Cramer on resisting the temptation to trade
By James J. Cramer 6/19/2000
Many of you are still reeling from the charnel house that was the peak in the
Nasdaq earlier this year. You have seen the market stabilize and you are
thinking, "Hmmm, maybe I can have another go at it."
You are thinking that you tasted some quick profits and then you got hurt, but
things seems to have settled down and maybe it is worth trying trading again.
You're thinking this way because that darkened, out-of-the-corner profession
-- the kind where you bought and sold a couple of times a day -- made you
more than you earned in weeks, or even months, at your real job. For some,
trading became an obsession.
Oh, don't you think I know it? Me, who has stood at pay phones while ferries
pulled away with my family onboard, as I tried frantically to book a July IBM
(IBM) call gain 12 years ago? Me, who got kicked out of class at Harvard
because I wouldn't stop charting stocks? I know the obsession. And I knew it
during the days when commissions killed profits and the Net was just a
gleam in Al Gore's eye.
So, it is with sober reflection that I remind you that one of the reasons why
the market has calmed down is that people aren't doing that stuff anymore. It
got too hard and people lost too much money.
Another reason it has calmed down is because the losses were so staggering
that consumer spending has dropped off a cliff. We are not faced with the
prospects of a hard landing from a nation that suddenly feels a lot poorer than
it did on March 10.
Maybe you could be the one to wade back in. But I think the prudent course
is to wait. To keep that current job and to remember that trading can be fun
and easy or it can be brutal and shocking and disappointing. Long before I
had diary entries on the Web, I would get up at 2 a.m. and ask, "How could I
have done that in Maxtor (MXTR), how could I have lost all of that money?"
Or, "What was I thinking with those BKX calls?" Or, "Of course, there was
never to be an American Brands takeover, but how can I ever look myself in
the mirror again for speculating like that?" Hundreds of notes to myself in
entries kept by hand.
And I'm good at this game.
My words aren't enough, because in the end I was left standing when the
angel of losses came by the Nasdaq at 5,000.
So let me give you this trophy of the era, from someone I communicate with
who didn't make it. Remember her words if you forget mine:
"Dear JJC:
"You are the first columnist I've seen who has nailed down and reported the
fact that it was the stock market, and not job growth, that fueled consumer
spending. I think you are absolutely right. I took all of the money I had saved,
inherited and gained in profit from the sale of my condo and became a
would-be 'trader.' No job, no contribution to job growth.
"While I was raking in the profits from the appreciation of my stocks, I bought
a house, upgraded parts of it and furnished it nicely, contributed mightily to
charities and was generous in my gifts to my friends and family, i.e., lots and
lots of consumer spending -- still no job, still no contribution to job growth.
"By April 14, I had lost all of my profits and a sizeable chunk of the money I
originally invested. In order to raise cash to stave off the margin clerks, I
returned every item I possibly could to Home Depot, Lamps Plus, Wilson's
Leather, etc. My consumption was now in negative territory.
"Since then, I have stopped upgrading and furnishing my house; I have
stopped contributing to charities; I do not lavish gifts upon my family and my
friends; I buy things sparingly, and only if they are cheap, cheap, cheap. I am
sure I am just one of many who exemplify the fact: no stock-market
appreciation, no consumer spending.
"In a poll, you found that 16% of us were "vapor-adoes." (Kind of like
"desperadoes," but we only lost our money, not our lives.) I'll bet that even
those who just lost their profits and not their trading capital are not going to
be papering the town with charge-cards slip and cash. No, just as you said it,
it has been the stock market that has fueled consumer spending, and it has
gone away."
Why is her note so important? It says three things: 1) The market can take it
away much faster than it can give it, 2) the market is vital to the economy and
3) we all need each other to hash this stuff out and lean on each other. My
friend took solace from my darkest hours of losses in order to understand she
was not alone. And she took comfort that others lost as she did. But most of
all, she wanted to help us remember what went wrong, what went too high
and what may not happen again because the aftereffects are still with us.
Sobering. |
