Mad Money w/ Jim Cramer 6/16/25

Summary

Mad Money w/ Jim Cramer - Episode Summary (June 16, 2025)

Hosted by CNBC's Jim Cramer, "Mad Money" offers listeners invaluable insights into the complexities of Wall Street investing. In the June 16, 2025 episode, Cramer delves deep into essential investment concepts, demystifies financial jargon, and engages with audience questions to empower both novice and seasoned investors.

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1. Demystifying Investment Terminology: Cyclical vs. Secular Stocks

Timestamp: [01:23] - [08:57]

Jim Cramer opens the episode by addressing a common hurdle for investors: understanding Wall Street's intricate language. He introduces the distinction between cyclical and secular stocks, emphasizing their importance in portfolio diversification.

• Cyclical Stocks: These companies thrive during economic booms but falter in recessions. Examples include metals, mining, oil, gas, industrials, home builders, automakers, and commodity chemical makers like Dow. Cramer notes, “The cyclicals are boom and bust names” ([06:45]).

• Secular Growth Stocks: These firms maintain steady earnings regardless of economic fluctuations, often categorized under consumer staples such as Procter & Gamble, General Mills, Pfizer, Merck, and Eli Lilly. Cramer remarks, “These are the classic recession-proof names that you want to buy” ([07:10]).

He explains that understanding this distinction helps investors anticipate how different sectors perform in varying economic climates. By balancing cyclical and secular stocks, investors can navigate market ups and downs more effectively.

2. Portfolio Management Strategies: The 60/40 Rule and Beyond

Timestamp: [08:57] - [10:49]

Listener Shane from Alabama inquires about the traditional 60/40 portfolio rule, which allocates 60% to stocks and 40% to bonds. Jeff Marks advises re-evaluating this approach in the current market environment.

Marks suggests, “When you're 60, 70, I still think that's young and I think you should have 70% stock” ([09:00]). He advocates for a more aggressive stance, believing that stock returns will outperform bonds over the long term, especially as lifespans extend and the need for income grows.

3. Investment Strategies for Families: 529 Plans and Index Funds

Timestamp: [10:19] - [10:49]

Joseph from Florida seeks advice on saving for his one-year-old child. Jeff Marks recommends utilizing a 529 plan coupled with a low-fee S&P 500 index fund. He shares his personal strategy: “I did that for my kids and they are eternally grateful” ([10:23]).

This approach leverages the tax-advantaged benefits of 529 plans while ensuring long-term growth through diversified index investing.

4. Decoding P/E Ratios and Growth Metrics

Timestamp: [10:49] - [22:10]

Marks continues his mission to translate financial jargon into accessible language. He delves into the Price-to-Earnings (P/E) ratio, explaining its significance in evaluating stock valuations.

• P/E Ratio: This metric indicates how much investors are willing to pay per dollar of earnings. Cramer summarizes, “The share price tells you nothing about a stock's valuation vis a vis another stock” ([15:30]).

• Growth Rate: Marks ties the P/E ratio to a company's growth prospects. He introduces the PEG Ratio (Price/Earnings to Growth rate), stating, “A PEG of one or less is extremely cheap and two or higher is prohibitively expensive” ([20:05]).

He cautions against relying solely on share prices without considering earnings and growth, underscoring the necessity of holistic analysis.

5. Trades vs. Investments: Establishing Clear Objectives

Timestamp: [22:10] - [36:02]

In a pivotal segment, Marks differentiates between trading and investing, dispelling common misconceptions.

• Trading: Based on specific catalysts (e.g., earnings reports, FDA approvals), trades are short-term positions with defined entry and exit points. Marks advises discipline: “When you buy a stock as a trade, it has a limited shelf life” ([31:45]).

• Investing: Focused on long-term growth and holding positions over extended periods, investments rely on the overall thesis of a company's potential. He emphasizes, “An investment is a long-term thesis, expecting many good things to happen in the company's not too distant future” ([31:50]).

Marks warns against conflating the two, urging listeners to maintain clear strategies to avoid detrimental portfolio decisions.

6. Understanding Market Dynamics: Corrections and Rotations

Timestamp: [36:02] - [40:52]

Marks tackles market phenomena like corrections and sector rotations, providing clarity on their inevitability and impact.

• Market Corrections: Defined as declines of 10% or more, corrections are natural and temporary setbacks. Cramer analogizes, “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” ([36:21]).

• Sector Rotations: This involves shifting investments from one sector to another based on economic trends. Marks advises diversification over chasing trends: “Remember the need for diversification, another important piece of investing vocabulary, which simply means making sure you don't have all your eggs in one basket” ([40:00]).

By understanding these dynamics, investors can better navigate volatile markets and adjust their strategies accordingly.

7. Listener Q&A: Personalized Investment Advice

Timestamp: [41:19] - [47:47]

In the concluding segment, Jim Cramer and Jeff Marks engage with listeners, addressing specific investment concerns:

• Andrew from New Jersey: Inquires about tax strategies related to dividends and capital gains. Marks underscores focusing on stock quality over tax maneuvers, stating, “I would not ever sell a stock if I thought it was going to be great” ([42:07]).

• Kevin from Maine: Asks about charting tools for stock analysis. Marks recommends tools like Moving Averages and oscillators to gauge stock momentum, reflecting a blend of technical analysis and fundamental insight ([44:19]).

• Diane from Ohio: Seeks advice on balancing taking profits and building a position in a stock. Marks advises a disciplined approach: “If the stocks had a huge run, looks a little bit overextended. But we also don't want to chase stocks” ([46:10]).

• Chris from Illinois: Questions sector weighting in diversified portfolios. Marks emphasizes selecting quality companies over strict sector adherence, allowing for flexibility based on macro trends ([46:30]).

Throughout the Q&A, Marks reinforces the importance of disciplined, informed decision-making, tailored to individual financial goals and market conditions.

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Conclusion

The June 16, 2025 episode of "Mad Money w/ Jim Cramer" serves as an educational powerhouse, equipping listeners with the tools and knowledge to navigate the intricate world of investing. By breaking down complex financial concepts and addressing real-world questions, Jim Cramer and Jeff Marks empower individuals to take control of their financial futures with confidence and clarity.

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Note: All opinions expressed by Jim Cramer and Jeff Marks are their own and do not necessarily reflect those of CNBC or its affiliates.

Transcript

[Jim Cramer]

Your best restaurant location gets five star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact Ecolab.

[Jeff Marks]

Now every location is your best location.

[Jim Cramer]

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and [e-mail] MarketUpdatePodcast or find Schwab Market Update Update wherever you get your podcasts.

[Jeff Marks]

Hey, I'm Kramer. Welcome to Mad Money. Welcome to Cramerica. I'll be with my friends. I'm just trying to make a little money for you. My job, not just entertain, but to put everything in context. So call me 1-800-743-CBC tweet Meacham Kramer investing isn't easy, but it can be a whole lot easier and much less daunting with a little instruction. The whole business of managing your money is made infinitely more confusing by all the arcane technology and authentic Wall street gibberish you need to wade through to learn anything about a stock or its underlying business. If you're not into the jargon, it could sound like the professionals are speaking an entirely different language. You got to remember that there's an entire industry of people who need you to be happily convinced that investing is too hard for you, that ordinary people just can't do it, and the safest thing to do is to give your money to a pro. Hey, by the way, that's a huge reason why I started my travel 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 a professional is right move for some of you, of course, but you don't have the time. But if you put in a little effort, if you do the homework, then I think you can do at least as well as the pros or a low cost index fund, possibly the better comparison, because in any given year, a lot of the pros really lose the index funds. The fact of the matter is that the financial industry is full of people who are just after your fees. They're More interested in taking your money than in making money. And if you're a hedge fund or a mutual fund manager trying to fundraise, you've got every incentive to keep regular people sadly ignorant. Why would they make any of this investing stuff sound accessible when they could 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 take control of your own finances. You pick your own stocks, you. And not pay someone else potentially exorbitant fees to do the things you are perfectly capable of doing yourself. And after all these years doing the show, I know you can do it. And that's where I come in. See, I'm pulling back the curtain and explaining everything. Because while authentic Wall street gibberish can sound complex, even impenetrable, it's not rocket science or brain surgery. You don't need to go to business school or work in an investment bank to understand it. You can comprehend all the mystical sounding vocabulary that we throw around here as long as you have a translator, a coach like me who can explain what the darn words mean. I want you to think of me as a defector. Someone who played for the other team, managing $500 million of already rich people's money at my old hedge fund, but who's now playing for you, teaching you how to navigate your way through the minefield of the stock market. Every weeknight here on Mad Money, and of course, constantly for the CNBC investing club. Forget about the Da Vinci Code. Forget Enigma. Forget the Navo Code talkers. To be a great investor, first you have to break the Wall street code. And I'm here to help you crack it. That's why tonight I'm giving you my Wall street gibberish. The plain English dictionary, considered a glossary of the most important terms you'll absolutely must understand if you're going to actively manage your own portfolio of individual stocks the way I want you to. Words and concepts that many people in the financial industry don't want you to get your heads around. Because then you might actually feel empowered enough to pull your money out of their expensive mutual funds. And hey, even if you're not a pro, 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. Now, you hear these all the time, yet no one but me ever bothers to explain what they mean, even though they're crucial when it comes to picking stocks. Cyclical has nothing to do with the spin cycle on your washing machine or Wagner's ring cycle. In somewhat my classical music and secular isn't about the separation of church and state or public versus parochial schools. Oh yes, and kudos to the late great Lou Rukeyser who first cracked that cyclical washing machine joke. And I've always remembered it's probably been about 50 years now. We say a company cycle. If it needs a strong economy in order to grow, it's cyclical because it depends on the business cycle. Cyclical cycle. So 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 cyclically. Automakers are cycled. The commodity chemical makers like Dow are cyclical. You want a bunch of copper and iron mines like bhp? That's the definition of cyclical. These companies are all hostage to the vicissitudes of the economy. 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 shift into a recession mode, they earn a lot less money and investors pay less for their shares. I always say the cyclicals are boom and bust names. Secular Growth Company, 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 or use as medication. So you've got consumer staples like Procter and Gamble, of course, the foods companies like General Mills, the drug stocks like Pfizer or Merck or Eli Lilly. These are the classic recession proof 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 Dash 1 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 this 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 or secular ones. Based on how economies around the world are doing, this is what drives the decision making process. Now. In the old days, 50% of the performance of any individual stock came from its sector, which is just a fancy word for the segment of the economy a stock falls into, like tech, energy, machinery, health care, finance. And when it comes to sectors, much of their moves are driven by whether they fall into the secular or cyclical camps. These days it's much more than 50% and that's really thanks to the rise of sector events. ETFs. You don't want to own much in the way of cyclical. When the economy slowing, these stocks are simply going to get crushed because their earnings tend to fall apart as they have during every meaningful slowdown, including Chinese slowdowns. And there's nothing about that. You can do it, what do you do? But by the same token, when business heats up and the cycles 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 some secular stocks in your portfolio because you can never be completely sure where the economy's headed. But when business looks like it's booming, you want a lot more cyclical exposure. And when business looks like it's falling off a cliff, you want a lot more secular exposure. The bottom line, investing in easy. But it doesn't have to be mystifying. You just need to learn the language, know the difference between cyclical and secular growers, and always stay diversified. Shane in Alabama. Shane. Hey Jim, thanks for taking my call. Absolutely.

[Jim Cramer]

When building a balanced portfolio, is the.

[Jeff Marks]

6040 rule still fundamental and how much.

[Jim Cramer]

Of that percentage should be in cash?

[Jeff Marks]

Okay, I'm blowing out all that. I think that 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 then people that people want and I'd rather have you in stock and then take it down to 30 then 20, 30 or 20 and 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. Hey Jim, how's it going? Not bad Joseph. How about you? Thank you for calling. I'm doing awesome man. Good. So I wanted to get some insight on a 529 plan and or an index fund for my one year old child Jared. All right, so you look 529 plan is perfect and put them in a low fee s and P500 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, booyah.

[Jim Cramer]

Mr. Kramer, I'm a new member of your investing club and wanted to thank.

[Jeff Marks]

You for all I've learned so far.

[Jim Cramer]

My husband and I into active investors.

[Jeff Marks]

Well, I want you to be informed. Informed active investors. Absolutely. How can I help?

[Jim Cramer]

I rolled over an old employee IRA into a brokerage account and have 20 to 30 years before I'll need the funds. Right now it's sitting in a money market account earning 5%. So would you recommend I put it in an S&P 500?

[Jeff Marks]

Here's what I want you to do. I want you to take, starting now, every month take a twelfth of that money and put it to work. We're not going to put it all to work at 1 level. 1 12th. 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, well, 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 demystifying. You just need to learn the language. Oh my. Tonight, forget Merriam Webster. I'm not being demystify. All that Wall street speak, that's what you need. From PE multiples to Garp and much more. I'm cracking up my dictionary to help you navigate the market and take charge of your portfolio. That's what I want. So stay with Kramer.

[Jim Cramer]

Don't miss a second of Mad Money. Follow imkramer on X. Have a question? Tweet Kramer Madmentions. Send Jim an email to madmoneynbc.com or give us a call at 1-800-743-CNBC missed something? Head to madmoney.cnbc.com Commercial payments at Fifth Third bank are experienced and reliable, but they're also constantly innovating. It might seem contradictory to have decades of experience but also be on the cutting edge of the industry, but Fifth Third does just that. They don't believe in being just one way for your business because your business has more than just one need. Like needing your payments to be done on time, safely and without any bumps today, but also needing to know you won't be hitting any bumps tomorrow. That's why they handle over $17 trillion in payments smoothly and effectively every year, and were also named one of America's most innovative companies by Fortune magazine. After all, that's what commercial payments are all steady, reliable expertise that keeps money flowing in and out like clockwork. So Fifth Third does that. But commercial payments are also about building new and disruptive solutions. So Fifth Third does that too. That's your commercial payments. A Fifth Third better this episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and [e-mail] MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.

[Jeff Marks]

Ryan Reynolds here from Mint Mobile. With the price of just about everything.

[Jim Cramer]

Going up, we thought we'd bring our prices down. So to help us, we brought in a reverse auctioneer, which is apparently a.

[Jeff Marks]

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[Jim Cramer]

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[Jeff Marks]

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[Jim Cramer]

It a [e-mail] Switch upfront payment of 45 for three month plan equivalent to 15 per month required new customer offer for first three months only. Speed slow after 35 gigabytes of networks busy, taxes and fees extra. See mint mobile.com.

[Jeff Marks]

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 do we call it the Michelin Guide to Fine Stock Tightening? Consider it the televised Encyclopedia Creamerica for tearing back the cloak of mystery that can make managing your own money seem like an impossible task. The process of picking stock shouldn't seem as difficult to say. Conducting triple bypass Heart surgery yourself. You don't have to be Stephen Hawking or Albert Einstein to understand this stuff all the time. 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 cyclicals companies. Think industrial smokestack businesses that need a healthy economy in order to grow earnings versus secular growth names. Think toothpaste, okay? That consistently expanded about the same pace regardless of where we are in the business cycle. How you have to sell the cyclicals and buy secular growth when the economy starts to slow, then do the reverse as it starts to pick up steam. This is the playbook that all the hedge funds use. And even though these hedge funds can often behave like herd animals, wildebeest who often buy and sell the same stocks at the same time, they operate this way because their playbook works. The reason for that has to do with another piece of Wall street gibberish lexicon that you absolutely must know if you're going to pick stocks buy yourself. It's called the price to earnings multiple or P slash E multiple or just the multiple. They all refer to the same thing and it's the cornerstone of how we value stocks. In fact, when you hear talking heads pontificate about how some stock has become overvalued or undervalued, they're almost always really talking about the price range multiple. When you hear someone say that Pepsi is more expensive than Coke, okay, they don't mean that Coke's cheap because it's trading in the 50s while Pepsi is trading in the triple digits now. The share price tells you nothing about a stock's valuation vis a vis another stock. To make any kind of apples to apples comparison, you take a step back. See, when you buy a stock, you're actually buying paying for a small piece of a company's future earnings stream. That's what the 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. Now here's the basic algebra, not even math, that any fourth grader I think should be able to do. The share price P equals the earnings per share E times the multiple M. Okay? The multiple tells you how much investors are willing to pay for a company's earnings. We don't care that Koch stock might be at $55. We care that it sells for 19 times earnings. We don't care that PepsiCo say might be at the time 165, we care that it sells for more than 20 times earnings. Or put another way, the multiple is the special source of valuation. The main ingredient in that source 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 range multiples. Why? Okay, remember, the multiple is all about what we're willing to pay for future earnings. And the more rapidly a business grows, the bigger its earnings will be down the road. So if a fast growing software sell stock sells for, let's say 25 times earnings, that doesn't make it more expensive than a slow but steady grower like Pepsi. At 20 times earnings, the faster grower actually deserves the bigger multiple. Now here's where it gets really 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 is called multiple contraction. Two more terms that sound much more complicated than they really are. For example, whenever interest rates skyrocket, making the bond market competition a lot more attractive, we see market wide 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 that they're increasing? Not about to collapse? Okay, here's some more vocabulary. When you hear people talking about a company's bottom line or perhaps her net income, they all mean the same things. Earnings. We call it the bottom line because the number is the bottom figure on a company's income statement. To figure out how quickly 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 list the conference calls. By the way, we do that homework for you in the investing club with all the charitable trust holdings. That's why I think it's such a good idea to Member of the club. Step one to 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 that there's demand for companies product. This is all of the key to the ability of most business to sustainably grow grow their earnings long term. And that's why it's especially important for younger, smaller companies to have fast growing revenues. Oh, and investors will really pay up for accelerating revenue growth. Accelerating revenue growth. Let's see a RG arg which means the sales are growing at a higher and higher rate. With a more mature company it should be able to turn its revenues into profits by cutting costs and then it can return those profits to shareholders in the form of dividend or potentially a buyback beyond the top Line and the bottom line is also crucial to consider the gross margin, which is in no way disgusting and not the least bit marginal. The gross margin tells you what's left after you subtract the cost of goods sold from the sales. It's a key profitability metric. To figure out the gross margins, you have to consider the competition, the cost of production, and the cost of doing business in general. Businesses with cutthroat competition like supermarkets tend to have terrible margins, while virtual monopoly like Microsoft has more margins that are down. They're obese. In some industries, the margins can vary widely. Take the oil base where the 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, invoice for retail. Too much oil pushes price down, right? Too much retail inventory forces stores to discount their goods aggressively in order to make space for the new merchandise. Both are what we call margin killers. So here's the bottom line. You need to know the vocabulary before you can evaluate a stock. When you're comparing, look at the price to earnings multiple or pe, the growth rate, the top line, the bottom line and the gross margins. I know this might 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 cubc. Investing Mad Money is back after the break.

[Jim Cramer]

Coming up, finance is full of $5 words. But don't despair. Kramer is breaking down the Wall street lexicon. Some key terms made easy next this episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, mon policy decisions and key results and statistics that may impact your trading. Download the latest episode and [e-mail] MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.

[Jeff Marks]

Ryan Reynolds here from Mint Mobile.

[Jim Cramer]

With the price of just about everything going up, we thought we'd bring our prices down. So to help us we brought in a reverse auctioneer which is apparently a.

[Jeff Marks]

Thing Mint Mobile Unlimited Premium wireless everybody get 3030 better get 30 better to.

[Jim Cramer]

Get 202020 better get 2020 everybody get.

[Jeff Marks]

15151515 just 15 bucks a month so.

[Jim Cramer]

Give it a [e-mail] Switch upfront payment of $45 for three month plan equivalent to $15 per month required new customer offer for first three months only. Speed slow after 35 GB of network's busy taxes and fees extra see Mint Mobile do.

[Jeff Marks]

Tonight I'm going into Penn and Teller mode, demystifying all the overly complicated technical sounding Wall street gibberish that you hear constantly but might not understand. I want to translate the most overused under explained 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'll help you navigate your way through tough markets and the tough sounding terminology they keep so many people out of stocks. Not doing myself justice. I'm not. And I 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 investing terminology sounds difficult because the pros who speak Wall street shippers 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 at a complete loss when it comes to managing your own money. My mission is just the opposite of theirs. I am here to try to enlighten you, to teach, because I know that you can do better for yourself than the professionals. I've been down here for 40 years on wall Street. I know this stuff. And most of the professionals, they kind of just want your fees. I'm not managing anyone else's money. 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. Look, 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. Knowing what you own is a must. It's one of my cardinal rules since if you don't have a good grasp of how you 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 know when to fold them, in the immortal words of stocks age, Kitty Rogers, unless you know what the heck it is that you're actually holding and what might make you fold. Unfortunately, the profusion of arcane terminology on Wall street makes it much harder to know what you own. So let's continue our vocabulary lesson with another ultra important piece of verbiage that's hardly ever explained to you, even though it's used constantly. Risk Reward the risk reward analysis pretty much defines short term stock picking. So what does it mean? Let's break it down into its component parts. Assessing risk is all about figuring out the downside. How much you potentially stand to lose in a given stock, how far it can conceivably fall in the near term. Assessing the reward, on the other hand, means figuring out the potential upside, how much the stock could rally if everything goes right. Too many investors only focus on the potential upside when they're analyzing stocks, and that is a great, great mistake. It's much more important for you 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 sized gain, trust me. But how exactly do we figure out the risk reward? Okay, these are determined by two different cohorts of investors. The reward, the upside, is defined by how much growth oriented money managers could be willing to pay for stock. They create the top. The risk, the downside is created by what value oriented money managers do, what value over 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 stop the war, you need to think about where even the most bullish of growth guys would start selling on the way up. When you when asked, I usually boil the risk reward down to something quick and dirty, like five up, three down. But how do I get there? How do you know where growth money managers will start selling and value guys will start buying? Okay, for that you need some insight into how they think. And that requires translating another piece of esoteric Wall street lingo. It's called growth at a reasonable price. I really believe this, by the way. Growth at reason price ak a garp when we talk about growth at a reasonable price, that's not subjective. It's a method of analyzing stocks first popularized by the legendary Peter lynch by comparing a stock's growth rate to its price earnings multiple. If you want to figure out the maximum the growth guys would be willing to pay for a stock, you need to be able to look at the World according to Garp. 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. Now here's a quick and dirty rule of thumb that's hardly ever let me down. Although there are some exceptions. A rule that can really help us figure out when a stock might be overvalued or undervalued based on what the growth and value management managers would be willing to pay. If a stock has a price earnings multiple that's lower than its growth rate, then that stock's probably cheap. And any stock selling at a multiple that's more than twice the size of its growth rate probably too expensive. So if a stock's trading at 20 times earnings and it has a growth rate of 10%, then it probably doesn't have much more upside. It's reached the two times growth ceiling. Always remember that. Here's another piece of Wall Street Shivers that can help simplify the process. The peg ratio. That's the price to earnings to growth rate or the P E multiple divided by a stock's long term growth rate. A peg of one or less is extremely cheap and two or higher is prohibitively expensive. Sell, sell, sell. A high octane super fast grower could sell for 40 times earnings and still be inexpensive. Because if it has a 40% plus long term growth rate, giving it a peg of just one right at the cheap end of the spectrum. And the growth keeps excellent kept accelerating sending the stock to a new 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 the stock's multiples at or below its growth rate. The growth investors who'd be buying high multiple stocks hardly ever pay more than twice the growth rate a peg of two, which means there's almost no way that stocks go higher. So stick with the example of Google back when it still held that mega growth mojo with a 30% long term growth rate. It would have become 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 subjectivity. It's useful especially when you're trying to figure out the risk word. But it's not always right and it only applies to companies that trade on earnings, not unprofitable companies with stocks that trade on sales. Plus stocks will often get cheap on an earnings basis simply because the estimates are too high. You see this all the time going into a slowdown. In those cases the stock could trade well below the one times growth floor. Its peg could just keep sinking and see sinking and the fact that it looks cheap, it's a value trap. It's not a buy signal. On the other hand, the best time to buy cycle stocks think the smokestack industrial types is when their multiples look outrageously expensive because the earnings estimates are way too low and need to be raised to catch up with reality. That happens when the economy is bottoming and about to rebound. The bottom line know what you own and know what others will pay for. That means you need to understand the risk reward the potential downside and potential upside before you purchase anything by figuring out where the growth investors put in the ceiling and where the value investors create the floor. Nicholas in Nevada. Nicholas, how's it going? Mr. Kramer, this is Nick Michelle from Las Vegas, Nevada.

[Jim Cramer]

I'm a college freshman out here in.

[Jeff Marks]

California trying to start my own investment management company.

[Jim Cramer]

I was just looking for some quick.

[Jeff Marks]

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, middle aged viewers viewers cannot afford that to happen. So go with high risk, potentially high reward stocks. Mark in Iowa. Mark.

[Jim Cramer]

Hi Jim. I'm a happy club member and thank you for taking my call.

[Jeff Marks]

Thank you for being a member of the club. It's terrific. How can I help?

[Jim Cramer]

Well Jim, I have a real estate question for you. Higher interest rates make it more difficult for families to afford a new mortgage. What effect will this have on reach? Can single and multi family units.

[Jeff Marks]

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. Now, as long as you understand the risk reward, the garp, and the PEG ratio associated with picking stocks, you're much better prepared to know what you own and know what other, more importantly, will pay for it. Now, much more mad money. And do you know the difference between a rotation and a correction? I'm not done cracking the Wall street code, and you better be seated when Professor Kramer opens the dictionary. Plus, my colleague Jeff Marks and I are taking all of your burning investing questions, so stay with Kramer.

[Jim Cramer]

Coming up, what big investment lesson can you learn from a bottle of milk? Kramer's working till the cows come home. Keep it here.

[Jeff Marks]

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 of an understanding. I 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 most 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, that there's no difference. But that couldn't be further from the truth. They're distinct. And in the immortal words of those 90 stock gurus offspring, you got to keep them separate. Isn't this just splitting hair something? It's not recommended for the faulty challenge like myself. Isn't it casuistry? That's a sat word of the day that might send you searching for real dictionary. No, a trade is not the same as an investment. And if you treat the one like the other, if you treat a trade, if you turn a trade into investment, breaking my first commandment of trading in true Mr. T fashion allied best to the Rockies Rocky 3. My prediction for your portfolio is paying. When you buy a stock as a trade, you're buying for a Specific catalyst. Some anticipated future event you think will drive the stock higher. Maybe the company is about to report its quarterly results and you think it will deliver better than expected numbers. Although I don't recommend trying to game earnings. There's just too much chaos and confusion. Individual earnings report which can cause the stock to get clobbered. Even if it delivered stellar numbers, the catalyst could 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 can send a stock story if they go your way. So when you make a trade going into it, you know that 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 first. The right. It'll be the right catalyst and you'll rack up a nice game. That happens. No point in sticking around. Ring the register and lock in your profits before they evaporate. But if you try to be wrong, well, guess what? You still need to sell. I want you to think of 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 is pretty similar. You can't just buy more and call it a long term investment. Because without the catalyst, you got no reason to own the darn stock stock. And you never ever should own anything without a reason. I've watched an endless parade of people lose money by turning trades into investments. They come up with alibis for staying in a stock long after its expiration date. They're really fooling themselves into believing they're doing the right thing. And then more often than not, they get crushed. So remember, without a catalyst, you don't have a trade. If you find yourself in that position, then you better sell and cut your losses. No catalyst, no point. An investment, on the other hand, is based on a long term thesis. The idea that a stock has the potential to make you serious money over an extended period of time. You're not just banking on one specific catalyst. You're expecting many good Things will happen in the company's not too distant future. And that's not an excuse to buy a stock and then forget about it though. Investments can go wrong too. Which is why I'm always telling you to keep examining your stocks after you buy them. That's called buy and homework, not buy and hold. Of course we help you with that homework for our charitable trust teams in the CBC 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 registry after the first time the stock jumps in price. With an investment, you're looking for a longer gains, larger gains. And what you do is you measure it. Not in terms of trade and sell, but it's 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. Their money's back after the break.

[Jim Cramer]

Coming up, if only the market were as reliable as Joe DiMaggio. When the tape turns red, remember the Yankee Clipper. Kramer explains next.

[Jeff Marks]

Welcome back to the Wall Street Gypsy Verse 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 you need to know? Okay, here's one of the most dreaded and poorly understood terms in the business. The correction. What a euphemism. A corrections went. After the market's been roaring, it turns around and then it gets crushed. Maybe decline of as much as 10%, making you feel like the world is ending. Of course 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 2022, then rage beginning in the spring of 2023. And you'll most likely never 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 know. But we do need to acknowledge that they will happen no matter what. So you shouldn't get flustered or worse, panic when they inevitably smack you right in the face. Let me give you another piece of investing vocabulary. Execution. Now, this is a tough one because it's comparatively subjective. When we talk about execution, we mean management's ability to follow through with its plans. When you own a stock, there are all kinds of risks associated with execution. Messed up mergers, failed new product launches, bad cost controls. The number of ways a bad management team can screw up business is practically infinite. That's one of the reasons why I like companies with proven management teams, because they're much less likely to make these kinds of unforced errors. And it's a big reason why. For instance, it's so important for you to pay attention when I bring CEOs on the show or those interviews. Nobody knows a company better than the people running it. And since you probably can't get these CEOs on the phone yourself, you want to hear what they have to say about their business firsthand on the show. This notion of execution is also crucial when it comes to understanding why it's worth paying up for best of breed companies Big emphasis their best of breed the top players in any given industry almost always come with proven executives. Best of breed stocks are typically more expensive than their cheaper competition competitors, but they're worth the price. A good management team is less likely to make mistakes and more important, less likely to get buried by big problems and more likely to figure out how to solve them. Finally, one last piece of Wall street gibberish. The dreaded rotation, which is just when money flows out of one sector into another, or one big group into another big group. Like a cyclical to secular rotation. The kind of thing we get when the economy slowing so the cycles go out of style. Now, this is probably completely antithetical to what you've been told about the right way to invest. The conventional wisdom is that you're going to pick your own stocks, something which by the way, the conventional wisdom regards as being the height of idiocy because you're not supposed to be able to beat the market. See, 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 out long enough, you'll make some money. Now this is a brain debt 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 performance. As we're always teaching you in the CNBC investing club. That doesn't mean that you should play the rotation game and only own the group that's in style. Not at all. Remember the need for diversification, another important piece of investing vocabulary, which simply means making sure you don't have all your eggs in one basket. One sector basket. To me, you're diversified when no more than 20% of your portfolio is in any single sector. That way you won't get annihilated. For example, a sector rotation takes down your cyclical stocks because you have some secular growth names that are holding up much better or even making money at the same time. All tech, very bad because tech trades together. Bottom line, don't be afraid of rotations and corrections. Don't be intimidated by people who use the words. And remember, even though it's hard to quantify, execution is a crucial factor when it comes to picking stocks. You want companies with proven, seasoned management teams that are less likely to drop the ball. Stick with Kramer.

[Jim Cramer]

Coming up, Jeff Marks joins Kramer to help handle your most urgent questions. The floor is yours when we return.

[Jeff Marks]

I always say my favorite part of the show is answering questions directly from you. Tonight, I'm bringing in Jeff Marks, my portfolio analyst partner in crime. Help me answer some of your most burden questions. Now for those of you who are a part of the investing club, well, you're going to need no introduction. For those of you aren't members, though I hope you will be soon. And I would say that just insights and our back and forth helped me to do a better job for you. So please, I want you to join the club. Tonight, Jeff and I are covering all grounds, going directly to phone lines and answering some of your email questions. So let's take some calls. Andrew in New Jersey. Andrew.

[Jim Cramer]

Hey, Jim. Mr. Kramer. Booyah.

[Jeff Marks]

Puya.

[Jim Cramer]

How you doing?

[Jeff Marks]

Not bad. How are you?

[Jim Cramer]

I'm doing pretty good. I'm a 66 year old guy, ex tech guy and I'm all 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 your thoughts on being able to do that in the future? I was wondering if at times you could do more, more of a contrasting acknowledging that you're not a tax advisor but acknowledging more often which, which, which companies, which investments have the favorable 20% capital gains rates versus cash which you know, for, you know, the income tax brackets range from anywhere from 25 to 37% 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 to say this stock, I'm recommending a hold. But if you're thinking about the 30 day wash rules, maybe you want to sell it, harvest the loss and then buy it back in 30 days. Would you ever go that far?

[Jeff Marks]

These are very interesting issues and I've got to tell you, in my first book I wrote do not fear the tax man. What matters are the quality of the stocks. So I would not ever sell a stock if I thought it was going to be great for a wash sale. Again, if I thought it could be great, get improved. And I really don't want to sell any stock basis on. Because you might be long term, short term. Jeff. I think that we're investing and we're investing for the long term. And if a company does poorly, we sell it. And if a company does well, we don't touch it. And I don't think the tax person should figure into our equation. And of course all of our capital gains and dividend income the charitable trust has each year gets donated to charity. But yeah, I think if you do have a really specific tax question, seek a tax advisor. They'll give you the best qualified advice. Advice. Yeah.

[Jim Cramer]

But we're focused, we're very focused on.

[Jeff Marks]

How stocks are performing. People, people could be in all different practice have all different ideas. Yeah. Why don't we go to Kevin in Maine? Kevin.

[Jim Cramer]

Jimmy. Booyah.

[Jeff Marks]

Booyah. Kev, what's up?

[Jim Cramer]

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.

[Jeff Marks]

Okay, thanks.

[Jim Cramer]

But 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 obv. Or on balance, volume. I'm sitting on a few 10 bags and 130 bag. Jimmy, if you were forced to choose only one tool on your chart other than price and volume, which one would it be?

[Jeff Marks]

Okay. This is terrific. What I would check is to see the oversold, overbought. Is it too down? Far down? Is it too far up? And I use the same thing for stocks. I wish we had an oscillator for. I mean for the stock exchange, the S and P. I wish we had an oscillator free, suitable stock. That's what I'd be looking at.

[Jim Cramer]

Yeah, I'm not a technician, so a.

[Jeff Marks]

Little harder for me to say. But I think also moving averages is something. Yes.

[Jim Cramer]

Technicians often, often quote.

[Jeff Marks]

So that would be my. The other. Some of the stuff that Larry Williams says I really, really like. All right, so now let's go for some emails. We're going to. Let's start with Diane in Ohio and she asks. I am trying to build a position in the company and it. The stage of not owning. Owning as much as desired. How do you balance taking profits and building a position? Thank you. Okay, so if you own, you put on a small position and if 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 what you do is you build it on the way down in pyramid style. And what you'll do is you'll have a better basis, trying to improve the basis, provide the thesis is still right and that's what matters.

[Jim Cramer]

Yeah, I think just because it's a.

[Jeff Marks]

Smaller position, that doesn't.

[Jim Cramer]

That doesn't mean you should break discipline and be greedy.

[Jeff Marks]

If the stocks had a huge run, looks a little bit overextended. But we also don't want to chase stocks either. And just because it's small, just start buying because you think it may go higher. Right.

[Jim Cramer]

You want discipline.

[Jeff Marks]

It always comes back to. Yeah. I mean, look, I hate having to wait. I hate having to build a pyramid. It doesn't matter. This is not a game of emotions. It's a game of empirical analysis. And it's worked. All right, now let's go to Chris in Illinois who asks, how do you address the weighting of different sectors in a diversified portfolio? Do you match the S and P or market weighting, or do you specify sector weightings? Based on macro trends, etc. All right, now this is another one where the club is very different from most people. What we do is we look for good, good companies and if the companies are good, we don't care about the sector. Now we don't want to have all semi gifts doctors, but we are about finding the right stocks and if there are a lot of stocks in that sector, we pick the best one in the sector. But it's not the way we think of things. We're diversified, but if there's a mega theme that we like, whether it be electrification, clean energy infrastructure, then we're not opposed to investing more heavily in that space because these are multi year trends.

[Jim Cramer]

That are seeing a huge flow of investment.

[Jeff Marks]

Exactly. And that's why you come to the club. We are unconventional, but we are rigors. I like to say there's always a bull market somewhere and I promise try to find it just for you right here on Made of Money. I'm Jim Cramer. See you next time.

[Jim Cramer]

All opinions expressed by Jim Cramer on this podcast are solely Kramer's opinions and do not reflect the opinions of CNBC, NBCUniversal or their parent company or affiliates, and may have been previously disseminated by Kramer on television, radio, Internet or another medium. You should not treat any opinion expressed by Jim Cramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Kramer's opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Mad Money disclaimer, please visit cnbc.com madmoneydisclaimer Switch to Verizon Business and get more from your Internet without paying more for your Internet. Get LTE Business Internet starting at $39 a month when paired with select Business Mobile plans. That's unlimited data and with it unlimited possibilities. Start saving today with Verizon business ranked number one in small business Internet customer satisfaction by J.D. power starting price for 25 Mbps LTE Internet plan with smartphone plan savings plus taxes, fees and economic adjustment charge terms apply. For J.D. power 2024 award information, visit J.D. power.com awards.