Cramer: Diversification is crushing investors this year. Will 2024 be different?
In 2023 true diversification killed you. If you chose to buy stocks across a wide swath of sectors —financials, retailers, drugs, foods, utilities, autos, airlines and oils — and your timing wasn't perfect, you got crushed. If you played by the classic investing rule of not putting all your eggs in one basket, you got crushed. And that's a pretty shocking thing, something we don't like to admit or talk about. Let's survey the damage, starting with the banks. Consider a simple belief in KeyCorp (KEY), with its solid hold on the strong Cleveland economy and a 6.6% dividend yield. Wouldn't that, shouldn't that, be a steal here? Not at all. It's been stuck at around $12, down from $20 in February. Huntington Bancshares (HBAN) isn't much better at $11, down from $15 in early March. It boasts a dividend yielding 5.6%. CEO Stephen Steinour does a good job running Huntington, but he's helpless when it comes to the share price. At least he comes on "Mad Money" to tell the regional bank's story. Likewise, KeyCorp CEO Chris Gorman has been on "Squawk on the Street" a couple of times and his bank's story seems so compelling. And yet, Key has been a performance trap in 2023. How about First Horizon (FHN), the flourishing Memphis bank with the red-hot Tennessee market? First Horizon agreed to sell itself to Toronto-Dominion (TD), the number two Canadian bank, for $13.4 billion in February of 2022 — only to see the deal break down in May of this year after the banking crisis. Isn't the bank worth more than the $6.9 billion it is valued at now. It's the same darned bank. Actually, it's arguably a better bank now as its footprint has expanded to relatively unbanked areas. But TD couldn't see a reasonable path toward regulatory approval. Really? It couldn't? Or didn't want to? We never got a satisfactory answer to why the merger fell apart. First Horizon may be the best of the regionals in the entire United States. I have interviewed CEO Bryan Jordan multiple times and the company is so well run and its path to growth so obvious that it makes no sense unless you just don't think regional banks produce valuable returns. The stock of Club holding Morgan Stanley (MS) dropped to $70 from $100 before bouncing back to $80 when interest rates recently peaked. That's a horrendous performance. Morgan Stanley is a terrific asset gatherer that is now regarded as a ho-hum gatherer because it failed to grow this quarter as strongly as the previous quarter. Charles Schwab (SCHW) fared even worse. Shares of the discount broker dropped this year to $45 from $86. It recently had a big recovery to $56. All aboard. Morgan Stanley and Schwab did nothing bad or shameful, but their multiples are shadows of their former selves. At least Morgan Stanley has a nice dividend yield of 4.25%. We're not talking about Robinhood (HOOD), with its endless losses and an account base that seems to love to trade options when the preponderance of options go to zero. Is that how a stock that was at $13 in July is now down to about $8? Key, Huntington, First Horizon, Morgan Stanley and Schwab are all good franchises that are regarded as cheap. But they are not being bought by anyone now because it seems like execs are worried about antitrust or the Federal Reserve or ... whatever. Retail? Maybe you thought Macy's (M) or Nordstrom (JWN) or Kohl's (KSS) could mount some sort of comeback after the banking crisis in the spring. You were wrong. Macy's yields more than 5%, Nordstrom yields 5% and Kohl's 7.8%. Gap (GPS) recorded a fantastic quarter, except its flagship had only 1% same-store growth. Shares did jump 30%, but only because it was left for dead with almost 20% of its float shorted. To diversify into these old battleships seems as foolish as recreating an old navy. Its seemed likely that Pfizer (PFE) could rally at least a little, given how much it made during the pandemic. The drugmaker's dividend yields 5%. But no one seems convinced that CEO Albert Bourla can make a difference. Was the acquisition of Celgene by Bristol-Myers (BMY) really that moronic? As with Pfizer, the market says Bristol-Myers destroyed or created little value whatsoever in its attempt to diversify and grow. You could reach that conclusion if you consider that Bristol-Meyers paid $74 billion in 2019 for Celgene, but is now worth only $103 billion. Let's talk food stocks. J.M. Smucker (SJM) is a very good company with some very defensible brands in peanut butter, premium but mass coffee, medium mass pet food, jellies and others. It recently paid $5.6 billion for Twinkies maker Hostess Brands. The whole company is now worth $11.8 billion, with a stock that had plummeted to $111 from $130. It had already started coming down from $150 in the spring, and instead of just sitting there and buying back stock or perhaps developing something new, it doubled down on junk food. Did SJM management not have anyone familiar with the power of the GLP-1 agonists, the new class of diabetes and weight-loss drugs? If an executive was familiar with the passion of Wall Street for drugmakers Eli Lilly (LLY) and Novo Nordisk (NVO), she would have said: "Wait a second, Wall Street is enamored of these two drug companies and no others, let's pull out of this deal and find something the Street might not despise." If an executive was actually taking GLP-1 drugs, he might have realized that the sheer volume of sales will be hurt and a better price might come a year from now when we see if these drugs have staying power. Yet we are told that PepsiCo (PEP), Mondelez (MDLZ), Hershey (HSY) and General Mills (GIS) all wanted Hostess? You diversify into a group of companies that don't seem to have first-hand knowledge of how repulsive a Ho Ho might be to a GLP-1 user, you probably deserve to lose money. The weight-loss drugs work. They will be used by many, even if people don't like to self-inject. They simply do too much good. But then again, even without an acquisition, Conagra (CAG) yields almost 5% and is still down to $28 from $38 in the spring. Campbell Soup (CPB) bought Rao's pasta sauce parent Sovos Brands in August when its stock was at $44. It seemed the right deal at the time, but shares cratered to slightly less than $38 in October. Has cereal company WK Kellogg (KLG) made you money, if you bought shares in September at $17 after its bold move to split cereal from snacks? Not at $11 even with the 5% yield. At least you are only down a couple of points if you bought Kellanova (K) the snack portion of the split up, which is a special package of foods uniquely shunned by proud GLP-ers. Spice company McCormick (MKC), the safest of the safe, is off almost 20% from earlier this year. But execs at these companies shouldn't feel all that badly. Who would have thought a company made up of the brands Aveeno, Tylenol, Band-Aid, Benadryl and Neutrogena would get annihilated? At least Kenvue (KNVU), the former consumer healthcare division of Johnson & Johnson (JNJ), has bounced back. Now you are talking. Kenvue is indemnified from what many juries regard as asbestos-tainted baby powder put out by J & J. Nothing has been worse than owning shares in Moderna (MRNA), which traded in the $440s in 2021 and is now down to $76. All that money and the company couldn't develop the anti-cancer vaccine franchise we thought it would have by now. And then there's the nasty medical device stocks: Edwards (EW) down 10%, Medtronic (MDT) off 4%, Zimmer Biomet (ZBH) down 12%, Becton Dickenson (BDX) lost 8%, Baxter (BAX) dropped an astounding 30%, Thermo Fisher (TMO) off 15%, and Danaher (DHR) down 11%. As for utilities, the highest-quality name is American Electric Power (AEP), down 18%. Dominion (D), not as high quality, has fallen 23%. Duke Energy (DUK) is only down 12%. I guess that is a godsend. In the auto sector, you lament Ford shares being down 7% since the summer. Until you see General Motors (GM) stock is down 16%. You didn't SAVE when you bought Spirit (SAVE). The airline is down 32% for the year. Southwest (LUV) is down only 26%. How about American (AAL) hanging in there, down only 3%. That doesn't make up for JetBlue 's (JBLU) decline of 35%. Lastly, we have the oil stocks. Oil soared this year. But Pioneer (PXD) only rallied about 5%. That beat Hess (HES), up less than 2%. The strange thing is these are the ones that have gotten takeover bids. EOG Resources (EOG), down 3%, and ConocoPhillips (COP), down nearly 3%, are more representative. Exxon Mobil (XOM) is down about 5%. But if you want scary, Chevron (CVX) is down 19%. What a horrendous mess. It does seem like it was "the Magnificent Seven or else" when you go through this detritus, doesn't it? How did it get so miserable? Was it really all about interest rates? Or did all of these companies try hard to do better and it didn't matter? How could it be such a plague? One hopes that what happened was that it was a bear market that mauled so many sectors and that the bear market has ended at last. Almost all of these stocks have now bounced off their bottoms. They all may be worth a second look. All of them. But I can't help thinking that we have had some years where everything was down and the diversification into some of these groups would have saved you, especially in a Fed-mandated slowdown. The simple fact though is that it didn't. The only thing that mattered was being in the biggest and the best names. I could argue that — at last — the tyranny of the mega-caps is over. The problem is I lack a catalyst, unless that catalyst is exemplified by Gap, which did an okay job and saw its stock run up 58%. At this point, you might be able to argue that everything that has fallen is cheap. But the problem with that thinking is that — with the exception of Tesla (TSLA) and Nvidia (NVDA) — the other big names aren't expensive either. Plus, Nvidia has a nasty habit of looking very cheap if you go back a few years. To me the problem is a simple one: If you buy companies with fast growth you can still make money. That includes Apple (AAPL), which is still producing great numbers, just not great enough. But if you buy the stocks of companies without a lot of growth — like all of those stocks discussed here — diversification failed. I wonder if diversification is done failing. We don't have much in the way of takeovers because of the strident Federal Trade Commission, even though M & A is precisely what is needed. And because there's no spark I can see at the moment, I just wonder if diversification won't once again be the bane of your portfolio. (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. 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The Morgan Stanley headquarters is seen in New York City on Jan. 17, 2023. Michael M. Santiago | Getty Images