>> are you sure? >> do they like to be petted? >> they are only about a year old right now. they are nocturnal and they hang out on coral reefs. >> hang out and do what? nothing. >> do they go clubbing? what do they do? >> they are all part of that big old ecosystem. >> let's bring out the spider monkey. >> we need to protect the coral reefs as well. >> bring it out! bring out the spider monkey. >> oh, my gosh! >> sweetie. >> grab a banana down there. as popular as primates are, 50% of primates are actually threatened with extinction. >> that's crazy! >> they are not pets. but mia's story is very, very sad actually because she was a pet. they didn't know how to care for her or raise her at all. she was found in a dumpster. and she still has metabolic bone disease chshgs which is why shet

move around as an adult primate. >> so she has to be cared for. she would never survive. the thing about zoos, we are often the only places that people can turn these exotic pets into so that we know how to care for them and other places that we partner with that do wildlife education such as conservation ambassadors or busch wild sanctuaries. >> thank you, julie. >> she is adorable. next week, martin sheen is with us and -- >> actress lisa kudrow. we love her. plus, our special fourth of july series on how to find . >> hey, i'm cramer and welcome to "mad money." the new cramerica. my job is not just to entertain, but to try to teach you. call me.

after a solid day for the market, what happens to be our game plan for next week? we are going almost all europe. while they do have a july 4th over there, they don't celebrate. let's get going. first off is the last week before we reach earnings season. i need you to use any spring to lighten up on troubled sectors. including technology stocks which will tell a horrific struggles. industrials and any brokers or banks that do a lot of international work. minerals, mining too. further, if we get lift to oil and gas, please, lighten up on the whole complex. they will be some of the the most downbeat reports when they give you their quarters and many of the oil companies will scale back the plans. not all, particularly the deep water podges can't be turning it on and off.

those will stay. i think the retailers will have gotten sold yuf. yesterday's suggestion thaw pick up bed bath and beyond and i like the health care stocks that upheld obama care. these are changes that make you feel like health care will be the place to be in the second half of the year. on monday we get the june institute of supply management index. so many people buzz being this. i have to tell you something. the word on the street is this number will be severely disappointing and bordering on recessionary. i think it's the oil and gas drilling and collapse of the commodity prices. here we go. the german pmi and the german manufacturing and the purchase manager's index. why? we need the germans to start feeling the pain in the rest of europe. so far that is not the case. they have been not here. this has been the address.

germany is the relevant and absolute strength. maybe a weak number will cause them to think twice about promoting real growth and not the small thing they are talking about, but real growth. tuesday we have something to look forward to with june auto sales. the brightest spot in the economy is autos and housing being second. the june sales will remain strong. when you hear the numbers, many of you want to buy gm and ford because they are so far down. the companies realized they had to diversify and did so with a vengeance. it is driving them into a retaining wall as we learned last night from the people from ford. do not be tricked into buying the stocks off of american sales numbers. that's not where the problems are. we get june truck sales. lately truck sales have been horrendous. the biggest buyers have been the

oil and gas companies to hold them. with every driller tlolthing back, you have far fewer truck buyers and they have been a bottom. i don't like naf star. you can see my friend about that and you need to wait until the quarter to buy cumm i.n.s. retail sales and listen to why this is important. in spain they are talking to raising the retail sales tax. that would be disastrous given how weak it is. if the germans insist on austerity, you will get the tax hikes. let's see how terrible they are without the tax hike. i think they are awful if the germans want tighter money. on thursday, we know the europeans raise interest rates twice. talk about that. they did that? that was amazing. the guinness book of world records and i know, i got an honorary degree from guinness when i learned how to pour a couple of months ago. they rolled back one of the two

rate hikes. isn't it time to cut the second? i think so. if not now, when? if they don't cut, expect more pain. we also have crude inventories f. they spike, it can kill any nation rebound in the oil and gas. do not be caught with a huge position unless you are willing to take the pain. be willing to lighten up on the oil and gasses rather than see a number. friday brings us -- too many people downers in the game plan. friday brings us a nasty one. the nonfarm payrolls and the one good thing is no one expects it. let me count all the way things went wrong. we had a drop off that has done more hiring than anything. it has been responsible for all the marginal hiring versus the layoffs. you won't see much new hiring at all. people are being furloughed.

stockton, california and how no one else wants that coming down the pipe. going forward with this number, every time you get a disappointment, you will hear about a spike in the polls for romney. that will make them get jigy and people perceive him as much more positive. i expect them to be hammered by the number, i think they will catch a bid the following monday. i don't want you to buy any industrial stocks. no. the numbers are too high. the bottom line, next week is the last one and use any strength to sell stocks that are likely to put lousy numbers for the industrials and the banks and the oil and gas names. keep an eye on europe where the fourth of july is unfortunately just another sorry day of the week over there. let's go to hans in georgia. hans? >> caller: booya from atlanta. how are you in. >> real good. how about you? >> caller: my question has to do with interest rates. what i want to know is are they determined by the federal

reserve and their policy or more determined by the bond market and a quick follow-up would be can you please explain the inverted yield curve. >> it's funny you bring this up. a lot of people feel the feds can do more to lower rates. the fed wants low rates, but the market is really driving the numbers. there is not a lot of loan demand and bond buyers. the money is coming in from all over. the workers see it as a safe haven. you have the higher rates at the short end. we don't have to worry about that. a regular yield curve and nothing that you need to worry about. anthony? >> caller: i would like to give you a big philadelphia baia. >> i will take that, but what's up? >> caller: my question is two parts. how do you feel first about the

direction of short, mid-and long-term prices and secondly, i am sure you believe gold should be an integral part of anyone's diversification. what do you see about the upside and tracks gold like gld or an etf that tracks. >> i am glad you asked this. the miners, someone will come to me and say the trade is usually good for 48 hours. i need you to be in the gld. more importantly the gold will be dead in the water until the europeans print money. the answer, if the german dos a wrong thing, i want to you know gold. up to 20% can be gold. gray in california. >> caller: booya, jim. >> booya. >> caller: i have been watching your show and seeing you pushing stuff that has limited exposure to foreign countries. >> indeed. >> caller: i was wondering, with google coming out with a new

tablet here in the united states, would that be a good play? >> no, google has amazing business in europe. astounding. they move so aggressively and they have no china. that is not a reason to buy google. be careful about that. google is much more europe. it may be america's birthday, but guess who is in control again. it's europe. beware of the text and international bankers. sorry to be so beware, but the buyers must be. [ male announcer ] this is anna, her long day teaching the perfect swing

begins with back pain and a choice. take advil, and maybe have to take up to four in a day. or take aleve, which can relieve pain all day with just two pills. good eye. activating protection, bear! the more you move, the more it works! [ roars ] [ screaming ] new long lasting degree with motionsense help me!

keep running! i only use french's french fried onions on my crunchy onion chicken because it's america's number one brand. just minutes to make, then bake! i want to look natural, not naked! but all you need is 3. lashblast for volume, outlast -- for kissing... simply ageless to help you look easy breezy beautiful covergirl. simply ageless to help you look another cup of coffee? how long is this one going to last? forty-five minutes? an hour? well... listen. 5-hour energy lasts a whole lot of hours. take one in the afternoon, and you'll feel alert and energized 'til the cows come home. it's packed with b-vitamins and nutrients to make it last. so what's it going to be, partner? 5-hour energy. wise choice. 5-hour energy. hours and hours of energy.

>> i come out to find high quality companies with stocks worth owning. stocks i believe will reward you by going higher or paying juicy dividends or often both. we analyze companies, but we don't trade companies.

we trade the stocks of companies and you should never forget that the company and stock are not the same thing. i know that might sound obvious, but the kind of thing that you go without saying, but people make the mistake of equating a company with its stock and it's the kind of mistake that can absolutely derail your stock portfolio. especially with all the marks where they trade off the big picture with macro data about the border global economy in the european market, chinese shades and rather than what's known as the information about the actual companies that stand behind the stock. the fact is that it's all too easy to assume that they are synonymous. we see this play out all the time. the stock gets crushed, obliterate and we assume must be horribly wrong with the underlying company. or the flip side. we assume they must be doing

something so right. that's not how markets work these days. often company stock will go up or down for reasons that have nothing to do with the business event. that's okay and it happens all the time. doesn't mean it's crazy or irrational? the performance of a company these days and the performance of a stock. why is that wrong? shouldn't they trade based on changes in the prospects of the underlying company and the way it should work when it's not spending time on the show analyzing companies figuring out what makes some businesses better than others. companies are improving or at least doing better than most people think. i'm always telling you the most important stock price is increases in the earnings estimates. nothing correlates more strongly

with a rising share price. they do equate future success with a dividend boost. why is it enough to study companies and buy the stocks for the ones that looks like they have the ability to grow earnings. if that's the holy grail, we can't buy companies themselves. we can't buy companies unless you have hundreds of millions of dollars like warren buffett, that's not an option. we have to buy shares of stock in the companies. shares that trade on an open market. lots of buyers and sellers and motivations from you. when you find a high quality company, you can't just assume that the shares will go higher since you also need to do the count the way the stock trades and a lot of other problems that happen to do with the mechanics of the stock market. far worse than when i broke into the scheme. over the long haul, the best way picking winning stocks is

identifying winning companies. ones that are growing and increasing the dividends or improving dramatically. on a day to day basis, they can trade with very little relation to the fundamentals. if you assume it makes sense, you will end up passing opportunities to pass up merchandise marked down for bad reasons and miss moment when is you should sell, sell, sell stocks that ran up too much related to the company you think you own. in recent years we witnessed the rise that caused them to differ more radically from the performance of the underlying company in the short-term. over the longer term of course, they tend to converge, but over days and weeks and months, you have all sorts of things that can prove the company falls or the stock deteriorating thrives. these days many use

exchange-traded funds and very pervasive. they use them to get exposure. some of these allow them to buy or sell with a ton of leverage, giving them double or triple for $1. the proliferation means stocks can trade with each other. the good companies moving in tandem with the bad and mediocre. it's like one buffet and nothing is different. now a business sector has always been an important determinate of a stock's performance. if a stock is a house, it sectors the neighbors and nobody wants a good house in a lousy neighborhood. these days the influence of the etf has made the sector more important than ever when it comes to the day to day action in a stock. your house of pleasure could be in a neighborhood with the house of pain. you have the high frequency traders causing massive across the board that makes no sense from the fundamentals of companies and especially extreme

moments. like in the flash backs, they have nothing to do with it. remember that flash crash. i think i know what can happen. of course when times get tough, they can get much tougher. i spent a lot of time talking about the problem and stocks can get slammed because hedge funds necessary trouble. they need to sell everything to raise cash? not because the companies are not any good? you see this happen every time they make the same bet and the bet doesn't go their way. many matches have been in europe and lost when the euro zone began to dominate. they are totally unrelated & by the way, this is what happened when we clashed in 2008 and 2009. that took it down and they were

much lower than you would ever expect. nothing was wrong with the companies. you have to count the influence of short sellers. when lots of sellers get hit with unexpected good news, you can get a short squeeze that propels them and they have to buy to beat and close out the positions. they kind of do it all at once. they sort over 300 and something exacerbate side small share count. there were not enough shares to go around for them to buy or cover and they moved it up. the market is a market in the end. they are dominated by supply and demand. there is not enough guy or kind of stock to satisfy that demand, you will see stocks rise what you expect based on the fundamentals of the companies. when there is too much supply,

the shares get hammered well beyond where you might have thought. we saw this a lot with super hot areas like the chinese internet ipos in 2010 and 2011. at first they were staggering, but they were smaller and smaller as you got more and more chinese dot-comes flooding the market with supply. the same thing at the end of our own dot-com boom. no chinese deal is worth participating in and the supply was way too heavy. the demand is well oversaturated. recognize what's happening is it doesn't reflect what's going on with the underlying business. use that back to your advantage. the company in terrific shape seeing the stock smashed to the fundamentals of the business, that can be an amazing buying opportunity. it can take a long time for the action in the stock to synch up with the performance of the company it represents a tiny piece of.

you won't be frustrated with what you thought should happen immediately after you heard fabulous news and instead you can wait until the market gets smart and reward your stock with the move it deserves. dave in wisconsin, dave? >> caller: booya, home of the green bay packers. >> who cannot like that team. what's going on? >> caller: i want to ask you during times of high volatility, i like to employ a dollar cost. i was wondering if you can share tips and tricks that we can use. >> that's not my strategy and people have to find the strategy they are comfortable with. i like to buy first and hope the market takes the stock down. i like to buy more lower and buy in larger fashion on the way down. it's called scale buying and talk about that in the book, real money. dollar cost averaging doesn't do anything for me. i want to buy lower. that way which is what i do i get a better basis as the market goes down. it may seem silly, but the stock and the company are not the same

thing. you have to keep them separate. what is happening to your stock doesn't mean the company has the same thing. it often takes time to synch up with reality. make sure you are patient in order to get rewarded by the moves that you should have gotten to begin with. stick with cramer. [ male announcer ] this is mike.

mike's being healthy and chewing like a man. introducing one-a-day vitacraves for men! it's a gummy multivitamin... with more vitamin b, to convert food to energy, and help mike do manly things, like wrestle bears and take out the garbage. new one-a-day vitacraves for men. ♪ oh oh oh oh you see it in the brush. ♪ oh oh oh oh ooh oh and then there's the pillow. ♪ i dare you to dare me so they dared me to try this pantene. [ female announcer ] pantene anti-breakage the keratin protection system makes hair stronger reducing breakage up to 97%. ♪ think only salon brands can do that? i dare to compare... will you? [ female announcer ] anti-breakage from pantene. hair so healthy it shines.

welcome back to tonight's getting back to even edition of "mad money." i'm giving you a look at insights from your personal economic recovery plan amidst all of this volatility. i talked about the need for investors to become a little bit more like traders. not a sin. the need to watch for term moves and stock prices and take advantage of them rather than pretending like so many pundits do that short-term gyrations in stock prices are beneath their noses and their notice and will somehow pollute your gains. >> boo. >> so how do we square the idea that when you buy a stock its price can become unglued from the underlying fundamentals of the company, the facts about the business? with my insistence that you always do your homework and keep track of the fundamentals by

reading quarterly conference call transcripts and quarterly filings to keep current with the company. stock prices will bounce around anyway. if they're at the mercy of macro economic factors, big picture economic stuff that companies can't control, sound familiar, what do you do? waste of time? how about if their stock funds are held hostage by hedge funds? learn as much about you can by the underlying company can be neutralized. why because homework is the most onerous, why do it at all? the fundamentals still matter a whole lot. and more importantly, they are knowable. the reason we focus on the fundamentals on this show is because anyone who tries to understand them can do it and the information is all public and readily available. in short, while you may think the homework is tedious and boring, it's also much better than trying to compare -- to predict whatever is out there, right? that is totally unknowable. investors are always looking for an edge, a leg up that provides them with an advantage over

anybody else. that's never going to change. not all advantages are the same scale, but just by following my standard homework reggie men, you should have the same practice. your homework involves looking at publicly available information. according to some economists, the very fact that the information is out there means it should already be baked into the stock, meaning the share price fully reflects what you know from your research, but we know that's just not how the market really works. that's just on paper. lots of people are lazy. lots of money managers or technicians mean they look at the charts, dismiss the fundies or the quants who won't get down into the nitty-gritty of a quarterly conference call. if you keep up with this information, you will know more about a stock than many of the professionals do. i was a professional, i still am, and if that's not an edge, i don't know what is. homework is taking control of your financial destiny. that's why i focus on it. i know it will get some results. not just any results, but very factual, objective kind that gives me comfort when stock goes down.

maybe the homework won't give you enough information, maybe it won't even protect you from the whims of the children in washington, d.c., who play with the economy willy-nilly, or the debt issues that affect any rogue nations in europe, but learning about the debt isn't an all or nothing proposition. it shouldn't be dismissed just because it doesn't immediately translate into a quick profit. remember, ultimately stocks do tend to drift back into line with where they deserve to trade given how the underlying companies are doing. so in addition to knowing a lot of pertinent things about a business, you can also assume that your stock will probably end up with a certain price range if you wait long enough. on top of that, as long as you keep up with the homework, get a good, clean way of deciding whether or not to cut your losses of a stock that's not working. if it's not working, that's an incredibly valuable tool. you can sell. especially when you're trying to claw your way back to even. on the other hand, it will give

you a conviction to stay in a stock that's been hammered for the wrong reasons. that's the favorite reason to do homework. either way, you know why you're buying or selling something. you won't be beholden to anyone but yourself. you can use the big down drafts you get as a way to be able to buy high quality stocks because you know they're high quality, you've done the homework. the better you can do to watch the stocks, the better position you are to take more calculated intelligent risks. be more aggressive in order to rebuild your capital swiftly. they are of paramount importance when it comes to dealing with the central dilemma of getting back to even by investing in stocks. the tension between needing to protect your already diminished capital, and i respect that, and needing to risk that capital in order to make more money. but even though these skills are handy, they aren't what most people would call interesting. they may not give you the total picture you need to get where you want to go. as for the boredom factor, let

me take care of that. i spent years trying to make this game interesting and i think i've shown i will do anything to keep investors engaged, especially in this show. i've come out wearing a haz mat suit to compare has, hasbro, from mattel. i've driven on a lawnmower to treat you to looking at john deere. i can't tell you how many dollars worth of expensive gizmos i've wrecked. so i'm not concerned that too many of you will skip the homework. believe me, i will make this stuff entertaining for you. we have ways of making you motivated. the bottom line is that it's important for you to know why you're doing all of this work, what the point is. it's a way for you to build conviction in your stocks when the market goes down. it's a way to get an edge, one that's totally legal. even the most volatile or more calm of all stock markets. jason in new york, jason, please. >> hey, jim, given you a west indian boo-yah.

>> i'll take that in a heartbeat. >> my question was about stocks. what is the criteria you use when choosing secular stocks to either invest or trade in. >> very little research on the stock. i might be able to do my own work and be surprised as other firms pick it up, pick it up for research. >> i don't expects it to go to zero. reconfessions of a street act. i talk about bad speculating. i do in real money. i like a company that frankly has the sky's the limit market opportunities. if they have a product that everybody might want to use and no one's using if yet, i may have the home run. let's go to nick in california. >> hey, boo-yah, jim. >> boo-yah, nick. >> hey, question for you. stock like apple, it seems counter intuitive to judge its pe when it has so much cash. it seems they would have a better pe if they gave their mona way. do you have any way to advise investors how to look at that or how should they take a look at that?

>> my good friends who own apple, when i ask them they often back out the cash. they just say, listen, the cash is a neutral, forget that. if it didn't have the cash, this is what it would be selling for. that's the way they come up with the price turns mobile. i like the cash. i like to use the normal numbers. i like the big earnings models that i create myself. i've always had higher earnings estimates for apple and then i divide out, look at the multiple and then i say is that stock cheap. it's cheaper than the average stock has been for years. ho-hum homework. the homework is the way to get it. stay with me. [ male announcer ] to perform your best, training's gotta be a lifelong passion... [ debbie ] michael! [ male announcer ] ...fueled by a footlong passion. that's why debbie phelps is always there for her son michael with his favorite flavor-packed, fully-jacked footlong subs. only one? michael... [ male announcer ] dive into michael's fav, the protein-powerhouse subway turkey & bacon avocado.

made fresh for this champion with extra jalapeños. subway. the official training restaurant of the phelps family... and athletes everywhere. activating protection, bear! the more you move, the more it works! [ roars ] [ screaming ] new long lasting degree with motionsense help me! keep running! help me! so what i'm saying is, people like options. when you take geico, you can call them anytime you feel like saving money. it don't matter, day or night. use your computer, your smartphone, your tablet, whatever. the point is, you have options. oh, how convenient. hey. crab cakes, what are you looking at? geico. fifteen minutes could save you fifteen percent or more on car insurance. my little helpers... and 100% natural french's yellow mustard.

it has zero calories for me, and a taste my family loves. 3q how much coffee are you fellows going to need today? three...four cups? [dumbfounded] well, we... doesn't last long does it? listen. 5-hour energy lasts a whole lot of hours. so you can get a lot done without refills. it's packed with b-vitamins and nutrients to make it last. so don't just stand there holding your lattes, boys. make your move. we'll take the 5-hour energy. smart move. 5-hour energy. hours and hours of energy.

in the face of rushing declines and uproarious rallies alike i'm opening up the "mad money" toolbox to teach you how to become a better investor even in this whacky times when companies are full of tens of billions of dollars go begging. i want to tell you about a tool that can help you make money pretty quickly but also carries a certain amount of risk and can be trouble if you don't know how you're doing it. very topical. investing in ipos. it's impossible to ignore the ipo opportunities that have presented themselves in the last couple of years, including many that have gone to a premium and are red hot from the moment

they're born. these are led by technology and social media names which have been met with exceptional hype. hype doesn't explain the buzz. almost hysteria around the facebook ipo. that was super hype or hyper hype. where did it get us? aside from being one of the biggest debacles in market history, ultimately this didn't translate into anything more than a fleeting opening pop of $42 and a sickening decline to well under its initial $38 pricing. sure, ipos are sexy. they're talked about and written about endlessly. you're hardly ever told what to actually do with them. that's one of the things i wrote about in getting back to even. this has been a big theme for me because i used to game and play. it's one of these, believe me. and mostly importantly, this was something that i did very, very well at my old hedge fund, even -- and i'm going to teach you the basics right now because when you know how to tell the difference between an about to be public company that will soar and one that will go down in

flames, you have the potential to rake in some serious profit. the lure of ipos is that when you nail it, when you get it on the right one, when you're in there, you can get gains of 20, 30, even 100% in minutes. that makes them incredibly attractive. they can get in the way of your better judgment and cause you to invest in initial public offerings that end up stinking up the room. as helpful as the profits can be, don't let the brokers trick you into buying every ipo and that's tai great way to make money. make sure your broker can if a nagle you some shares. some initial public offerings aren't worth investing in at all. they always try to slip in some clunkers. after they've lulled you into thinking all the deals work, that's when you really get hammered. partially because of the performance of newly public stocks tends to be all over the map and partially because there isn't that much available information about newly public

stocks beyond the prospectus, there's a tendency to assume that the success or failure of a given ipo is the factor of luck. wrong. i think you can figure out which ipos are uninvestable and which ones are bad. it's about analysis. it's the kind of homework that professional money managers do. it's the kind of homework i advocate endlessly on the show. i know the pros have it right. i would analyze them the same way back at my old hedge fund. i made a boat load of money by investing in ipos. i want you to know how i did it using the method i lay out in "getting back to even." i think the investment banks that underwrite all the deals have their own agenda. one that is often as much about bringing people, regular investors, back into the game as it is about helping their clients raise money on the equity side.

in other words, you're trying to help the buyers and the sellers. one of the things i learned in my many years on wall street both hawking stocks and bonds and managing money for myself and for rich people in my hedge fund is that when the market turned south, when it becomes difficult to make money, people are starting to leave the market entirely and giving up on stocks, i think the brokers like to throw investors some easy wins. lay-up ipos so they'll pop when the stairs start trading. why do i think they would under price the deal and short change their investment bankers? it's just as important that their other clients, the ones that pay them interest when they buy them, will be there. they're a great reason to feel good about owning, trading, investing in stocks. when times are tough, the brokers want to entice you back into the stock market casino. look at the ipo of linked-in. that price back in 2011 jumped over 100% in its first day of trading. this offering signaled talks about a bubble on internet stocks.

the issue was artificial the way it was priced putting out very little stock, knowing it would create a pop and creating a bubble. the brokers knew it would be hot in part because of the names like a facebook and groupon. they offered a limited number of shares and set the price below the hyped levels, demand would be huge even though linked-in is a well known company, the brokers tightly controlled the supply. parceled it out to accounts that we would not flip the stock and gave out just enough to the large mutual funds that they'd be able to start but not finish their positions. that's really important because that way the mutual funds appetites whetted can come into the regular stock market and bid linked-in up to get the rest of their position in. they take advantage of the sliver. they get some on the deal and then they average up in the aftermarket and they have a pretty darn good basis, better you can. never forget the trick to a successful ipo is the rationing process. the syndicated desk knows how much the big mutual funds ultimately need to be able to

have in order to be able to affect their performance. in other words, if you're running at a billion dollars, you can't get linked-in. they give them a percentage. 1/3 to 1/2 of what they need. that forces the client's hands to complete the position. the clients could flip the positions themselves but the brokers have ways to monitor who takes that quick money and they will not be allowed to get big allocations the next time around. there is a penalty. you benefit because the syndicate desk almost always save a lot of stock for retail investors as they know that you're more likely to hold on to stock and not play the flipper game. these are full service brokers, not necessarily the discount guys. i am indifferent to whether you own the stock, trade the stock, sell the stock. i just want you to make money. but the one thing i don't think you should ever do is go into

the after market and buy stock particularly with market orders, meaning buying the new ipo in the open market after it started trading which is often at inflated valuation levels. if you don't get in on the deal, at that i can a pass. forget about it. i've got staggering statistics that show you're almost always a sure loser if you buy a hot stock after trades. most just gigantic losers that could destroy your nest eggs. we play the odds on "mad money" and if the odds favor you won't make money, i won't make an exception. you are in a much better position than a mutual fund. you don't need to buy a lot in order to be assured that you have enough shares. you can pick and choose provided you do enough business with that full service broker. bottom line, ipos can be a great way to make "mad money." keep these ipo mechanics in mind and remember that the big guys do not necessarily have you a home gamer in mind as i do. ♪ [ snoring ] [ male announcer ] introducing zzzquil sleep-aid. [ snoring ]

[ snoring ] [ male announcer ] it's not for colds, it's not for pain, it's just for sleep. [ snoring ] [ male announcer ] because sleep is a beautiful thing. [ birds chirping ] introducing zzzquil, the non-habit forming sleep-aid from the makers of nyquil. ♪ ♪ ♪ [ male announcer ] nothing will keep you from magnum. ♪ silky vanilla bean ice cream and rich caramel sauce all covered in thick belgian chocolate. magnum ice cream. for pleasure seekers.

we're back and we're talking about the incompetent vesting tools and opportunities you need to take advantage of in order to rebuild a battered portfolio or maybe grow an already healthy one. we just went through some of the basics of how an ipo works and now it's time to teach you the process of separating the worth while ones from the duds. something i explain at length in "getting back even" your personal economic recovery plan. dealing with ipos can be difficult and dangerous because of the prospects of instant gains is so enticing that the euphoria can cloud your better judgment. that's why you need a consistent method to make sure you don't get torn to pieces by something that you don't understand. a deal that you can't fathom or make heads or tails of. here's your primmer on analyzing hot from cold and safer from more dangerous.

now the first and most important thing i look for with an ipo isn't what the company does. no, it's the company's pedigree. what do i mean by that? i care about who the executives are, who the investors are, more important, who the brokers doing the deal are. the first cohort, the managers, can often be a relative unknown and strangely is the least important part of the whole pedigree equation. some of the best deals represent technology companies including social media companies. those companies revolve around an invention much more than a management team. if you looked at google's management, you probably would have avoided its ipo. who the heck were larry paige and sergei. those relative new kids on the block have proven themselves and the bet on some of the new young innovators is that they will too. my second check, who are the investors? it's more of a negative check. a disqualifier. looking at the investors, i am concerned about you getting

caught up in another kind of investment, one that is funded by private equity companies anxious to cash in and get out in a better market. think about private he can at this time which firms like blackstone, kkr, carlisle, they brought dozens of companies in the past few years. in many cases paying far too much for them at the market top. now they need badly to offload some of these companies into the open market so they can get them off the books. some of them will be barely profitable. others will simply be stinkers that the brokers will try to entice you to pick up with the hope that a rising tide could lift all boats. the private equity ipos almost as a rule cannot be trusted. and this brings up another important aspect of analyzing ipos. recognize that just because a company can be publically traded

doesn't mean it's junction, the point is it would qualify as a mockery of a sham. what i call stocks that shouldn't be shocks in the book, "getting back to you." some of them fit into this category. the regulators don't have a mandate to judge the quality of the ipo. they can make the companies disclose as many facts and financials and they let you judge for yourself. a disinfectant they say. the brokers are deeply conflicted because they do so much business with those private equity firms they're hard to say no to. the brokerage houses get immense amounts of money when they take a company private and even more fees when the company is spun off as a public entity again. i think that's why the investment bankers will often bend over backwards to help them rather than the brokerage clients, you, who are buying them. as with the awful rail america deal from an outfit called

fortress. if you want to see the private equity firms are the main investment companies, they have a big red flag there. i explained in "getting back to even" i look at the brokerage houses, a goldman sachs, morgan stanley or credit suisse. why does that matter. am i some type of a snob? they have some reputation, a caveat, on the line. that makes them less void to bring a company there for the fees. once you've cleared that hurdle, you can take the brokerage name that's underwriting the deal as a fairly good seal of approval for the enterprise. why do i think this? i'll tell you a story. in the '80s, broker, goldman sachs, right, i personally helped work with the finances of a people behind a dazzling young company started by some brilliant people out of m.i.t. totally intimidating minds. it was called thinking machines.

this company's claim to fame was it had the fastest computer in the land, in the world. one capable of calculating more data faster than any other computer. i had done so much work with the principles that when they decided to bring the company public i was able to convince them to use goldman sachs as their deal manager. there was only one problem, i couldn't convince goldman sachs to put their name on the deal despite the immense fees that an ipo brings to a firm. the analysts at the time that would have followed the company, guy named dan benton. he poured over the financials and the product and he made the judgment that the company while having short-term momentum would not have any staying power. i was aghast. i stood to bring a big six figure ticket. young guy, this is it. simply wouldn't budge reminding me that this was goldman sachs, not some slough firm that would put its name on any company that was hot. goldman passed. within a couple of years the company failed, a victim of better technology. take it from me, that's why the brokerage pedigree matters. i would pass on deals done by firms that you've never heard of or have little or no track record.

doesn't mean every ipo brute by a high quality firm like goldman will be a success, far from it, but it does help you weed out many failures. here's the bottom line. only after i've gone through that three step vetting process which you can learn more about in "getting back to even" would i consider what they do, what it makes, in part because it is so difficult to judge these issues. i would rather just use the quick filter i went through above before i even crack the books on the company. 28 days of beautiful ? you can have up to 28 days of beautiful, smooth skin, with veet wax strips. veet hair coating technology removes hair as short as 1.5 millimeters... ... and leaves your skin smooth for up to 4 weeks. try getting that with a razor. with veet you'll always be putting your best skin forward. veet. what beauty feels like. also try new veet high precision facial wax

for salon-quality smoothness that lasts. [ sound fades ] at a moment like this, i don't care if my tampons come in a little black box. tampax pearl protects better than u by kotex. [ cheers and applause ] [ angie ] outsmart mother nature only with tampax. [ female announcer ] women are strong. not strong with an asterisk. not strong "but." strong. period. degree created an antiperspirant that's just as strong. degree clinical protection. up to three times the strength of a basic antiperspirant. nothing is more effective. because strong women sweat. degree clinical protection. unapologetically strong.

all right. let's get to some mad mail here. this one is from vance.

cramer, we are faithful watchers of the show and it has helped us tremendously in our investments. thank you very much. some time ago you did a segment on when to buy and when to sell. i think you laid down some guidelines for percentage increase to take profits and percentage decrease to purchase. could you review these again? vance, these are called scales. i like to be very careful about this because on the way up i like to take a little off after 25% take a little more off after another 25%. ultimately my goal is to make sure you play with the house's money. that's what i want to do. so you can judge accordingly when you keep taking stock off. by the way, if the stock keeps coming back down, you can rebuild the position. on the way down i like to scale it down. $20 stock, first purchase 20, a little bigger, 17, 18. third, maybe 15 even bigger than that. build on a pyramid. i go over a lot of this in "real money" which is my book that was used as a handbook if you joined my hedge fund. here's one from steve in michigan. hi, jim, i've been reading

"getting back to even." i'm interested in using deep in the money covered calls. i have reread these chapters and there's something that's not clear to me. maybe it's a stupid question but here it goes. why is it necessary to have two separate accounts? i don't use covered calls. want to be precise about that. covered call to me, that caps your top. i never want to cap my up side. i always want to cap my down side. never cap my up side which is why i use this strategy because you know if you're buying a stock like google, you're stopped out at the level of the bottom stripe that you own. you buy the 450 strike, you're not going to lose more after it goes under 450. that's what matters. now why two accounts? this is very important. when i worked at goldman sachs where i was a broker and trader, what i liked to do is put my buy in what's known as the long account. at that point it was type 6. and my sell in the type 7, the short, because what i liked to do is have short stock or ammo against a long. and they have to be in separat categories because i don't want

them to net out when the option expires. in other words, you're automatically netted out unless you put it in two different accounts. i like to continue to roll out my position. that's why it's a very technical term but it's important that you know that you don't flatten the trade, and that's what would happen is you'd flatten the trade if you don't use separate accounts. stay with cramer. ♪ ♪ [ male announcer ] nothing will keep you from magnum. ♪ silky vanilla bean ice cream and rich caramel sauce all covered in thick belgian chocolate. magnum ice cream. for pleasure seekers. but thanks to hotwire, this year we got to take an extra trip. because they get us ridiculously low prices

on really nice hotels and car rentals. so we hit boston in the spring-- even caught a game. and with the money we saved, we took a trip to san francisco. you see, hotwire checks the competitions' rates every day so they can guarantee their low prices. so, where to next? how about there? ♪ h-o-t-w-i-r-e... ♪ hotwire.com