A diversified portfolio can help you when stocks like Nvidia fall

As NVIDIA Shares fell after the company reported earnings. CNBC’s Jim Cramer reminded investors on Wednesday that it’s important to own stocks from a variety of sectors, even those that aren’t currently seeing big gains. Owning a diverse group of stocks helps investors stay in the market when a stock or sector turns, he said.

He acknowledged that diversification can be “a total burden.” and it doesn’t always protect against weaknesses like the recent declines in the otherwise booming technology sector. But some stocks aren’t designed to consistently deliver gains, he added.

“There will be bad days when you just want to lose less than the market. That and the money you have on the side aren’t necessarily there to make money on a regular basis,” he said. “They exist for something bigger: They exist to keep you in the game when the hottest stocks go cold, as happened with Nvidia.”

The average values ​​fell on Wednesday, with the Nasdaq-Composite decreased by 1%, S&P500 Decline of 0.6% and the Dow Jones Industrial Average 0.4%. Shares of AI giant Nvidia also plunged, closing down 2.10%. Although the company beat Wall Street expectations in its after-hours earnings announcement, shares fell more than 6% in after-hours trading.

Cramer pointed out that it was much easier to own Nvidia before its market cap rose dramatically and became popular on Wall Street. Despite his undisguised fondness for the mega-cap, he acknowledged that some investors’ enthusiasm for the stock is overblown. Nvidia has become “an albatross around the neck of the market because no single stock can be an indicator of the future of the S&P 500,” he said.

He added that the CNBC Investing Club Charitable Trust had reduced some of its profitable holdings, even though they had been difficult to sell amid the rising market.

“I always tell you to own Nvidia, not trade it. I’m not going to back down from that. But I don’t think that’s possible unless you have a diversified portfolio and some cash on the side so you can handle a stock like Nvidia,” Cramer said. “They allow you to hold onto Nvidia even when it crashes like it did tonight. They allow you to keep your sanity and still own shares.”

Nvidia declined to comment on Cramer’s remarks.

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Disclaimer: The CNBC Investing Club Charitable Trust holds shares of Nvidia.