This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Cramer's 'Mad Money' Recap: Demystifying Wall Street

Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.


NEW YORK ( TheStreet) -- "Investing isn't easy, but it doesn't have to be mystifying," Jim Cramer said on "Mad Money" as he dedicated the entire show to helping translate Wall Street gibberish into plain English for individual investors.

Cramer's first words in the Wall Street dictionary: "secular" and "cyclical," two important ideas that go hand in hand. He said cyclical companies need a strong economy in order to grow. Think steel, machinery and chemical stocks.

Secular growers, on the other hand, keep growing regardless of the economy. Cramer said these are companies that make anything you eat, drink, smoke, brush your teeth with, or use as medication.

Why are these distinctions important? Cramer said they help determine how much a company will earn in a given environment. He said the hedge fund playbook was written on buying and selling these powerful trends.

This is why the philosophy of buy and hold is silly, said Cramer. Why would anyone want to hold onto a stock that's out of favor? During times of recession, said Cramer, investors need to sell the cyclicals and buy into the secular names. And when the economy is recovering, it's time to sell the seculars and jump back into the high growth cyclicals.

An Important Metric

Cramer's next translation of the Wall Street dictionary was about the different metrics used to value a stock. He explained that when you buy a stock, you're actually buying a small sliver of that company's earnings. By owning a stock, he said, you're betting that either those earnings, or the multiple the market is willing to pay for those earnings, is going up.

Cramer said there's no magic to price-earnings, or P/E, multiples. The price of stock is equal to its earnings times the multiple. That's it. Of course, both the earnings and the market's multiple on those earnings are always changing, but the formula remains the same.

The market is always drawn to growth, said Cramer, which is why faster growing stocks often fetch higher multiples than slower-growing ones. To determine how fast a company can grow, Cramer said, investors need to dig for clues in its quarterly reports.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.29 -1.90%
FB $77.68 -1.40%
GOOG $531.47 -1.70%
TSLA $233.29 1.20%
YHOO $41.34 -1.70%

Markets

DOW 17,947.39 -123.01 -0.68%
S&P 500 2,089.50 -24.99 -1.18%
NASDAQ 4,941.4750 -75.4540 -1.50%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs