Here’s our Club Mailbag email investingclubmailbag@cnbc.com — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week’s question: After buying a stock, how long should I wait before determining if I should keep it and what are the criteria? Should it be, for example, 6 months and beating the S & P 500 by 10% or something else? I’m assuming there are no major announcements for the stock nor wild market swings. Thank you. -Gary R. Your question gets to the heart of our belief that investing is not about “buy and hold,” but rather “buy and homework.” Risk management is crucial, and some investors may wish to put certain guardrails in place to protect themselves — say, a max loss or level of underperformance they’re willing to tolerate for a given position. Utilizing a stop-loss order is one way to put in place that downside limit, though the Club doesn’t use them for reasons we explained in a 2023 mailbag . We tend not to be that prescriptive in saying something like, “If this stock falls 10% in our first week owning it, we will cut bait.” As fundamental investors, the reasons why this hypothetical stock fell that much would inform our response. The key question, as always, is what does it mean for earnings? The same is true for a stock that mounts a major move higher shortly after taking a stake — as we saw last year with GE Vernova , which we initiated in May. Our thesis played out beautifully, and a little over two months later, we were sitting on a more than 30% gain. While we trimmed a little to avoid being greedy, our rationale for owning the stock was firmly intact, so we didn’t feel the need to ring the register on the entire position. We still felt earnings were going higher because its natural gas turbines are a hot commodity during the AI buildout. We hold fast to the idea that price is what you pay, and value is what you get. And, as Jim Cramer preaches, giving up on value is a sin. When that investing principle has been violated, it has come back to bite us time and again. The best way to adhere to that principle is to base buy and sell decisions on a study of the company’s fundamentals, rather than simply on how a stock is performing over a period of weeks or months. Now, there are some caveats to always consider when looking for value. Chief among them is the concept of “value traps.” These happen when you see value in a stock, but the rest of the market never ends up caring or agreeing with you. You may not lose money in value traps, but you don’t make a whole lot, either. This results in an opportunity cost — the cost of missing out on other opportunities while you sit in the trap. There are no hard and fast rules to avoid value traps. But one way to minimize the likelihood of getting stuck in one is to always compare investment opportunities against one another. In that way, you aren’t just asking yourself if there is value in a stock; you’re also asking if there is potentially more value elsewhere. Analyzing stocks can never be done in a vacuum, and all opportunities are relative. The goal of any investor is to identify undervalued opportunities and get in before everyone else uncovers or appreciates that value. That is difficult. But we argue it’s much easier to study stocks to estimate fair value — and then compare your analysis to the market price to determine whether the stock is undervalued, priced right, or too expensive — than it is to study the market and determine when exactly everyone else will come to appreciate that value. Two quotes that come to mind from arguably the best investing duo in history are: “I don’t know when to buy stocks, but I know whether to buy stocks,” Warren Buffet told CNBC in 2018 . “The big money is not in the buying or selling, but in the waiting,” the late Charlie Munger once said. The point is, sometimes you are going to sit in a stock that underperforms the S & P 500 for an extended period of time. That can be frustrating and really test your patience — and sometimes it will cause you to miss out on other opportunities — but by basing your decisions on the fundamentals, you give yourself the best chance of being in the right position when the move comes. Take our position in DuPont , for example. We took a position in the name in August 2023 , believing the market was significantly undervaluing all of its parts. If the market took too long to realize that, we wrote at the time, then-CEO Ed Breen would do something about it. Sure enough, by May 2024, DuPont announced a breakup plan to divide the company into separately run, more-focused firms. While that looks like a great call now, there was a good period of time in which the stock did nothing. That was beyond frustrating, but keeping our focus on the soon-to-be-unlocked value trapped in the conglomerate kept us in the name. As a result, we were in the perfect position to realize the material gain that has been realized since the spinoff of Qnity Electronics in November, upside that more than rewarded us for our patience. So, in the end, our view is that long-term investors are best served by basing decisions on the fundamental homework — we advocate for one hour per week, per stock — rather than directly comparing its movement to the S & P 500 over the very short term. If the reasons you invested in a stock in the first place are still present, a stretch of underperformance is not by itself a reason to dump it. And similarly, just because it’s beating the S & P 500 doesn’t mean its best days are behind it and needs to go. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
