Take the other side of the trade during times of turmoil


A trader works on the floor of the New York Stock Exchange (NYSE) at the start of trading Monday after the sharp drop in global stocks on Friday over fears of the new omicron Covid variant on December 20, 2021 in New York City.

Spencer Platt | Getty Images

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Shares rebounded sharply on Tuesday and ended a three-day omicron-led decline as lockdown potential in the United States declined, benefiting from strong corporate earnings from Micron (UM) (a supplier of basic building blocks in semiconductor technologies) and Nike (NKE) spread to other stocks in their sectors, and the market entered a period of high seasonality.

Big market reversals like what happened today are the reason we constantly preach the importance of staying the course. When the market has this “sell everything” mentality, you may want to panic, but you absolutely can’t because panic isn’t a strategy. Instead, try to take the other side of the trade during times of trouble.

This is what we do. We tap into our cash flow (because we are saving money for a market-wide sale) and opportunistically looking for things to buy. Our favorite situation is when the inventory on our shopping list goes down because people are trying to get rid of everything.

Take for example some of our purchases since last week. Do Boeing (BA) deserve to see almost all of its gains from China’s 737 MAX airworthiness directive disappear? Or why do people keep selling Chevron (CVX) and its big dividend despite its ability to generate billions of excess cash at even lower oil prices?

Scaling in positions

Not all of our purchases will go as planned. We are far from perfect. But we are long term investors, not traders, and we almost always add to our positions using the concept of scale, which means we buy and then wait for a lower level before adding the same stock again. Scales and levels help during volatile times like these.

As we head into the evening, we’re not even going to start trying to predict what the market may do tomorrow, because it’s a sucker game. But one thing we can say for sure is that if the market is hit tomorrow, or in a few days, as it has been on Monday or countless times in recent weeks, our opportunistic approach to finding stocks to buy will be the same.

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As a CNBC Investing Club Subscriber with Jim Cramer, you will receive a Trade Alert before Jim completes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling any stock in his charitable trust portfolio. If Jim has mentioned a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for investment disclaimer.

(Jim Cramer’s charitable trust is long BA, CLC.)


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