(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)
We bought 25 shares of PayPal (PYPL) at roughly $191.41 each Monday morning, shortly after the CNBC Investing Club with Jim Cramer newsletter was sent. Following the trade, the Charitable Trust owns 675 shares of PayPal. This buy increased PayPal's weight in the portfolio from about 3.02% to 3.13%.
Our purchase of more PayPal on Monday morning is an example of what we call buying with wide scales. See, when you own a stock with sellers who come back day after day with little regard to price, a disciplined way to manage a position like this is to spread out buys across levels.
When we enter wide scales mode, we try to add to our position every 5% to 10% per share down from our previous buy. No matter your conviction in the fundamentals, you have to fight the temptation of buying every dip because you don't know when the sellers will finish. That's why we employ a rules-based approach of wide scales. By sticking to our levels, we take the emotion out of a struggling, falling knife position whose fundamentals are not being accurately portrayed in the market.
With shares of PayPal down a disappointing ~10% since our last purchase on Nov. 15, despite no change in the fundamental outlook (there was a downgrade by Bernstein last Wednesday but we believe the issues raised by the analyst were already reflected in the stock), our next level has been hit and we will unemotionally add to our position.
We remain positive on PayPal because the ex-eBay growth rates are encouraging, and merchant adoption is supportive of longer-term growth as PayPal checkout is now available at 75% of the top 1,500 North American and European retailers. Plus, the latest Venmo/Amazon partnership should increase monetization rates.
The CNBC Investing Club is now the official home to my Charitable Trust. It's the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.
(Jim Cramer's Charitable Trust is long PYPL, AMZN.)