CNBC's Jim Cramer aims to teach investors how to understand Wall Street jargon. For example, what does it mean when a stock or sector is described as "cyclical" or "secular"?
"Investing ain't easy, but it doesn't have to be mystifying. You just need to learn the language," he said. "Know the difference between cyclical and secular growers, and always stay diversified."
A company is cyclical if it needs a strong economy to see high returns. That means its performance relies on the business cycle. Cramer pointed to sectors like the industrials, automakers and homebuilders as "hostage to the vicissitudes of the economy."
Secular companies, on the other hand, are ones that can thrive regardless of the economy's health. These sectors include food, consumer products and drugmakers, Cramer said. During a recession, people must continue to eat and brush their teeth with the products of secular companies, he explained.
Cramer emphasized that these terms are important to understand because they can help investors calculate how much companies will earn in any given environment. That said, investors should aim to own both cyclical and secular stocks, he added.
"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," Cramer explained.
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