• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Technology

What's Wrong With Betting on One Stock?

'Single-stock risk' is all the rage these days.
By JIM CRAMER Jun 03, 2015 | 04:58 PM EDT
Stocks quotes in this article: DOW, SNA, RRD, LEN, CL, GS, GS, AIG, AAPL, REGN

We are hearing a lot these days in the business about what's called "single-stock risk," meaning what happens if you buy the wrong stock for your portfolio, as in one that gets clobbered for whatever reason.

I think on a day where we see some very strong individual stock performance in an overall tranquil session, it's worth it to address the notion of the danger of single-stock risk, which has become all the rage among many stock professionals.

First, if you think I scoff at single-stock risk, you would be wrong. It is why I endlessly say your first $10,000 worth of saving must be index funds. I want you diversified and I want you to capture the progress of American industry through a fund that mimics the S&P 500. I know many people don't have the time, the inclination or the analytical abilities to make decisions about individual stocks, and I don't want them to. They should not be denied the exposure to stocks because of those handicaps, so an index fund is a very good proxy.

At the same time, though, I don't want the hobbyist, the home-gamer or those fascinated with stocks to be frustrated about the desire to learn about the market with an eye toward making decisions themselves about individual stocks. I know there is luck involved in investing, and maybe you have the ill fortune to pick the wrong stocks. But who am I to tell you that you are too stupid, ill-informed or easily defeated by the big boys with the short-term trading edge to pick an actual stock or two or more for yourselves after you have put the requisite money into that index fund? I am not going to insult you with that nonsense. I listen to your calls and read your emails constantly and I often learn as much from you as you might from me. Knowledge is power in this business, and most of you seem to have it.

In fact, I want to go one step further. I think there is an element of single-stock risk that I really abhor, and that's the shame of missing out on the performance of an individual stock because you are buffaloed into thinking it is too dangerous or you are too ignorant to do homework and decide if you like the company enough to own a piece of it.

The proselytizers of single-stock doom sometimes make this whole business out to be too hard. Take this morning. I had the privilege to attend old friend and Yale School of Management professor Jeff Sonnenfeld's unbelievably enthralling chief executive leadership conference at the New York Stock Exchange, and while the contents of the confab are off the record, I couldn't help but look around the room and scoff at the notion of single-stock risk. Why?

Because in my line of sight a few feet away, I saw Steve Miller, a brilliant turnaround artist who is now on the Dow Chemical (DOW) board; Nick Pinchuk, CEO of Snap-on Tools (SNA); Tom Quinlan, CEO of R.R. Donnelley (RRD); Stuart Miller, CEO of homebuilding giant Lennar (LEN); and Ian Cook, CEO of Colgate (CL).

I can't say what they said (that's bound by the rules), but I can tell you what I said. I marveled that the love of index funds and sector funds is so great, as is the fear that the market is so totally rigged against the little guy that the public is missing out on owning a piece of the companies these CEOs lead.

The single-stock risk folks would have you believe that having a piece of Tom Quinlan's R.R. Donnelley is a big mistake, even as he is giving you a 5.34% yield and has already rung up a 15.89% increase in the stock price since the year began. Quinlan's working like a dog to consolidate the print industry so you can profit from it. At the same time, he is branching out to all new kinds of printing.

Now, for much of the second half of my father's life, he owned Colgate stock. Why? Because he said everyone in the world has to or will have to brush their teeth. He often, for some unknown reason, would chant the jingle, "Brush your teeth with Colgate, Colgate dental cream." So when I got to Goldman Sachs (GS) 32 years ago, I did the research and could see that Colgate was going from a domestic toothpaste company to a worldwide consumer-products powerhouse, and that was worth participating in. How risky was it to own the single stock of one of the great brands of all time as it traveled from a buck thirty to $67.90? Look, you could say that was hindsight, but for heaven's sake, it happened and you probably used one of its products during that magnificent run.

The depth of the Great Recession saw a huge decline in the homebuilding industry. Many homebuilders were annihilated. But not Lennar. What did CEO Stuart Miller do? How about take advantage of the homebuilding crash to pick up cheap land that will allow his company to shine for years and years.

When Dow Chemical welcomed Steve Miller, one of the great turnaround artists of all time, to the board of the company, I rejoiced. I owned it for my charitable trust, and before that had owned AIG (AIG) during a period where it prospered under his chairmanship. It was one of the many successful turnaround roles in his career. More single-stock risk? How about single-stock reward?

What can I say about Nick Pinchuk of Snap-On that I haven't in the many times he's been on Mad Money? How about that the stock was at $41 when he became CEO and it's now at $156 eight years later? How about that he has transformed the company into one of the great stealth technology tool enterprises we have in this country? All you had to do was watch and listen and you could have had that one.

There were tons of CEOs at this eye-opening conference. I am only talking about the ones within sight. To me, that says the opportunities are as hidden as Edgar Allan Poe's Purloined Letter. Oh, and I wish the promoters of these endless ETFs would own up that a tech ETF would have obscured the gains of Apple (AAPL) or a drug ETF could have kept you from owning Regeneron (REGN) -- again, two stocks that I've flogged and told you not to trade but to own pretty much for the duration. (AAPL and DOW are part of my Action Alerts PLUS portfolio.)

To me, when you see what I saw at Sonnenfeld's conference today, you have to wonder whether perhaps the biggest worry about single-stock risk is missing the single stock that could make your year.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL and DOW.

TAGS: Investing | U.S. Equity | Technology

More from Technology

Chipmaker STMicroelectronics Shows Some Static Ahead of Earnings

Bruce Kamich
Jan 25, 2023 3:31 PM EST

STM's charts are a tough read, but let's see what they say when all the pieces are put together.

Patience Is Required If You're Going to Trade AT&T: Here's the Play

Stephen Guilfoyle
Jan 25, 2023 10:45 AM EST

The stock will not be cheap for some time.

As We Await Tesla's Results, Let's Assess Whether to Touch Microsoft

Bob Byrne
Jan 25, 2023 8:30 AM EST

Would-be traders and investors need to understand that the software giant's stock isn't cheap by any measure.

Microsoft Gets Hit, Slowing Economy, Sloppy Markets, Ukraine Tanks, Halliburton

Stephen Guilfoyle
Jan 25, 2023 7:28 AM EST

It was MSFT guidance that turned the post-closing bell rally into overnight weakness.

Microsoft's Earnings Confirm Fears of Economic Slowing

James "Rev Shark" DePorre
Jan 25, 2023 6:45 AM EST

The primary issue now is whether MSFT earnings will produce a theme reflected in other reports.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:06 PM EST BOB LANG

    LEAPS Webinar

    This week, I offered a free webinar session talkin...
  • 02:53 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 04:58 PM EST REAL MONEY

    The Latest AAP Podcast!

    Listen in as AAP Tackles Earnings, the Fed, Recess...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login