you begin? my short answer. this will sound glib. buy a copy of "get rich quickly" i wrote that book to teach you how to invest in this not so brave few world. how about the longer answer,

though? less emotional. for starters, i believe a diversified portfolio of five to ten individual stocks is the best way to go. remember you can do the index. now i'm talking about the other part. all right. before you start picking stocks, you into ed to forget everything i ever heard about that classic piece of so-called investing wisdom and buy and hold. you don't buy and hold on "mad money." that's reckless. it's a great way to lose your shirt. instead we practice buying and doing homework. >> that means if you pick individual stocks, you will read a company's sec filings for the annual report. i do love t. 10k most recent quarter the conference calls, you have to do all of that. the most important element of the home is going over the earnings reports and not just the earnings release. you actually do have to read the transcripts of these calls. they're so readily available. they're everywhere on the web. there is no better source than information on these calls. now it's incredibly easy to listen to them online.

you have to research the company's sector. try to physical out if there is a good, if it's a good moment in the business cycle to own things in the particular industry you are looking at. then compare the stock to its competitors to see if its valuation makes sense or something else is a more attractive buy in that exact same sector. if are you not willing to put in at least that much work, nope, i don't want you to do it. i want you to stay away from owning individual stocks. this is jim cramer saying it. mr. stock is telling you, i don't want you to touch stocks. the fact is, investsing like everything else in life takes effort few want to do a good job. but i'm not trying to guilt trip you into spending more time doing your homework. a know a lot of people that don't have the timer incriminalation to do the individual stock research i believe is so central. if you are one of those people that lacks the time or the interest, don't try to wing it. i'll give you a good alternative in a second. i have been meaning to diversify a portfolio, you need $10 million. until you have that much saved

up, there is not much point in going into individual stocks. so where should you invest your money if you don't have 10,000 to invest or don't have the time to machine a portfolio but lease five stocks, in that case, put your money in an index fund. yes, i'm endorsing index funds. mr. stock is endorsing mr. index. if you want a cheap index funds that mirror the s&p 500. you will have the asset class over the long term. that's demonstrative and empirical t. whole thing is the index fund is the market. so few put your money in a fund that mirrors the s&p 500, will you have the same benchmark performance the performance exactly like what the s&p gives you minus what fee us you pay to the fund's administrator. picking your best stock is the best option. for those who can't commit to stock picking for whatever reason, keeping your money in an index fund, that is a perfectly

reasonable responsible way to go. i happen to like the vanguard 500 index fund. very little fees in that one. however, if you do have the time and inclination to own individual stock the first step is to build yourself a diversified portfolio that i mentioned earlier. now, i'm always getting questions of what constitutes diversified portfolio and what you should put in it. let me spell things out for you. diversification is simple. people tend to forget about it. we play am i diversified every week here on the show. in a nut shell, you would have no more than 20% of your portfolio is in the same sector. diversification is all important because if something happens that questions one particular group of stock, you don't want it to inviscerate your entire portfolio. i seen too many people put too many eggs in one basket. when it broke, they lost everything. 2009 with the banks, those juicy yields people couldn't resist. don't repeat that mistake. if you are building a di

firstified portfolio, you need a minimum of five stocks. on the other hand, my raw thumb is you don't want to own more than ten stocks, then you will have to do way too much homework to keep up with all them w. more than ten stocks, you will practically be owning your own mutual fund. >> that will be hard on anyone, even the desire of an illusion of a personal life. first, you might want a tech company riding the triple wave of social. and second maybe you own a pipeline company as a way to play the tremendous surge if domestic gas. third, perhaps a health care name, either a biotech celgene and a big pharma company with the risk, bristol-myers, fourth, why not a retail. fifth, let's round out with an entertainment cap energy, retail, entertainment. that's what a diversified portfolio looks like, if are you getting started as an individual investor. remember to own individual stocks, you need to do homework

on each. you have a state of di firstified. get your money spread out among at least five sectors. there is much more "mad money" ahead. including the many factors that determine a stock's price tag, the actual what you pay that dollar amount. i will help you understand what a holding is really worth then solving the cash ka fun drum. how much should you hold in your portfolio? don't miss my take. plus everyone should pay their taxes, but are you giving the government too much of your money? i'll help you keep what's yours. stick with cramer. >> jim cramer, you are one of my heroes. >> i look forward to your sew every week night. >> thank you for helping beginning investors like me. >> when you talk about the markets, i believe are you spot on. >> oh i love it. thank you so much. every night we watch you i have learned and earned.

why am i taking a step back tonight to focus on the basics of investing 101? because with very few exceptions nobody tries to teach this stuff. nobody at all. you can get a graduate degree without reaching your bank statement. i got to tell you, it's driving me nuts. and that's why i'm trying to teach, well, that's why i teach you how to handle your finances

and the basics of investing the stuff we gloss over in our never ending quest to find you the next bull market. obviously, that's what "mad money" is about. sometimes we got to step back and do it right to get you grounded. so we talked about what? setting something aside for retirement. we talked about home workd and diversification. now, let's talk about something we don't talk about enough at all. really, because it's hard and sometimes boring, but i'm going to make it exciting for you. let's talk valuation. when you are picking stocks to fill out your portfolio, how do you talk what is keep? oh, that itself cheap stuff. whoa, that's expensive stuff? how do you compare stocks on an apples to apples basis? as i told you over and over again, you never judge a stock by the average dollar price. it's meaningless, you judge it by the multiple or pe. think about it, the stock is in a thousand dollars, is that necessarily what it is at $500? >> no. anyway, valuations is a concept

i use all the time to show you how we value stocks. tonight i want to spell it out in more detail. to understand it, you don't need to know any math. elementary school arithmetic. here we go. the price of the stock write this down that's called p divided by its earnings per share that's the e equals m. the price to earnings multiple many is the pe multiple. oh, when i say the earnings, i mean you want to look at the earnings estimates for the next year. valuing stocks is all about the future not the past. we use the future earnings estimates, that's what the major institution are looking at. so the multiple is the thing, not the share price. okay. but what exactly makes for an attractive multiple? ten tiles earnings 15, 20? here's the thing. this is not an absolute way to value stocks. it's relative. there is no price earnings that is always attractive. the reason we use the method to value stocks is simple. it gives us the actual

apples-to-apples way to compare one stock with another. for example, let's say general mills, okay, is trading at 16 times earnings while competitive cereal company kellogg is trading at 15 times earnings. does that mean general myles mills is more expensive than kellogg's? no, not necessarily t. truth is, the price-to-earnings multiple by itself doesn't give you nearly enough information to assess the stock's value t. multiple tells you what investors are paying for a company's future earnings stream. it doesn't tell you why. let's consider the case of salesforce.com. the king of cloud computing. >> that sells for more than 75 times earnings. does that mean per se that salesforce.com is super expensive versus general mills? it may seem like it in no, in reality the comparison doesn't make sense, general mills is a consistent but slow growing emphasis consumer staple play.

while salesforce.com is a rapidly growing cloud based software as a surface company. these two are in different links. they're also playing a different game. the reason for that is growth. remember when i said the price-to-earnings multiple measures what an investor is able to pay for the future earnings stream, the future is the key word t. company has a long-term growth there about 6.5% meaning over the next five years earnings should increase annually. investors simply aren't going to pay a nose plead valuation for those earnings. hence the 16 priced earnings multiple. it doesn't grow that fast. sailsforce has a long-term rate of nearly 30%. >> that means three or four years down the road the companies earnings are much, much larger than they are right now. which is why investors pay up. that's why they get that price to earnings multiple, when you assess a stock, you always, always, have to consider that

multiple versus the growth rate. generally speaking, stocks with faster growth will have higher price-to-earnings multiple. it's not an exact science t. growth rate is definitely the factor. which brings me to a metric factor that underpins our show. it's what's known as the peck, p.e.g. ratio. this underpins all of "mad money." it's the price-to-earnings to growth rate. this is a way of relating the p.e. multiple to the growth rate and it's not complicated. you just divide the multiple. write the price, we've been over that, by the long-term growth rate of the company. we're driven by peg rates on stocks when we make our judgments and comparisons. when it comes to the peg ratio, we can talk in absolute terms of what is a good number, what is a bad number? my rule of thumb is one i arrived on after three decades of trading and investing, i

don't have to pay two times. any stock with a peg ratio of more than two, i just say, no, i'm not going to touch it. >> don't buy, don't buy! >> so if a company has a 10% growth rate, it's trading at more than 20 times earnings. i'm generally inclined to say, doan don't buy, don't buy! too expensive. sometimes you have to suspend traditional analysis. for example, 2013 melt item stocks soared without any regard for the price-to-earnings multiples. then the spring of 2014 they fell out of favor -- back slightly. sometimes there are companies that look expensive on near-term earnings, but are darn cheap based on what we call the out years. 2016, 2017. by this same token, i consider any stock trading less than the growth rate, a peg ratio of less than 1. i consider that stock to be cheap. some are what we call value traps that will only get cheaper. when you see a high quality

company selling less than one time its growth rate you might have a terrific long-term buy. for example, priceline, a company people invarably say, wow, that's too expensive. sometimes it sells 18 times earnings. if priceline's price scares you away, remember, divide everything by 10. then it won't seem so frightening. here's the bottom line. for those of you new to the game. we use the price to earnings multiple in relation to each other. whenever you make an evaluation comparison, you always have to consider the growth rate, too. if you only take othing away frm this statement. you can only value stocks if relation to each other and the index overall. herb in florida. herb. >> caller: sunny florida boo-yah. jim. >> sweet. wish i were there. >> caller: yes, listen, jim, i have become a little of a krirm

h.aholic since my retirement. >> thank you. >> i raise cash preparing for a corrections and then went on a bit of a shopping spree. >> okay. >> i messed up on one of your prime directives of trying to keep it under 10, to find myself with 45 positions. >> wow. >> all of them are you know i go through them regularly looking for the weak sisters, i just can't find one. >> okay. here's what you have to do. i'm not asking you to just randomly sell. what i want you to do is rate them on conviction. one is a buy. it means you want to buy more of. two if it comes in, you want to buy. three if it rallies you want to sell. four sell right now and peel off the fours then peel off the threes. i don't think you should be able to manage more than 20 stock, frankly, sir. you can't. i can do 15 to 20 indepth. when we get over 30, we stretch

ourselves. don't be stretched. fred in utah. fred! >> caller: yes, i want to know what ebitda was and why it's important? zplts earnings before tacks and amortizization. it looks at when you have a company that spends a lot of money to buy certain things that and stuff has to be deappreciatated, it's a trueer look at what the money coming in. another way to look at it, take a look at cash at the beginning of the year. look at cash at the end of the year. >> that is another way to see if the company you own is losing money or making money, which is why we use ebitda sometimes because you need a better depiction than we can get from straight earnings per share. stock only in relation to each other and the broader indices, alwaysings consider the stock's growth rate along with it to factor in the price. much more ahead. they say cash is king. but how much should you hold in your portfolio? don't miss my take.

then uncle sam is very hungry. i'll help you make sure you are not feeding him too much of your hard earned money. plus tweets, stick with cramer. zplmplts

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i've already told you all about the need to have a diversified portfolio with five stocks some want many more than that, that's difficult. there is something you should always have, that something is cash. cash is the fuel that lets you buy stocks into weakness, how we like to buy them on mod main because you can't buy low if all your money is committed at higher levels. how much cash should you keep in your portfolio so you can pounce in the next market of weakness, you know they always come along. first of all, your best chance

to prepare for the next sell-off is when the averages ride high. the next way to do that, remember we sell straight on this show, not weakness. so before we get into the actual amount of cash you should have at the ready. you should always have some cash in your portfolio. in fact, you might say there are moments when skash your most important position. too many people i talk to tend to be fully invested all the time. some are requisite enough to borrow money to own stocks. like you can limit them or something when they go bad. i got news for you, being fully invested is something you should almost never do. having no cash moves all your flexible in the downturn, borrowing money to buy stocks, using margin. who do you think you are to be that confident, to be that brazen, to be that foolish. using margin is the height of arrogance. it's bound to get you in trouble. so don't do it. even though i know many brokers

encourage such borrowing, they can make a little extra money off you. okay. so how much cash should you leave in your portfolio at any time? that varies. my charitable trust, which is a paid service as part of the street.com, i like to keep my cash position above 5% of the portfolio pretty much all of the time. anything below 5% i feel the trust might as well be running on empty. yep, you should try to have that 5% so are you ready for the next big sell-off that others aren't expecting. it gives you enough money to figure out the opportunity. how do we figure out what is the right amount of cash? this is counterintuitive, which is why i decided to do a segment to explain it. you heard me right, when everything is roaring, when the average versus had an incredible run, when stocks are making a i killing. that's the moment when you want to increase your portfolio's

cash position. >> sell, sell, sell! >> how does that make sense? shouldn't you want more exposure to stocks when the market is on fire? remember the reason you need cash in the first place. it's so you can be in a position to buy more stock the next time it gets a pullback. you need to have cash in your portfolio to go to take advantage of the pullbacks in the market. there will always be pullbacks. >> that means the best time to buy cash is when the mark is moving. you will end up selling stocks at lower prices perhaps the exact moment when you should be buying tell. after a big run that's taken the averages up to all time highs, it might make sense to err on the other side if you are concerned the rally could be on its last legs. you should always be thinking, that will be the case. you may feel it will cause to you miss out on the upside t. point is the next time we catch

a downdraft, you will be eight quickly put that cash to work, buy lower more attractive price, keep if mind, there is always another sell-off. whenever the next one hams, you don't want to be caught with your pants down. finally, is there aceh moment when it makes sense to put your cash to work? there are times when you should pour all of your cash into stocks. those times are rare, like the hanes bottoms, that was a moment. we don't get many of those moments, though. my rule of thumb is that you put your cash to work behalf a dramatic sell-off a. decline of 10% in the s&p 500. for example, roughly 6% from late december 2013 to as low as february 2014, that would have been a terrific moment to move a big clunk of your cash position into stocks. >> that wasn't a 10% decline. you should have kept some cash back on the side lines, in case the market went lower. when i tell you to keep 5% at

all times. it's there precisely so you can use it to take advantage of the next 10% decline in the averages 10% detine in your favorite stocks. i got to tell you, a lot of my favorite stocks have been down 10%. it's been the best time to buy them, not sell them. why am i so emphatic? by truly twooep keeping it at the ready, i was able to triple the performance of the averages, after all fees for 14 years. i was able triple. it's not just wow, you can never beat it. because i did. living and breathing embody imt and it was cash that made we thing. never underestimate keeping cash in your portfolio. you need it to quickly and carefully buy stocks into weakness. for those of you fully invested, use the market's next updraft by selling stocks into spring

that's simply the kind of discipline you need to practice if you want to be a good investor. you know what else you can call it? hmm. how about this? buy low, sell high. has that ever really gone out of style? "mad money" is back after the break.

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at ally bank no branches equalsit's a fact.. kind of like mute buttons equal danger. ...that sound good? not being on this phone call sounds good. it's not muted. was that you jason? it was geoffrey! it was jason. it could've been brenda. >> tonight i'm trying to focus on the big picture involved in managing your own money. i'm calling it investing 101. when dealing with financial planning, we have to deal with those things in life that are inevitable. i'm talking about how to set up a living will too morbid even

for me. tax, if you believe some people on tv is arguably worse tan death. a lot of people like too wait until the end of the yearer until we get to that april 15th tax return deadline before they talk about tax planning. the truth is, tax planning is something you need to unand you understand year around. why? because of the difference how we tax long-term and short-term capital gains. if you buy a took and sell it less than a year later, it accounts as short-term capital gain. it can be as high as 39.6%, thank you, mr. president for bringing that tough rate back. boo! and i mean that as sincerely as possible. however, if you hold on to a stock for over a year and sell it, suddenly it becomes a long-term capital gain in the eyes of the irs. under the obama reyeem the long-term exam gain rate is 15% for most people. although if you are in the higher tax brackets, that rate becomes 20%, much cheaper than

the rate you must be paying. ye yes, for those of you in the top three tax brackets, there is a 3.8% surtax and your net investment income and modified income and the capital gains rate might be 23.8% in many cases. that's a heck of a lot lower than the capital gains rates. so here's the real issue when many of you look over your tacks and see how much more you are paying for short-term money that you made less than a year, i know you will be kicking yourselves and saying how can i be so stupid? i held the darn thing for over aer 82, i'd be in tax heaven with those super long-term capital gains rates. >> that at problem. all else equal, i think it's a bad idea to have tax plateing have too much of your portfolio. imagine you owned those biotechs and cloud based service software red hot in the second half of 2013, suppose you don't need stocks for eight months already

and let's say you decided these gains are so huge, i don't want to have to pay the tax man that horrible short-term gains rate. instead if i hold them three months longer so that holding period is over a year, i'll be in the clear. my tax bill and these holdings will be nearly cut in half. thanks to the long-term capital gains rate. in other words, suppose you let tax planning drive your decision-making when it comes to biotechs over the first 24 hour months of 2013 remember these stocks were eviscerated during the spring of 2014 t. gains, they evaporated almost overnight. you see what happened? if you held onto the high flying biotechs, just so you get the benefit of paying lower long-term cap gains rate, in that case, let's say you probably lost all your gain, now, i'm not saying you will give up your gains every time you hold on to a stock simply for tax reasons. i am saying you should never hold a stock that could have an iffy future, just so you can

avoid paying the higher short-term capital gains rate. that's not because i have a problem with tax avoidance. tax avoidance is both legal and terrific. remember, we're not talking about a tax evacation. that's illegal. you own stocks because you believe they're going higher. you don't keep owning them solely in order to flex around with your tax bill when you think there may be problems with the businesses underneath or are you worried they've gotten overvalued you a you are getting greedy as was the case with 2014. that's why i've had one simple rule. it's okay to pay taxes. you don't have to like it. you have to accept it. whenever you make money the government will take its cuts. you shouldn't let these tax considerations drive your investment decisions. it's hard enough just to do your homework on the companies you own. you don't need to add another step to the process, how many more months do i need to hold this thing to get that 20% lower capital gains rate test, even though the business may be faltering? if you own a stock and you

decide to sell it, there is no harm in waiting a couple more days to cross the threshold and cut your capital gains tax bill in half. unless you are on the threshold, taxes shouldn't be a factor. let me give you the bought tomcat line here. there is a lot can you do to minimize the damage uncle sam does to you on tax day. take every deduction you can legally get away with, don't let the difference between short term and capital gains divert your strategy. when up invest in stocks, it's okay to pay the tax man. more important, it's a sin to give up your gains. stick with cramer.

>> we have to get the tweets you have been sending me, @jim cramer, let's take a tweet who wants to know can school be back in session? please explain stock options so a two-year-old can understand. we appreciate it. thank you. this is not red 13 dit. i will tell you gentleman

getting back to even i started to write a chapter meant to explain to people "options action," it started 25 pages and expanded to 50. by the time i finished, it was 110 pages. why? because that r they're that hard to understand. which is why i rarely talk about them on this show. no such thing about easy learning about "options action." oh, here's kevin, i just used a copy of real money to splash a supply, thanks for the advice and help around theous you know it's funny i remember reading your text and i smashed a spider with it. anyway, whatever is useful. hey, look, fine. i think great. i like fly swatters. you can get them at dollar tree. okay. under score high fiveman, he asks, what's your boise to men's song, jim bo? how about "end of the road"?

okay. how about not bad, right? i pulled that one right you of, okay. at gregory j. dikes wants advice, don't need a lot of money, what's a good percent of retirement account to have in fixed income or bonding? as you get older, i'm going to allow you to have fixed income. the rates are so low i am recommending the bond market equivalent stocks. as long as we don't get the 30 year, i will stick with that. then we will do bomb work. not until then. mike wants to know, why does the yen strengthen during times of market turmoil? the yen is a manipulated stock. it's currency. the government manipulates it. who know what is the government is doing over there. all i can tell you is that country has not produced a strong return in the stockmarket. everyone is thinking it's about to i remember when that market was worth so much more than

ours. fortunately, charlie rose, short it and buy the dow. probably the best call i ever made. i still don't like japan. i like the country, not the stocks. stick with cramer.

>> thanks for watching this special show. i like to say there is always a bull market. right here on "mad money." i'm jim cramer. see you next time. >> a million-dollar idea just

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