In order to help investors become better at navigating the stock market, CNBC’s Jim Cramer revealed some of the biggest mistakes he has made in over 30 years of investing.
“Frankly, there are so many mistakes here that it might take a bit to explain them all,” the “Mad Money” host said.
He learned that when it comes to investing in commodity stocks, investors must know that it doesn’t matter which ones they pick — like going for a better balance sheet or higher growth — if the underlying commodity is hit. If that happens, they will all go lower.
Cramer thought he could avoid getting hurt by taking on a high-growth, deep-value strategy, by only buying the highest quality companies for his charitable trust. He bought EOG Resources and Marathon Oil, and was wrong on both accounts.
Though EOG had the best properties, no one cared. Oil stocks all traded together, and almost every company wasn’t able to cut spending fast enough to beat the declining price of crude.
“Don’t think you can outrun a commodity grim reaper, even with a derivative situation like a master limited partnership,” Cramer said.
Cramer was also burned on Pfizer’s aborted takeover bid for drug company Allergan, which had an overseas taxation rate that would allow the company to pay lower taxes than if it were based in the U.S.
Both companies had specifically crafted the deal to meet the terms laid out for approval with the U.S. government on tax inversion laws. Just as the deal was about to close, the government changed the rules.
Cramer didn’t see this coming, and Allergan quickly shed 100 basis points on the news.
“What did I do wrong? I trusted the government to keep its word,” Cramer said.
In an era where deals are being quashed left and right, Cramer said he shouldn’t have had a reason to believe that any deal should go through. Ultimately, he realized he was being greedy and it was too dangerous to hold out for the Pfizer-Allergan merger.
“In this business, greed is just plain bad. Don’t let anyone on or off screen tell you otherwise,” Cramer said.