here is the cramer article...for those interested
Pros and Cons of Pro Investors
By James J. Cramer
1/26/00 7:16 PM ET
What do people want out of companies? What kinds of numbers do we want to see that make buyers excited? What goes on in these conference calls that makes portfolio managers want to buy more rather than sell?
To understand this question is to understand the difference between the way the individual plays the market and the way the professional investor makes her decisions. The typical portfolio manager is not sitting there with a point-and-figure chart hoping that the lines will show whether to buy or sell.
The portfolio manager has built a model of earnings for the future and she is trying to figure out whether her numbers are too low or too high.
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Take JDS Uniphase (JDSU:Nasdaq - news), which reported last night. When I go into Matt "Just Don't Sell Us" Jacobs' office as he listens in on the call, he is not doodling on a pad, or reading Sports Illustrated or checking out Knicks.com. He is looking at his model of what he expects JDS to earn in the future, a model built on expectations arrived at through working with the company and with Wall Street analysts.
If he hears information about the sequential growth that is better than he expected, he is thrilled. Numbers have to go up. He jumps up and down when he hears that JDS may be hinting that its revenue figure for the next quarter is going to be bigger than the one he was looking for two quarters out.
<<<<<But he is very disappointed when he hears that the numbers ahead are not going to be as high as those in his model.
That's a bummer. That's yesterday's Qualcomm (QCOM:Nasdaq - news) experience. Or today's Dell (DELL:Nasdaq - news) fiasco (which, just so we are clear, was a really ugly one that will test those long-term holders while it creates a buying opportunity).
That's what makes him come in to me and say we should be selling, not buying.>>>>>>
Of course, this is one of those areas where I think the professional is better than the amateur. The professional has the models, she knows what people are looking for. She can figure out instantly what is really better than expected, as opposed to all of this whisper junk you keep hearing about.
This skill, however, affects stocks only at the margin. We may reach a decision to sell because the model is not beaten. However, there are more things at stake than just the numbers. Longer term, the short-term numbers may turn out to be meaningless.
Let's take Disney (DIS:NYSE - news). Those professional traders who extrapolated previous numbers off their models weren't able to see the breakout coming, because it occurred intraquarter. But those individuals who last year looked at Disney and said, "It can't get any worse than this, I will ride it out," turned out to be huge winners.
That's why I always give the long-term investing edge to the amateur. The professional can make excellent short-term decisions based on near-term revenue and earning projections. But the amateur can often make a long-term decision based on the true worth of an enterprise over many years.
And that's where the biggest money is made.
Random musings: Still trying to get my hands around why Nortel (NT:NYSE - news) didn't disclose this BCE (BCE:NYSE - news) plan to dispose of its Nortel stake simultaneously with the earnings. Lots of angry people bought the stock higher. I am hoping that the plan, which was hard for me to understand, doesn't hurt the stock more. I want to get back in ... Dell is trading poorly, obviously, but don't be fooled. Many people were expecting the shortfall; they just didn't expect for it to extend so far out in the future ... Big short raid on Exodus (EXDS:Nasdaq - news), which I am long. Thought the numbers looked OK ... Necktie party: I sold my Conexant (CNXT:Nasdaq - news) at the bell, in order to pare some tech exposure. And it got added to the S&P 500. I will do my best when I am at the kindergarten play tonight not to think about that mishap ... Still getting lots of support from people about the RBOC screed. People really hate these companies ... Still getting urged to blast managers who come on TV and recommend small-cap stocks. I have said my piece on the issue too many times now to get into it again.
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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long JDS Uniphase, Disney and Exodus. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com.
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