Here's why you don't bring a trader knife to a bull gunfight — and other lessons for navigating this new market

Published Sat, Feb 4 202311:10 AM ESTUpdated Mon, Feb 6 20231:17 PM EST

We've been liberated from the bear ever since October when Treasury yields and the U.S. dollar peaked, even as the chattering classes refuse to acknowledge the bull — let alone one of the most powerful ones I've ever seen. What matters in a real bull market, though, is the company and the sector it's in, not the S & P 500 . In a bull market, you want to buy the stocks of companies that make things and do stuff at a profit — and sell at reasonable valuations as they return capital in the form of dividends or stock buybacks. Bull markets are not licenses to buy anything, as we have seen since the beginning of the year. This market is all about finding great stocks, not just merely good stocks. So, let me unpack what I see people doing wrong at this very moment, so we can learn from them and do it right. The first mistake is to bring a trader knife to a bull gunfight. These types of investors are trying to flit in and out and justify endless trading, as if they're nimbler and smarter than the rest of us. Let's take Apple (APPL). I always say own it, don't trade it. Why? Because of days like Friday. The traders were furiously trying to get out of Apple before the close on Thursday, ahead of its fourth-quarter report . They thought it was going to be terrible and wanted to sidestep it and have it go lower. Sure enough, the results were bad — except for a line noting $20 billion in service revenue and a notation that about an installed base of active devices that exceeds 2 billion. In a bear market, we get buried by the miss. In a bull market, we focus on the service revenue and the 2 billion active devices, making that the narrative.ds And then on Friday, the stock didn't open down all that much and then it started to rally and then furiously rally, still closing up 2.44%, even as the overall market closed out Friday down. What happened? Simple: if you know what kind of market you're in — bull or bear — you can predict a direction. So, the first lesson is to understand that in a bull market the buyer gets the benefit of the doubt, not the seller. Secondly, in a bull market you have to fight the temptation to trade down. You want to trade up. I am interested in what is going down by mistake, not up because of a short squeeze. Here are two examples. The first is Caterpillar (CAT). I happen to know the heads of two of the biggest engineering and construction companies in this country — the ones that will be the general contractors for the U.S. government when they begin to pass out $1 trillion in infrastructure spend . What do they tell me is going to happen when they get that money? Simple: They are going to have to buy or rent American earth moving equipment. That means Caterpillar or Deere & Co. (DE). I like Caterpillar more than Deere because I am not enamored of agricultural risk when the Federal Reserve is trying to tamp down inflation. That's why I salivate when CAT goes down like it has been. The other example is Eli Lilly (LLY). The stock ran up. We kept it at a 2 rating because it was running on the back of Mounjaro — its type-2 diabetes drug that has huge prospects as a miracle weight loss medication once approved. But investors got spooked this past week when Mounjaro sales came in weaker than expected, sending the stock tumbling . The idea that someone could sell the stock because they were disappointed is as stupid as when many sold Merck & Co. (MRK) because they didn't believe its anti-cholesterol drug could be that effective. So, again, know that in a bull market the sellers better have a lot of conviction or else they will lose the opportunity to make money. However, this whole method works only if the company has a fantastic balance sheet with a good dividend history and management you can trust. Trade up, not down, when you buy into weakness. After knowing that you are in a bull market and knowing that you still need to buy quality, you have to add a third point. A stock that gains 10 points in a straight line is not a stock that you need to sell. In a bull market, the temptation that must be resisted is to sell on a good gain because you may be sitting on a gold mine and just scratching the surface. There could be much more ahead than you ever thought. The toughest thing in a bull market is to hang on and not sell quality merchandise, even if it has made a big move. It will be all too tempting to trade too much, to skedaddle from a winner, and to buy heavily shorted junk. It's our job to keep you from doing so by helping you to navigate this bull market that started in October 2022 — a bull market that almost no one seems to recognize except us. (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.

The Charging Bull near Wall Street is pictured in New York.

Carlo Allegri | Reuters