Crazy post-earnings stock swings highlight the dangers of trading
Stop trading! I mean it. We are seeing some of the most stupid moves during this earnings season, and the last 24 hours were among the dumbest. I usually do not comment on trading, as you know, because I am against it . We promote investing, which is about owning shares of a company over an extended period — typically quarters or years — based on fundamental analysis. People who have traded in and out of our best stocks have little to show for it. I never want to encourage it because the odds don’t favor profit. It is too difficult. But there is a difference between too hard and too stupid. Take this morning. Many investors know that at the beginning of the year, Walmart likes to “sandbag” its guidance, meaning it low-balls its forecast for the coming 12 months. That sets the bar low. Nothing wrong with that — except it can catch less plugged-in investors who don’t know management’s preferences off guard. Many of those investors sold Walmart down a few percentage points in the premarket based on its 2026 estimate. By the time the opening bell arrived at 9:30 a.m. ET, the stock was above the flatline. All based on the crowd’s ignorance. Even though the stock is back in the red on Thursday afternoon, the decline is not as material as the premarket action was. Or Carvana . Within minutes of the company’s quarterly earnings report being released Wednesday night, the stock was down $60 per share. It had closed at $361.53. I thought immediately that this was short sellers painting the tape, as we could not find enough in the company’s release to sell it down by more than 16%. And the losses got even steeper than that at certain points during extended trading on Wednesday. Sure enough, if you are willing to take a long-term view of Carvana — the only way to examine it — you know that what matters is how much money they make per car, specifically, and whether some costs went higher that might not come down. I look at advertising. It rose by less than $15 per car. You wouldn’t have found that out until you got pretty deep into the conference call. It was what mattered. It wasn’t a perfect quarter. The cost of reconditioning its used cars was higher than I would have liked. But down more than 16% on this? Give me a break. As of Thursday afternoon, shares were down about $36, or almost 10%. The trading in DoorDash was equally mind-blowing. Look, I know the competition is heated in the food delivery category. But I was worried about Deliveroo, the British food delivery platform that it acquired last year. I wanted to see a solid turn. On the analyst call, CEO Tony Xu said it is growing much faster at the same profit. Box checked. I wanted to see the forecast for gross order volume and its cadence. Box checked. I didn’t really care about the rest because no one thought these guys would deliver a good quarter. So when you got these positives, you knew you had some exceptional news. The stock rallied as much as 10% early in the day, but was up 4% midday. Can money be made trading anything? Of course. But you often need to be patient, and you always need to know how a stock trades to make it work. It’s the latter, the store of knowledge that makes it not easy but easier. But it’s never simple. So I will never recommend doing it. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has discussed a stock on CNBC, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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