favorite sector for 2020, it was my favorite for 2019 it's the most hated sector >> karen >> i'm going with target >> i didn't mean to say "most hatedkaren. >> most hated dan. >> thank you very much "mad money" with jim cramer begins right now 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, 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 just trying to make you some money. my job is not just to entertain but to educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. investing isn't easy, but kit be a lot ease year if you find someone who is willing to walk you through the arcane

terminology and the wall street gibberish that makes the whole process seem really impenetrable there is an entire industry of people earn their living by doing the opposite of that they want you convinced that investing is too hard, that regular people just can't do it. the safest thing is to give your money to a professional or stick it in an index fund. the truth is that's the right call for many of you and everyone should have some index fund exposure. i believe you can manage some of the money as well as the pros. the truth is many of the professionals really say they're focused on getting your fees they're more interested in taking your money than making you money. and that's a lot easier if they can keep you ignorant about the market they're kind of like the "the wizard of oz." they don't want you peeking at the man behind the curtain they don't want you to understand, because maybe if you did, you'd take control of your finances, pick your own stocks and not pay someone else potentially exorbitant fees to do the things you're perfectly capable of doing yourself. and that's where i come in

i'm pulling back the curtain and explaining everything. while authentic wall street gibberish can sound complex, it's not rocket science. you can comprehend all the abstruse vocabulary as long as you have a translator, a coach like me who can explain what it all means. a defector, someone who played for the other team, managing about $500 million of already rich people's money at that old hedge fund of mine, but who is now playing for you, teaching you to navigate your way through the minefield of the statement ever night here on "mad money. to be a great investor, you need to break the wall street code, and i'm here to help you crack it that's why tonight i'm giving you my gibberish to plain english dictionary, the most important terms you must understand if you're going the actively manage some of your own portfolio. words and concepts that people in the financial industry really don't want you to get your head

around because then you might actually feel more empowered, empowered enough to pull your money or stop handing over your fees. let's start with extremely important ideas that we talk about all the time they go hand in hand cyclical and secular now you hear these all the time. yet no one ever seems to explain what they mean, even though they're crucial to the process of picking good stocks cyclical has nothing to do with the spin psych only your washing machine or wagner's ring cycle, and secular isn't about the separation of church and state and oh, yes, a kudo to the late louis ruck hiezer. it's sickle. machinery companies like caterpillar and eaton fall into this category along with a rio tinto and the new dow chemical these cyclical players are indeed hostages, hostages to the

vicissitudes of the economy. when the economy heats up, they earn more money. and we're willing to pay more for the earnings but when it slows down, they earn less money. investors earn less for the shares and that's why they want to sell them, sell them ahead of times a secular growth company is where the earnings keep coming eat, drink, smoke, bri brush your teeth with. you've got a procter & gamble or colgate, food, general mills come to mind drug stock, pfizer and merck or bristol-myers. these are the recession for safe consistent earnings. you don't stop eating or brushing your teeth just because of recession, or at least i hope you don't. what makes a secular versus cyclical so important distinction to you why is it the first piece of wall street jargon that i'm translating tonight? because it helps you figure out

how much money companies will earn, and it matters to the institutional guys that their buying and selling controls the day to day action in the market. they decide whether stocks go up or down. the whole hedge fund playbook is about when to buy cyclical stocks or secular ones based on how the global economy is holding up this is what drives their decision-making process. historically, about 50% of a performance comes from the sector which is a fans word for the segment of the economy the stock falls into like machinery, health care, finance. when it comes to most of those moves driven by whether they fall into the secular growth or cyclical growth camps. the cyclical growth camps are the ones that are up and down. secular is this. you've got to know these things. you don't want to own much in the way of cyclicals when the economy seems to be slowing. those stocks are likely to get crushed because the numbers come down in a recession. you can try to make yourself less cyclical. in recent years the railroads have become much better operators so their earnings

don't get hit as hard. but in a real recession, you don't want to own their stocks by the same token, when business heats up and cyclicals are doing well, no one wants to own a boring secular grower. you won't make much money in them during those periods either that's the logic behind another oh peek piece of investment terminology. it's called the rotation, when money flows out of one of these groups into the other. this is totally antithetical to the brain-dead philosophy of buy and hold a zombie ideology that refuses to die, even though it's been utterly discredited by the market's performance you don't want to hold cyclical stocks going into a recession. it's always been a recipe for disaster once you realize how powerful the secular versus cyclical distinction s, you can see why buy and hold can be outright silly. if you're planning to own through thick and thin, no matter, what you need to be prepared to lose money in the

cyclicals when they're out of favor or tread water in the secular stocks or even have them go down a shade when the cyclicals are roaring. why take that pain when you can avoid it of course, that doesn't mean you should try to game every single rotation that's too hard. it shouldn't mean you should concentrate all of your capital on the cyclicals or the secular growth names depending on what's in stock no not at all you always, always, always need to stay diversified. another piece of investing vocabulary that simply means, well you don't put all of your eggs into one sector basket. when you have more than 20% of your portfolio in any single sector that way you won't get annihilated if for example a rotation takes down all the cyclical stocks because you still have secular growth names that are holding up much better, or even making you money at the same time. bottom line, investing isn't easy but it doesn't have to be mystifying or intimidating you just need to learn the lingo. know the difference between cyclical and secular growt

stocks recognize the sector rotation when you see one, and always, always stay diversified. frank in arizona, frank? >> caller: jim, i bought a large block of stock in a blue chip company that pays a safe 5% dividend and historically trades in a very narrow range i bought that stock in four equal lot increments, and each purchase i was able to buy at a lower price, always bringing down my average cost being somewhat cramerized, i know it's wise to reinvest the dividends. the stock has risen $3 above my average costs. if irene invest the dividends now, it will bump up my average costs, and i don't want to do that should i take the dividends in cash >> no, in this one particular case, i am going to look the other way about raising your basis, because i just think that the power of compounding is so fabulous, it transcends even the

idea of raising your basis with a buy. let's go to sally in michigan, sally? >> caller: hi there. hi, jim. >> sally >> caller: i'm hoping that you can help me understand the difference between chasing a stock or just buying a few shares at a time when it's going up or going down >> okay, look, chasing a stock, we see a stock up 3%, 5%, 7% you're clearly chasing it. i like to be able to buy a little bit and wait until it comes down the worst thing it happens is it runs away and then you can ring the register it's really that simple. try to keep it simple. lee in virginia, lee >> caller: boo-yah, jim. >> boo-yah >> caller: you talked about the s&p oscillator about an oversold market conditions. >> right. >> caller: since this is specifically an s&p 500, is there a similar tool for the nasdaq 100 more importantly, how reliable is it for predicting if an individual stock is overbought or oversold and what indicators ra there that a stock might buck

the trend and seem to go higher when the market is bought or keep going lower >> ever since the mid-80s i've been paying the s&p company a fee in order to get their oscillator, which shows whether there is too much buying pressure, too much selling pressure and individual stock charts, which are now sent electronically they are s&p because it's the s&p company, and that's all i use it for i want to be very careful here i get it i pay for it i can't give it out. that wouldn't be right to the s&p company. but i find it invaluable because when the s&p oscillator goes above 5, it makes me feel like things have gotten too bullish. and below 5 things have gotten too bearish and it may be time to take some action, obviously counter to those trends. john in maryland, john >> caller: hi, jim great to talk to you and always a big fan. >> oh, thank you very much >> caller: i wanted to ask a question about my 401(k) allocation mix. >> certainly >> caller: we hear so much about dialing down risks, success rate

to profile mix and retirement. and the smoke and mirrors about historical returns should be used as a proxy for future returns. >> right. >> caller: so i'm thoroughly confused, jim. i'm about three to five years out from retirement and historically having invested in equities at the 70 to 90% level for over 25 years. but this year i dialed it down to 55% equities and 45% treasuries how would you structure a portfolio now and in retirement? >> okay. >> caller: also, should i consider rolling these monies over to have more choices in retirement as i have limited opportunities in my employee >> i want you have as many choices. i think retirement is almost a false dichotomy. i think the issue here is long life and life expectancy. and you may retire, but you need to have your money continue to work for you i like your breakdown. that's one i would share, but we all have to have our own view, optimistic or pessimistic or let's say constructive or a

little more cautious and then tailor your suitability. in other words, don't be rolling the dice if you think you're going to need the money within the next couple of years i know wall street gibberish can be very hard to maneuver i'm here to make it possible for you to do so on mad tonight, feel like the ticker is speaking in tongues? i'm helping translate the terminology starting with the p/e ratio. and then a t vocabulary lesson doesn't end there. what defines the short-term stock picking you see in this stock market and a deceptively simple term that you may not understand. i'll reveal it just ahead, so stay with cramer >> don't miss a second of "mad money. follow @jimcramer on twitter have a question? tweet cramer, #madtweets send jim an email to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc

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♪ tonight i'm helping you

translate the cryptic and unfathomable terminology that makes owning stocks so darn difficult. i'm giving you the phrase book to navigate your way through the world of investing let's say the michelin guide to fine stock dining. you the televised encyclopedia cramerica tearing back the cloak of mystery that can make it seem like managing your money such a difficult task it shouldn't be as difficult as conducting triple bypass on yourself you shouldn't have to be stephen hawking or albert einstein i bet einstein would have a tough time figuring out what they're saying i just explained the difference between cyclical companies, think industrial smokestack businesses that need a healthy economy in order to grow their earnings versus secular growth names, thank cornflakes, toothpaste you want to lighten up on you're sick cal holdings and double down on the secular when the economy starts to slow and do the reverse when it picks up

steam. this is the playbook that all the hedge funds use. and even though hedge funds can often behave like hurt animal, wildebeests who all buy and sell the same stocks a the same time, their playbook still works it's okay to buy and do homework, but you need to understand why we have these rotations, what they mean. the reason for this has to do with another piece of wall street gibberish lexicon you absolutely must know if you're going to pick your own stocks. this is something i taught when i worked at goldman sachs. it's called the price/earnings multiple also known as the p/e multiple or just the multiple they all refer to the same thing. it's the cornerstone of how we value stocks and compare them against each other whenever you hear some stock has become overvalued or undervalued, they're talking about the multiple when pepsi is more expensive than coke that >> don't mean coke is cheap when it is trading in the 50s when pepsi is the 130s.

the share price tells you nothing about a stock's valuation vis-a-vis another stock. to make any kind of apples to apples comparison, you have to step back. i know this isn't easy my mom always got confused when i was at goldman she always tried to figure out if one stock was more expensive than the other based on the dollar amount. that's not right when you buy a stock, you're paying for a small piece of the company's future earnings. to value a stock you, have to look at where it's trading relative to the earnings share, which you will often see rendered as the eps line and that's what the multiple lets you do. here is the basic algebra. it's not even math it's something any fourth grader could match. the share price, letter p, equals the earnings per share. e times the multiple m the multiple tells you how much investors are willing to pay for a company's earnings it's the most basic form of valuation analysis a stock that sells for 20 times earnings is cheaper than a stock that sells for 25 times

earnings or to put it another way, the multiple is a sauce of valuation. how much bigger the earnings will be next year than this year and the year after that and the year after that so on. the stocks of companies with faster growth tend to get rewarded with higher multiples why? the multiple is what we're willing to pay for future earnings the more rapidly a business grows the bigger the earnings will be down the road. let's take a fast grower like chipotle it doesn't make it more expense than a slow but steady grower like a pepsico if it's trading 22 times earnings, because that's not relevant. chipotle deserves the bigger price-to-earnings multiple because it has a much, much higher growth rate here is where it really does get interesting. multiples aren't stack in different markets, people will pay more or less for the same amount of earnings. when they pay more, we call that multiple expansion and when they pay less, it's multiple contraction two more items that sound more

complicated than they are. that's what they're trying to game when they play a sector rotation of course, the earnings aren't static either. when you buy a stock you're betting that the e or the m part of the price equation is headed higher so what goes into the earnings how do you make sure that they're increasing and they aren't about to collapse okay here is some more vocabulary when you hear people talking about a bottom line or net profits or income, that i all mean the same thing, earnings. we call it the bottom line because the number is a bottom number on a company's income statement. to figure out how quickly a company's earnings could grow in the future, i don't have to look for clues when it reports its quarterly results. that's why i'm always telling you to listen to the darn conference calls finding clues means you're looking at the top what? another unnecessary piece of wall street gibberish is revenues, or sales it all means the same thing. you want two see strong rev nuf growth which tells you there is demand for a company's product, this is the key to sustainable

long-term earnings growth. and that's why it's especially important for younger, smaller companies to have fast-growing revenues and investors will really pay up for accelerating revenue growth. we make a little growth called arg, accelerating revenue growth which means the sales are rising at a faster and faster rate. a more mature company should be able to turn revenues into profits by cutting costs and return the profit to you in the form of a dividend or buyback. something i find most important when i'm analyzing stocks for you on the show which is called the gross margin it's in no way disgusting, and not the least bit margin gross margin tells you what percentage of every dollar of sales a company hangs on to after accounting for its cost of goods sold it's super important to figure out how much money a company can really make. to get a sense of where the gross margin might be headed the cost of competition, the cost of doing business in general.

supermarkets and airlines tend to have really terrible margins because these guys are always shooting at each other while a company with little competition, let's use microsoft has margins that some people think are downright obese. some industries the margins can vary widely. the oil business where the oil price swings up and down with the price of crude you need to know the vocabulary before you can evaluate a stock. when you're comparing, look at the price-to-earnings multiple, the p/e multiple, the top line, bottom line, and the gross margin when you're trying to figure out which stocks are worth owning and which stocks are worth -- >> sell, sell, sell! >> stick with cramer ♪ ♪ ♪

♪

♪ tonight i'm going into penn and teller mode. i'm demystifying all that technical sounding wall street gibberish you hear constantly, the most overused,

underexplained terms in the investing lexicon in the language that you can comprehend so let me tell you a dirty little secret. you know why all this investing terminology seems so impenetrable because the investors who speak wall street gibberish, let's say they're fluent and they don't want it to be penetrable they seem impenetrable they want you terrified and finally they want you ignompblt. >> sell, sell, sell! >> or a complete loss when it comes to managing your money that way you're more willing to pay their fees and commissions i know that's cynical, but you get my point given what you read, these arrogant self-centered managers, well, they're winning. that's where i come in unlike them, i don't want your money. the only stocks i own are part of charitable trust that you can follow by joining the actionalerts.com club. i can't take profits they go to charity i used to play for the other team now i play for you with that in mind, let's keep translating. i've got another ultra important

yet rarely explained piece of verbiage that gets tossed around constantly risk reward. the risk reward analysis defines the short-term stock picking that all the professionals do. what do we mean here let's break it down into component parts. assessing risk is all about figuring out the downside, how much you potentially stand to lose in a given stock. how far it can fall in the near term assessing worth is figuring out potential upside how many points of gains the stock could recently give you. too many people only focus on the upside when they evaluate a stock. that's a grave, grave mistake. it's much more important to understand the risk side of the risk/reward, because the pain from a big loss hurts a whole lot more than the pleasure from an equivalent-sized gain the losses, the way our brains are wired. the losses just hurt more and they do tend to blind you. how to figure out this risk reward thing these are determined by two different cohorts of investors the reward of the upside is defined by how much growth

oriented money managers would be willing to pay for a stock they create the ceiling. the risk, the downside is created by what value oriented money managers would be willing to pay on the way down and they create the floor. i am, yes, oversimplifying to a degree, but i got to get you to understand this stuff. to figure out the risk consider where the value guys might start bike the way down. to figure out the reward where even the most bullish of growth guys will start their selling. >> sell, sell, sell, sell, sell, sell >> when asked i usually boil the risk reward to five up, three down how can you get there? how do you know where growth money managers will start selling and where value guys will start doing their buying? to do that you need some insight into how these guys think. and that requires translating another piece ofs tarik wall street lingo, growth at a reasonable price, garp for short. when we talk about growth at a reasonable price, it's a method of analyzing stocks first popularized by the legendary

money manager peter lynch by comparing growth rate to price earnings multiple. if you want to figure out the napalm they would be willing to pay for a stock, look at the world according to garp. you want to learn more from peter lynch? go to amazon and buy one up on wall street, one up on wall street and beat the street these two most important books on investing that anyone has ever written i've read them both many times here is my quick and dirty rule of thumb, a rule that can help us figure out when a stock is overvalued or undervalued based on what these two groups of money managers would be willing to pay for the stocks. let's say the stock is a price/earnings multiple that is lower than its growth rate that price is probably chip there are always major exceptions if it is twice the size of the growth rate or greater, i think you should probably sell it. again, i think, and that's because there are exceptions and there are some people who are more aggressive than i am. if someone is trading 20 times

earnings and the company has 10% growth rate, then it's likely at or near its peak, because it's reached the two-times growth ceiling that i regard as a safety zone. while we're on the subject, here is another piece of wall street gibberish that can help simplify the process, the peg ratio, that's the price to earnings to growth rate, or the multiple divided by a stock's long-term growth rate. when you view the market through the lens of growth at a reasonable price, a peg of 1 or less is extremely cheap and 2 or higher i regard as prohibitively expensive. of course, when you get fresh-faced companies with ultra fast revenue growth and not much in the way of earnings, this analysis goes out the window but for most stocks the rubric works. we frequently see ipos, these th companies that have all the fastest growth and they're looking at, say, the peg ratio out four, or fife or six years that's not what we do on the show where do i come up with the

numbers? i use observation. the value investors will be attracted to stocks selling at peg rates of 1 or less they create the floor. you usually will be able to find a buyer if a stock's multiple is at or below its growth rate, unless there is something very wrong and you suspect the earnings estimates are unreliable meanwhile, the growth investors should be buying high multiple stocks rarely pay more than twice growth, a peg of 2, which means there is almost no way the stock is going to go higher unless you're talking about companies where wall street doesn't care about the earnings. those are the fast-growing companies i just mentioned like with any rule of thumb, this is a rough approximation. it's useful, especially when you're trying to fix out the risk reward, but it's not always right. a lot of times a stock will get cheap based on earnings estimates simply because those need to be cut like the banks and brokers right before the financial crisis in these cases, the stock could trade well below the one times growth floor its peg could keep sinking and

sinking. it's a very unsettling feeling and the fact that it looks cheap is not a buy signal. it's a value trap. the best time to buy cyclical stocks, think the smokestack industrial kind is when the price/earnings multiples get outrageously expensive because the earnings are too low and need to be raised to catch up with reality all this growth at a reasonable price that only holds while you have a clear read on the future earnings if you think the numbers are headed much higher or much lower, your have to throw this -- you have to throw this whole playbook out the window. and that's very important. so in other words, there is a level of subjectivity that i need to work into this analysis, because it's not cut and dry oh, and one other thing about risk, when you hear the terms risk on and risk off about stocks, well, that is real gibberish. i want you to ignore that. i think that's put on earth to make you feel stupid yeah, it scares regular investors to trading like banshees to switch to stocks or bonds. it's nonsense. it's the kind of thing i wish we

could ban. bottom line, know what you own and know what others will pay for it that means you need to understand the risk reward, the potential downside and potential upside before you purchase anything by figuring out where the growth investors put in the ceiling and where the valco horrett creates the floor. tom in california, tom >> caller: boo-yah, mr. cramer this is tom from dublin, california >> excellent >> caller: jim, what percentage of my portfolio would you recommend in gold and is gld the best place to do it? >> i think 10 to 20% is what i like 20% being if you're really cautious 10 is like the deductible. remember, i regard it as insurance. why do i do this why do i have it because i think -- and i am a risk averse person and while there are many people who feel like wait a sec, this show is a trading show which of course it is not i like to have something in insurance at all times, just like i would with the car and the home lilly in new york, please,

lilly? >> caller: hi, cramer. >> hey, lilly. >> caller: nice talking to you. >> same. >> caller: i want to ask you a question. >> okay. >> caller: okay, i have an ira i'm retired. and i had 30% of my whole portfolio in the ira what is the -- what is your opinion? >> ira, you can earn individual stocks i don't want any more -- i don't want you to be mutual fund which would be owning more than 10 stocks i don't want you be underdiversified which for me on a shorthand basis is fewer than 5. that's the sweet spot. one of the reasons i created actionalerts.com, the club is to help you pick one ones of those ten you might want to own. it's a teaching tool and it might help you mike until new jersey, michael >> caller: hey, jim. thank you very much taking my call my son is 25 years old he is self-employed. he has saved up $50,000 to start his 401(k) retirement plan. >> good for him. >> caller: he is not in the market today he does not have a retirement

plan today how should he invest his first $50,000 to be diversified and over what period of time >> okay. when you're in your 20s you have your whole life to make the money back that's why you should take as much risk as possible for a 401(k), very clear there are always options that have the most risk in the 20s, you adopt those. and as you get older, you take less risk an less risk and less risk anthony in michigan, anthony >> caller: hey, how you doing? i just want to know i'm a new investor >> okay. >> caller: and i want to know is it good to invest in options or stick with stock or do both? >> as an investor, i want you to do common stock. look, as you get more -- i don't want to necessarily say options are riskier, but let's start with common stock investing, and then over time if you really get a feel for it and you want to own calls, there are lots of

programs on cnbc and lots of books that help you explain things i wrote quote g"getting back toa while ago and "real money" has how to understand options. understanding risk/reward is key. that means know what you own and what others will pay for it. much more "mad money" ahead, including two very different methods of attempting to profit in the market. i'm revealing how it can impact your portfolio then one of the most dreaded and poorly understood terms in this business is finally getting its due tonight. and send your tweets to me @jimcramer. i'm to be answer them on the show "mad money" will be back after the break. this is apple card. a new kind of credit card. created by apple, not a bank. with a better way to track where you spend.

a new level of privacy and security. daily cash you get back every day. and no fees. not even hidden ones. oh, and if you happen to be somewhere that doesn't accept apple pay yet, there's this. nice. that doesn't accept because it's tailored to you! take the personal assessment and get matched with a proven weight loss plan. find out which customized plan can make losing weight easier for you! myww. join for free + lose 10 lbs. on us. actions speak louder than words. she was a school teacher. my dad joined the navy and helped prosecute the nazis in nuremberg. their values are why i walked away from my business, took the giving pledge to give my money to good causes, and why i spent the last ten years fighting corporate insiders who put profits over people. i'm tom steyer, and i approve this message.

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♪ managing your own money feels a whole lot less daunting when you a translator, someone like me who can help you decode the arcane terminology that the pros use to make the stock market sound i think incomprehensible that's why i've been giving you my televised wall street gibberish to plain english dictionary, to help you see through the mystery. i need you to understand the essentials of investing that are often so clouded by the

gibberish. but just as there are times simple concepts seem misleadingly complicated, there are also plenty of con plex concepts that disguise a ton of hidden complexity. take the notion of a trade versus an investment a lot of people would say these two words are interchangeable. i hear it all the time there is no difference but that couldn't be further from the truth trading and investing are distinct in the immortal words of the '90s stock gurus the offspring, you got to keep 'em separated. isn't this splitting a hair, something not recommended for the follicly challenged like myself casuist street it might send you searching for a real dictionary. no the trade is not the same as an investment if you treat the one like the other, if you turn a trade into an investment, breaking the first commandment of trading from real money, one that i think is really -- no, that's confessions. but you can't really read it in that language. here we go

in true mr. t fashion, a lot of the best of the rockies by far, isn't that the one rocky ii is pain. >> the house of pain >> you've got to understand the difference between the two, and we're going to explain it to you. when you buy a stock as a trade, you're buying it for a specific catalyst, some anticipated future event that you believe will drive the stock price higher maybe the underlying company is about to report its quarterly results and you think it will deliver better than expected numbers. although i don't recommend trying to game earnings. it's really hard too much chaos and confusion which can cause a stock to get clobbered even when it delivers stellar numbers. it can leave you thinking maybe you shouldn't be doing what you're doing maybe you're predicting some kind of event. if you're dealing with drug stocks, that could be a clinical trial data or an fda decision. if you bet on a catalyst and it goes your way, that's how you get a winning trade. the key distinction. when you make a trade, you know going into it that there is a

moment to buy before the catalyst and a moment to sell, which is after the catalyst. >> sell, sell, sell! >> sometimes your trades won't work out maybe the event you're hoping for doesn't happen maybe the data point you were hoping for comes in weaker than expected either way when you buy a stock as a trade, it has a limited shelf life there is only a brief window you want to on it. once the window close, well, guess what you've got to -- >> sell, sell, sell! >> with a good trade, catalyst goes your way. it goes higher you have to ring the register and lock in your profits before they evaporate this is why i urge most home gamers to avoid trading in the first place. much as managing money is a full-time job, it's hard to be nimble enough to be a full-time trader you're busy working. how can you do this and work what if a trade doesn't go your way? you still need to sell win or lose, you only plan to be in the game for a period of time when you buy a bottle of milk, you don't drink it after the

expiration date, do you? you throw it away. logical trading says you can't just buy more and call it a longer term investment, because without the catalyst, you have no reason to own the darn stock in the first place and never should you own anything without a reason. i've watched an endless parade of people lose money by turning trades into investments. they come up with alibis for staying in the stock long after its expiration date because they want to fool themselves into believing that they didn't make a mistake. more often than not, these people end up getting crushed. remember, without a catalyst, you don't have a trade if you ever find yourself in that position, it is time to cut your losses. don't be afraid to take the loss because it's already a loss. so how is that different from an investment investments are much more open-ended they don't have a limited shelf life, and you can stick arounded for years. it's based on a long-term thesis you invest in company when you believe it can make you serious money over an extended period of

time you're knotts just banking on one specific catalyst. you're expect manage good things to happen in the company's not too distant future remember, though, homework, homework, homework i can't stress this as much. when investing has a longer horizon, that's no excuse to buy a stock and forget about it. investments go wrong and i'm always telling you need to spend time every single week doing homework on individual companies be you know what? buying homework and not buy and hold has gotten easier because now there is all sorts of information available on the web. i'll no longer hold you to looking into things every single week, but it is important to pay attention. when a stock you like as an investment goes down, you can feel comfortable into buying into it weakness the corollary here is you don't ring the register after the first time an investment jumps in price you're looking for longer gains, larger gains over a longer period of time i know kit be tempting to take profits as soon as you have them but if you're right about the fundamentals, you're going to kick yourself for being so hasty. do you know we bought apple for

my charitable trust way back in the preiphone days when it was trading at $26 then we turn around and sold it after a quick five point gain. fitful we threw the investment thesis out the window for what turned out to be a microscopic profit over the long haul so listen to me on this bottom line not all wall street gibberish is deceptively complicated. some of it is deceptively simple, like the distinction between a trade and an investment remember that they're not the same and it's a big mistake to turn a trade based on a catalyst whether successful or unsuccessful into an investment that's supposed to be based on a long-term thesis stick with cramer. legendary terrain in telluride,

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know ooms here here is one of the most dreaded and misunderstood terms in the business it's called a correction a correction is when a market that has been roaring higher turns around and crushes you making you feel like the sky is falling and you never want to own another stock in your life a correction and that's precisely the wrong reaction it may feel horrible, but stocks can come back from corrections they bounce back from big declines all the time, especially coming off a major run higher think of it like this. when the market goes on a 16-gain hitting streak like joe dimaggio and then it didn't get on base the next day, that doesn't mean you'll never make money again. it doesn't mean all your holdings will be pulverized, it's just what happens when we go up too far too fast sooner or later a streak comes to an end. you should expect corrections. they can happen to an individual stock, an index, a whole market, and bonds. and you'll probably never see them coming. don't beat yourself up for

failing to see them coming sell-offs are a natural feature of the stock market landscape. well don't have the like them, but we do have to acknowledge they're going to happy no matter what, which is why you shouldn't get flustered or panic when they inevitably smack you in the face i see so much panic every time we go down a couple percent. finally, one last piece of investing vocabulary that you have to master it's the idea of execution this is a tough one because it's comparatively subjective but when we talk about execution, we mean management's ability to follow through with its plans. when you own a stock, there are all kinds of risk associated with execution messed up merger, bad cost controls, the number of ways a bad management team can screw up a company is infinity. that's why i like companies with proven management teams because they're much less likely to make these kind of unforced errors. and it's a big reason why it's so important for you to pay attention when i bring ceos on the show nobody knows a company better than the people who are running it and since you probably can't get those ceos on the phone

yourself, you want to see what they have to say here about their business firsthand in the show, which is why i book 'em. why does execution matter? simple it's part of the reason why we pay up for the stocks of best of breed companies with terrific track records. best of breed stocks are almost always cheaper than their competitors, but they're usually worth the price. you see to make this understood. an expensive stock that's best of breed will turn out to be inexpensive in the end see, a good management team is less likely to make mistakes, and more important, less like to get buried by big problems, and more likely to figure out how to solve them so we'll pay up for those stocks of companies that have those management teams the bottom line, please don't be afraid of corrections or intimidated by people who use the word a sharp sell-off off a big rally is something to be expected. and remember, even though it's hard to quantify, execution is a crucial factor when it comes to picking stocks you want companies with proven

seasoned management teams that are less likely to drop the ball stay with cramer do you have concerns about mild memory loss related to aging? prevagen is the number one pharmacist-recommended memory support brand. you can find it in the vitamin aisle in stores everywhere.

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interactive show you know i love hearing from you, cramerica so why don't we take some tweets first up, we got a tweet from @brynn triv, who asks i put my first into my s&p five

hundred. keep agenda, keep adding that's how great wealth is created, by constantly adding and compounding. constantly adding and compounding. that's what i'm always going to recommend. if i've done that one thing on this show, then i've done good next we have @brianralston 8 who says hey, my wife and i just had two beautiful twins. i want to start college savings funds. any advice thanks, #mad tweets. simple s&p index funds. you will just do s&p you won't have to say where is this fund and what should we add? keep it simple later on as you get more established you want to do something more, that is fine but i always like to keep it simple, even though people want me to make it complicated. and then at b beard 76 has a bone to pick with me how can you hate reece's pieces? okay, listen to me

i think peanuts and chocolate should have nothing to do with each other my mother liked reece's pieces i never understood it. it's probably the only thing i ever disagreed with my mom but she was wrong. here is a tweet from @nomad 2003 please give a little education on buying and selling bonds for older folks conservative during this market. does one have to hold to maturity or any time i used to trade individual bonds, buy individual bonds no very simple. if you decide that you're going want to own treasure risks you'll buy treasuries from a bank otherwise just buy bond funds. don't go long-term on bond funds. they can be a little dicey given the fact that earnings rates have kind of stayed low. but the main thing, why. i continuing to say funds if the rest of the show i'm not saying funds is there is two components to "mad money. there is index fund and then the individual stocks. and i still think the vast

repository should be index funds because you don't have the time to do what i'm doing but i still think you have time for individual stocks. remember, 401(k) is always going to be funds because they don't let you own the stocks and now a tweet who says what do you recommend when we do drips now that there are no commission fees for buying stocks hey, dividend reinvestment glorious, glorious again, how you make big money. i remember my dad had this friend, he came back from the war. and he just kept reinvesting merck. and he died a multi, multimillionaire never knew it, but he just did dividend reinvestment work and always from when i was little boy struck me as a great way to make money, and it is now we have a question from brett in tampa who asked my 401(k) got obliterated so i just have social security i'm 59 do i have any good retirement options a this point

i don't want to say you have nothing. i do want to point out that there is lots of ways to be able to save. just save money. it doesn't have to be protected from the tax person. saving with good stocks and good bonds works whether it's protected or not from the tax man. stick with cramer. and tie it all together with a world-class software experience. we ended up creating, as you all know, so much more. peloton is truly a category of one and we're just getting started. now, let's do this. together, we are going further than we ever thought possible.

doprevagen is the number oneild mempharmacist-recommendeding? memory support brand. you can find it in the vitamin aisle in stores everywhere. prevagen. healthier brain. better life. i like to say there is always a market somewhere, and i promise to try to find it just for you right here on "mad money. i'm jim cramer, and i will see you next time. >> i am looking for a dr. cramer education. >> long time listener, first time caller. >> mr. cramer, it is an honor. >> i've been watching your show for about ten years. >> long time-first time. i love your show it's time to write another book, jimmy. >> i want to give a big shout out to my dad who turned me on the you a long time ago. >> thank you so much for everything you do. >> to be an investor you need to break the wall street code, and i'm here to help

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