Don’t take everything you hear as gospel, Jim Cramer cautioned his Mad Money viewers Thursday. Everyone on Wall Street has a theory as to why things happen, Cramer said, but very few actually know what they’re talking about.
If was just a week ago that oil prices spiked to record highs with pundits proclaiming the sky was falling. But in reality, the surge in crude prices was caused by simple market mechanics, and oil producers just needed a little time to respond.
We also heard recently that the rally in semiconductors was over. But the CEO of Marvell Technologies (MRVL) – Get Marvell Technology, Inc. Report told us earlier this week that nothing could be further from the truth.
Whether it’s Williams-Sonoma (WSM) – Get Williams-Sonoma, Inc. Report or Signet Jewelers (SIG) – Get Signet Jewelers Limited Report closing stores, or Honeywell (HON) – Get Honeywell International Inc. Report declining because aerospace is weak, what you hear isn’t always based in fact. Both Williams-Sonoma and Signet are closing stores because so much of their demand has moved online, where they make more money. As for Honeywell, they’re not just about aerospace anymore. The company has plenty of other end markets that are red hot.
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Many of these doom-and-gloom theories are spread by short sellers, who short a stock, then spread their theory to as many people as they can, creating panic that results in the decline they were hoping for.
Does that mean we should all invest in index funds? Of course not. Cramer said investing in individual companies that make real things and have real earnings is still the best way to make money.
So the next time you hear a theory, remember, it’s just a theory, and could be a long way from the truth.
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