Making investment decisions based on speculation or strange seasonal trends is not the way we should manage our portfolio. Jim Cramer ran a hedge fund where the duration of positions could only be a few minutes — not weeks, months, or years. In the article from last Sunday, Jim shared thoughts on the overheated state of the market and why we do not own companies like Tesla or Palantir in the portfolio. “I don’t see a reason to buy Tesla or Palantir, except for the fact that I think they’ll go up,” he said. “That’s a good reason for hedging, but not for portfolio management. The club invests in stocks based on fundamentals, not speculation.”
This doesn’t mean that Tesla and Palantir aren’t good companies — on the contrary, they are great. This is also not a critique of their management abilities — both companies are run by people who many on Wall Street would consider geniuses, such as Elon Musk and Alex Karp. Jim’s reason is related to valuation. Neither of these companies is “cheap” — and if you think they are fairly valued, you must believe that their growth will continue at lightning speed beyond the foreseeable future. This may be the case, but it also means that to own them, you need to be willing to speculate significantly — to bet on what might happen beyond what we can reasonably expect in the near future.
While every investor should consider their own risk tolerance, Jim and Jeff Marks, director of portfolio analysis, manage a Charitable Trust of about 30 stocks. This is the portfolio Jim created decades ago when he left Wall Street to stay engaged without conflicts of interest and teach people how to invest with real money and real deals. Our self-defined duty for the Trust, which is the portfolio, is to base investment decisions on fundamental principles, which strongly limits our ability to speculate on companies like Tesla or Palantir. This applies not only to stock selection but also to navigating through different seasonal patterns in the market, including trends around the end and beginning of the year.
Every December, the “Santa Claus Rally,” which measures the last five trading days of the year and the first two days of the next year, draws a lot of attention. We call it the “Santa Rally” because this period is usually optimistic. It fuels the idea that “as January goes, so goes the year,” or the so-called January effect. Investors who pay attention to seasonality likely have historical data that “supports” their case. The problem is that — just as betting on Tesla and Palantir for no reason other than that they might go up tomorrow — those who emphasize monthly patterns cannot tell you why they happen, only that they have usually happened in the past.
By the way, this time there was no Santa Claus rally. The S&P 500 index is almost unchanged during the first five trading days of 2025, with a large portion of January still ahead. So it’s still unclear whether the January effect will be viewed as positive or negative for the rest of the year. To play the game of seasonality or speculation successfully, you must predict the market — choosing perfect moments to buy and sell — which Jim has repeatedly said is impossible to do consistently.
Market prediction is primarily based on technical patterns and headlines — essentially day trading. If you want to go down this path, keep in mind that you are up against the richest, most sophisticated, and best-connected people from Wall Street (or anywhere else), not to mention high-frequency trading algorithms. Unlike long-term investing, intraday traders bet on momentum, analyze charts, or play with seasonal patterns. This means betting on your ability to navigate the markets in real-time, 24/7, selling stocks to the next bigger fool, and being faster than everyone else.
Ultimately, while we acknowledge that there are seasonal patterns in the market, we must be honest that big corrections in our exposure based on these trends and momentum are not the game we play. With that in mind, our view is that investors will always be better served by studying the fundamentals of companies to determine whether a business is undervalued, fairly valued, or overvalued, and then acting accordingly.
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