Investing Club mailbag: You called a stock a 'buy.' Why didn't you buy it?

Investing Club mailbag: You called a stock a ‘buy.’ Why didn’t you buy it?

April 28, 2023

in Economy

Reading Time: 4 mins read

I have used your Charitable Trust portfolio to establish my own portfolio with the same relative weights. When you buy or sell, so do I. My question is this: If you issue an alert like this — ” Buy, Buy, Buy . Why I like Disney (DIS), Advanced Micro Devices (AMD) and Caterpillar (CAT) so much,” why aren’t you buying? — Bob B. We understand and appreciate that it can be confusing to hear us call a stock a “buy” and not pick up shares for Jim Cramer’s Charitable Trust, which serves as the portfolio for the Club. It may seem like we’re saying one thing and doing another, but that’s not the case. It basically comes down to us at the Club wearing multiple hats: we’re reporters, analysts and portfolio managers. As a result, we try to do three things everyday: Report and analyze important news with our take; provide analysis and views of the stocks we own, and actively manage our portfolio of holdings. All of these functions help us educate members become better individual investors. The answer to Bob’s question lies within the different objectives of the second and third goals. 1. The first function is pretty straightforward, we report on the news to keep our members up-to-date on the happenings of our holdings. We also ask this key question: “Why should a shareholder (you) care?” The answer informs our Club take, or “Bottom line” — basically how the news impacts our investment thesis. 2. With the analysis of individual stocks, we are attempting to think about a company’s position in the market, its standing versus peers, catalysts on the horizon, its valuation and so on. We are not really thinking about the name in the context of the portfolio. We’re not thinking about the other holdings we own that may be correlated with the name in question. We also are not thinking in terms of weighting or exposure, given the risk profile of the stock in question. Ultimately, when conducting the research and analysis portion, we aren’t thinking about the name in the context of how it helps strengthen our overall portfolio. In this vacuum, we are really only thinking about the company’s merits. It’s through this lens that we may offer a “buy,” “hold,” or “sell” recommendation. 3. In the context of portfolio management, we’re leveraging our analysis while incorporating a higher level of consideration. For example, we like the stock of Disney (DIS) very much as indicated by our 1 rating . As analysts, we believe the stock to be a buy at current levels. However, through the portfolio management lens, we would take the thinking a step further: we like the stock, it’s a buy at current levels, but we already have a 4.5% weighting in the name so — as attractive as we may find it right now — we can’t add more just yet because it’s already one of our largest positions. We would seek to take into account where our prior purchases of the name were made. DIS YTD mountain Disney YTD performance In the case of Disney, we picked up 40 shares on March 10 at an average price of around $93. So, while we find the stock attractive given the current valuation, company fundamentals and future outlook, we would balance this against the fact that we already own a sizable amount and that we previously got a better price. One of our disciplines is to try to always ensure that the next buy is lower than the last buy. We can’t achieve this goal every time (sometimes you get lucky and nail a bottom, or the fundamentals improve to the point of the valuation coming down even at a higher stock price) but we strive to. So, in a scenario such as this, we may publish an alert calling Disney a buy (or Jim may call any number of names a buy, hold, or sell) believing in favorable risk/rewards at the current valuation. However, that doesn’t mean we will purchase additional shares for the Club unless it makes sense in the context of our portfolio. This distinction between reporting the news, analyzing a stock based on the company’s fundamentals, and thinking about a stock in the context of our portfolio applies not only to the times when the Club issues an alert but also when Jim mentions liking a name or thinking its a buy via his other regular platforms on CNBC such as “Squawk on the Street” and “Mad Money.” Bottom line Ultimately, the Club seeks to fulfill its educational goal via a combination of reporting on the news that impacts our holdings, providing analysis of our individual stocks and managing a long-only equity portfolio. However, the only time action is taken is when it makes sense in the context of portfolio management. When the Club does decide to buy or sell shares, we are very clear about the number purchased, the price and the new weighting in the portfolio. Those Trade Alerts can be found here . We give you all the reasoning behind that trade, and members get a 45-minute head start so you (not us) get the best price. (Jim Cramer’s Charitable Trust is long DIS, AMD, CAT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

An entranceway to Walt Disney World on February 08, 2023 in Orlando, Florida.

Joe Raedle | Getty Images