Here’s our Club Mailbag email [email protected] — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week’s question No. 1: I was just wondering why three of your top five holdings are tech related. You have preached diversification over the years and I have made it a priority to keep my portfolio that way. — Robert from New York Thanks, Robert. You’re right diversification is an important part of portfolio management, but we take a more holistic approach to defining what that looks like these days given the seemingly all-consuming nature of technology. In December, we explored the topic at length, making the case that long-term investors should focus more on factors such as a company’s end market exposure rather than its sector classification. In this piece , we explain our thinking in detail. We also touched on this concept in a more recent story about building a portfolio from scratch. In it, we pointed out that three of the biggest cloud computing firms in the world — Amazon , Microsoft and Google parent Alphabet — are all in different sectors. That goes to the heart of our thinking on diversification in the age of tech. Question 2: Jim has reminded us many times about the value to shareholders for a company to have a strong stock buyback program other than in a news announcement, how can I tell if a company has had a share repurchase program? Thanks and again, I appreciate all the Investing Club does. — Vick from Louisville, Kentucky Great question. Buybacks and share count information can be gleaned from a review of the company’s financial statements. For a refresher, we discussed in detail how to analyze financial statements in this series . The current share count is listed near the bottom of the balance sheet in the “Shareholder equity” section. This will show the outstanding shares at the end of the reported period. If the information is not reported on the earnings release version of the balance sheet, which is often consolidated, check the more thorough 10-Q or 10-K filing. To see how long the company has been buying back shares, start by pulling the previous three 10-Ks and comparing. If the share count has been reduced, the shareholders’ ownership percentage of net income increased (high earnings per share on an equal net income). If the share count went up, existing shareholders’ positions were diluted. The dollar amount of shares purchased in a given period — quarter or year — is found in the cash flow statement. Share sales and repurchases are considered a “financing activity” and live in that section. A negative number, indicated by the presence of parentheses around the number, shows cash flowed out to repurchase shares. We can see that on Alphabet’s cash flow statement below. One important thing to understand: Share repurchases can be offset by stock-based compensation, which is categorized under the operating activities section of the cash flow statement. Because stock-based compensation is considered a non-cash expense, it is added back to net income to determine the company’s operating cash flow. This means that a company’s buyback program will only reduce the share count if it exceeds the stock-based compensation it is paying out. In the case of Alphabet, we can see that the company paid out $5.264 billion in share-based compensation, but repurchased $15.696 billion worth of stock for the quarter ended March 31, 2024. That means the company reduced its total shares outstanding by about $10 billion worth of stock — giving investors a greater stake and share of the profits. (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 talked about a stock on CNBC TV, 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.
Traders work on the floor of the New York Stock Exchange (NYSE) on May 16, 2024 in New York City.
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Here’s our Club Mailbag email [email protected] — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries.
This week’s question No. 1: I was just wondering why three of your top five holdings are tech related. You have preached diversification over the years and I have made it a priority to keep my portfolio that way. — Robert from New York
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