Stocks always go up and down. But lately, some of the daily swings in AI stocks have crossed into extreme territory. Investors need to respond accordingly by changing their approach to putting money to work. On Monday's Morning Meeting, Jim Cramer said he wasn't ready to put fresh money into tech stocks just yet, echoing something he discussed at length in his Sunday column. But if investors want to buy the dips on some of the chipmakers and other data-center plays, Jim's advice is to use "wide scales" to soften the impact of any sharp moves.
By wide scales, Jim means buying stock gradually at predetermined price levels — with relatively large gaps between them — as volatility creates opportunities, rather than buying the entire position at once or making buys at prices too close together. "What I like to do is come up with prices," Jim said. "You want to do pyramid styles as you build down." Of course, we're always looking to buy the stocks of high-quality companies as they go lower; if the investment thesis and fundamentals are unchanged — specifically, if earnings estimates remain intact — a lower price simply means better value, or more bang for your buck.
For example, say you want to build a new position in INTC. And let's assume you want to buy 80 shares total. You could go about it a few ways: 1. Simple dollar cost averaging: Buy 20 shares in four separate buys at predetermined lower price levels. 2. Weighted pyramid: Increase the number of shares bought with each of the four trades at descending prices. 3. Double-down pyramid: Divide the total position size by eight to determine the starting buy.
Any combination of these strategies will help lower your basis; what it comes down to is your style and how comfortable you are buying into a decline.
