Cramer versus Minervini: should we buy, sell or hold stocks?

In the face of the new threat from the Omicron variant, here are two opposing pieces of advice regarding stocks, and how I’ve resolved the dilemma for my portfolio.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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CNBC’s Jim Cramer has been prompting investors not to waste the market volatility created by the arrival of the Omicron variant of Covid-19. In other words, he reckons we should lean more towards buying shares than selling them.

However, successful stock trader Mark Minervini has been urging caution. He recently Tweeted charts of today’s US stock indices pointing out how similar they look to the charts in 1987 — immediately before their massive plunge that year. He said: “No one expected the ’87 crash and many were buying ‘bargains’ just before hell broke loose.” 

It’s all just ‘noise’

Two wealthy American stock operators with opposing opinions. So, what should I do? And to answer my own question, the first thing I’m going to do is tune out the ‘noise’. And those two talking heads are part of it. The only opinion that counts for my investment strategy is my own. And I’m going to make decisions based on the most important factors — what individual stocks are doing, and what the companies behind them are saying.

That means I’m focusing on the stocks already in my portfolio and those on my watch list. It doesn’t matter much whether an index goes up or down because such moves often don’t correlate with the stocks on my radar. 

For example, a good-quality business could see its stock price marked down before any crashing index catches up. So, it could be that the optimum buy point is already here. Or a decent stock could fall after the indices have plummeted, or not at all. And one of the best ways for me to make decisions is by examining a company’s valuation.

A proven strategy

There’s nothing groundbreaking about that approach. Warren Buffett has been doing it for years to great effect. He buys the stocks of excellent businesses at the best valuations he can and then holds on to his stocks for decades. Meanwhile, the underlying businesses tend to compound their rising earnings to create wealth for Buffett as the stock price and the dividends rise.

But it takes economic worries, wars, pestilence, plagues, droughts, famines and all manner of events to sink the stock market. And when such things happen, the last thing I feel like doing is buying shares. But Buffett focuses on valuation and the quality of an underlying enterprise, and so must I. No matter how uncomfortable I feel because of worrisome headlines such as those peppering the media channels now regarding the Omicron variant.

So right now, I’m looking for keener valuations and reassuring trading updates from my watchlist shares. When valuations make sense of a long-term investment, I’ll likely pull the trigger and buy those stocks to hold for the long term. And that will be regardless of whatever the main market indices happen to be doing. Meanwhile, I’m holding on to my existing long-term investments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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