Investing Lessons from Jim Cramer: Why You Shouldn’t Bet on Lawsuits
When it comes to making portfolio decisions, CNBC’s Jim Cramer has some valuable advice for investors. In a recent segment on CNBC, Cramer shared a cautionary tale about the dangers of pinning your hopes on the outcome of a company’s litigation.
Cramer admitted that he made a mistake by holding onto Johnson & Johnson for too long in the CNBC Investing Club’s charitable trust, despite the company facing lawsuits alleging that its talc products cause cancer. He emphasized the importance of betting on businesses, not lawsuits and the lawyers who handle them.
“I like betting on businesses, not lawsuits and the lawyers who game them,” Cramer said. “So if you ever find yourself betting on a brutal set of lawsuits, don’t try to fight it just because you love the company like I did with J&J for so long. Believe me, there are better and easier ways to try to make some money.”
Cramer revealed that he underestimated the severity of the situation, believing that Johnson & Johnson may not have been aware of the issue. However, a judge’s ruling against the company’s bankruptcy claim made it clear that the litigation was a serious threat to the company’s financial stability.
“It didn’t matter that the company’s balance sheets were solid. Its pending litigation was too risky,” Cramer added. “In the end, you simply don’t want to have a position that’s precarious because of lawsuits, not because of the fundamentals.”
The lesson here is clear: when it comes to investing, it’s important to consider all factors that could impact a company’s future, including pending litigation. By learning from Jim Cramer’s experience, investors can avoid making the same mistake of betting on lawsuits rather than the strength of a business.
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