Jim Cramer: Be Wary of the Power of Lazy Thinking

We’ve got a serious case of lazy thinking going on this market and it’s beginning to get upsetting.

What’s lazy thinking? It’s the inability to see that your negativity is getting in the way of a good story. I have so many examples of this that I want to demonstrate to you what happens if you just decide to tough out a good story and not be so circumspect, not being a believer in what you own, to the detriment of your entire net worth upside.

Now I feel compelled to say that you don’t need to fret too much as long as the majority of your portfolio is in index funds. If you let that alone, don’t touch it until you get older – I mean 65 or older – then you don’t need to pay too much attention to how you handle individual stocks. They are your Mad Money.

But it’s my job to try to teach you what are the best ways to make a lot of money without a lot of risk and often that means liking an idea more than just for a trade.

Let me give you a case in point. You know my charitable trust which you can follow along by joining the Action Alerts PLUS club.

Every day I go over the portfolio to see what, if anything, needs to be changed. What’s reached my price target, what feels a little heavy, what’s become precarious.

But I also am a victim of lazy thinking. What’s that look like? Okay, when I thought we would have an infrastructure bill in a much shorter period of time, we bought Nucor (NUE) . It was a considered decision. Even though we had bought Nucor at a much lower level some time ago and traded it successfully, I thought that with prices for steel rising and the CEO Leon Topalian so bullish on Mad Money, it just seemed like a great idea.

But I got the timing wrong. We bought the stock right around here, at $107, as I saw the pullback from $111 as a great opportunity. We then watched, in horror, as the stock fell to $89 although, fortunately, we bought it all the way down. Not long after, the company reported a staggeringly terrific quarter, just fantastic and estimates went up gigantically. How could they not: every grade of steel went up and that’s before an infrastructure bill passes.

Today it hit $107, where our first buy was. I do videos each morning with my research director, Jeff Marks, and we talked about Nucor. My instincts? Time to sell some as we got back to even on the first buy. We talked about it and I realized that the only reason I wanted to sell some was because it was where I bought it and I was back to even on that buy. I swear I would have done it if we didn’t talk about it. That would have been the power of lazy thinking because in the vast scheme of things, with the stock selling at just six times earnings and the possibility of an infrastructure bill now almost a sure thing, the ONLY reason I would be selling is because it got back to where I started buying it.

What the heck does that have to do with whether Nucor is going to do well or not? What is the point of that sale? You have to ask yourself, before you sell something, why are you really doing it? I don’t care if Nucor slips here, there is a one trillion dollar infrastructure law that will ignite steel sales for years to come. And all I cared about was that I was back to even.

Lazy thinking plagues much of our investing. This morning I listened to several people I genuinely respect talk about how wrong the Fed is to keep money so easy after Friday’s employment report. One said the Fed is obviously wrong. Another criticized Jay Powell for being oblivious to one of the largest job gains ever.

The chatter worried me. I had been out Friday and I thought the market should have been crushed because the economy was too hot and the Fed would have to take action sooner rather than later. The hedge fund titan and the chief strategist were so effective in their jeremiads that I looked at what the trust owned that we were up a lot on and settled on selling some Costco (COST) . If rates are going to go up because the economy is red hot than this high growth retailer’s stock, one of the most expensive in the market, would have to fall.

Again, though, that’s the power of lazy thinking. First, who the heck were these people to make me do anything. I think the Fed is doing a fine job under extraordinary circumstances. We are in some whacky world where the state of Florida was trying to keep Norwegian Cruise Line (NCLH) from sailing because the company wanted to be sure that everyone was vaccinated so getting COVID would be extremely unlikely.

A federal judge ruled this weekend, however, that unvaccinated are NOT a protected class, that there were no privacy rules violated and, in my interpretation of the decision, there’s no real state interest to keep the pandemic going. Of course, Florida is appealing the right to keep the pandemic flourishing by not allowing companies to restrict the potential super spreaders from giving COVID-19 to everyone. In that world what choice does Powell have? Like many of us I think he believed that there would be a national imperative to wipe out the pandemic, not prolong it, because of medical privacy. How can he not be worried that things will get worse and the economy turn down and he would have to cut rates after just raising them?

More important, why was I momentarily willing to sell the stock of Costco? Was anything wrong with the company? Did it miss its numbers? Hardly. I was simply reacting to the scare-mongering of people I thought were smarter than I am. That’s the kind of thinking that’s devoid of rigor. Fortunately I had second thoughts and didn’t sacrifice my Costco stock on the altar Fed Fright.

Final bout of lazy thinking?

The trust owns Linde (LIN) , the specialty chemical company that’s growing by leaps and bounds. It had a terrific quarter reported last week. We have had the company on several times. It is the provider of the raw hydrogen needed to make pollution free green hydrogen.

This morning Air Products (APD) , a competitor, missed its earnings pretty badly. Again, my lazy thinking? Sell the Linde before it goes back down when people think “hmm I should sell my Linde because others are going to sell it off of Air Products.”

That kind of logic is a sucker’s game. What does it mean to beat other sellers to the punch. How is that reasonable? How could that be smart? And yet so many do it.

We held on to our Linde.

Selling a stock should be as big a decision as buying one. Consider many inputs. But don’t consider emotional ones based on getting back to even or worries instigated by talking heads or concerns about trying to outrun sellers who know less than you about the stock to begin with.

We can’t ban lazy thinking, but we can identify and stamp it out one stupid idea at a time.

(Nucor, Costco and Linde are holdings in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

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William Murphy

William Murphy

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