Jim Cramer's guide to investing: Don't fret over news already baked into a stock

Scott Mlyn | CNBC
  • CNBC's Jim Cramer said investors should focus on market anomalies instead of worrying about information that's already baked into stocks.
  • "If you want to be a better investor, don't tear your hair out fretting about the same things as everyone else," he said.
  • Cramer mentioned the efficient markets hypothesis, saying it provides a rough, but helpful, guideline for investing.

CNBC's Jim Cramer said investors shouldn't obsess over news that's already widespread across Wall Street, but instead pinpoint trends not yet accepted in the broader market zeitgeist.

"If you want to be a better investor, don't tear your hair out fretting about the same things as everybody else," he said. "Instead, you should worry about the things other people don't seem to care about, because the real threat is the one that you don't see coming."

Cramer mentioned one economic theory called the efficient markets hypothesis, which suggests that stock prices always reflect all the relevant information available and immediately adjust when new data comes out. He said some believe this theory means that individual investors can never have an edge, as all information out there is already baked into a stock's price.

But Cramer disagreed with that theory, saying the market is not perfectly efficient. It's often irrational and can make mistakes and ignore important pieces of information, Cramer said. He added that investors can succeed by trying to find these anomalies.

However, the efficient market hypothesis provides a rough, but helpful, guideline for investing, he said. When there's already a widely held consensus about something – a strong job market, a poor earnings season, the Fed's next rate cut decision—it's probably already reflected in a stock's current valuation.  

"From the stock market's perspective, the fact that most investors believe something's going to happen means that Wall Street's already treating it as reality," Cramer said. "By the time we get any kind of real consensus on an issue, that move is probably over."

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