Buying an asset in one market and selling it simultaneously in another market for a higher price. In the context of an acquisition, this term refers to the trade of selling the acquiring company and buying the stock of the target company. Averaging down
The investment practice of buying incremental lots of shares as a stock falls in price. This process of buying additional shares in a company for lower prices than earlier paid brings down the average price paid for the total position. Sometimes this is a good strategy; other times, it's better to sell off a beaten-down stock than buy more shares.
Best of Breed
Described in Cramer's 25 Rules of Investing Rule No. 8. Refers to the best company in an industry, which should be the first stock bought in that group when seeking exposure. Usually has the fastest earnings growth and/or lion's share of the market.
Fixed-income debt securities that entitle the holder to defined interest payments, leading up to a balloon payment of the principal. Action Alerts PLUS does not trade in bonds, but Cramer believes it is important to understand the action in the bond market because this asset class represents competition for investment capital with equities and can affect the performance of the broader market.
Refers to net income or profit.
Buying into weakness
Selling into strength: As the price of a stock falls — becomes weak — or rises — strengthens, Cramer likes to take advantage of the chance to buy low and sell high. He looks for inflection points rather than trying to play momentum.
Measure of a company's actual cash inflow or outflow over a given period of time. Often differs from the "bottom line" because of various discrepancies in accounting rules.
Chasing a stock higher
Buying incremental shares, even after a stock has rallied to a new high. Not usually a good investing practice because it raises the cost basis.
Cheap/expensive vs. low-/high-dollar stocks
These terms describe relative valuations, when comparing stocks on an apples-to-apples basis, such as the price-to-sales ratio or price-to-earnings ratio.
The average of several analyst estimates, usually either for revenue or profit, for a given period of time. Unless otherwise specified, data should be considered to have been compiled by Thomson Financial/First Call.
The average price per share paid for a stock. Should also adjusted for stock splits, dividends and return of capital distributions. Also known as "tax basis".
A risk-reduction method of spreading capital among different investments. Action Alerts PLUS is a diversified portfolio. Cramer often refers to this as "the only free lunch on Wall Street." He emphasizes diversifying investments across sectors.
A per-share cash payment made to shareholders of record on a given date. Generally made each quarter.
Strategy of buying a fixed amount of stock by a predetermined calendar schedule (say, $50 a month). This is essentially how many retirement accounts are built up; by buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. Eventually the average cost per share of the security becomes lower. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time. Action Alerts PLUS does not use dollar-cost averaging.
Earnings call, conference call
A telephone conference call event held by a company with analysts and major investors after a quarterly earnings report or major company announcement. Individuals usually can listen live or to a recording via phone or Webcast, but often are not able to ask questions or otherwise participate. This is a major source of company information and an important part of doing research on stocks, or "homework."
Earnings before interest, taxes, depreciation and amortization. Often incorrectly stated as operating cash flow.
The Federal Reserve, commonly referred to with no disrespect as the Fed, is the central bank of the U.S. It conducts monetary policy, regulates banks, maintains the stability of the financial system, and provides financial services to U.S. banks, foreign governments and the public. The Federal Reserve System consists of a seven-member Board of Governors headquartered in Washington, D.C. and 12 Reserve Banks located in major cities throughout the country. The District Feds, as they are called, are in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Each Federal Reserve Bank serves financial institutions and the public in a multistate district. A map on the Fed's Web site shows the 12 districts. Fed governors are nominated by the president, who nominates two governors to serve as Fed chairman and vice chairman. The Fed conducts monetary policy through its Federal Open Market Committee, which sets a target for the fed funds rate. The Fed then keeps the fed funds rate on target through open market operations.
The lowest ranking of Action Alerts PLUS portfolio holdings used in the Weekly Roundup. These are stocks Cramer would consider selling on any rally, depending on his trading restrictions.
A school of thought that holds that securities should be traded based on sales and earnings trends. In fundamental analysis, valuation metrics are derived and compared against those of other companies in the industry or overall market.
Financial information and management commentary as reported in quarterly or annual statements, press releases or other public venues. Anecdotal reports from company customers and suppliers or general information on the company's product markets is also part of the fundamental picture. Technical information based on stock prices and trading volume is not considered part of the fundamentals.
Companies with higher growth tend to receive a premium valuation relative to slower growers. Growth can be measured in various terms, but generally refers to revenue (higher selling prices and/or units sold) or earnings growth (caused by higher revenue and/or lower costs).
Financial projections offered by a company for a given period of time, such as a quarter, usually for revenue or profit.
A fund that can go long or short stocks, hence the hedge connotation. Different from a regular fund in the way its managers are compensated. Most money managers receive a percentage of the assets managed. Hedge fund managers receive a percentage of the assets and take 20% of the gains, both realized and unrealized. There are limits on the number of investors, or "partners," a hedge fund can have, as well as a minimum qualifying income for investors. Hedge funds can't market themselves to the public, in part because of the significant risks they take on through their ability to use leverage to make trades. There are also minimum liquidity requirements for would-be hedge fund partners. They are expected to significantly outperform the market. Jim Cramer ran the hedge fund he founded, Cramer Berkowitz, for 14 years, returning a compounded 24% after all fees and making him one of the most successful hedge fund managers in Wall Street history.
Order to buy a security at or below a certain price; or sell at or above a certain price.
Lock in gains
To sell a stock after it has rallied but before it has the chance to fall.
If you're "long" a stock, you own it, so you have a vested interest in seeing the stock rise. In contrast, being "short" a stock means you'll gain if the stock falls. Action Alerts PLUS does not short stocks.
Credit from a stockbroker used to buy stocks.
Refers to a company's technical price momentum or fundamental earnings momentum. Companies with strong momentum have prices and earnings that are going up, while companies with weak momentum have prices and earnings that are going down or going nowhere. Importantly, all momentum is measured at the margin, so a company with high momentum must accelerate to maintain its place, while a company with weak momentum can merely stabilize to get out of the doghouse.
Multiple (X times estimates)
A valuation metric used in fundamental analysis. The answer to the equation of price/earnings, price/sales, price/book. Stocks can appear cheap or expensive based on how high the multiple they currently trade at. Shifting the time horizon for the (earnings, sales, book value) estimates used can significantly alter perception of a stock's valuation.
Net interest margin
Metric used in the banking industry. The difference of interest earned from loans and interest paid on deposits, divided by total interest-earning assets.
The highest ranking of Action Alerts PLUS portfolio holdings used in the Weekly Roundup. These are stocks Cramer would consider buying at any opportunity, depending on his trading restrictions.
Cutting back a position by making a small sale. In Action Alerts PLUS, often one in a series of small sales in the same position.
Pick away at, pick at
Make a small purchase. Generally a few hundred shares, or less than 10% of an existing position. In Action Alerts PLUS, often one in a series of small purchases in the same position.
It's like the domino effect. Something happens to one company and other companies are also indirectly affected. When similar stocks move in relation to big news at a competitor, supplier or customer, there's "pin action." (With thanks to Tracy Byrne.)
The matrix of stock sectors to buy or sell given overall state of the market economy. Built on the premise the history repeats itself in the stock market. Often blamed for large movements in the market as institutional investors all have the same response to a market development.
Current share price divided by the most recently reported book value. Price-to-book is a particularly useful valuation criteria for financial companies, where the book value is more likely to reflect real underlying assets, than for industrial companies. Beware of share buybacks, leveraged buyouts and mergers and acquisitions. All three will reduce book value and, because they are one-time events, decrease the usefulness of a company's price-to-book ratio.
Current share price divided by annual earnings per share. Some investors prefer to use the "12-month trailing" earnings in the denominator, because that's actual earnings, while others prefer using "forward" earnings estimates. Estimates, generally representing analysts' consensus of future earnings, are considered more timely, though some say they're often too hopeful.
Price divided by the trailing four quarters of reported sales. Author James O'Shaughnessy has focused investor attention on price-to-sales by showing impressive excess returns in a historical test combining low price-to-sales with superior one-year price performance. The biggest problem in screening on price-to-sales is that low price-to-sales often reflects an industry bias rather than company valuation. The price-to-sales ratio for grocery stores will always be lower than for the restaurant industry, for example, because of grocery stores' lower margins.
Pull the trigger
Take action and make a trade. Can be a purchase or a sale.
Refers to stock price action that tends to remain between an upper and lower boundary.
A stock split in which investors end up with fewer shares of a stock that are trade for a higher price than before the split. The total value of the investment does not change.
Ring the register
Sell a fraction of a position in a stock. Generally refers to a profitable trade.
Industry or group of companies that compete in a similar business.
The market phenomenon of large investors shifting funds from one sector to another. Can occur because of changing economic cycles or a sizable relative valuation discount.
Growth that doesn't depend on overall economic strength or seasonal trends.
A company that is gaining a larger market share of total sales relative to competitors.
The opposite of being long a stock, and the reverse of investing. Instead of buying a stock with the objective of selling it at a higher price, you borrow a stock (through your broker) and immediately sell it. If and when the stock falls to your target price, you then buy it and return the shares to their rightful owner (probably through your broker), the stock loan department of the brokerage firm. Danger: While there's no limit to shorting a stock — other than the limits on your own ability to tolerate a loss — there's always the possibility that the owners of the stock could ask that they be returned immediately. When they're orchestrated en masse, these so-called "buy-ins" are considered a short squeeze and cause a stock's price to rapidly rise. Action Alerts PLUS does not short stocks.
Source of funds
A stock that should be sold at current prices because the capital is less likely to be eroded when it's in cash.
A sector or industry.
Decision by a company to lower its share price or possibly widen its investor base. Shareholders end up with more shares at the new, lower price. The total value of the investment does not change.
The price a stock trades at, but does not go lower than, over a period of time. Considered "downside protection" or a "floor" under the price of a stock. Most commonly used by technical analysts.
Selling a stock for a profit. Generally done with a fraction of a position.
School of thought based on following shifts in a stock's price or trading volume, particularly via charts, to identify trading patterns that signify trading opportunities. Often viewed as the opposite of analyzing stocks using fundamentals, though many investors use both forms of analysis. Action Alerts PLUS is not a technical analysis service, though Cramer may mention principles of technical analysis as they become talked about issues for a stock.
Cramer is not permitted to buy or sell any security he has spoken about on CNBC or anywhere else, for three days following the broadcast.
The second-lowest ranking of Action Alerts PLUS portfolio holdings used in the Weekly Roundup. These are stocks Cramer would consider selling into a material rally, or buying on a greater than 10% pullback, depending on his trading restrictions.
The second-highest ranking of Action Alerts PLUS portfolio holdings used in the Weekly Roundup. These are stocks Cramer would consider buying on a pullback, depending on his trading restrictions.
One of many metrics used to gauge the relative price of a stock. For example, price/earnings, price/sales and price/book.
The annual dividend divided by the stock price. Quoted in percentage terms.