Infomarine On-Line Maritime News - Jim Cramer reveals 5 'boneheaded mistakes' he's made over decades of investing

When COVID-19 hit China, Estée Lauder’s biggest market, Cramer said he assumed management would adapt and the company would bounce back as it had always done. It didn’t. Management had no response to falling custom or the Chinese government’s subsequent crackdown on luxury goods, and it took the stock plunging from $370 to somewhere in the region of $90 for Cramer to wake up and smell the coffee.

Overconfidence and failing to respond when fundamentals shift are common errors. In a survey conducted by deVere Group, 38% of the high-net-worth respondents claimed their biggest mistake was banking on history repeating itself (4).

How can this be avoided? A good starting point is recognizing that brand strength isn’t always enough to survive setbacks and that a lack of response and the downplaying of major threats should be treated as red flags, even from executives with historically fantastic track records.

3. Panic selling

Another classic mistake is panicking at the first sign of danger.

In 2023, Cramer bought Oracle (NYSE:ORCL), believing its artificial intelligence (AI) prospects were being undervalued by investors. Everything was going smoothly, he said, then other parts of the business started disappointing, analysts became bearish and an angry Cramer lost sight of why he bought the stock in the first place and dumped it — just weeks before it rebounded off encouraging AI-related developments.

As previously mentioned, major developments warrant reevaluating an investment. In this case, there was no evidence to suggest the long-term drivers that convinced Cramer to buy were under threat.

Cramer let a fear of loss cloud his long-term strategy. To prevent this from happening, it can help to impose a cool-off period before pulling the trigger. Remind yourself why you invested in the first place and do your own research rather than be driven by external noise.

4. Blindly following advice

Billionaire hedge fund managers are renowned for voicing their opinions on how to invest money, and people often take the bait because they work for prestigious companies — and they’re loaded.

Don’t make this mistake. As Cramer said he learned early in his career, blindly following advice is foolish, especially from investors whose main priority is making themselves and their clients money.

The next time a so-called expert offers advice, be skeptical. Consider what they could gain from their comments and check out their track record. Have their predictions or stock tips been on point, or is their credibility questionable?

Considering all angles is important. But it’s equally crucial not to assume people with more money and experience always make the right calls and have your best interests at heart.

5. Basing decisions on just one indicator

Cramer, like many other investors, was taught that bond yields reveal the future direction of the economy. He was convinced this technique was flawless, then he said he found out the hard way that the bond market’s forecasts can fail to materialize.

The takeaway from this lesson is to not base decisions on what just one person or indicator is saying. The next time expected returns are higher for short-term bonds than long-term ones, a classic recession signal, check to see if other indicators, such as purchase manager indexes, unemployment figures, the consumer confidence index and cyclical company earnings reports, validate that message.

And even if they do, don’t automatically interpret that as a sign to dump stocks. Recessions don’t last forever, and few publicly traded companies go bust when the economy is in the doldrums.