me a father. >> timmy! >> that's great. >> colorful show tonight. a lot of dramatic pauses. >> fun. >> fun. >> fun, fun. >> halliburton continues to go higher. >> thank you for watching "fast." "mad money" with jim cramer ar rhtowsttsig n. here tomorrow 5:00 for more. "mad money" with jim cramer starts right now. my mission is simple. to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. >> hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people make friends. i'm just trying to make a little money for you. my job, not just to entertain but to put everything in co 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 -- [ boos ] you need to wade through to learn 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. there's an entire industry that need you to be convinced investing is too hard for you, that ordinary people can't do it, and the sane yft thing to do is to give your money to a pro. hey, by the way, that's the 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. but if you put in a little effort, do the homework, then i think you can do at least as well as the pros or a low-cost index fund. possibly the better comparison. because in any given year a lot of the pros really lose to index funds. the fact of the matter is the financial industry is full of people who are just after your fees. they're more interested in

taking your money than in making you money. and if you're a hedge fund or a 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 sounds too straightforward, it's harder for them to raise money and harder to convince people, convince you to pay high management fees. they're kind of like the wizard of oz. they don't want you peeking at the man behind the curtain. 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 for things you are perfectly capable of doing yourself. and after all these years 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 -- [ boos ] even impenetrable, it's not rocket science or brain surgery. you don't need to go to business

school or work at an invest 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 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 mine field 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 enigma. 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 gifgs you my wall street gibberish to plain english dictionary. consider it a glossary of the most important terms you absolutely must understand if you're going took theively manage your own portfolio of 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. [ applause ] and hey, even if you're not a pro, you may not know enough. so 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. you hear these all the time but nobody 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. and secular isn't about the separation of church and state or public versus parochial schools. oh, yes. the late great luke hooizer who first cracked that cyclical washing machine joke and i always remember it. it's been probably 50 years now. we say a company's cyclical if it needs a strong economy to grow, if it depends on the business cycle. cyclical. cycle. metals and mining companies and

oil and gas, really any kind of raw materials plus most of the industrials are cyclical. the home builders are cyclical, auto builders, commodity like dow. you want copper mines like bhp that's the dechkts of cyclical. when the economy heats up they earn a lot more money and we're willing to pay more for those earnings and when the economy slows down or shifts into recession mode, they earn a 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. take anything you eat, drink, brush your teeth with or use as medication. so you've got consumer staples like procter & gamble of course. the food companies like general mills. drug stocks like pfizer or merck or eli lilly. these are the classic recessionproof names that 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. okay. so 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. 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, zpirngs when it comes to sectors much of the 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 sector 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 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. just accept it. now, you always want some cyclical stocks and 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 isn't easy but it doesn't have to be

mystifying. you just need to know 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 all that. i think we want to bet against -- don't want to bet against ourselves, we want to bet with ourselves. i am betting that 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 that you're not going to get the return from bonds that people want and i'd rather have you in stock and take it down to 30, then 20, 30 or 20, depending upon how you feel about yourself. i want you to be thinking about living long and i think you'll live longer. that's my own psychology.

joseph in florida. joseph. >> caller: hey, jim, how's it going? >> not bad, joseph. thank you for calling. >> caller: i'm doing awesome, man. >> good. >> caller: i wanted to get some insight on a 529 plan and an index fund for my 1-year-old child jared. >> 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 investment club and wanted to thank you for all i've learned so far. it turned my husband and i into active investors. >> i want you to be informed active investors. absolutely. how can i help? >> caller: turned an old employee i.r.a. into a brokerage account and have 20 or 30 years before i need the funds. i think now it's sit nagting in

money market account earning 5%. would you recommend i put it in an s&p -- >> 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. 1/12. and then we get to if we have a really bad month, i want you to double down and put 1/6 in. and when we're finished in the third and fourth quarters, we'll figure out whether 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 that should be in stock, not bond. but over time, not all at once. investing isn't easy, but it doesn't have to be mystifying. you just need to learn the language. on "mad money" tonight we're getting merriam-webster. i'm going to demystify all that wall street speak. that's what you need. from p/e multiples to garp and much more. i'm cracking out 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, #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. the future is not just going to happen. you have to make it. and if you want a successful business, all it takes is an idea, and now becomes the future. a future where you grew a dream into a reality.

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or that propane can cut your energy costs at home? it powers big jobs and small ones too. from hospitals to hospitality, people rely on propane-an energy source that's affordable, plentiful, and environmentally friendly for everyone. get the facts at propane.com/now. 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. why don't we call it the michelin guide to fine stock timing? consider it the televise the 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 of yourself. and 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 perform like herd animals, wildebeests who often buy and sell ltd 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 e

earnings multiple, or p/e, multiple. or just the multiple. they all refer to the same thing and it's the cornerstone of how he had we value stocks. when you hear talking heads pontificate about how a stock's become overvalued or undervalued they're almost always talking about the price to earnings multiple. when you hear people say pepsi is more expensive than coke, they don't mean it's cheap because it's trading in the 50s versus the triple digits. to make any kind of apples to apples comparison you need to take a step back. when you buy a stock you're actually paying for a small piece of a company's future earnings stream. that's what a stock is. 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 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 koik's stock might be at $55. we care that it sells for 19 times earnings. we don't care pepsico might be 165. we care that it sells for more than 20 times earnings. or put 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 is about what we're willing to pay for future earnings. and the more rapidly a business grows the more it will earn down the road. if a stock sells for 25 times earnings that doesn't make it more expensive than a slow but steady grower like pepsi at 20 times earnings. the faster growinger deserves the bigger multiple. here's where it gets interesting. price to earnings multiples aren't static. in different markets people pay more or less for the same amount

of earnings. when they pay more we call that multiple expansion and when they pay less it's called mup ip'll contraction. two terms that sound much more complicated than they 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? 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 the 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 the conference calls. by the way, we do that homework

for you in the investment club with all the charitable trust holdings. that's why i think it's such a good idea to be a member of the club. step one in getting 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 the ability of most businesses to grow their earnings long term. that's why it's especially important for younger smaller companies to have fast-growing revenues. and investors will really pay up for accelerating revenue growth. 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 toes profits to shareholders in the form of a dividend or potentially buyback. beyond the bottom line and top line it's also crucial to consider the gross margin. the gross margin tells you what's left after you subtract the goods sold from the sales.

it's a key profitability metric. to figure out the gross margins you have to figure out the competition, the cost of production and 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 downright -- they're obese. in some industries the margins can vary widely. take the oil biz 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 and retail. too much oil pushes price down. too much retail inventory forces stores to discount their goods aggressively nofrd to make space for the new merchandise. both are what we call margin killers. 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, or 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 trying 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. morikawa on 18. he is really boxed in here. -not a good spot. off the comcast business van. into the vending area. oh, not the fries! where's the ball? -anybody see it? oh wait, there it is! -back into play and... aw no, it's in the water. wait a minute... are you kidding me? you got to be kidding me. rolling towards the cup, and it's in the hole! what an impossible shot brought to you by comcast business. so this is pickleball? it's basically tennis for babies, but for adults. it should be called wiffle tennis. pickle! yeah, aw!

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tonight i'm going into penn & teller world, 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 the 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 -- 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. now, again, all this investment terminology sounds difficult because the pros who speak wall street gibberish fluently, well, they want it to sound difficult. they're the opposite of me. they want you terrified. they want you feeling totally ignorant. and a complete loss when it comes to managing your own money. my mission is just the opposite of theirs. i'm here to try to enlighten

you, to teach, because i know 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. i don't own stocks except for my charitable trust. so i give away my winnings to charity. and i walk you through the whole process of running 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. if you 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 stocks turn against you. and believe me, inevitably at some point they will. you can't know when to hold them and when to fold them in the words of stock sage kenny rogers, unless you know what it is you're actually holding and what might make you fold. theprofusion of arcane terminology on wall street makes

it much harder to know what you own. so let's consider our vocabulary lesson with another ultra important piece of verbiage that's hardly ever explained to you even those it's used constantly. risk reward. the risk reward analysis pretty much defines short-term stock picking. what does it mean? let's break it down into its component parts. assessing risk is all about figuring out the down side, how much you potentially stand to lose in a given stock, how far it could fall in the near term. assessing the reward 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 great 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 determine bid two different cohorts of investors. the reward the upside is determined by how much growth-oriented money managers could be willing to pay for a 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 the bottom. to figure out the risk you need to consider where the value guys will start buying on the way down. to soften the reward you need to figure where even the most bullish of growth guys could start selling on the way up. when zd i usually boil it down to something quick and dirty like five up, three down. but how do i get there? how do you know where growth-minded value managers start selling and buying guys will start buying? for that you need insight and that requires translating another piece of es territoryic wall street lingo. it's called growth at a reasonable price. aka garp. when we talk about growth at a reasonable price it's a method of analyzing stock popularized by peter lynch. if you want to figure out the maximum growth guys would be willing to pay for a stock you need to be able to look at the

world according to garp. [ rim shot ] you want to learn more from peter lynch? it's easy. go to amazon and buy one up on wall street or beat the street. these are two of the most important investing books ever written. here's a quick dp dirty rule of thumb that's hardly ever let me down, although there are some exceptions, arule that could help us figure out whether a stock might be overvalued or undervalued based on what the growth money managers would be willing to pay. if a stock has a price to earnings multiple lower than it's growth rate, it's cheap. and one that's more than twice the size of its growth rate probably too expensive. so if a stock's trading 20 times earnings and it has a growth rate of 10% 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 could help simplify the process. the peg ratio. p.e.g. that's the price to earnings or growth rate where 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 expensive. a high octane grower could sell for 40 times earnings and still be expensive. because if it has a peg of just one right at the cheap end of the spectrum and the growth kept aj v 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 one or less create a floor. you'll usually be able to find a buyer if a stock's multiple is at or below its growth rate. they hardly pay more than twice the growth rate, a peg of 2. which means there's no way the stock goes higher stick with the example of google when it still held the 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 the show began oh,

so many years ago. like with any of my methods or anyone else for that matter this one is rough approximation, a bit of subjecty. it's useful especially when you're trying to utilize the risk reward. and companies that trade on erin aings 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 1 times growth floor. it's pegged to just cope sinking and sinking. and if that looks cheap, it the a value trap. it's not a buy signal. on the other hand the best time to buy cyclical stocks think the smokestack industrial types is -- because 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 up side. before you purchase anything. by figuring out where the growth investors put in the ceiling and where the value investors create the floor. nicolas in nevada. nicolas. >> caller: how's it growing, mr. cramer? this is nick michelle from las vegas, nevada. i'm a college freshman out here in california trying to start my 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 zmankz for taking 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 ask 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. as long as you understand the risk-reward, the garp and 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. 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'd better be seated when professor cramer opens the dictionary. plus my colleague jeff marks and i are taking all 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.

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managing your own money is a whole lot less 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 -- and understand -- 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 that 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 get them separated. isn't this just splitting hair, something not recommended for fo follically challenged like myself? a trade is not the same as an investment. if you treat one like the other, if you turn a trade into an investment, breaking my first commandment of training, in true mr. t fashion, a la beast 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 bent you think will drive the stock higher. maybe the can p'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 toovp too much chaos and confusion in individual earnings reports which can cause a stock to get clobbered even if it delivers stellar numbers. the catalyst can be news about some event you're predicting, for example, let's say a pharma company getting fda approval for a big new drug or even just some clinical trial data you think will be positive. these are data points that will send the stock soaring if they go your way. so when you make the 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 where you want to own it. once the window passes you must sell. hopefully you'll turn out to be the right catalyst and you'll rack up a nice gain.

if that happens no point in sticking around. ring the register and lock in your profits before they evaporate. but if you turn out to be wrong 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 similar. you can't just buy more and call it a longer-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 following themselves into a belief they're doing the right thing and more often than not they get crushed. 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 investmenton 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 that you don't ring the register after the first time the stock jumps in price. with investments 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. bottom line, not all wall street gibberish is deceptively complicated. some of it's deceptively simple. like the distinction between a trade and 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. rylee! from rylee's realty! hi! this listing sounds incredible. let's check it out. says here it gets plenty of light. and this must be the ocean view? of aruba? huh. this listing is misleading. well, when at&t says we give businesses get our best deal, on the iphone 15 pro made with titanium. we mean it. amazing. all my agents want it. says here...“inviting pool”. come on over! too inviting. only at&t gives businesses our best deals on any iphone.

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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 it declines as much as 10% making you feel like the world is ending the sky is 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 and index, the whole market. they can even happen to bonds as we saw in the great bond retreat

that started in 2022. it then raged beginning in the spring of 2023. you don't see these corrections coming. so you shouldn't beat yourself up for not anticipating them. 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 they will happen no matter what. so you shouldn't get flustered or worse panic when they inevitably smack you right in the face. another piece of investing vocabulary, execution. this is a tough one because it's subjective. when we talk about execution we mean management's ability to follow through with its plans. when you own a stock there are all kinds of risks associated with execution, messed up mergers failed new product launches, bad cost controls. a number of ways a bad management team can screw up in business is practically infinite. 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 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 that run it. you want to hear what they have to say about their business firsthand on the show. this notion of execution is krurnl when it comes to understanding why it's worth paying up for best of breed companies. the top players in any given industry -- 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 into another or onebig group into another big group, like a cyclical to secular rotation, the kind of thing you get when the economy's -- till the cyclicals go out of style. this is probably completely antithetical to what you've been told about the way to invest.

the conventional wisdom is you're going to pick your own stocks, something which the conventional wisdom regards as being the height of -- because you're not supposed to beat the market so they sell you short and then you should find high-quality companies and stick with them through thick and thin. then eventually if you hold up long yuf 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 teaching you in the cnbc investment club. remember the need for diversification another important piece of investing vocabulary whichsaly means to avoid having 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 secular names mold holding up much better. or making money at the same

time. all tech very bad because tech trades together. 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. power e*trade's award-winning trading app makes trading easier. with its customizable options chain, easy-to-use tools and paper trading to help sharpen your skills, you can stay on top of the market from wherever you are. e*trade from morgan stanley power e*trade's easy-to-use tools

make complex trading less complicated. custom scans help you find new trading opportunities, while an earnings tool helps you plan your trades and stay on top of the market. e*trade from morgan stanley even if you live in a bubble, you can't stop workplace accidents. so talk to your agent about workers's comp insurance from pie, or visit pieinsurance.com. safety first, then pie insurance.

i always say my favorite part of the show is to answer questions directly from you. i'm going to bring in jeff marks

my partner in crime to help me answer some of your most burning questions. for those of you who are a part of the investing club you need no introduction. for those of you who aren't members, though, i hope you will be soon and i would 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 ground, going directly to phone lines and answering some of your e-mail questions. let's take some calls. andrew in new jersey. andrew. >> caller: hey, jim. mr. cramer. boo-yah. >> boo-yah. >> caller: how are you doing? >> not bad. how are you? >> caller: i'm doing pretty good. i'm a 66-year-old guy, ex-tech guy and more about dividends and in this cash environment right now and the returns we're getting on them i have more of a request than a question and getting your thoughts on being able to do that in the future. >> sure. >> caller: i was wondering if at times you could do more of a

contrast, 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%. and for some of the higher end people. and then part two of my question, real extra credit, is at the end of the year -- 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 purposes, would you ever go so far as to say 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 then buy it back for 30 days? would you ever go that far? >> these are -- >> caller: and 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 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 improve. and i really don't want to sell any stock based on because you might be long term, short term. 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 the tax person should figure into our equation. >> and of course all of our capital gains and dividend income at the charitable trust each year gets donated to charity. but yeah, i think if you do have a really specific tax question seek a tax adviser because they'll give you the best qualified advice. >> yeah. >> but 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 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. thank you. >> caller: thanks. 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. jimmy, 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. i use the same thing for stocks. i wish we had an oscillator for -- i mean for the stock exchange. the s&p. i wish we had an oscillator for individual stocks because that's what i'd be looking at.

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

run, looks a little overtended but we don't want to chase stocks either just because it's small. just start buying because you think it might go higher. discipline it always comes back to. >> i hate having to wait. i hate having to build a pifrmd. it doesn't matter. this is not a game of emotions. it's a game of empirical analysis and it's worked. all right. now let's go to chris in illinois, who asked how do you address the weighting of different sectors in a diversified portfolio? do you match the s&p or market rating or focus on macro trends, et cetera? >> what we do is look for good companies. if the companies are good we don't care about the sector. we don't want to have all semiconductors. but we're about finding the right stocks. if there are a lot of stocks in the sector -- >> we're diversified but if there's a mega theme 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 investment dollars. >> exactly. and that's why you come to the club, we are unconventional but we are ringers. i always like to say there's always a bull market somewhere and i promise to try to find it for you right here on "mad money." i'm jim cramer. see you next time. >> right now on last call, place your bids. a consortium of investors plotting a big move for tiktok, could it actually be sold? elon musks very mixed day. teslas woes taking another turn. details coming out around this incidents boeing 787. there's no photoshop, why adobe investors are slamming cell right now.