To CNBC’s Jim Cramer, investors shouldn’t just bask in their gains when their stocks start to do well. It’s important to understand why a certain company soared, and wins aren’t always for reasons you think they are, he said.
“It’s very helpful to understand why a stock you like is going up or down,” he said. “When you have a win, don’t lazily assume that you simply got it right — think about what it means if you were merely in the right place at the right time and please proceed with caution.”
Sometimes a company will perform well for reasons not related to the underlying business itself, but because of other factors like a general economic rotation into a certain sector, Cramer said.
For example, Cramer discussed residential solar stocks that surged in 2021 and 2022. Investors might have assumed those companies saw success because of the popularity of renewable energy and government subsidies, he said. But by 2023, those stocks collapsed, and Cramer said it was not due to decreased popularity in the companies. Instead, many of those businesses relied on financing, so they were crushed when investors realized it was likely long-term interest rates would stay elevated, he said.
“Maybe you’re right — people are right about stocks every day,” he said. “But maybe it’s just a coincidence, darn it, and you should ring the register before that coincidence goes away.”
Read More: Jim Cramer’s guide to investing: Scrutinize your wins