>> big shoes to fill and she did a great job. >> bristol myers, mel. i would look at this stock, see what it's done over the last few weeks. very impressive. >> and our thanks to elizabeth, best of luck in your next rotation thank you for watching "fast money. "mad money" with jim cramer starts right now my mission is simple to make you money. i'm here to level the playin 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 a little money for you. my job not just to entertain but to put everything in context so call me 1-800-743-cnbc. tweet me @jimcramer. investing isn't easy but it can be a whole lot easier and much less daunting with a little

instruction. the hope is managing your money is made infinitely more confusing by all the arcane technology and authentic wall street gibberish you need to wade through to learn anything about a stock or its underlying business if you're not clued in to the jargon it can sound like the professionals are speaking an entirely different language. you've got to remember there's an entire industry of people who need you to be happily convinced that investing's too hard for you, that ordinary people just can't do it, and that the safest thing to do is give your money to a pro by the way, that's a huge reason why i started my charitable trust. when you join the cnbc investing club our goal is to show you that you can do it yourself and to teach you how it's done of course maybe giving your money to a professional is the right move for some of you if you don't have the time but if you put in a little effort, if you do the homework then i think you can do at least as well as the pros or a low-cost index fund, possibly better comparison because in any given year a lot of pros really lose to index funds. the fact of the matter is that the financial industry is full of people who are just after your fees.

they're more interested in taking your money than in making money. and if you're a hedge fund or mutual fund manager trying to fund-raise you've got every incentive to keep regular people sadly ignorant why would they make any of this investing stuff sound accessible when they can make it sound impenetrable if it's straightforward it's harder for them to raise money and convince you to pay high management fees. they're kind of the wizard of oz they don't want you to peek at the man behind the urt cann. they don't want you to understand because if you did then you'd take control of your own finances you'd pick your own stocks and not pay someone else potentially exorbitant fees to do the things you're perfectly capable of doing yourself. and after all these years doing the show i know you can do it. and that's where i come in i'm pulling back the curtain and explaining everything because while authentic wall street gibberish can sound complex even impenetrable, it's not rocket science or brain surgery you don't need to go to business

school or work in an investment bank to understand it. you can comprehend all the mystical-sounding vocabulary that we throw around here as long as you have a translator, a coach like me, who can explain what the darn words mean i want you to think of me as a defector, someone who played for the other team managing $500 million of already rich people's money at my old hedge fund but who's now playing for you. teaching you how to navigate your way through the minefield of the stock market every weeknight here on "mad money" and of course constantly for the cnbc investing club. forget about the da vinci code forget the navajo code talkers to be a great investor first you have to break the wall street code and i'm here to help you crack it that's why tonight i'm giving you my wall street gibberish to play plain english dictionary. consider this a glossary of the most important terms you must understand if you're going took theively manage your own portfolio of individual stocks the way i want you to. words and concepts that many people in the financial industry don't want you to get your heads around because then you might actually feel empowered enough

to pull your money out of their expensive mutual funds and hey, even if you're not a pro why not take advantage of my 40-plus years of investing experience to give yourself an extra edge let's start with a couple of extremely important terms that go hand in hand. cyclical and secular now, you hear these all the time yet no one but me ever bothers to explain what they mean. even though they're crucial when it comes to picking stocks cyclical has nothing to do with the spin cycle on your washing machine or wagner's ring cycle somewhat classical music and secular isn't about the separation of church and state or public versus parochial schools. oh, yes, and kudos to the late great lou rook hooizer who first cracked that cyclical washing machine and i've always remembered it. it's probably been about 50 years now. we say a company's cyclical if it needs a strong economy in order to grow. it depends on the business cycle. cyclical cycle. metals and mining companies, oil

and gas really any kind of raw materials plus most of the industrials are cyclical the home builders are cyclical, auto builders, commodities like dow are cyclical copper mines like bhp that's the definition of cyclical these companies are all hostages to the vicissitudes of the economy. when the economy heats up they earn a lot more money and are willing to pay more for those earnings and when the economy slows down or shifts into a recession mode they earn a's lot less money and investors pay less for their shares. i always say cyclicals are boom and bust names ah, secular growth company on the other hand is one where the earnings keep coming regardless of the economy's overall health. think anything you eat, drink, brush your teeth with or use as medication so you've got consumer staples like procter & gamble of course. food companies like general mills, drug stocks like pfizer or merck or eli lilly. these are the classic recessionproof names you want to buy when the economy slows down, investors flock to the companies that can generate safe

consistent earnings unless the glp-1s drugs actually really take over the world. because you don't stop eating food or brushing your teeth just because of recession why is the secular versus cyclical distinction so important? why is it the first piece of wall street jargon i'm translating for you? because it helps you figure out how much companies can earn in a given environment and because it matters to the big institutional money managers, the guys who have so much cash to throw around that their buying and selling pretty much defines the whole market, at least in the short term see, the whole hedge fund playbook is about when to buy and sell cyclical stocks or secular ones based on how economies around the world are doing. this is what drives the decision-making process. now, in the old days 50% of the performance of any individual stock came from its sector, which is just a fancy word for the segment of the economy a stock falls into like tech, energy, machinery, health care, finance. and when it comes to sectors much of their moves are driven by whether they fall into the secular or cyclical camps.

these days it's much more than 50%. and that's really thanks to the rise of secular etfs you don't want to own much in the way of cyclical when the economy's slowing. these stocks are simply going to get crushed because their earnings tend to fall apart as they have during every meaningful slowdown. >> sell sell sell! >> including chinese slowdowns and there's nothing about that you can do what do you do but by the same token when business heats up and the cyclicals are all doing well nobody wants to own the boring consistent secular growth names, the food and the drugs and you won't make as much money in them during those periods either. you have to accept that. you're not a trader. you just accept it now, you always want some cyclical stocks and some secular stocks in your portfolio because you can never be completely sure where the economy's headed but when business looks like it's booming you want a lot more cyclical exposure and when business looks like it's falling off a cliff you want a lot more secular exposure the bottom line, investing ain't easy but it doesn't have to be mystifying you just need to learn the

language know the difference between cyclical and secular growers and always stay diversified. shane in alabama shane. >> caller: hey, jim, thanks for taking my call >> absolutely. >> caller: when building a balanced portfolio, is the 60-40 rule still fundamental and how much of that percentage should be in cash >> okay. i'm blowing out of all that. i think we want to bet against -- don't want to bet against ourselves. we want to bet with ourselves. i'm betting people are going to have a long life, hopefully a happy life so we're buying and keeping a lot of stock right almost to the end when you're 60, 70 i still think that's young and i think you should have 70% stock. i know that's higher than what i've usually said but i just think you're not going to get the return from bonds that people want and i'd rather have you in stock and then take it down to 30 or 20 and depending upon how you feel about yourself i want you to be thinking about living long and then i think you'll live longer it's my own psychology

joseph in florida. joseph >> caller: hey, jim. how's it going >> not bad, joseph how about you? thank you for calling. >> caller: i'm doing awesome, man. >> good. >> caller: so i wanted to get some insight on a 529 plan or an index fund for my 1-year-old child garrett. >> look, 529 plan is perfect and putting it in a low fee s&p 500 index fund i did that for my kids, and they are eternally grateful and you're going to do it for yours too. how about edna in new york edna >> caller: boo-yah, mr. cramer >> boo-yah, edna >> caller: i'm a member of your investing club and wanted to thank you for all i've earned so far. you've turned my husband and i into actist investors. >> i want you to be informed active investors absolutely how can i help >> caller: i recently rolled over an old employee i.r.a. into a brokerage account and have 20 or 30 years before i'll need the funds. right now it's sitting in a money market account earning 5%.

so would you recommend i put it in an s&p 500 index fund >> here's what i want you to do. i want you to take starting now every month, take a 12th of that money and put it to work we're not going to put it all to work at one level. 1 1/12 and then if we have a really bad month i want you to double down and put a sixth in and when we're finished in the third and fourth quarters we'll figure out if you need to have a little more cash but that's how i want you to invest that money. that's long-term money and i want you to be in stocks not bonds but over time not all at once investing isn't easy but it doesn't have to be mystifying. you need to learn the language on "mad money" tonight i'm helping demystify all the wall street speak from p/e multiples to garp and much more. i'm cracking open my dictionary to help you navigate the market and take charge of your portfolio. that's what i want so stay with cramer. >> announcer: don't miss a

second of "mad money." follow @jimcramer on x have a question? tweet cramer hashtag madmentions. send jim an e-mail to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc miss something head to madmoney.cnbc.com. is it me... or is work not working? at least, not the way it could work.

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tonight i'm helping you translate the cryptic and occasionally unfathomable terminology that makes owning stocks so darn difficult yep, i'm giving you the phrase book to navigate your way through the world of investing a lot of people call it the michelin guide to fine stock dining consider it the televised encyclopedia of cramerica for tearing back the cloak of mystery that can make managing your own money seem like an impossible task. the process of picking stocks shouldn't seem as difficult as, say, conducting triple bypass

heart surgery on yourself. you don't have to be stephen hawking or albert einstein to understand this stuff. although with the way a lot of the pros talk about stocks i bet even einstein would have a tough time figuring out what the heck they're saying now, i just explained the difference between cyclical companies, think industrial smokestack businesses that need a healthy economy in order to grow earnings versus secular growth names, think toothpaste okay that consistently expand at about the same pace regardless of where we are in the business cycle. how you have to sell the cyclicals and buy secular growth when the economy starts to slow. then do the reverse as it starts to pick up steam this is the playbook that all the hedge funds use. and even though these hedge funds can often behave like herd animals, wildebeests who often buy and sell the same stocks at the same time, they operate this way because their playbook works. the reason for that has to do with another piece of wall street gibberish lexicon that you absolutely must know if you're going to pick stocks by yourself it's called the price to

earnings multiple, or p/e. multiple or just the multiple they all refer to the same thing and it's the cornerstone of how we value stocks. whenever you hear talking heads pontificate about how some stock has become overvalued or undervalued they're almost always talking about the price to erin aings multiple when you hear someone say pepsi's more expensive than coke they don't mean coke's cheap because it's trading in the 50s while pepsi's trading in the triple digits. no 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 need to take a step back when you buy a stock you're paying for a small piece of a company's future earnings streak so to value a stock you have to look at where it's trading relative to the earnings per share which you often see rendered as eps. and that's what the multiple allows you to do here's the basic algebra not even math. that any fourth-grader i think should be able to do the share price p equals the earnings per share, e, times the

multiple m okay the multiple tells you how much investors are willing to pay for a company's earnings we don't care that coke's stock mighting at $55. we care that it sells for 19 times earnings we don't care that pepsico might be 165 we care that it sells for more than 20 times earnings or put it another way. the multiple is the special sauce of valuation the main ingredient in that sauce, growth. how much bigger the earnings will be next year than they were this year. and the year after that. and the year after that. on and on. the stocks of companies with faster growth tend to get rewarded with higher price to earnings multiples why? remember the multiple all about what we're willing to pay for future earnings and the more rapidly it grows the bigger its earnings will be down the road if a faster growing stock sells for 25 times earnings that doesn't make it more expensive than a slow but steady grower like pepsi at 20 times erin aings. the faster grower actually deserves the bigger multiple now, here's where it gets real interesting. price to erin aings multiples aren't static, in different markets people pay more or less

for the same amount of earnings. when they pay more we cal that multiple expansion and when they pay less it's called multiple contraction. two more terms that sound much more complicated than they really are are whenever interest rates skyrocket making the bond market competition a lot more attractive we see marketwide multiples contract because everybody's future earnings are suddenly worth less by comparison of course the earnings aren't static either. when you buy a stock you're either making a bet that the e or the m part of the valuation equation is heading higher so what goes in the earnings how do you make sure they're increasing and not about to collapse okay, here's some more vocabulary when you hear people talking about a company's bottom line or perhaps their net income, they all mean the same things earnings we call it the bottom line because the number is the bottom figure in a company's income statement. to figure out whether a company's earnings could grow in the future you have to look for clues when it reports its quarterly results. that's why i'm always telling you to listen to conference calls. by the way, we do that homework

for you in the investing club with all the charitable trust holdings that's why it's such a good idea to be a member of the club step one to get your head around the future earnings trajectory, you need to look at the top line oh, boy. another unnecessary piece of wall street gibberish. that's totally interchangeable with revenues. or sales they all mean the same thing you want to see strong revenue growth which tells you there's demand for a company's product this is the key to most businesses being able to grow their earnings long time that's dwrts especially important for younger smaller companies to have fast growing revenues investors will pay up for accelerating revenue growth. accelerating revenue growth. let's see. a.r.g. arg. which means the sales are growing at a higher and higher rate with a more mature company it should be able to turn its revenues into profits by cutting costs and then it can return those profits to shareholders in the form of dividend or potentially a buyback. beyond the top line and the bottom line it's also crucial to consider the gross margin, which is in no way disgusting and not the least bit marginal the gross margin tells you what's left after you subtract the cost of goods sold from the

sales. it's a key profitability metric. to figure out the gross margins you have to consider the competition. the cost of production and the cost of doing business in general businesses with cutthroat competition like supermarkets tend to have terrible margins while a virtual monopoly like microsoft has margins that are obese. in some industries the margins can vary widely. take the oil business where margins swing up and down with the price of crude in that case you need to watch supply across the whole industry oil production for energy, too much oil pushes price down too much retail inventory forces stores to discount their goods aggressively in order to make space for the new nasdaq both are what we call margin killers. so here's the bottom line. 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. the growth rate. the top line the bottom line. and the gross margins. i know this may sound basic to many of you but i'm here to educate people and i don't want anybody to try to pick stocks

without a firm understanding of the basics it's another great reason, by the way, to join the cnbc investing club "mad money" is back after the break. >> announcer: coming up, finance is full of $5 words. but don't despair. cramer's breaking down the wall street lexicon some key terms made easy next

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tonight i'm going to penn & teller mode, demystifying all the overly complicated technical-sounding wall street gibberish that you hear constantly but might not understand i want to translate the most overused underexplained terms in the business putting them into language that's fit for human consumption. consider this show your wall street to english dictionary, a televised glossary that will help you navigate your way through tough markets and the tough-sounding terminology that keeps so many people out of stocks not doing myself justice i'm not -- and i've got to help you to understand this stuff so you can be better. of course joining the club is going to help. again, all this investing terminology sounds difficult because the pros who speak wall street gibberish fluently, they want it to sound difficult they're the opposite of me they want you terrified. they want you feeling totally ignorant and at a complete loss when it comes to managing your money my mission is just the opposite of theirs.

i am here to try to enlighten you, to teach, because i know that you can do better for yourself than the professionals. i've been down here for 40 years on wall street i know this stuff. and most of the professionals they kind of just want your fees i'm not managing anyone else's money and i don't own stocks except for mycharitable trust. so i give away my winnings to charity and i walk you through the whole process of rung the trust for the cnbc investing club it's the anti-well, establishment. it's not enough to come out here and tell you which stocks i like because you can't own them if you can't understand them. knowing what you own is a must it's one of my cardinal rules. since we don't have a good grasp of what you own and what your holdings are, you won't have any idea what to do when the stock's turned against you and believe me inevitably at some point they will you can't know when to hold 'em and when to fold 'em in the immortal words of stock sage kenny rogers, unless you know what the heck it is that you're actually holding and what might make you field unfortunately the profusion of arcane terminology on wall street makes it much harder to

know what you own. let's continue our vocabulary lesson with more an a piece of verbiage that's hardly explained even though it's used constantly risk-reward. the risk-reward analysis pretty much defines short-term stock picks. let's break it down into its component parts. asession risk is all about figuring out the down side, how much you potentially stand to lose in a given stock, how far it could conceivably fall in the near term. assessing the reward on the other hand means figuring out the potential upside, how much the stock could rally if everything goes right. too many investors only focus on the potential upside when they're analyzing stocks and that is a grave mistake. it's much more important to understand the risk side of the equation because the pain from a big loss hurts a lot more than the pleasure from an equivalent size gain. trust me but how exactly do we figure out the risk-reward? these are determined by two different cohorts of investors the reward, the upside is defined by how much growth-oriented money managers can be willing to pay for stock.

they create the top. the risk, the down side is created by what value-oriented money managers do. what value-oriented money managers would pay on the way down they create -- to figure out the risk you need to figure out where the value guys will start buying on the way down you need to worry about where even the most bullish of growth guys will start selling on the way up when asked i usually boil the risk-reward down to something quick and dirty like five up, three down but how do i get there how do you know where growth money managers will start selling and value guys will start buying okay for that you need some insight into how they think and that requires translating another piece of esoteric wall street lingo. it's called growth at a reasonable price i really believe this, by the way. growth at a reasonable price, aka garp it's a method of analyzing stocks first popularized by the legendary peter lynch by comparing a stock's growth rate to its price to earnings multiple if you want to figure out the maximum the growth guys will be willing to pay for a stock you need to be able to look at the

world according to garp. [ rimshot you want to learn more from peter lynch? it's easy. go to amazon and buy one up on wall street or "beet the street." two of the most important investing books ever written here's a ruvell thumb that's hardly ever let me down although there are and some exceptions. a rule that can really help us figure out when a stock might be overvalued or undervalued based on what the growth and value managers would be willing to pay. if a stock has a price to earnings multiple that's lower than its growth rate then that stock's probably cheap and any stock selling at a multiple that's more than twice the size of its growth rate, probably too expensive so if a stock's trading at 20 times earnings and it has a growth rate of 10%, then it probably doesn't have much more upside it's reached the two times growth ceiling always remember that here's another piece of wall street gibberish that can help simplify the process the peg ratio, p.e.g that's the price to earnings to growth rate, or the p/e multiple divided by a stock's long-term growth rate. a peg of 1 or less is extremely

cheap. and 2 or higher is prohibitively expensive. >> sell sell sell! >> a high octane super fast grower could sell for 40 times earnings and still be inexpensive because if it has a 40-plus long-term growth rate giving it a peg of just one right at the cheap end of the spectrum and the growth kept accelerating sending the stock to i anew high after new high that makes sense to me where did i come up with these numbers? observation. the value investors who will be attracted to stocks selling at pegs of 1 or less create a flfloo you're usually able to find a buyer -- the growth investors hardly pay more than twice the growth rate, a peg of two, which means there's no way that stocks go higher. so stick with the example of google back when it still held that mega growth mojo with a 30% long-term growth rate. it would have become a sell if it traded to 60 times earnings just too darn high as i have learned over and over and over again since this show began oh,

so many years aago like with any of my methods or anyone else's for that matter, this one is rough approximation. a bit of subjectivity. it's useful especially when you're trying to figure out the risk-reward. but it's not always right and it only applies to companies that trade on earnings, not unprofitable companies with stocks that trade on sales plus stocks will often get cheap on an earnings basis simply because the estimates are too high you see this all the time going into a slowdown. in those cases the stock could trade well below the one times growth floor it's pegged to just keep sinking and sinking. and the fact that it looks cheap is a value trap. it's not a buy signal. on the other hand the best time to buy cyclical stocks think the growth smoke stam industrial types is when -- the earnings estimates are way too low and need to be raised to catch up with reality that happens when the economy's bottoming and about to rebound the 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 down side and

potential upside before you purchase anything by figuring out where the growth investors put in the ceiling and where the value investors create the floor. nicholas in nevada nicholas >> caller: how's it going, mr. cramer this is nick michelle from las vegas, nevada. i'm a college freshman out here in california trying tostart m own investment management company. i was just looking for some quick advice and kind of personal i guess advice on how to run that from a freshman's perspective. >> well, i'll tell you you're young and that means you have to go with higher risk stocks than i typically talk about on the show maybe some smaller cap stocks, maybe some biotechs, maybe some companies that are on the ground floor of ai. i don't want you to be loaded up with companies that are older because you have your whole life to make it back if they go away. a lot of our older viewers and middle-aged viewers cannot afford that to happen. so go with high-risk, potentially high reward stocks mark in iowa mark >> caller: hi, jim

i'm a happy club member and thank you for take my call >> thank you for being a member of the club. it's terrific. how can i help >> caller: well, jim, i have a real estate question for you. >> okay. >> caller: higher interest rates make it more difficult for families to afford a new mortgage what effect will this have on reits containing single and multifamily units? >> well, i think they're going to be under pressure and i think it's natural that you asked that question and it's one of the reasons why i'm not recommending any of those stocks because you correctly have thought about what is the nemesis of those particular stocks now, as long as you understand the risk-reward, the garp and the peg ratio associated with picking stocks, you're much better prepared to know what you own and know what others more importantly will pay for it. now much more "mad money" ahead. do you know the difference between a rotation and a correction i'm not done cracking the wall street code. and you better be seated when professor cramer opens the dictionary plus my colleague jeff marks and i are taking all of your burning investing questions. so 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 tax smart investing today, helps to build a stronger tomorrow. at pgim custom harvest, our unique direct indexing approach seeks to help investors achieve better after-tax outcomes. pgim investments. shaping tomorrow, today (man) these men of means with their silver spoons. pgim investments. what will become of them when they discover robinhood gold allows others to earn their very liberal rates on idle cash. they would descend into chaos.

nate jones... lines things up... checks his fidelity app... looks to outside analysts to get a second opinion. nate likes what he sees...

and he places the trade... talk about easier investing. managing your own money is a whole lot more daunting than it seems when you have a translator, someone like me who can help you decode the intentionally obscure terminology that the experts use to talk about stocks all the time and that's why i've been giving you my televised wall street gibberish to english dictionary, so that you can see through the mystery and understanding i've got to get to the essentials of investing. it's the most important thing i can do that's what i do for a living. so far i've been explaining the

complicated-sounding pieces of jargon that are actually pretty simple, stuff we do every day at the cnbc investing club. but the difficulty goes in two directions just as there are many concepts this seem misleadingly complicated there are also plenty of other terms that are much less simple than they appear take the notion of a trade versus the notion of investment. a lot of people would say these two words are interchangeable, there's no difference, but that couldn't be further from the truth. they're distinct and in the immortal words of those '90s stock gurus offspring you've got to keep them separate isn't this just splitting hairs, something not recommended for the follically challenged like myself a trade is not the same as an investment and if you treat one like another, if you turn a trade into an investment breaking my first commandment of trading, in true mr. t fashion a la best of the rockies, "rocky 3," my prediction for your portfolio is pain when you buy a stock as a trade

you're buying for a specific catalyst, some anticipated future event you think will drive the stock higher maybe the company's 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. there's just too much chaos and confusion in an individual earnings report which can cause a stock to get clobbered even if it delivered stellar numbers the catalyst can be news about some event you're predicting for example, let's say i apharma company getting fda approval for a big new drug or even just some clinical trial data. these are data points that can send a stock soaring if they go your way. so when you make a trade going into it you know there's a moment to buy before the catalyst and a moment to sell after the catalyst happens sometimes your trades won't work out. the event you're waiting for won't happen or maybe the data point you're expecting simply turns out to be less positive than you expected. either way when you buy a stock as a trade it has a limited shelf life there's only a brief window you want to own it once the window passes you must sell hopefully you'll turn out to be the right -- the right catalyst and you'll rack up a nice gain

if that happens no point in stick around ring the register and lock in your profits before they eph ab raitt. but if you turn out to be wrong, well, guess what, you still need to sell. i want you to think of it like this when you buy a bottle of milk you don't drink it after the expiration date, right you throw it away. the logic of trading's pretty similar. you can't just buy more and call it a long-term investment because without the catalyst you've got no reason to own the darn stock and you never, ever should 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 a stock long after its expiration date. they're really fooling themselves into believing they're doing the right thing and then more often than not they get crushed so remember, without a catalyst you don't have a trade if you find yourself in that position then you'd better sell and cut your losses. no catalyst, no point. an investment on the other hand is based on a long-term thesis the idea that a stock has the potential to make you serious money over an extended period of time you're not just banking on one

specific catalyst. you're expecting many good things will happen in the company's not too distant future and that's not an excuse to buy a stock and then forget about it, though investments can go wrong too which is why i'm always telling you to keep examining your stocks after you buy them. that's called buy and homework, not buy and hold of course we help you with that homework for our charitable trust names in the cnbc investing club so when a stock you like as an investment goes down in the short term, it makes sense to buy more as long as the fundamentals are still sound the corollary here is you don't ring the register after the first time the stock jumps in price. with an investment you're looking for longer gains, larger gains, and what you do is you measure it not in terms of trade and sell but a much longer period of time and again, that is what we do at the investment club. the bottom line, not all wall street gibberish is deceptively complicated. some of it's deceptively simple like the distinction between a trade and an investment. don't confuse them remember, 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, which is a long-term bet on the future of the business "mad money's" 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

at ameriprise financial our advice is personalized based on your goals, whatever they may be. all that planning has paid off. looks like you can make this work. we can make this work. and the feeling of confidence that comes from our advice... i can make this work. that seems to be universal. i can make this work. i can make this work. no wonder more than 9 out of 10 clients are likely to recommend us. because advice worth listening to is advice worth talking about. ameriprise financial.

it's a smart move to get a second opinion. you do it when you're looking for a contractor. you definitely do it with medical advice. so why not with your stock market investments? we can help you see opportunities you may be missing. at hennion & walsh it only takes a second to schedule your free second opinion. so what's there to lose? speak to hennion & walsh.

the second opinion people. ♪♪ speak to hennion & walsh. [inner monologue] in this gig... you get comfortable being uncomfortable. ♪♪ the enemy is always adapting... deepfake: hey handsome. ♪♪ [inner monologue] ...always iterating. ♪♪ welcome back to the wall street gibberish to plain english translation guide edition of "mad money. all night i've been explaining

overly arcane and esoteric investing concepts and financial jargon to help you become a better investor and make the whole process of managing your money seem less daunting so what else do you need to know here's one of the most dreaded and poorly understood terms in the business the correction what a euphemism a correction's when after the market's been roaring it turns around and gets crushed. maybe decline of as much as 10% making it feel like the world was ending of course, the sky was falling and you never want to own another stock again in your life. 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 56-game hitting streak like joe dimaggio and then doesn'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, say, too far too fast and that's why you should expect corrections. they can happen to an individual stock, an index, the whole market they can even happen to bonds as we saw in the great bond retreat

that started 2022. then raged beginning in the spring of 2023 mostly you don't see these corrections coming so you shouldn't beat yourself up for not anticipating it. sell-offs are a natural feature of the stock market landscape. we don't have to like them i don't. but we do need to acknowledge that they will happen no matter what so you shouldn't get flustered or, worse, panic when they inevitably smack you right in the face let me give you another piece of investing vocabulary execution. now, this is a tough one because it's comparatively subjective. when we talk about execution we mean management's ability to follow through with its plans. when you own a stock there's all kinds of risk associated with execution. messed up mergers, failed new product launches, bad cost controls there are a number of bad ways a bad management f management team can screw up that's one of the reasons i like companies with proven management teams because they're much less likely to make these kinds of unforced errors. it's a big reason why, for instance, it's so important for you to pay attention when i

bring ceos on the show with those interviews nobody knows a company better than the people running it and since you probably can't get these ceos on the phone yourself you want to hear what they have to say about their business firsthand. on the show. this notion of execution is also crucial when it comes to understanding why it's worth paying up for best of breeze companies. the top players in any given industry almost always company with proven executives best of breed stocks are typically more expensive than their cheaper competitors but they're worth the price. a good management team is less likely to make mistakes and more important less likely to get buried by big problems and more likely to figure out how to solve them finally, one last piece of wall street gibberish, the dreaded rotation, which is just when money flows out of one sector and into another or one big group into another big group like a cyclical to secular rotation, the kind of thing you get when the economy's stalling so the cyclicals go out of style. this is probably completely antithetical to what you've been told about the right way to

invest the conventional wisdom is you're going to pick your own stocks, something which by the way the conventional wisdom regards as being the height of idiocy because you're not supposed to be able to beat the market so they sell you short then you should find high-quality companies and stick with them through thick and thin then eventually if you hold out long enough you'll make some money. this is the brain-dead philosophy of buy and hold that i spend so much time trying to debunk to you. it's a zombie ideology that refuses to die even though it's been utterly discredited by the market's performances. we're always taeeaching you in e cnbc investing club. that doesn't mean you should only play the rotation game and only own the group that's in style. remember the need for diversification, another need for investing vocabulary, which simply means you don't have all your eggs in one basket, one sector basket. to me you're diversified when no more than 20% of your portfolio is in any single sector. that way you won't get annihilated if, for example, a sector rotation takes down your cyclical stocks because you have some secular growth names that are holding up much better or even making you money at the same time. all tech, very bad because tech

trades together. bottom line, don't be afraid of rotations and corrections. don't be intimidated by people who use the words. 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 stick with cramer. >> announcer: coming up, jeff marks joins cramer to help handle your most urgent questions. the floor is yours when we return

nate jones... lines things up... checks his fidelity app... looks to outside analysts to get a second opinion. nate likes what he sees... and he places the trade... talk about easier investing.

i always say my favorite part of the show is answering questions directly from you. tonight i'm bringing in jeff

marks my portfolio analyst, partner in crime to help me answer some of your most burning questions. for those of you who are part of the investing club, you're going to need no introduction. for those of you who aren't members, though, i hope you will be soon. and i always say that jeff's insights and our back and forth help me to do a better job for you. so please, i want you to join the club tonight jeff and i are covering all grounds, going directly to phone lines and answering some of your e-mail questions so let's take some calls andrew in jnew jersey andrew >> caller: hey, jim. mr. cramer boo-yah. how are you doing? >> not bad how about you? >> caller: i'm doing pretty good i'm a 66-year-old guy, ex-tech guy and i'm all about dividends. in this cash environment right now and the returns we're getting on them i have more of a request than a question and wanted to get your knots on being able to do that in the future >> sure. >> caller: 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, which investments have the favorable 20% capital gains rates versus cash which -- you know, income tax brackets range anywhere from 25 to 37%. >> sure. >> caller: and for some of the higher end people on the show. and then part two of my question, real extra credit, is at the end -- as we approach the end of the year and we do think about a lot of tax harvesting of the losses, loss harvesting for tax purp purposes, would you evo so far as to a this stock i'm recommending a hold but if you're thinking about the 30-day wash rule maybe you want to sell it, harvest the loss and buy it back for 30 days would you ever go that far >> these are -- these are very interesting issues and i've got to tell you, in my first book i wrote, "do not fear the tax man," what matters are the quality of the stocks.

so i would not ever sell a stock if i thought it was going to be great for a wash sale. again first, thought it was going to be great. and i really don't want to sell any stock basis on because you might be long-term, short-term jeff, i think that we're investing and we're investing for the long term and if a company does poorly we sell it and if a company does well we don't touch it and i don't think a tax person should figure into our equation. >> and of course all of our capital gains and dividend income at the charitable trust has -- each year gets donated to charity. but i think if you do have a really specific tax question seek a tax adviser because they'll give you the best qualified advice but we're focused -- we're very focused on how stocks are performing >> people could be in all different brackets and have different ideas. why don't we go to kevin in maine? kevin. >> caller: jimmy boo-yah. >> boo-yah, kev. what's up? >> caller: thank you for helping millions of people build

themselves into a better investor you are single-handedly responsible for encouraging millions of americans to get into the stock market who otherwise would not have, myself included so thank you >> oh, man you make my day. okay thank you. >> caller: i do appreciate everything that you do for all of us regular people jimmy, quick question. my charts have only three tools on them -- price, volume and obt, or on balance volume i'm sitting on a few 10 bags and one 30 bag if you were forced to choose only one tool on your chart other than price and volume, which one would it be? >> okay. this is terrific what i would check is to see the oversold/overbought. is it too far down, is it too far up and i would use the same thing for stocks which we had an oscillator for -- i mean the stock exchange, the s&p. i wish we had an oscillator for

each individual stock. that's not what i'm looking at >> i'm not a technician. it's a little harder for me to say. but i also think moving averages is something technicians often quote. that would be the other one. >> the kind of stuff that larry williams does i really, really like all right. so now let's go for some e-mails. let's start with diane in ohio and she asks, i'm trying to build a position in a company. at this stage of not owning as much as desired how do you balance taking profits and building a position? thank you. okay so if you've foote putt in a small position and it jumps up you sell it. that means you missed it you didn't get it, it's okay, you get the next one otherwise what you do is you build it on the way down in pyramid style and what you'll do is you'll have a better basis to try and improve the basis, provide the thesis is still right. and that's what matters. >> yeah. i think just because it's a smaller position that doesn't mean you should break discipline and be greedy. if the stock's had a huge run, looks a little overextended.

but we also don't want to chase stocks either, and just because it's small just start buying because you think it may go higher >> right >> when you're disciplined it always comes back. >> i hate having to wait i hate having to build a pyramid. it doesn't matter. this is not a game of emotions it's a game of empirical analysis and it's worked now let's go to chris in illinois, who asks, "how do you address the weighting of different sectors in a diversified portfolio? do you match the s&p or market weighting or do you specify sector weightings based on macro trends, et cetera? this is another one where the club is very different from most people what we do is we look for good companies. and if the companies are good we don't care about the sector. now, we don't want to have all semiconductors but we are about finding the right stocks and if there are a lot of stocks in that sector we pick the best ones in the sector but it's not the way we think of things >> we're diversified but if there's a mega theme that we like, whether it be electrification, clean energy,

infrastructure, then we're not opposed to investing more heavily in that space because these are multiyear trends that are seeing a huge flow of investing dollars. >> exactly and that's why you come to the club we are unconventional. there's always a bull market somewhere and i promise to find it for you right here on "mad money. i'm jim cramer see you next time. our product brings light to the world. bethencourt: i was fascinated by the idea of creating an entirely new type of pet food. r. riveter is about redefining the boundaries of american manufacturing. narrator: showcasing america's most ingenious products and trend-setting ideas. -there you go. -[ laughter ] narrator: just when you think you've seen it all, there's always something new coming in the tank. which of these companies will be the next big idea? the future starts now. it's alive! herjavec: wow! -- captions by v♪♪ac -- narrator: first in the tank