been deteriorating for this company, in their auto business for four quarters. >> remember the movie "eddie and ymr cruisers," that's tim s seou >> that's 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 isn't just to entertain but put everything in context. call me at 1-800-743-cnbc or tweet me @jimcramer. investing isn't easy but can be easier and less daunting with

instruction. the business is made more confusing by the arcane technology and authentic wall street gibberish you need to wade through to learn anything. it can feel like they're speaking a different language. there's an industry of people that need you to feel it's too hard, ordinary people can't do it and the safest thing to do is give your money to a pro. that's a huge reason i started my charitable trust. our goal is show you you can't do it yourself and teach you how. maybe giving your money to a professional is right for some of you without time. but if you put in the effort and do the homework, you can do at least as better. a lot of pros lose to the index funds. the financial industry is full

of people after your fees, more interested in taking your money than making you money. if you're a manager trying to fundraise, you have every incentive to keep regular people ignorant. why make it sound accessible. if it's straightforward, it's harder for them to raise money and harder to convince you to pay higher management fees. it's like t"the wizard of oz," f you do it yourself you won't pay someone else to do the things you're perfectly capable of doing yourself. i know you can do it. that's where i come in. i'm pulling back the curtain and explaining everything. authentic wall street gibberish sounds complex and impenetrable, it's not rocket science or brain

surgery. you don't need to go to business school or work at an investment bank to understand it. you can if you have a translator, a coach like me, to explain what the darn words mean. think of me as a defector. someone who played for the other team, managing $500 million of already rich people's money but now is playing for you. teaching you to navigate the minefield of the stock market every day on "mad money." forget the da vinci code, you have to break the wall street code. i'm hear to help you crack it. i'm giving the you wall street gibberish toplain language dic dictionary. words and concepts that many people in the industry don't want you to gret your heads around to feel empowered enough

to pull your money out of their expensive mutual funds. even if you're not a pro, you may not know enough, why not take advantage of my 40-plus years of investing experience to give yourself an extra edge. start with a couple of terms hand in hand, cyclical and secular. you hear them all the time, no one but me explains what they mean, even though they're crucial. cyclical is nothing to do with the spin cycle on your washing machine or wagner's ring cycle, somewhat my taste of miekz. and secular is not church or state or public versus parochial schools. we say country is cyclical, needs a strong economy to grow, it depends on the business

cycle. cyclical. any raw materials, home builders, cyclical. you have a bunch of copper mines, that's the definition of cyclical. they're hostage to the vicissitudes of the economy. when the economy heats up, they earn more, when it slows down, shifts into recession mode, they earn a lot less. cyclicals are boom and bust. secular growth, the earnings come regardless of the economy's overall health. anything you eat, drink, brush your teeth with or use as medication. procter & gamble of course, general mills, pfizer, merck, eli lilly.

investors flock to the companies that generate safe earnings. because you don't stop eating food or brushing your teeth in a recession. why is this distinction so important? why is it the first piece of wall street jargon i'm translating? it helps you figure out how much companies will earn in a given environment, and the money managers, the hedge fund play book is when to buy or sell these type of stocks based on what the economies of the world are doing. in the old days, 50% of the performance of an individual stock came from the sector, the segment of the economy it falls into, tech, energy, machinery, health care. when it comes to sectors, much of the moves are driven whether

they fall into secular or cyclical camps. it's much more now than 50%. you don't want to own much cyclical when the economy is slowing, they'll get crushed because the earnings tend to fall apart as they have during every meaningful slowdown. including chinese slowdowns. nothing about that we can do, what do you do? but when the business heats up and cyclicals are doing well, nobody wants to own the boring consistent secular firm names, food and drugs. you won't make as much money in them in those periods, just accept it. but you always want both in the port portfolio. when business looks like it's falling off the cliff, more secular. investing isn't easy, doesn't

have to be mystifying. learn the language, know the difference between cyclical and secular growers and stay diverseified. shane in alabama. >> caller: thanks for taking my call. when building a balanced portfolio, is the 60/40 rule still fundamental? how much of that percentage should be in cash? >> i'm blowing out all of that. don't want to bet against ourselves but with ourselves. betting people will have a long and hopefully happy life. buying and keeping stock to the end. 60, 70, that's young, 70% stock. i know that's higher than i have usually said, but you're not going to get the return from bonds that people want, and i'd rather have you in stock, take it to 30, then 20 depending how you feel about yourself. think about living long, and i think you live longer.

that's my psychology. joseph in florida. >> caller: how is it going? >> not bad, thanks for calling. >> caller: i'm doing awesome. i wanted insight on a 529 plan or index fund for my 1-year-old child jared. >> 5-3-9 is perfect, low fee s&p index fund, i did it for my kids, they're eternally grateful. edna in new york. >> caller: boo-yah mr. cramer, i'm a new member of the investing club and want to thank you. it turned my husband and i into active investors. >> how can i help? >> caller: rolled over an old employee ira into a brokerage account with 20 or 30 years before i need the funds, right

now it's a money market account. would you recommend an s&p 500. >> every month take a 12th of the money, put it to work. not all to work. 1/12th. then a bad month, double down with 1/6th in. finished in third and fourth quarters, we'll figure out if you need more cash. that's how you invest the money, long-term, should be stock not bond. but over time, not all at once. investing isn't easy but doesn't have to be mystifying. learn the language. forget miriam webster. i'm demystifying everything, cracking out the dictionary to help you take charge of your portfolio. that's what i want. stay with cramer. >> announcer: don't miss a second of "mad money,"

follow @jimcramer on twitter. have a question? tweet cramer, hashtag #madtweets. send an e-mail to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com. ♪ ♪ every day, businesses everywhere are asking: is it possible? with comcast business... it is. is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too. with the advanced connectivity and intelligence of global secure networking

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tonight i'm helping you translate the cryptic and occasionally unfathomable terminology that makes owning stocks so darned difficult. i'm giving you the phrase book to navigate the world of investing. michelin guide, the televised encyclopedia cramerica.

it shouldn't be as difficult as conducting triple bypass surgery on yourself and you shouldn't have to be albert einstein. but the way the pros talk, even einstein would have trouble figuring it out. industrial smokestack businesses need a healthy economy versus secular growth, toothpaste. you buy secular as the economy slows and cyclical as it picks up steam. these are the books the industry uses. they operate this way because their playbook works. the reason for that has to do with another piece of wall street gibberish lexicon you absolutely must know to pick stocks by yourself, it's called

the price to earnings multiple. p/e multiple. or just the multiple. all refer to the same thing, the cornerstone how we value stocks. talking heads talking about overvalued or undervalued, almost always talking about this. pepsi is cheap because it's in the 50s and coke in the 60s. no. doesn't to do with the evaluation. apples to apples, you take a step back. when you buy a stock you're buying a piece of the future earnings stream. to value a stock look where it's training relative to the earnings per share. eps. that's the multiple. here's the algebra, it's not even math.

share price, p, always the earn innings per share, e, equals the multiple, m. we don't care coke is valued this, but it sells at this. we care it's selling more than 20 times earnings. multiple is the special sauce evaluation. the main ingredient is growth, how much bigger it will be next year and the year after. on and on. stocks of companies with faster growth tend to get rewarded with higher price earnings multiple. if it sells for 25 times earnings, it doesn't make it more expensive than a slow but steady grower like pepsi at 20 times earnings, the faster grower deserves a bigger multiple.

price to earnings multiples are not static. different markets people pay more or less. more is multiple expansion and less is multiple contraction. whenever interest rates skyrocket, making the bond market competition more attractive, the multiples contract because everybody's future earnings are worth less by comparison. it's not static. buying a stock you're making a bet that e or m part of the value equation is hitting harder. what goes into the earnings, increasing but not collapsing? more vocabulary. net income, bottom line, it's all earnings. bottom line because it's the bottom figure in the statement. to figure out the growth in the future, you have to look for clues in the quarterly results.

i always tell you to listen to the conference calls. we do it for you in the trust. but step one, look at the top line. oh, boy, another unnecessary piece of wall street gibberish interchangeable with revenue or sales, they mean the same thing. want strong growth, nandemand f the product. key to growing long term. it's important for younger, smaller companies to have fast growing revenues. and investors pay up for accelerating revenue growth, arg, growing higher and higher rate. more mature company should be able to turn it into profits and return them to shareholders in a dividend or a buy back. then the gross margin, no way disgusting, not the least

marginal. it's what's is left after you subtract the cost of goods sold from the sales. to figure them out, consider the competition, cost of production and cost of doing business in general. businesses with cutthroat competition have terrible margins, while virtual monopolies like microsoft have margins that are obese. some vary widely. the oil biz, they swing up and down with the prize of crude. too much oil pushes it down, too much retail inventory forces stores to discount goods to make space for new merchandise, margin killers. bottom line, know the vocabulary before you can evaluate a stock. comparing, looking at price to earnings multiple, p/e. growth rate, top line, bottom line and gross margins. might sound basic to many of

you, but i'm here to educate people and don't want anybody to pick stocks without a firm understanding of the basics. "mad money" is back afterthe break. >> announcer: coming up, finance is full of $5 words, but don't despair, cramer is breaking down the wall street lexicon, key terms made easy. next. thank you for everything you do. >> you've been a wonderful source of information. >> thank you for your advice. >> your advice let me kill a job i hated. love you to death. >> thanks for making us money and keeping us from losing money. [ heavy breathing ] [ lights buzzing ]

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tonight i'm going to penn & teller mode, demystifying the technical sounding wall street gibberish you hear constantly but might not understand. i want to translate the overused and ununderstood information. consider the show your wall street to english dictionary, a televised glossary to help you navigate through tough markets and tough sounding terminology. i'm not doing myself justice, got to help you understand this stuff to be better. joining the club will help. all the terminology sounds difficult because the pros speak this fluently. they want it to sound difficult. they're the opposite of me. they want you terrified and feeling ignorant. at a complete loss to managing

your money. my mission is the opposite of theirs, i'm here to try to enlighten you and teach. you can be better than the professionals. i've been here 40 years and i know this stuff and most of the professionals want your fees. i'm not managing anybody else's money, i only manage the charitable trust, give my profits to charity. this is the anti -- establish? it's not enough to tell you the stocks i like. you can't hown them if you can' understand. it's one of my cardinal rules. to if you don't have a grasp of your holdings, you won't have any idea what to do when the stocks turn against you. inevitably they will. you can't know when to hold them and when to fold them in the imm immortal words of stock sage kenny rogers. you know the value of what

you're holding and when to fold. let's continue our vocabulary lesson with another ultra important piece of verbiage hardly ever explained while used constantly, risk/reward. the risk/reward analysis, what does it mean? assessing risk is figuring out the down side, how much you potentially stand to lose in a given stock. how far it could fall in the near term. assessing the reward is the potential upside, how much the stock could rally if everything goes right. too many focus only on the potential upside. and it's more important to understand the risk. the pain from a big loss hurts a lot more than the pleasure from an equivalent sized gain. trust me. how do we figure it out? these are determined by two cohorts of investors.

reward is how much growth oriented money managers could be willing to pay. they create the top. the risk is what value oriented money managers would do, what they pay on the way down, they create the bottom. to figure out the risk, consider where the value guys start buying on the way down. for the reward, where the bullish growth guys will start selling on the way up. i boil this down to five up, three down. but how do i get there? how do you know when the guys start buying and selling? you need insight into how they think, that requires translating growth at a reasonable price. garp. when we talk about growth at a reasonable price, it's not subjective, it's the growth rate to the price to earnings multiple. if you want to find out the

maximum growth guys will pay for a stock, look at the world according to garp. learn from peter lynch, buy his investment books, most important ever written. important rule of thumb, hardly ever let me down, there are exceptions. when a stock might be overvalued or undervalued. if it's a multiple louwer than the growth rate, it's probably cheap. selling at multiple twice the growth rate, probably too expensive. 20% earnings, growth rate of 10%, probably doesn't have the upside. it's reached two times growth ceiling. another piece of gibberish, the peg ratio. price to earnings to growth

rate. p/e multiple divided by the long-term growth rate. one or less is cheap, two or higher is expensive. if it has a 40% plus long-term growth rate, a p.e.g. of one is cheap end, and could accsend it new high after new high. value investors will be attracted to stocks at p.e.g.s of one or less create the floor. growth investors buying high multiple stocks hardly ever pay more than twice the growth rate. p.e.g. of two. stick with google when it still had the mojo, would have been a sell if traded to 60 times

earnings, just too darned high as i've learned over and over since the show began. like my methods or anyone else, this is rough approximation. it's not always right and only applies to companies that trade on earnings, not unprofitable trading on sales. but stocks will get cheap on earnings basis because the estimates are too high. you see it all the time going into a slowdown. pay could keep sinking and fact it looks cheap is a value trap, not a buy sickle. best time to buy the cyclical stocks is when the multiples look outrageously expensive. they need to be raised to catch up with reality. that happens when the economy is bottoming and about to rebound. bottom line, know what you own and what others will pay for it.

you need to understand the risk/reward, potential downside and upside before you purchase anything. figuring out where the growth investors put in the ceiling and the value investors create the floor. nicholas in nevada. >> caller: how is it going, i'm from las vegas, nevada, i'm in california trying to start investment management company and looking for quick advice and kind of personal advice on how to run that from a freshman's perspective. >> you're young. that means you have to go with higher risk stocks than i typically talk on the show. smaller cap stocks, biotechs, on the ground floor of a.i., don't be loaded up with older companies, you have your whole life to make it back if they go away. older and middle-aged viewers can afford that. go with high risk, potentially

high reward stocks. mark in iowa. >> caller: i'm a happy club member, thanks for taking my club. >> thank you. how can i help? >> caller: real estate question. higher interest rates make it more difficult for families to afford a new mortgage, what effect will it have on reits with single and multi family units. >> that's the reason i'm not recommending those stocks, you've thought about the nemesis of those stocks. if you understand the risk/reward, the garp and the p.e.g. ratio, you're much better understanding what you own and what others will pay. do you know the difference -- i'm not done with the wall street code. my colleague and i are taking

your burning investment questions. stay with cramer. >> announcer: coming up, what big investment lesson can you learn from a bottle of milk? cramer's working till the cows come home. keep it here.

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imagimanaging your money ist less daunting when you have a translator, like me, to decode the obscure terminology experts use. that's why i'm giving you the wall street gibberish to english dictionary. the essentials of investing, that's what i do for a living. i'm been explaining complicated jargon that's simple. stuff we do every day at the investing club. there are plenty of other terms much less simple. notion of a trade versus investment. lot of people say there's no difference, couldn't be further from the truth. they're distinct. in the immortal words of the

stock gurus, offspring, you got to keep them separate. isn't it sophistry? no, a trade is not an investment. if you turn a trade into an investment, breaking the first commandment of trading, in mr. t fashion, "rocky 3," it's buying for a specific catalyst, a event you think will drive it higher. you think the quarterly results will be higher than expected. i don't recommend trying to game the earnings. too many things can cause the stock to founder with good numbers. a pharma company getting fda

approval, these are data points that send the stock soaring. when you make a trade going into it, you know there's a moment to sell before the cows and moment to buy. maybe the data point turns out less positive than you expected. when you buy a stock as a trade, it's a limited stock life. only a brief window you want to own it. once it passes, sell. hopefully it will be the right catalyst and you rack up a nice gain, lock in the profits before they evaporate. but if you're wrong, you still need to sell. when you buy a bottle of milk, you don't drink it after the expiration date, you throw it away. it's similar. without the catalyst, you have no reason to own the stock and never own anything without a

reason. i've watched people lose money turning trades into investment. they come up with alibis for sticking with a stock past its expiration date. following themselves, often get crushed. without a catalyst, you don't have a trade. sell and cut your losses. no catalyst, no point. an investment is a long-term thesis. the idea a stock has the potential to make you serious money over an extended period of time, not just banking on one specific catalyst but expecting many good things to happen in the company's future. that's not an excuse to buy and forget about it. investments can go wrong, too. keep examining your stocks after you buy them. that's called buy and homework, not buy and hold. we help in the charitable trust and cnbc investment club.

goes down in short term, makes sense to buy more. with an investment, longer and larger gains, and you measure not in terms of trade and sell but a much longer period of time. again that is what we do at the investment club. bottom line, not all wall street j gibberish is complicated. they're not the same. investment is a long-term bet on the future of the business. "mad money" is back after the break. >> announcer: coming up, if only the market were as reliable as joe dimaggio. when the tape turns red, remember the yankee clipper. cramer explains next.

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welcome back to the wall street gibberish to plain english translation guide edition of "mad money." i've been explaining financial concepts and jargon to help you become a better investor and make the whole process seem less

daunting. the construction. what a euphemism. it's when after the market has been roaring it turns around, gets crushed. maybe as much as 10%. making you feel like the world is ending, sky is falling and you never want to own another stock in your life. that's precisely the wrong reaction. may feel horrible, but stocks come back from corrections, bounce back from big declines all the time, especially after a major run higher. when the market goes on a 56-game hitting streak like joe dimaggio and doesn't get on base the next day, doesn't mean you'll never make money again, all your holdings will be pulverized. we've just gone up too far too fast. it can happen to the market, to bonds even, started in 2022. and you likely never see the corrections coming. you shouldn't beat yourself up

not anticipating them. selloffs are a natural feature of the stock landscapem. don't need to like them but acknowledge they happen and don't panic when they slap you in the face. another piece of vocabulary, execution. it's subjective. management's ability to follow through with its plans. when you own a stock, all kinds of risks are associated with execution. mergers, failed product launches, bad cost controls. number of ways a team can screw up a business is practically infinite. i like the permanent management, they're less likely to make unforced errors. it's important for you to pay attention to the ceos on the show. nobody knows the company better than the people running it. since you can't get them on the phone yourself, you want to hear what they have to say about the business firsthand on the show.

this notion of execution is also crucial understanding why it's important to pay for best of breed companies. almost always have proven executives. they're worth the price. a good management team is less likely to make mistakes and less likely to get buried by big problems and likely to figure out how to solve them. now the dreaded rotation. money out of one sector into another, one big group into another. cyclical to secular rotation, the thing you get when the economy slows until the cyclicals are out of style. this is antithetical to the right way to invest that you've been told. picking your own stocks, you're not supposed to be able to beat the market. sell you short. find the high quality companies

and stick with them and hold out long enough to make money. this is a brand dead philosophy i spend time trying to debunk. it's zombie ideology that refuses to die. doesn't mean you play the rotation game and only own the game in style. not at all. remember the need for diversification. making sure you don't have all your eggs in one basket, one sector basket. no more than 20% of the portfolio in a single sector. you won't have problem with something taking down your cyclical stocks because you have secular. don't be afraid of rotations and corrections, don't be intimidated by people who use the words. and execution is a crucial factor picking stocks.

you want companies with proven, seasoned management teams less likely to drop the ball. stick with cramer. >> announcer: coming up, jeff marks joins cramer to help handle your most urgent questions. the floor is yours when we return. this is american infrastructure. megawatts of power, rails and open road, and essential services of every kind. all running on countless invisible networks, making it a prime target for cyberattacks. but the same ai-powered security

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i always say my favorite part of the show is to answer questions directly from you. i'm bringing in my partner in

crime, jeff marks, to help me solve your burning questions. those part of the investing club, you need no introduction. those that aren't, i hope you will be soon. jeff's insights and our back and forth help me to do a better job for you. please, join the club. jeff and i are covering all grounds, going to phone calls and answering the email questions. andrew in new jersey. >> caller: how you doing? >> not bad, you? >> caller: pretty good, 66-year-old guy, all about dividends. and in this cash environment right now, the returns we're getting, i have more of a request than a question, your thoughts on being able to do that in the future. i was wondering if at times you could do more of a contrast

thing, acknowledging you're not a tax adviser, but acknowledging more often which companies and investments have favorable 20% capital gains rates versus tax -- income tax brackets range 25-37%, and -- so, part two of the question, real extra credit, end of the year as we approach the end of the year and think about tax harvesting, loss harvesting for tax purposes, would you go so far to say this stock i recommend hold, but thinking about 30-day wash rules, maybe sell it, harvest the loss and buy it back. would you go that far? >> that's are interesting issues. in the first book i wrote do not fear the tax man, what matters

are the qualities of the stock. i wouldn't sell a stock i thought would be great for a wash sale. if i thought it would improve. i really don't want to sell any stock based on because you might be long term/short term. jeff, we're investing for the long term. company does poorly, we sell it, does well, we don't. i don't think tax person figures in. >> and of course all the capital gains income at the charitable trust is donated to charity. but if you have a specific tax question, seek a tax adviser for the qualified advice. we're focused on how the stocks are performing. >> people can be in different brackets with different ideas. kevin in maine. >> caller: jimmy, boo-yah. >> what's up? >> caller: thank for helping

millions of people build into a better investor. you're single-handedly responsible for helping millions get into the stock market, including me. i appreciate everything you do for us regular people. charts have three tools, price, volume and on balance volume. sitting on a few ten bags and one 30 bags. if you chose one tool on the chart other than price and volume, which would it be? >> okay. this is terrific. what i would check is to see the oversold/overbought. is it too far down, too far up, and same for stocks. i wish we had an oscillator for

the stock exchange. >> i'm not a technician, it's harder for me to say. but moving averages is something technicians often quote. would be the other one. >> some of the stuff that larry williams says i really like. now emails. let's start with diane in ohio. and she asked -- i'm trying to build a position in a company, not owning as much as desired, how do you balance making profits and taking a position. you put a small position, jumps up, just sell it, you missed it. you'll get the next one. otherwise you build on the way down, pyramid style to have a better base, improve the bisis, provided the thesis is still right. that's what matters. >> just because it's smaller position doesn't mean break discipline and be greedy if it's had a huge run and looks

overextended. but we don't want to chase stocks earring and just because it's small start buying because you think it will go higher. discipline, it always comes down to. >> i hate having to wait and build the pyramid. it doesn't matter, this is not emotions but empirical analysis. it works. chris in illinois asks how do you address the weighting of different sectors. s&p, market weighting, sector weightings, macro trends, et cetera. the club is different, we look for good companies and don't care about the sector. we don't want all semiconductors but we're about finding the right stocks. if there are a lot, we pick the best. >> we'll diversify but if there's a mega theme we like, electification, clean energy,

infrastructure, we're not opposed to investing more heavily because they're multiyear trends seeing a huge flow of investment dollars. >> that's why you woucome to th club. there's always a bull market somewhere and i promise to find it for you right here at "mad money." i'm jim cramer. right now on "last call", stocks come storming back, but if you missed the rally, there's someone here for you. goldman sachs, earnings on deck. there's one thing that you need to watch. film, shows, video games? netflix making a big bold bet. > . and some terro