Mad Money w/ Jim Cramer 8/18/25

Summary

Podcast Summary: Mad Money w/ Jim Cramer – August 18, 2025

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Episode Overview

In this instructive episode of Mad Money, Jim Cramer dedicates the show to pulling back the curtain on Wall Street jargon and unpacking essential investing terminology. The aim is to empower listeners—especially those who are not professionals—to take charge of their investments, understand how Wall Street works, avoid unnecessary fees, and ultimately become savvier, more confident investors.

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Key Discussion Points & Insights

1. Why Wall Street Jargon Exists

• Cramer explains that the complexity and jargon of Wall Street are not natural barriers but are “created” to keep ordinary individuals feeling intimidated and dependent on professionals.
  • “There’s an entire industry of people who need you to be happily convinced that investing is too hard for you… The safest thing to do is to give your money to a pro.” (03:00)
• Cramer positions himself as a translator and coach, aiming to demystify the terminology and processes for regular investors.

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2. Glossary of Crucial Wall Street Terms

Cyclical vs. Secular

• Cyclical Stocks: Profits depend heavily on the economic cycle; examples include metals, mining, industrials, home builders, and automakers.
  • “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.” (05:00)
• Secular (Non-Cyclical) Stocks: Earnings remain steady regardless of the economy; examples are consumer staples and drug stocks.
  • “You don’t stop eating food or brushing your teeth just because of a recession.” (06:35)
• Portfolio guidance: always own both types for diversification, adjusting exposure based on economic trends.

Sectors and Market Movements

• 50% or more of a stock’s movement comes from its sector, heightened by the rise of sector ETFs.
  • “It’s much more than 50%… thanks to sector ETFs.” (07:30)

Investing Ain’t Easy, But It Doesn’t Have to Be Mystifying

• “You just need to learn the language, know the difference between cyclical and secular growers, and always stay diversified.” (08:47)

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3. Listener Q&A: Practical Portfolio Building

Balanced Portfolio and the 60/40 Rule (08:52)

• Caller Shane: Asks if the 60/40 stocks/bonds rule still applies and how much should be in cash.
• Cramer: Suggests a more aggressive stock allocation, citing longer life expectancies and lower bond returns.
  • “I think you should have 70% stock… You’re not going to get the return from bonds that people want, and I’d rather have you in stock.” (09:06)

529 Plans for Kids (09:56)

• Caller Joseph: Wants advice on saving for a child’s education.
• Cramer: Recommends a 529 plan invested in a low-fee S&P 500 index fund.

IRA Rollover Investment Strategy (10:15)

• Caller Edna: Rolled over an IRA, now in cash; asks if she should go into stocks.
• Cramer: Advocates for dollar-cost averaging, investing a 12th of the money each month, and doubling up in market downturns.

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4. Fundamental Metrics Explained

Price-to-Earnings (P/E) Multiple (13:51, 23:01)

• Explains why “the share price tells you nothing about a stock’s valuation compared to another. To make comparisons, use the P/E multiple.”
  • “The multiple tells you how much investors are willing to pay for a company's earnings.” (14:25)
• Multiple expansion/contraction relates to how much the market is willing to pay for earnings—often dictated by interest rates and growth prospects.

Top Line, Bottom Line, Gross Margin

• Top Line: Revenues/Sales—indicator of demand and growth.

• Bottom Line: Net income/Earnings.

• Gross Margin: What’s left after subtracting cost of goods sold. High in monopolies, low in highly competitive industries.

  • “The gross margin tells you what’s left after you subtract the cost of goods sold from the sales. In some industries, the margins can vary widely… Both [oil and retail] are what we call margin killers.” (18:15)

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5. Risk vs Reward, GARP, and PEG Ratio

Risk vs Reward (21:50)

• Risk: How much you can lose if the stock moves against you.
• Reward: Potential upside if things go well.
  • “It’s much more important for you to understand the risk side because the pain from a loss hurts more than the pleasure from an equivalent gain.” (22:45)
• GARP (Growth at a Reasonable Price): Rule of thumb: if a stock’s P/E is lower than its growth rate, it’s probably cheap; if it’s more than twice the growth rate, it’s expensive.
  • PEG Ratio (P/E ÷ growth rate): PEG of 1 or less is cheap, 2 or more is expensive.
    • “A PEG of one or less is extremely cheap and two or higher is prohibitively expensive. Sell, sell, sell!” (25:09)

Valuation Pitfalls

• Don't get tricked by "value traps" (stocks that look cheap because earnings estimates haven't adjusted down), especially in downturns.

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6. Distinguishing Trades vs Investments (31:04)

• Trades are based on a specific, time-sensitive catalyst and have an “expiration date.”
  • “When you buy a bottle of milk, you don’t drink it after the expiration date... The logic of trading is pretty similar.” (33:51)
• Investments are long-term bets on a business's future. If the fundamental case changes, then reconsider; otherwise, hold and add when appropriate (“buy and homework, not buy and hold”).

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7. Jargon Around Market Drops, Rotations, and Diversification

Correction

• A market “correction” means a decline of about 10%, not the end of the world—stocks bounce back.
  • “It may feel horrible, but stocks can come back from corrections... They bounce back from big declines all the time.” (36:01)

Execution

• Refers to quality of management in carrying out business plans; "best of breed" companies with proven executives are often worth paying more for.

Rotation

• When money flows out of one sector into another.
• Don’t chase the rotation game, but always stay diversified (no more than 20% in any one sector).
  • “You're diversified when no more than 20% of your portfolio is in any single sector. That way you won't get annihilated...” (38:55)

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8. Live Q&A with Jeff Marks (40:59–47:11)

Tax Effects & Portfolio Transactions (41:33)

• Caller Andrew: Wonders about weighing tax rates in buy/sell decisions.
• Cramer: Focus on quality, not taxes. Don't let the tax man dictate timing on sales of good stocks.
  • “I would not ever sell a stock if I thought it was going to be great for a wash sale… What matters are the quality of the stocks.” (42:56)
• Jeff Marks: Seek professional tax advice for specific questions.

Technical Tools (44:00)

• Caller Kevin: If choosing only one technical indicator other than price and volume, Cramer picks oscillators for overbought/oversold signals; Jeff suggests moving averages.

Pyramiding & Position Building (45:55)

• Email from Diane: Best way to build positions.
• Cramer: Build on the way down (pyramid) to improve cost basis if the thesis still holds. Don’t chase if price jumps; accept missing it.

Sector Weighting (46:11)

• Email from Chris: How to weight different sectors.
• Cramer: Focus on best companies, not rigid sector allocation. Stay diversified but pursue big investment themes.

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Notable Quotes & Moments

• On industry jargon:

  • “Forget about the Da Vinci Code. Forget Enigma... To be a great investor, first you have to break the Wall Street code. And I’m here to help you crack it.” (04:18)

• On the emotional side of markets:

  • “If you treat a trade like an investment, my prediction for your portfolio is pain.” (32:00)

• On corrections:

  • “Think of it like this. When the market goes on a 56-game hitting streak like Joe DiMaggio and doesn’t get on base the next day, that doesn’t mean you’ll never make money again.” (36:09)

• On best practice:

  • “Buy and homework, not buy and hold.” (34:40)

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Important Timestamps

• 03:00: The purpose of Wall Street jargon and why it persists
• 05:00–08:50: Key definitions: cyclical vs secular; why they matter
• 08:54–10:48: Listener round: portfolio balance and cash, 529 plan advice, rolling over IRAs
• 13:51–20:29: The P/E ratio, top/bottom line, gross margin explained
• 21:50–30:46: Risk/reward, GARP, and PEG ratio; live Q&A on high-risk investing and sector effects
• 31:04–35:42: Critical differences between trades and investments
• 36:01–40:32: What is a correction, execution, and sector rotation; why diversification matters
• 40:59–47:11: Extended Q&A on taxes, technical indicators, pyramiding, and sector weighting

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Summary

This episode serves as an accessible masterclass in understanding the language of Wall Street—from the basics of cycle-sensitive stocks to advanced topics like risk/reward analysis and proper diversification. With his trademark energy, Jim Cramer urges listeners to learn the vocabulary, stay curious, and take control—reminding everyone:
“Investing isn’t easy, but it doesn’t have to be mystifying.” (08:47)

Transcript

[Josh Brown]

Trading at Schwab is powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos and more, all curated just for traders. Plus guided learning paths with content designed to fit your unique interests. And no sifting to find exactly what you need so you can spend your time learning to trade brilliantly. Learn [e-mail] trading my name is Josh Brown.

I'm a financial advisor, I'm a wealth manager, and I'm a dad. Everyone needs to Invest Best stocks in the market is going to be fun for Pro subscribers. We're going to take you behind the scenes and tell you the stories that are driving some of the most exciting names on your quote screen. We're going to show you exactly where the best stocks are and what's happening with them in real time.

[CNBC Announcer]

Join PRO for exclusive access to Josh Brown's Best Stocks in the Market at CNBC.com BestStocks Stocks.

[Jim Cramer]

Hey, I'm Kramer. Welcome to Mad Money. Welcome to Cramerica, 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 me Jim Cramer. 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 including into the jargon, it can 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 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 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 at 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 he'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 novel code talkers. To be a great investor, first you have to break the Wall street code. And I'm here to help you crack it. That's why tonight I'm giving you my Wall street gibberish to plain English dictionary considered a glossary of the most important terms you absolutely must understand if you're going to actively manage your own portfolio of individual stocks. 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 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 cyclical, the automakers are cycled. 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 that 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 one. 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 they're buying and selling Pretty much defines the whole market, at least in the short term. See, the whole hedge fund playbook is about when to buy and sell cyclical stocks or secular ones. Based on how economies around the world are doing. This is what drives the decision making process. Now. In the old days, 50% of the performance of any individual stock came from its sector, which is just a fancy word for the segment of the economy a stock falls into, like tech, energy, machinery, a 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 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. Sell, sell, sell, 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 ain't easy, but it doesn't have to be mystifying. You just need to learn the language, know the difference between cyclical and secular growers, and always stay diversified. Shane in Alabama. Shane.

[Caller]

Hey Jim, thanks for taking my call.

[Jim Cramer]

Absolutely.

[Caller]

When building a balanced portfolio, is the 6040 rule still fundamental and how much of that percentage should be in cash?

[Jim Cramer]

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 than 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. It's my own psychology. Joseph in Florida. Joseph. Hey Jim, how's it going? Not bad Joseph. How about you? Thank you for calling.

[Caller]

Dude.

[Jim Cramer]

I'm doing awesome man. Good. So I wanted to get some insight.

[Caller]

On a five to nine plan and.

[Jim Cramer]

Index fund for my one year old child Jared. All right, so you looked five to 529 plan is perfect. And put it 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?

[Caller]

Edna, booyah. Mr. Kramer of your investing club and wanted to thank you for all I've learned so far. My husband and I into active investors.

[Jim Cramer]

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

[Caller]

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?

[Jim Cramer]

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 one 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 to be mystifying. You just need to learn the language or make money. Tonight, forget Merriam Webster. I'm helping you 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 the your portfolio. That's what I want. So stay with Kramer.

[CNBC Announcer]

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. Miss something? Head to madmoney.cnbc.com.

[Commercial Narrator]

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[Josh Brown]

A Fifth Third better Trading at Schwab is powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus guided learning paths with content designed to fit your unique interests and no sifting to find exactly what you need so you can spend your time learning to trade brilliantly. Learn [e-mail] trading my name is Josh Brown.

The best stocks in the market is very simple. These are stocks with good fundamentals in the process of rising higher.

[CNBC Announcer]

Join PRO for exclusive access to Josh Brown's Best Stocks in the Market at CNBC.com BestStocks.

[Jim Cramer]

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 stocks 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. 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 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 steep. 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 by 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 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 piece, 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. Do the share price P equals the earnings per share, E times the multiple M. Okay? The multiple tells you how much investors are willing to pay for a company's earnings. We don't care that Coke 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 sauce of valuation. The main ingredient in that sauce is 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. And 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 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. Member of the club. Step one to getting your head around the future earnings is 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 ultimately the key to the ability of most businesses to sustainably 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. 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, it's also crucial to consider the gross margin, which is in no way disgusting and not the least bit marginal. The gross margin tells you what's left after you subtract the cost of goods sold from the sales. It's a key profitability metric. To figure out the gross margins, you have to consider the competition, the cost of production and the cost of doing business in general. Businesses with cutthroat competition like supermarkets tend to have terrible margins, while virtual monopoly like Microsoft has margins that are downright they're obese. In some industries, the margins can vary widely. Take the oil base where this 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 P E, the go 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 CNBC Investing club. Mad Money is back after the break.

[CNBC Announcer]

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.

[Jim Cramer]

This.

[CNBC Announcer]

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.

[Josh Brown]

My name is Josh Brown. The best stocks in the market is very simple. These are stocks with good fundamentals, a great story, and technically they're in the process of rising higher. Everyone needs to invest. The cost of living goes up every year. The purchasing power of the dollar goes down. Assuming we're all going to be here for a very long time, we're going to need more money. The stock market is how that happens.

[CNBC Announcer]

Join PRO for exclusive access to Josh Brown's Best Stocks in the Market at CNBC.com BestStocks.

[Jim Cramer]

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 in a 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 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, but 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, 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 you don't have a good grasp of how you what you own and what your holdings are, you would 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, 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 any 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 can be 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 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 solve 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 to earnings Boldable. 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 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 shippers 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 Excel 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 that 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 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's happens when the economy is 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 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?

[Caller]

Mr. Kramer, 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.

[Jim Cramer]

I was just looking for some quick.

[Caller]

Advice and kind of personal, I guess advice on how to run that from a freshman's perspective.

[Jim Cramer]

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

[Caller]

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

[Jim Cramer]

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.

[Jim Cramer]

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?

[Jim Cramer]

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 rewards, the GARP and the PEG ratio associated with Picking stocks, you're much better prepared to know what you own and know what others, more importantly will pay for now, much more madmania. 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.

[CNBC Announcer]

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.

[Jim Cramer]

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 the intensely 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 much less simple than they appear. Take the notion of a trade versus the notion of investment. A lot of people 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 mentor for the faulty challenge like myself. Isn't it casuistry? That's a SAT word of the day that might send you searching for a 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, then in true Mr. T fashion allied best of the Rockies, Rocky 3. My prediction for your portfolio is pain. When you buy a stock is 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 approved 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 sorry, 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 low, 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. 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 turn out 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 longer term investment. Because without the catalyst, you 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 and 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 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 CNBC Vesting 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 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 the 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. That money's back after the break.

[CNBC Announcer]

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

[Jim Cramer]

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 you need to know? Okay, here's what one of the most dreaded and poorly understood terms in the business the correction. What a euphemism a correction is when after the market's been roaring, it turns around and then it gets crushed. Maybe the client 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 of 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 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. Themselves 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 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 in 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 unfair, forced 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 with those interviews. Nobody knows a company better than the people running it, and since you probably can't get these CEOs on the phone yourself, you want to hear what they have to say about their business firsthand on the show. This notion of execution is also crucial when it comes to understanding why it's worth paying up for. Best of Breed companies Big Emphasis Their best breed the top Players Players in any given industry almost always come with proven executives. Best of REIT stocks are typically more expensive than their cheaper competitors, but they're worth the price. A good management team is less likely to make mistakes and more important, less likely to get buried by big problems and more likely to figure out how to solve them. Finally, one last piece of Wall street gibberish. The dreaded rotation. Which is just when money flows out of one sector 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 cyclicals 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, this is a 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 performance. As we're always teaching you in the CBC 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 cross 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.

[CNBC Announcer]

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

[Jim Cramer]

I always say my favorite part of the show is answering questions directly from you. Then I'm bringing in Jeff Marks, my portfolio and his partner 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 Jeff's insights and our back and forth help me to do a better job for you. So please, I want you to join the club. Tonight. Jeff and I are covering all grounds, going directly to phone lines and answering some of your email questions. So let's take some calls. Andrew and New Jersey Andrew.

[Caller]

Hey Jim. Mr. Kramer. Booyah. How you doing?

[Jim Cramer]

Not bad, how are you?

[Caller]

I'm doing pretty good. I'm a 66 year old guy, ex tech guy, and 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 get your thoughts on being able to do that future. I was wondering if at times you could do more of a contrasting acknowledging that you're not a tax advisor but not 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 those 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.

[Jim Cramer]

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 would 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.

[Jeff Marks]

No. 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. Yeah, but we're focused, we're very focused on how stocks are performing.

[Jim Cramer]

People could be in all different practice and have all different ideas.

[Jeff Marks]

Yeah.

[Jim Cramer]

Why don't we go to Kevin in Maine? Kevin.

[Caller]

Jimmy. Booyah.

[Jim Cramer]

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.

[Jim Cramer]

You make my day. Okay.

[Caller]

Thanks buddy. 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?

[Jim Cramer]

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, the stock exchange, the S and P. I wish we had an oscillator for each individual stock. That's what I'd be looking at.

[Jeff Marks]

Yeah, I'm not a technician, so a little harder for me to say. But I think also moving averages is something technicians often, often quote. So that would be my.

[Jim Cramer]

The other 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 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 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.

[Jeff Marks]

Yeah, I think just because it's a smaller position, that doesn't, that doesn't mean you should break discipline and be greedy. 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.

[Jim Cramer]

Right?

[Jeff Marks]

You want discipline. It always comes back to.

[Jim Cramer]

Yeah. I mean, look, I hate having to wait. I hate having to build the 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 semiconductors, 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.

[Jeff Marks]

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 because these are multi year trends that are seeing a huge flow.

[Jim Cramer]

Of investment and that's why you come to the club. We are unconventional, but we are rigorous. 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 Money, I'm Jim Cramer. See you next time.

[Commercial Narrator]

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 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. Kremer'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 how will you.

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