Making investment decisions on speculation or whimsical seasonal trends is not how we manage the CNBC Investing Club portfolio. Jim Cramer ran a hedge fund where holding time could be as fast as minutes – not weeks, months or years as we aim at the Club. In last Sunday’s column, Jim offered some thoughts on the frothy state of the market and why we don’t own names like Tesla or Palantir in the portfolio. “I don’t see any reason to buy Tesla or Palantir, other than the fact that I think they’re going higher,” he said. “That’s a good defensive reason to buy. But it’s not a good portfolio management reason to buy. The club invests in stocks based on fundamentals, not speculation.” That’s not to say that Tesla and Palantir aren’t good companies — if anything, they’re great. Nor is it a criticism of their management skills — both companies are run by what many on Wall Street would consider genius-level founders in Elon Musk and Alex Karp. Jim’s reasoning is, however, about valuation. None of these companies are anything close to “cheap” – and if you think they’re sufficiently valued, then you have to believe their growth will continue, at high speed, for the foreseeable future. That may be so, but it also means that in order to own them, you have to be willing to speculate a good deal—to believe in what may be far beyond what we can reasonably expect. let’s see in the short term, not what the metrics predict now or in the short term. While every investor must consider their risk appetite for taking big swings, Jim, Jeff Marks, director or portfolio analysis, and I manage a 30-somethings Charitable Stock Trust. It’s the portfolio Jim created decades ago when he left Wall Street to keep skin in the conflict-free game and teach people how to invest with real money and real trades. Our self-created mandate for the Trust, which is the portfolio we use at the Club, is to base investment decisions on fundamentals, which severely limits our ability to speculate on names like Tesla or Palantir. This is true not only for stock picking, but also when it comes to navigating the various seasonal market patterns, including year-end and new year seasonal trends. Every December, the Santa Claus rally, which measures the last five trading days of a year and the first two trading days of the following year, gets a lot of attention. We say “Santa Claus Rally” because this stretch tends to be strong. This then feeds into the idea of how January goes, the year goes, or the January effect as it is known. Investors who pay attention to seasonality may have historical data to “support” their case. The problem is “the same way Tesla and Palantir bids for no other reason they could take off tomorrow” those who point out these monthly patterns can’t tell you why they’re happening, only that they tend to happen in the past . There is no real look at what happened in each of those years, only that it did or didn’t happen. By the way, there was no Santa rally this time. The S&P 500 is nearly flat in the first five trading days of 2025 with most of January to boot. So the jury is still out on whether January’s effect will be seen as positive for the rest of the year or negative. To successfully play the seasonality or speculation game, you need to trade timing – picking perfect times to sell and perfect times to buy – which Jim has repeatedly said is impossible to do consistently enough to t it was worth it. Market timing is primarily based on technical patterns and headlines – mostly day trading. If you want to go that route, keep in mind that you’re up against some of the wealthiest, most sophisticated, and well-connected people on Wall Street (or anywhere else for that matter)—not to mention high-frequency algorithmic trading. . Unlike the practice of long-term investing—the discipline that rules the Club, where we analyze companies and management teams—day traders ride momentum, analyze chart patterns, or play seasonal market patterns, which means betting on your ability to navigate in real-time markets 24/7, sell stocks to the biggest fool and be faster than everyone else, with nothing more to go on than you know it’s happened before first. “Analysis” becomes even more akin to astrology when we begin to use one seasonal trend to predict another. Using the above example, some people will argue that they can tell you what January will look like based on the Santa Claus rally – and that, in turn, will determine the year. So how should the way the market trades in a seven-session period when most people are on vacation tell you how to position yourself for the next 12 months? That’s not too rigorous if you ask us. What does the model predict if the S&P 500 fell 0.53% during the entire period of the recent Santa Claus rally, but jumped 1.26% on the last day – Friday, January 3? After Monday’s modest gain, Tuesday’s decline and Wednesday’s slight bounce, the S&P 500 was a bit in the green year to date. But with the market closed Thursday for a national day of mourning to honor former President Jimmy Carter and Friday’s decline on stronger jobs data and a rise in bond yields, how do you predict the year ? January has yet to have a full five consecutive days of stock trading. Performance .SPX mal 2024-12-24 S & P 500 Since December 24 Is there anything in that data that should tell us how to position our portfolio? How much weight should we give this versus the fact that Donald Trump’s presidential inauguration is just over a week away on January 20, or the idea that when Trump re-enters the White House, his GOP will control both the House and and the Senate. ? How does the price action of a two-week period compare to what we just saw and heard from Jensen Huang, the CEO of the Nvidia club name, at CES earlier this week? If you ask us, it puts a lot of weight on the fundamental drivers of the economy, the stock market and individual companies, and little or nothing when it comes to reading seasonal patterns as if they were stars in the sky. The same can be said for Tesla and Palantir. What do you do now that foam is leaving the market? Palantir, for example, has seen a nasty three-session losing streak this week after last Friday’s jump of more than 6%. Palantir was up 340% in 2024. You were playing with momentum and the momentum is gone, hopefully you came out with a profit. You can, of course, ask to double up, but then why here? What makes Palantir more attractive at $70 a share than it was at $80. Sure, it’s $10 cheaper, but with analysts estimating earnings of 47 cents a share in 2025, it’s still trading at nearly 150 times earnings, not exactly a bargain. Tesla isn’t much cheaper at around 120 times 2025 earnings estimates. It is declining for 2025 after increasing by more than 60%. Most of those gains came after Trump, who Musk endorsed, won the November presidential election. This is the problem when you trade in anything other than fundamentals. What do you do when the stock suddenly doesn’t go up for a day or several days? What do you do when the seasonal pattern isn’t quite clear or just doesn’t pan out? If that’s what you were trading for, you should probably bail, or worse you’ll end up stuck like a deer in the headlights. However, by focusing on the fundamentals, you have something clear to determine that tells you if the price action makes sense, or if it is something to take advantage of. In the end, while we recognize that there are seasonal patterns in the market — just as we recognize that Tesla and Palantir have been “up” stocks and that “up” stocks will always be there, we must also be honest that the of sweeping adjustments to our exposure based on these trends and momentum is not the game we are playing. With that in mind, our view is that investors will always be better served by studying the fundamentals of companies to determine whether a business is being undervalued, fairly valued, or overvalued, in the stock market – and more after, acting accordingly. (Jim Cramer’s Charitable Trust is long NVDA. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR STATEMENT. NO OBLIGATION OR FIDUCIARY DUTIES EXIST, OR ARE CREATED BY VIRTUE OF YOUR RECEIVING ANY INFORMATION DIRECTED IN CONNECTION WITH THE INVESTOR CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
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Making investment decisions on speculation or whimsical seasonal trends is not how we manage the CNBC Investing Club portfolio. Jim Cramer ran a hedge fund where holding time could be as fast as minutes – not weeks, months or years as we aim at the Club.
