Please send your questions directly to Jim Cramer and his team of analysts at investingclubmailbag@cnbc.com . Reminder, we can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. Question 1: If you have a set amount of money to invest every week, where would you put it? New investor, just starting. — Sandi D. We can’t offer individual investing advice, but our general rule of thumb is that the first $10,000 should go into a diversified index fund, such as an S & P 500 index fund. You can keep and add to this position as a core equity investment as you build out the rest of your portfolio with individual stocks. Passive, low-cost funds that track the market are a great place to put money to work without worrying about the homework needed to invest in single stocks. For more guidance, check out our 5 steps to start investing in stocks and our post on how to determine the right size of your positions . Question 2: I have built a portfolio that includes most of the ones from the Trust. I am at the point where I have too many companies to follow and plan to ‘consolidate’ my portfolio from about 20 stocks down to 10, and add a S & P 500 Index ETF. At what point do you recommend selling some of the low performers (dogs?) as well as how best to reduce the number of Investment Club stocks that I own? Thanks again for all you and your team does to pass on your years of experience! Sincerely yours. — Scott K from New Orleans Selling the low performers is a good place start. We don’t want to sell winners to fund losers. However, it’s important to also consider a company’s underlying fundamentals and not just the stock price. After all, price is what you pay and value is what you get, so it’s important to consider whether the stock price reflects the business fundamentals. If the price is down but there is seemingly no issue at the company, it may actually be a buying opportunity. Once you’ve managed to weed out worst performers, you can start to compare the remaining names. Start by eliminating the holdings you are definitely not planning to sell. For us, that might be Apple (AAPL) and Nvidia (NVDA) as we’ve designated these “own, don’t trade” stocks. Now comes the harder part. Let’s say you dumped two obvious dogs and kept two favorites — you now have to eliminate 8 of the remaining 16 stocks in your portfolio. There’s no easy way to do it, except to look at the bull and bear cases for each name and whittle down the list. Consider what you would do with each if you didn’t own it already. Would you buy them now or avoid them in favor of a better opportunity? We don’t want the loss or gain in the stock to influence the next move. It’s all about fundamentals. You may want to consider diversifying by sector or industry as you slim down, but you can also own sector ETF to plug any gaps. Finally, if you’re considering Club names, give our ratings a check along with a review of some of our recent analyses and earnings reports . The more information you have, the better your investing decisions. Question 3: I hear Jim talk about not violating the cost basis of your stocks that you own, but what if you own a stock at a really low price and the stock just explodes higher? I get the point of taking some profits, but what if you’re wanting to take those profits and buy the same stock back after a pullback because you think the stock will continue higher? For instance if someone buys NVDA at $250 a share and sells some at $400 a share, why would it be wrong to buy those shares back if NVDA pulls back 20%, which would be $320 a share? You’re violating your cost basis of $250 a share but you’re getting a best-of-breed stock at a tremendous discount. Regards. — Keith This is exactly the type of exception to the rule of not violating one’s basis that makes perfect sense. We hate violating cost basis, but do allow ourselves more wiggle room when the purchase is a buyback of shares previously sold higher. To your point, while this does increase the basis on paper, the reality is you’ve managed to book a profit, suck money out of the market and rebuild the position at a lower level. Whenever we sell a name, we make note of the level at which we sell and use that as our basis for buying back shares up to the number we sold. Building on your example, had we sold 10 shares at $400, it’s hard to fault any buy under $400 of up to those 10 shares. Beyond those 10 shares, however, we are back to needing to pay a bit more attention to our basis. In the end, the idea of not violating one’s basis is about making sure that you get a better value with each buy. If you are rebuying shares previously sold higher, you can think more about the price at which you sold than the basis on the remaining position. Any repurchase of shares sold higher may optically impact your basis in a negative way but in reality, you managed to suck cash out of the market and subsequently rebuild the position. Of course, you should still be selective as you don’t want to give anything back if you can help it. But you are right to place less importance on the existing basis when repurchasing shares previously sold higher. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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.
CNBC Investing Club with Jim Cramer
Rob Kim | NBCUniversal
Please send your questions directly to Jim Cramer and his team of analysts at investingclubmailbag@cnbc.com. Reminder, we can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries.
Question 1: If you have a set amount of money to invest every week, where would you put it? New investor, just starting. — Sandi D.
Be the first to comment