Making investment decisions based on speculation or eccentric seasonal trends is not the way CNBC Investing Club manages its portfolio. Jim Cramer used to run a hedge fund where the holding period for positions was reduced to minutes, not weeks, months, or years as we aim for in our clubs. did. In last Sunday's column, Jim offered some thoughts on the frothy state of the market and why we don't have names like Tesla or Palantir in our portfolio. “There's no reason to buy other than the fact that I think Tesla and Palantir are going to go up,” he said. “That's a good reason to buy as a hedge, but not a good reason to buy as a portfolio manager. The club invests in stocks based on fundamentals, not speculation.” That doesn't mean Tesla and Palantir are good companies. I'm not saying that. On the contrary, they are a great company. This is not a criticism of the management abilities of either company. Both companies are run by what many on Wall Street consider genius-level founders like Elon Musk and Alex Karp. But Jim's reasoning is about evaluation. Neither of these companies can be called “cheap” by any means. And if you think their value is pretty high, you have to believe that growth will continue at breakneck speed beyond the foreseeable future. While that may be true, it also means that owning them requires a willingness to make significant speculations, i.e., to increase the odds of happening far beyond what can be reasonably expected in the short term. It means you have to trust. Indicators are current or near future predictions. While each investor must consider his or her own risk appetite to make big swings, Jim, Jeff Marks, Director or Portfolio Analysis, and I manage a charitable trust of 30-odd stocks. This is the portfolio that Jim set up when he left Wall Street decades ago to stay in the game conflict-free and teach people how to invest using real money and real trades. Our self-imposed mission for the Trust, the portfolio we use in the club, is to base our investment decisions on fundamentals, so our ability to speculate on names like Tesla and Palantir is severely limited. This applies not only to stock selection, but also to navigating different seasonal patterns in the market, such as year-end and New Year seasonal trends. Every December, the Santa Claus Rally, which measures the last five business days of one year and the first two business days of the next year, attracts a lot of attention. We say “Santa Claus rally” because that stretch tends to be bullish. It feeds ideas about how January goes, how the year goes, or what is known as the January effect. Investors who pay attention to seasonality may have historical data that “supports” their claims. The problem is, just as Tesla and Palantir are bidding for no other reason than that they might come back tomorrow, the people who emphasize these monthly patterns can't explain why they're happening. It simply indicates that such a tendency existed in the past. . There's really nothing about what happened in each of those years, only that it happened or didn't happen. By the way, there was no Santa Rally this time. The S&P 500 is nearly flat for the first five business days of 2025, leaving most of January behind. Therefore, the jury is still out on whether January's impact will be considered positive or negative later in the year. To be successful in the game of seasonality and speculation, you need to market your time, such as choosing the best time to sell and the best time to buy, but consistently enough to make this worthwhile. Jim has said many times that it is impossible to do this. Market timing is primarily based on technical patterns and headlines, or day trading. If you want to go down that path, keep in mind that you're up against some of the richest, most sophisticated, best-connected people on Wall Street (or anywhere else), not to mention high-frequency trading algorithms. Unlike the practice of long-term investing (a discipline that rules the club where we analyze companies and management teams), day traders ride momentum, analyze chart patterns, or play seasonal market patterns. This means betting on your ability to navigate the market. You don't have to do anything more than sell stocks to the Big Fool and know it's happened before, in real time, 24/7, before anyone else. “Analysis” becomes even more astrological-like when you start using trends from one season to predict another season. Using the example above, one could argue that we can tell what January will look like based on Santa's gatherings, which in turn determines the year. So how can you tell your position for the next 12 months from the way the market traded during the seven-session period when most people go on vacation? If you ask us, it's not that precise. there is no. If the S&P 500 index fell 0.53% during this latest Santa Claus rally, but rose 1.26% on the final day, Friday, January 3, what does the pattern predict?A modest rise on Monday; After Tuesday's decline and Wednesday's slight rebound, the S&P 500 has been in slightly green territory since the beginning of the year. But how can you predict this year after markets were closed on Thursday for National Day of Remembrance in memory of former President Jimmy Carter and were weak on Friday amid a strong jobs report and a spike in bond yields? There have been no stock trades for five consecutive days in January yet. .SPX Mountain 2024-12-24 S&P 500 performance since December 24th Is there something in that data that can tell us how to position our portfolio? The fact that Donald Trump's presidential inauguration is just over a week away on January 20th, or the fact that Trump is in the White House? How much weight should we give this to the idea that his Republicans will control both the House and Senate if he reenters? ?What do you think of the two-week price movement in light of what you saw and heard from Nvidia CEO Jensen Huang at CES earlier this week?If you ask us, the economy, the stock market, and the individual There is so much emphasis on the fundamental drivers of the company that little or no consideration is given to reading seasonal patterns like stars in the sky. The same goes for Tesla and Palantir. What to do if bubbles come out of the market? Palantir, for example, has suffered a brutal three-session losing streak this week following last Friday's more than 6% rally. Palantir soared 340% in 2024. You had momentum, but it's gone. Hopefully, we were able to make a profit and survive. Sure, you might want to double down, but why here? Why is Palantir more attractive at $70 per share than when it was $80? Yes, it's $10 cheaper, but analysts are estimating 2025 earnings per share of 47 cents, so it's still trading at nearly 150 times earnings, so it's not exactly a bargain. Tesla stock is not that cheap, at about 120 times 2025 earnings estimates. After soaring more than 60%, it will fall in 2025. Most of these gains came after Trump, who Musk supported, won the November presidential election. If you trade on anything other than fundamentals, that's a problem. What would you do if the stock price suddenly stopped rising one day or for several days? What do you do when the seasonal pattern isn't clear or simply doesn't work out? If that's what you were trading, you probably need to bail, or else you'll be like a deer in headlights. You're going to be stuck. However, focusing on fundamentals will give you a clear baseline to determine whether a price movement makes sense or whether you should take advantage of it. At the end of the day, we acknowledge that there are seasonal patterns in the market, but we also recognize that Tesla and Palantir have historically been “up” stocks, and there will always be “up” stocks. We must also be honest about the possibility of causing an across-the-board stock price increase. Adjusting exposure based on these trends and momentum is not a game we play. With that in mind, study the underlying fundamentals of a company to determine whether the business is undervalued, fair-valued, or overvalued in the stock market, and act accordingly. Our view is that investors will always be better served by doing so. (Jim Cramer's Charitable Trust is long NVDA. See here for a complete list of stocks.) As a subscriber to Jim Cramer's CNBC Investment Club, you will receive trade alerts before Jim makes a trade. I will receive it. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust's portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
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Making investment decisions based on speculation or eccentric seasonal trends is not the way CNBC Investing Club manages its portfolio. Jim Cramer used to run a hedge fund where the holding period for positions was reduced to minutes, not weeks, months, or years as we aim for in our clubs. did.
