When making portfolio decisions, CNBC's Jim Cramer told investors to never pin their hopes on the outcome of any one company's litigation.
Cramer said he made this mistake by staying in Johnson & Johnson for the CNBC Investing Club's charitable trust for too long after the company was hit with lawsuits alleging its talc products cause cancer.
"I like betting on businesses, not lawsuits and the lawyers who game them," he said. "So if you ever find yourself betting on a brutal set of lawsuits, don't try to fight it just because you love the company like I did with J&J for so long. Believe me, there are better and easier ways to try to make some money."
Cramer said he misjudged the situation, feeling that the company may not have known about the issue. In retrospect, he said he was too sanguine about Johnson & Johnson's ability to use a bankruptcy claim to reach a settlement that would protect its shareholders from too many losses.
But a judge ruled against the company's bankruptcy claim, saying it was not in true financial distress. Cramer knew then that more cases with hard-to-predict verdicts would continue to plague Johnson & Johnson, potentially causing billions in losses.
It didn't matter that the company's balance sheets were solid. Its pending litigation was too risky, Cramer said.
"In the end, you simply don't want to have a position that's precarious because of lawsuits, not because of the fundamentals," he said. "This business is hard enough without playing litigation roulette via our jackpot justice system that we have in this country."
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