Jim Cramer on How to Invest When the Market Panics

TL;DR

Trust the market and buy quality stocks when fear drives a selloff, rather than letting one stock like Palantir control the whole tape. Cramer bought Shopify and McDonald's during a down day because homework showed their fundamentals were strong. Big AI names like Meta, Google, and Nvidia trade below or near the market multiple, so they are not overpriced momentum plays.

Transcript

My mission is simple, to make you money. I'm here to level the playing field for all investors. There's always a bull market somewhere, and I promise to help you find it. Bad money starts now. Hey, I'm Kramer. Welcome to Mad Money. Welcome to Harvard Business School. Other people make friends. I'm just trying to make you a little bit of money. My j... Read More

Key Insights

• Discipline growth investing is Cramer's core method, practiced unemotionally, consistently, and with persistence, because you can make money in any market if you avoid taking on too much risk while owning long-term winners.
• The power of compounding rewards investors who hitch their star to tremendous companies for the long term, rather than those celebrated for correctly betting against great companies for just a single day.
• Trusting the market means refusing to believe one stock controls the entire tape; when Palantir fell after a terrific quarter, fear spread to unrelated names, creating buying opportunities for disciplined investors.
• Shopify was a buy, not a sell, during the selloff because its cash flow, sales, earnings, and outlook were strong, and president Harley Finkelstein expected a very strong holiday season despite negative press.
• McDonald's finished up big despite a revenue and earnings miss because it is cutting prices dramatically at scale, unlike rivals who raised prices too high for cash-strapped consumers and are now missing quarters.
• Mega-cap tech stocks are not momentum plays: Meta trades at 26 times earnings, Google at 18, and Nvidia around 24 times future projections, all below or near the market multiple with strong balance sheets.
• The real momentum risk lies in 'Sherwood Forest' Robin Hood plays, quantum stocks, nuclear plays, derivative data center plays, and nonsense ETFs built to play momentum, which Cramer says have to go away.
• In healthcare M&A, Cramer sees Amgen needing to broaden its portfolio, calls his Bristol position a possible mistake because Camzyos is not selling well, and says it comes down to Eli Lilly and everybody else.

Questions & Answers

Q: How should you invest on a day when the market gets hammered?

Trust the market and take counsel of your opportunities rather than your fears. Find a stock you like, ideally one that reported an amazing quarter but got obliterated because of another stock's failure to rally. Do your homework on the company's cash flow, sales, earnings, and outlook. Start buying gradually, not all at once, which Cramer says is for fools. A down day like this can be the chance to finally start wading in.

Q: Why did Jim Cramer say to buy Shopify during the selloff?

Cramer had done the homework and knew Shopify's fundamentals were sound. Its stock traded down hard with the futures, right in line with Palantir, as if something were wrong with the company, but its cash flow, sales, earnings, and outlook were strong. President Harley Finkelstein expected a very strong holiday season despite negative press. Cramer recalled the exact same objections six months earlier when the stock was at 100 dollars, and it had risen 60 since then, calling the bearish rap bogus both times.

Q: Why did McDonald's stock rise despite missing on revenue and earnings?

McDonald's finished up big even after a big miss because of how it responds to challenges. Unlike chains that lack scale and strength, McDonald's is lowering prices dramatically, and it is working. Other restaurants keep hoping customers get wealthier and come back, refusing to admit prices are too high for cash-strapped consumers. McDonald's understands what customers are going through amid too much inflation, offering deals like a five-dollar sausage, egg, and cheese McMuffin with coffee, which points to a strong next quarter.

Q: What is discipline growth investing according to Cramer?

Discipline growth investing is Cramer's approach to making money in any market while avoiding too much risk. It means practicing your strategy unemotionally, consistently, endlessly, and implacably with persistence. He learned these values at Harvard College and law school. The core idea is that you can profit in any market environment provided you own and hitch your star to long-term winning companies and let the power of compounding work, rather than trading on fear or betting against tremendous companies for short-term gains.

Q: Are big AI and semiconductor stocks just overvalued momentum plays?

Cramer argues they are not. Meta trades at 26 times earnings, Google at 18 times, and Nvidia around 24 times based on future projections, all below the market multiple. Even Amazon's multiple has come down a lot, and he expects Apple to have a great quarter. He views these companies as very big conglomerates with different businesses firing on all cylinders, calling them nation states with good balance sheets rather than momentum plays.

Q: What stocks does Cramer consider dangerous momentum plays?

Cramer worries about what he calls Sherwood Forest, the Robin Hood plays that get bought over and over again. He specifically flags quantum plays, nuclear plays, and derivative data center plays as the problem, along with all the nonsense ETFs put together to play momentum. He says those are what has to go away and what people are not talking about. He would rather bet on DraftKings with a 14-leg parlay than own those speculative momentum names.

Q: What is Cramer's view on healthcare M&A and top picks?

With M&A markets heating up, Cramer thinks Amgen needs to do something to broaden its portfolio and tell a better story, though it had a really good quarter. He admits his Charitable Trust's Bristol position looks like a mistake because he believed in Camzyos, a pretty good product that is not selling well, with 104 million in scripts last quarter. He says there are very few biotechs he wants to buy because they are so picked over, concluding that in the end there is Eli Lilly and there is everybody else.

Q: Why does Cramer say you should not let one stock control the whole market?

Cramer warns that when a bellwether like Palantir falls after a terrific quarter, it can seize the mental wheel and drive investors into a swarm of bears, making it feel like the market is at a top with the whole industry screaming to get out now. He says when you pit trust the market against get out now, the fear factor always wins. But if you do not believe one stock controls the entire tape and refuse to take counsel of your fears, a fear-driven down day becomes a buying opportunity.

Summary & Key Takeaways

• Cramer broadcasts from Harvard Business School to interview GE Aerospace CEO Larry Culp, the architect of General Electric's resurrection. On a rebound day, the Dow gained 223 points, the S&P jumped 0.37%, and the NASDAQ held 0.65%, a classic bounce after a disappointing prior session.

• The central lesson is to trust the market and not take counsel of your fears. When Palantir fell after a terrific quarter, fear enveloped the tape and money managers called it the next big short, but disciplined investors should find quality stocks unfairly dragged down and start buying gradually.

• Cramer cites Shopify and McDonald's as stocks he told viewers to buy that day. Shopify's fundamentals were strong with a strong holiday season expected, and McDonald's rose despite a miss because it is dramatically cutting prices, understanding cash-strapped consumers facing too much inflation.