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Lightning will never 'strike' an index fund like it did Biogen on Tuesday, Jim Cramer says

Key Points
  • CNBC's Jim Cramer makes the case for owning individual stocks alongside index funds "because lightning's never gonna strike that index fund of yours [the way] it struck Biogen" in Tuesday's session.
  • "This [new Biogen drug] could be a game changer for anyone with Alzheimer's. If this thing works, and the side effects are minimal, it could be easily ... the biggest drug in history, a blockbuster to end all blockbusters," the "Mad Money" host says.
  • Cramer says he can't "blame anyone who lacks the time or the inclination to put in the homework" necessary to own individual stocks," but if you do, it's worth trying to beat the major averages.
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Jim Cramer says lightning will never strike your index fund like it did Biogen

CNBC's Jim Cramer on Tuesday doubled down on his doctrine that investors should go beyond just owning index funds and also buy individual stocks.

The "Mad Money" host, who preaches that viewers devote at least their first $10,000 to low-cost index or exchange-traded funds, said, "If you want to hit it big, well, it's also good to try to pick some individual stocks alongside of those index funds" that can deliver big gains to shareholders.

"I bring this up because lightning's never going to strike that index fund of yours [the way] it struck Biogen," said Cramer.

Biogen shares popped more than 26% during the trading day after news broke that the drugmaker would resume seeking FDA approval for an Alzheimer's treatment that it canceled earlier this year. Cramer noted that several pharmaceutical companies have sought to develop a breakthrough medicine for a disease that affects 5 million people in the U.S.

"This could be a game changer for anyone with Alzheimer's. If this thing works, and the side effects are minimal, it could be easily ... the biggest drug in history, a blockbuster to end all blockbusters," Cramer said. "No wonder Biogen's stock caught fire."

In comparison, the three major U.S. stock indexes all slipped in Tuesday's session. The S&P 500 slid less than 11 points, or 0.36%. The largest single-day percentage gain that the large-cap index managed to post was nearly 5% last December, according to FactSet. Year to date, however, Biogen is down more than 6% while the S&P 500 is up almost 22%.

Index fund investing was pioneered by the late legendary investor Jack Bogle as a way for individual investors to contend with the Wall Street professionals. The idea is to own a bucket of stocks rather than trying to pick equities that may or may not outperform the market.

Cramer still recommends owning an index fund such as the S&P 500 to get exposure to the stock market, but suggests that investors use their own "mad money" — or discretionary money outside of the initial $10,000 investment — to build a diversified portfolio that includes stock in quality individual companies. Before putting money in the market at all, the host insists each investor start a retirement portfolio such as a 401(k) or an individual retirement account.

"I don't blame anyone who lacks the time or the inclination to put in the homework that's necessary if you're going to own individual stocks," Cramer said.

He is convinced Biogen still has more room to run because it is a "very profitable company," he said. The stock is more than 50 points off its March closing high, after which the company ended two late-stage trials of the aducanumab Alzheimer's drug and shares sold. The stock bottomed under $217 later that month.

The host also recommended Centene, which reported an earnings beat on Tuesday, and Bristol-Myers Squibb as two other individual health-care companies worth owning. Shares in those companies rose more than 6% and 2%, respectively, on Tuesday.

"If you do have the time, if you're willing to do the work, why not try to beat the averages with a Biogen or a Centene or a Bristol-Myers?"

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Lightning will never 'strike' an index fund like it did Biogen, Jim Cramer says

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