Click here for the Club Mailbag email address (investingclubmailbag@cnbc.com). Please direct your questions to Jim Kramer and his team of analysts. We cannot provide personal investment advice. We only consider more general questions about the investment process and stocks in your portfolio and related industries. This week's question #1: I was wondering why three of your company's top five holdings are technology-related. You've been preaching diversification for years, and I've made it a priority to maintain my portfolio that way. — Robert from New York Thank you, Robert. As you say, diversification is an important part of portfolio management, but in these days when technology seems all-consuming, we need a more holistic approach to defining what diversification looks like. We are hiring. In December, we took a thorough look at this topic, arguing that long-term investors should focus more on factors such as end-market exposure than a company's sector classification. This article explains our thinking in detail. I touched on this concept in my recent article on building a portfolio from scratch. In it, we pointed out that the world's three largest cloud computing companies, Amazon, Microsoft, and Google's parent company Alphabet, are all in different sectors. This goes to the heart of how we think about diversification in the technological age. Question 2: Outside of news releases, Jim has reminded us many times about the value for shareholders when companies have strong stock repurchase programs. How do I know if I have a program in place? Once again, I would like to thank everyone at Investing Club for their hard work. — Vic from Louisville, Kentucky Great question. Stock buyback and share count information can be gleaned from a review of a company's financial statements. As a refresher, this series has detailed how to analyze financial statements. The current number of shares is listed in the “Stockholders' Equity” section near the bottom of the balance sheet. This displays the number of shares outstanding at the end of the reporting period. If the information is not reported on the financial release version of the balance sheet, which is often consolidated, review the more thorough 10-Q or 10-K filing. To see how long a company has been repurchasing stock, start by obtaining and comparing the last three 10-Ks. If the number of shares decreases, the shareholder's ownership percentage of net income increases (earnings per share are higher for the same net income). As the number of shares increases, the positions of existing shareholders will be diluted. The amount of stock purchased during a particular period (quarter or year) is reported on the statement of cash flows. Sale and repurchase of shares are considered “financing activities” and are included in that section. Negative numbers, indicated by the presence of parentheses around the number, indicate cash drained into stock buybacks. You can see this in Alphabet's cash flow statement below. There is one important thing to understand. Share buybacks may be offset by stock-based compensation that is classified in the operating activities section of the statement of cash flows. Because stock-based compensation is considered a non-cash expense, it is added to net income to determine a company's operating cash flow. This means that a company's share repurchase program will only reduce its share count if it exceeds the stock-based compensation it is paying. In the case of Alphabet, we see that the company paid out $5.264 billion in stock-based compensation, while repurchasing $15.696 billion worth of stock in the quarter ended March 31, 2024. This means the company has reduced the total amount of shares outstanding by about $10. 1 billion worth of shares — giving investors more profits and profit distribution. (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer's CNBC Investment Club, you receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust's portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are 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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Click here for the Club Mailbag email address (investingclubmailbag@cnbc.com). Please direct your questions to Jim Kramer and his team of analysts. We cannot provide personal investment advice. We only consider more general questions about the investment process and stocks in your portfolio and related industries.
This week's question #1: I was wondering why three of your company's top five holdings are technology-related. You've been preaching diversification for years, and I've made it a priority to maintain my portfolio that way. — Robert from New York
