Wisdom for a change from James Cramer.
Millionaires who lost it all in a few weeks.
As they say, one function of bear markets is to return capital to its "righful" owners.
How to Play the Nightmare, Part
1
By James J. Cramer
5/22/00 3:07 PM ET
Can it ever be fun again? Can
trading ever be the picnic that
it was? Can money ever be
made like it was made? Should
we just turn off CNBC and
stop reading about the market
and turn back to other pursuits that are less costly and more fun?
Were we just deluding ourselves?
In this multipart series that runs this week, I will answer all of these
questions and more, as it has become increasingly clear that this
business is no fun whatsoever. Worse, it is losing people fortunes.
Let's start off with an incredibly sobering note that I got from one
of our readers last week. I think it says it all about where we are
right now. I would print it verbatim, but spared the fellow's name
even though he was willing to use it because he felt so strongly
that others learn from his debacle.
"I am a very dedicated reader of the site and you in particular. But
I must share with you the horror of this market and my activities in
particular. I must have taken a really big dumb pill two months ago
or things have really changed big time. I have managed to lose
my entire $2.5 million account in the last nine weeks. I am very
experienced and have invested and traded for 13 years.
"I am 33, single and have no kids,
thank God. I will be the only one who
really suffers this bad dream. I have
let my parents and good friends down
big time. I think they hurt for me more
than the numbness I am feeling. Jim, I
knew to take something off and even
went to a trusted friend to beg him to
make sure I did. The dinner meeting
on that Friday was followed by a
Monday where I went from $1.9 million to $800,000. I was
stunned, frozen stiff, couldn't act to take something off then, heck
it was too late, right.
"WRONG! The following Monday I went down to $400,000. Now it
was really to late, right? Yeah, right.
"WRONG again. The market had just crashed and heck, Brocade
was going to report blowout EPS in a couple of weeks. It should
run ahead of the numbers just like last quarter I was thinking.
"WRONG!! This is something I must live with for the rest of my life.
It is very difficult, since I knew what to do but got caught in the
decline so fast. I will recover eventually, but geez, I wish I could
turn the calendar back two months for once in my life. I need a
mulligan so bad it hurts.
"I broke the No. 1 rule, survival, be left standing. I have given 5-6
gift subscriptions of TheStreet.com over the past year. I sure
hope they listened to take something off and be left standing
more than I did."
Yep, that's right. This letter writer lost it all.
And $2.5 million is a lot to lose. Heck,
anything is a lot to lose. I present this
sobering email because, 1) I don't want it to
happen to you, and 2) It is never too late to
take something off the table.
When I started this "take something off the
table" call a couple of months ago it was in
reaction to a woman screaming at me in a
parking lot after I had spoken at the Miami Herald investment
conference. She was telling me that I would lose it all. No way, I
said, I am taking something off the table.
The following day I wrote a piece for the site outlining again, that I
was redoubling my efforts to take something off the table. We took
a huge amount off. We even personally switched some money to
New Jersey municipal bonds, something I thought I wouldn't do
unless I knew thermonuclear war was coming between Jersey and
New York!
So, let's get something straight. From Jeff, as I will call this letter
writer, it was not too late to take something off three times. But
then it was too late. Don't make his same mistake. If you are riding
on big, big wins and they aren't as big as they were but they are
still big and you have taken nothing off the table, you are being
foolish. The most you will lose is opportunity cost and the taxes to
the federal government.
Jeff, by the way, owes no taxes. He has no money! So much for
the tax man.
Second, it can happen to you. I don't care how good you are.
Objectively you are not better than Julian Robertson, Stanley
Druckenmiller or Stanley Shopkorn. Trust me on this. I think I
am really good. I have the long-term record to match these guys.
But their departure shakes me to my bones. These are mentors,
teachers and Hall of Famers.
They are guys I learned to respect when I started 20 years ago. I
can't say that my teachers and mentors got too old. I can console
myself that they might have gotten too big, but that's a little
chimerical because they had been big for years. I respect my
elders. These guys were pros. When it is too hard for the pros, it is
too hard for the amateurs, no matter what the size.
Third, Jeff wasn't a newbie. He had traded for 13 years. He had
obviously been through the 1990 and 1994 and 1997 and 1998
downturns and lived to tell about them. He knew enough to play
the Brocade (BRCD:Nasdaq - news - boards) upside, a company
that is hard to understand, but has done spectacularly and was a
good percentage bet. (We made the same one and we are pretty
good at the upside surprise game.) Yet, this downturn caused him
to lose everything. This downturn is the big storm, the one that
gets you.
Fourth, the downturn isn't over. That would be wishful thinking.
Sure it could end. But as we will see from this series, time will
cause it to end.
Not events. Time.
Fifth, and finally, I am writing this stuff for one reason only: to be
sure that you have some money left and can live to play again.
The most salient thing in Jeff's note to me is that he recognized
the cardinal rule: Survival, to be left standing.
That's what this game is all about. That's what we talk about in the
huddles at Cramer Berkowitz. We want to be left standing after
the bears romp. Maybe we have to play dead for a while. Maybe
we have to hide. Maybe we just have to leave the park altogether
for a while and stay in cash.
Whatever. The goal is survival, preservation of capital for when the
bears have eaten so many salmon that they lull themselves to
sleep or go into hibernation. If you don't believe me, like the
marshal in the Fugitive said: "I don't care." |
