view transcript

When I heard the news I was aghast. I was furious. Here's a company that told us on its last quarterly conference call, right in the thick of the Cambridge Analytica brouhaha that they had seen no degradation from the scandal including and up to that day's call. In other words, not only did it not impact the first quarter, but it looked like the second quarter, the one that just wrapped up, would leave the company unscathed, too.

We only wish that had been the case. In fact, it was the opposite, there had been a dramatic slowdown as well as an alarming increase in expenses coming from the need to police the shenanigans, and, perhaps worse, stop practices that were obviously unknown to us that were a huge part of their operating income. Otherwise they wouldn't be describing a big step up in spending and an unfathomable decline in growth to 20% by the end of the year, more than half of what it had been before the accountability and privacy issues serviced.

In other words, Facebook had truly disappointed in every way possible.

When I asked Jeff and Zev to give me some color I learned It was worse than I even thought.

The saving grace? We had not been telling club members it was among our favorites. As you know from our Portfolio Ratings page, we rank each stock on the scale of 1 to 4, and we had downgraded it to a two and had halved the position for 15 points more than it was selling for.

But let me tell you what I have learned from this debacle. As much as we may like a stock, when it has run that much on no new news, and there had been no new news, it is worth it to lop off more of the stock even if it reduces the position to below 2% of the portfolio. When a stock has a radical increase in value and no concomitant change in fundamentals, that should be reason enough to sell and this stock had ramped dramatically on no new news.

In the August Action Alerts PLUS members' call, Jim Cramer talked about why he was "aghast" and "furious" with Facebook's (FB) earnings numbers.

The company "told us on its last quarterly conference call, right in the thick of the Cambridge Analytica brouhaha that they had seen no degradation from the scandal including and up to that day's call."

Turns out that wasn't true at all and he felt the stock and the company "had truly disappointed in every way possible."

For the latest on Facebook and how to trade it, head over to Real Money, where it is the featured stock of the day