Cramer: Are You Making Too Much Money?
If you're making too much money, you may be doing something dangerous, Jim Cramer said Friday.
And a rally provides the perfect opportunity to determine if that's the case - that is, a rally provides an opportunity to see if your portfolio is carrying too much risk.
It may sound hard to believe, but generating returns that dramatically outperform the averages can be a problem.
"It’s a red flag, a warning sign, that you could be exposed to some serious downside once the rally is over," Cramer said.
A big jump in your portfolio could also mean you’re not diversified, which, Jim Cramer said, is never good.
For example, if a rally was led by the oil stocks and your holdings are heavy on Exxon Mobil, Chevron, BP and others in the group, then you’ll be a big winner for the day. “But those gains may not last,” Cramer said.
"If you're not diversified, you're essentially keeping all of your eggs in one basket," Cramer said. And you know the moral of that story.
Just ask anyone who was heavy on tech during the dot-com bubble, ignoring what they thought were other "underperforming" sectors.
"Well, they may have been underperforming in relation to sky-high tech stocks, but investors who also owned, say, banks, food and drug names and dividend-paying companies certainly weathered the ensuing collapse better than those who were all in on the one hot group," said the Mad Money host.
What's the bottom line?
Making a lot of money may feel fantastic but it can have a downside. If your holdings are outperforming the market, it may be a sign that you're not well diversified.
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