CNBC's Jim Cramer has bought and sold tons of shares of stock, both for his old hedge fund and for CNBC's Charitable Trust, and said investors should never buy all at once.
Instead of buying 50,000 shares of a good company at once, he recommended buying in smaller increments, say 5,000 or even 500, over time. With that strategy, you're better protected if the price goes lower or if something should go wrong at the company. Cramer said it's "plain hubris" to put a large chunk of your net worth into any stock all at once, especially because Wall Street, unlike regular merchants, does not have a return policy.
"When you buy all at once, you're basically declaring that the stock absolutely won't go any lower," Cramer said. "I mean, come on, that's crazy. Nobody has that kind of insight all the time. Buying gradually, in stages, is all about recognizing that our judgment is fallible."
Cramer also explained the difference between damaged stocks and damaged companies. The former may be down for no good reason, or a reason that has nothing to do with the underlying company, such as exchange-traded funds, problems overseas or events in Washington. However, the latter likely has to do with the fundamentals of the company.
For example, Zoom, a Wall Street favorite during the Covid-19 pandemic, plunged from a $588 high in October 2020 to the mid-seventies less than two years later. Zoom's growth opportunity vanished once vaccines became readily available, Cramer said, and the company struggled to pivot and progress even with all the money it had made. Soon, its huge competitors — Microsoft, Google parent Alphabet and Cisco — began to catch up, and investors who thought Zoom's cheap stock was a bargain got burned.
But Cramer said the distinction between a damaged stock and a damaged company can be difficult to discern, and at the end of the day, "you never really know."
"Never buy a position all at once because what you think is merely a damaged stock might turn out to be a damaged company. If you take your time, you're much less likely to end up with a large quantity of broken merchandise," he said.
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