Jim Cramer's Guide to Investing: Scrutinize Your Wins
To CNBC's Jim Cramer, investors shouldn't just bask in their gains when their stocks start to do well. It's important to understand why a certain company soared, and wins aren't always for the reasons you think they are, he said.
"It's very helpful to understand why a stock you like is going up or down," he said. "When you have a win, don't lazily assume that you simply got it right — think about what it means if you were merely in the right place at the right time and please proceed with caution."
Sometimes a company will perform well for reasons not related to the underlying business itself, but because of other factors like a general economic rotation into a certain sector, Cramer said.
Real-Life Example: Residential Solar Stocks
For example, Cramer discussed residential solar stocks that surged in 2021 and 2022. Investors might have assumed those companies saw success because of the popularity of renewable energy and government subsidies, he said. But by 2023, those stocks collapsed, and Cramer said it was not due to decreased popularity in the companies. Instead, many of those businesses relied on financing, so they were crushed when investors realized it was likely long-term interest rates would stay elevated, he said.
"Maybe you're right — people are right about stocks every day," he said. "But maybe it's just a coincidence, darn it, and you should ring the register before that coincidence goes away."
Key Takeaways
- Understand why your stocks are performing well.
- Don't assume success is always because you made the right choice.
- Factors like economic shifts can influence stock performance.
- Proceed with caution and consider ringing the register if it's just a coincidence.
By keeping these insights in mind, investors can navigate the stock market more effectively and avoid pitfalls based on incorrect assumptions.
