Even though CNBC’s Jim Cramer always tells investors to buy stocks when they decline because of some unrelated event that shakes the market, he knows they don’t always do it.
“Today, after Sen. Marco Rubio said he can’t vote for the new tax bill and other Republican senators might be balking too, the market took a hit… how many of you took this moment and treated it as a buying opportunity? I’m betting most of you didn’t,” the “Mad Money” host said.
(Rubio, R-Fla., said he would oppose the bill unless the GOP expanded its proposed child tax credit.)
Cramer acknowledged that things like the tax bill tend to affect the market in wild ways, bringing out mass sellers that send large indexes like the S&P 500 reeling.
But if you think that a hiccup in the GOP’s tax overhaul plans could truly derail the bull market, you might be wrong, Cramer said.
To support this, Cramer cited some statistics. Since 1927, the government has cut corporate taxes 10 times. In the year after each tax cut, the S&P increased 11.3 percent, on average.
Over the same time period, the government raised taxes 13 times. In the year after each raise, the S&P rallied 12.5 percent on average.
“Taxes just aren’t nearly as important as many may think,” Cramer said. “In fact, you could argue that stocks tend to do better when taxes go up. Stranger things. What really matters, though … is where we happen to be in the business cycle, the level of euphoria, a dramatic increase in the value of other rival assets like bonds, and most important, the things that individual companies do to help themselves.”
Disney’s deal to buy $52 billion worth of Twenty-First Century Fox’s entertainment assets, announced Thursday, is a glaring example of a company helping itself, Cramer said.
While Cramer still thinks that Disney’s stock is too cheap vis-a-vis the company’s potential, he likes the deal because it gives Disney the scale it needs for its stock to keep climbing.
“CEOs like Disney’s Bob Iger don’t like to see their stocks do nothing, and that’s not just because their compensation is often pegged to the stock’s performance. The fact of the matter is that you don’t get to run a publicly traded company unless you’re a pretty competitive person,” the “Mad Money” host said.
And although a Disney-Fox tie-up shouldn’t be reason enough for investors to rush into buying stocks, it should show them that there’s more to stock success than a rogue Republican senator.
“When you consider all of the mergers we’re seeing, when you consider activism, when you consider buybacks, when you consider dividends and just the terrific earnings we’ve seen from so many companies, then even after the market’s recent move, I think there’s a lot to like,” Cramer said.
That’s exactly why Cramer wants investors to always have their sell-off shopping list ready in case of an exogenous crisis, like this temporary obstacle to the tax overhaul.
“When you buy the S&P 500, you aren’t getting an index of corn or wheat or soy or lumber, some commodity with no real ability to help itself. You’re buying an index filled with CEOs who can do something to improve the value of their enterprises,” Cramer said. “Today, Disney CEO Bob Iger did that for one of the most obvious and well-known companies in the world. Who knows what the other 499 CEOs in the S&P are planning for tomorrow?”