A reminder of two of our main portfolio management disciplines


Jim cramer

Scott Mlyn | CNBC

(This article was first sent to CNBC Investing Club members with Jim Cramer. To get real-time updates delivered to your inbox, subscribe here.)

After this brutal start to the year for many tech stocks and the steep drop in highs in so many different names, we can’t help but remind the Investment Club of the two portfolio management disciplines we use for The Charitable Trust.

Pigs get slaughtered

Our first discipline is simple, and it’s a line we repeat in our trade alerts: bulls make money, bears make money, and pigs are slaughtered. You’ll see us put this discipline into action when a stock goes up 5-10% in a single day without any news (like Nucor yesterday) or after a stock has been flying for ages.

For example, did we want to reduce Marvell Tech (MRVL), one of our favorite companies, last December to $ 92? It was a tough sale to make as Marvell Tech is a multi-year story and has so much going on in the cloud, 5G and automotive. However, MRVL had rebounded nearly 30% over three trading sessions, and our discipline forced us to take profits, otherwise we would have risked being greedy. What about AMD (AMD)? Shares surged in November after the announcement of an Investor Day and a partnership with Meta Platforms. AMD’s outlook was as bright as it gets, but the stock climbed 50% from early October to late November, forcing us to pull some stocks off the table. And most recently, we’ve seen gains in a slew of stocks including AbbVie (ABBV), Linde (LIN) and Estee Lauder (EL) because their names were on the 52 week list day in and day out.

The bottom line is that we buy and sell stocks, not companies, and sometimes the market gets too excited about stocks. Investors often talk about buying stocks that have fallen apart from a downed price, but this same idea holds true when stocks recover. If you are ready to buy a high quality business when it is down for no reason, you must be prepared to take a profit when the whole market does.

Did we have all the good sales before the recent volatility? Of course not. We are not perfect and we will always be the first to tell you. We have admittedly been pigs in Nvidia (NVDA), and we did not remove any Salesforce (CRM) because we thought their last quarter was not as bad as market reaction suggested. But if we stay true to our discipline of bulls making money, bears making money, and pigs being slaughtered, more often than not we will have made many big gains before the market turns around, and then we can use the money we raised to buy back those shares at a lower price.

But you can’t limit your sales to the actions you care about. What do you do with stocks that are not working in the market?

You can’t just sell your winners

This brings us to our second discipline. If you keep selling your winners and nothing else, your portfolio could end up with a bunch of losers. You can’t constantly cut AbbVies and Lindes and leave Estee Lauders, because then you’ll end up with Wynn Resorts (WYNN) and PayPals (PYPL).

To avoid selling winners to fund losers, every now and then you need to be prepared to part with a stock that interests you less. For example, we have not been shy about selling Walmart (WMT) at higher and lower prices because we believe there are better opportunities in the market. But be selective about new opportunities. You might end up with even more losers if you used your “winning” money to buy the world’s Teladocs, Docusigns, and Platoons at increasingly lower prices.

Lucky for us, we didn’t put the good money on the bad because we focused on companies that “do things and do things,” and these stocks have survived recent volatility unscathed. If you take a look at all of our shopping since Thanksgiving, you’ll see that our primary focus is on healthcare and cyclicals like energy (Chevron), banks (Morgan Stanley), and industries (Boeing and Honeywell). .

After refreshing our two disciplines, we would then like to present our position on the current market to you.

After this brutal start to the year for technology, of course, we are warming up to certain values. These are some of the signs that we are looking for. Microsoft (MSFT) is a key name to watch because it has real profits and a big buyout. PayPal has been recommended several times by analysts this year, but until today it hasn’t been able to keep its earnings. Checks indicate that Nvidia is having a good quarter. And these semiconductors that we sold with enthusiasm? We have the option to buy them when weak because we have sold at much higher prices. Marvell Tech ranks high in our pecking order because it is the fastest growing one with real profits.

We haven’t pulled the trigger on tech stocks yet, but we are taking a close look at some stocks and monitoring price developments.

The CNBC Investing Club is now the official headquarters of my charity. This is the place where you can see every move we make for the portfolio and get my market snapshot before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

As a CNBC Investing Club Subscriber with Jim Cramer, you will receive a Trade Alert before Jim completes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling any stock in his charitable trust portfolio. If Jim has mentioned a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for investment disclaimer.

(Jim Cramer’s Charitable Trust is long MRVL, AMD, ABBV, LIN, NVDA, CRM, WYNN, PYPL, CVX, MS, BA, HON, MSFT.)

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