Cramer Rewrites 'This Game Isn't Personal'
By James J. Cramer
Originally posted at 1:26 PM ET 7/8/00 on RealMoney.com
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For this rewrite I could have picked any one of three pieces about this semiconductor downgrade by Salomon Smith Barney. I picked this one because I want to show you that at one point I agreed with all of your hate mail about this call, but these days I just accept it and turn it to my advantage. I want to explain to you how analysts view their profession and what they are really doing, as opposed to what you think they might be doing. I was struck this week by the raw nerve that Jonathan Joseph hit when he made a call that I regarded as logical, even if I thought it was wrong. I couldn't believe that people regarded him as a villain. So let's get into why I feel that way and why you don't and why I think you should change your view.
Stop taking this game personally! (In the post-March 2000 era of lowered expectations, we have to come to our senses about how business is, in the end, business, and all of this love and hate for individual stocks is somewhat illogical. Nobody wants to hurt you.)
Jon Joseph does not hate you. (Jon, who I do not know personally and could not pick out of a lineup, is a guy who is supposed to get you in and get you out. He is not a tool of the shorts. He is not a tool of the longs. He is a tool of his research and of his gut.)
Salomon Smith Barney does not hate the semis. (I was on this conference call. There was no animosity toward the semis. Sure there was no smoking gun. Nobody said, "Prices have started to come down." Or, "I spoke to National Semi and they are worried." Believe me, before that call were to be made you would see these stocks go down appreciably. You can't wait until the semi companies see a peak to call a downgrade. The stocks would have anticipated that and been appreciably lower.)
There is no conspiracy to help the big guys. (So many of you wrote that he got the big guys out and left the little guys holding the bag. Believe me, that's totally wrong. The biggest guys were totally blindsided by this call. They were long and all remain long. They didn't like this call one bit. But everybody knew it was a reasonable thing for a guy to downgrade before the peak came out. Nobody challenged that assumption. In other words, if they thought that the semis were peaking this quarter, they would exit too. Some, I thought, would exit right after the quarters were announced and were angry that Joseph ruined that potentially exquisite exit.)
There is no malice toward Intel (INTC:Nasdaq - news) or LSI Logic (LSI:NYSE - news) or Micron (MU:NYSE - news) or Nat Semi (NSM:NYSE - news). (These companies were actually spoken positively about on the call. But Joseph is worried about peaking stocks, not peaking companies. He knows peaking action when he sees it, and he thought he saw it. I am more in the Edelstone camp. Mark Edelstone, the excellent semi analyst that finished first in our rankings, thinks there is more upside. But don't get me wrong, everybody knows that semi stocks are simply awful if there is a peak in pricing. It is a nightmare. Everybody knows that if supply suddenly came in balance with demand, the pricing in semis would plummet and the stocks would nosedive. Fast.)
There is no malice toward anyone. (I really want you to believe this. Even if you don't, I would hate to see it cloud your judgment. If some of you had spent more time buying the stocks this downgrade hit instead of grousing to me about his call, you would have made money. That is the object of this game, remember.)
Too many of you just got into this game. (This piece is not meant to be a history lesson, but the semis have been around a lot longer than many of you have. Anybody who has suffered through the brutal declines of stocks like Micron, Texan (TXN:NYSE - news) and, yes, Intel, knows how rough they are. They are almost impossible to stay long through because the pain is that great. In each case I would have gladly sold down 20% rather than take the pasting I had to by holding on. And I love these stocks.)
You didn't get obliterated in the 1984 downturn. (This was my first brush. I wrote GCA, a semi equipment company from 27 to near zero in a matter of months! I saw Texan and Motorola (MOT:NYSE - news) have sickening declines. And not one of the companies saw it coming. Not one. They didn't because it was coming from Japan. The Japanese decided they were going to take over semis the way they had taken over autos. Nobody believed they could. Few saw it coming. Almost everybody was wrong. I can still feel a twinge from the prices I would get when I would call in at Grand Central to get quotes on Motorola and Texan during the end of the summer of 1984. My head would spin. I had no idea these stocks could go down as they did. I was a giant believer in the United States and its manufacturing prowess. Boy, did I lose a lot of money.)
You didn't ride Texas Instruments down 100 points four times in the last decade. (I remember commiserating with a Goldman Sachs analyst not long after I started my fund, about how Texan had fallen from 220 to 175 in a matter of a few trading days. I wanted to buy it. He patiently walked me through how he thought we were only halfway down because the cycle was over. My god. The cycle? What the heck was he talking about? The growth of the semi industry was unlimited, it was secular, not cyclical! I rode them down and lost a fortune again.)
You didn't see when the semis hit a peak in 1995 and people lost their shirts. You don't understand the way institutional sales and trading work. (This was the big one. During this period Micron went up scads of points daily as pricing remained tight for DRAMS, as it is now. Then one day supply came in balance with demand. An analyst made that call. It was like a karate chop to the juggler for most. But not for me. I knew it was time to go. We lost 20% on Micron in a day. But we kept a couple of hundred percent in profit. The stock proceeded to spiral for years. Not days. Not months. But years. Jon Joseph knows this. He probably fears it more than he should. And I don't blame him. )
Joseph's job is to be early. He has seen the losses. He knows what it's like to give back the gains. When I first started running money, I remember hating Tom Kurlak after he downgraded my sainted Intel. What a fool! What a villain! What a charlatan! (There was a time when Tom Kurlak ruled this group. Tom was controversial because he played the psychology of the game. He knew that the real secret of making money in this group was to go against the grain. When everyone hated Micron a few years ago he told me to get on board for a multiyear move. When everyone loved Intel he thought there was too much risk. Sometimes he had data. Sometimes he just had his history. Tom Kurlak made me fortunes with his view. And I loved him. But not always.)
Wrong! What an idiot I was. Kurlak was doing his job. His job was to predict the future. He did it to the best of his ability. Sometimes he was wrong. Sometimes he has little grounding other than his gut. Sometimes he got you out too early. (Okay here is the truth about Kurlak. I didn't really know him that well until we journeyed to Ireland together to celebrate the opening of Intel's beautiful Dublin plant. I had taken my wife. Karen and I saw Tom and we said hi. But mid way through the flight Karen said to me "go back there and sit with Tom. He is the best and he will always be the best. And he's a great guy." I didn't really know how incredibly nice and self-effacing he was but Karen had seen him many times at Steinhardt Partners and always liked him. We became friends after that. Always work friends, unfortunately, but friends. That was a great trip, by the way, and after the Intel part was over Karen and I stayed an extra week because Ireland is so great. We ended up staying at a place called Sheen Falls in Kenmare, which is still the greatest place I have ever stayed, with the possible exception of Four Seasons at Nevis.)
But to question his motives? That turned out to be idiotic. Tom Kurlak turned down more investment banking business when he was king at Merrill than most analysts together have brought it. (How do I know this? Because I get around. I used to hear that he would tell his bankers that the cycle was wrong and he would bury people. You have no idea how much he cared about making people money. You had no idea about how much he sweated his calls and how big they were. You have no idea how BIG he was. He was dramatic and forceful and not to be doubted. Above all, he understood the greatness of the game and, like Ted Williams, understood the science of it. )
He made his calls to no one before they went out. I know this because, by the time Tom left Merrill, I regarded him as a friend, but he still blindsided me a half-dozen times. (A couple of jokers emailed me about how this could not be true. Oh yeah? Talk to me about the time the he took Intel off the list when I was on vacation in Antigua! I remember calling him and his apologizing for the untimeliness of the downgrade -- meaning that it occurred during my vacation, not that he was wrong. The idea that Tom couldn't downgrade Intel because I was long Intel -- or because anybody was long -- was just plain ludicrous. The idea he would tell me about it ahead of time was criminal. Tom thought he had a homerun call. I don't even remember who was right the last time he talked about it. I do remember that he believed what he said with the same passion I feel about things I say. But he would go the other direction if the evidence proved him wrong. He would eat crow, as horrible as that tastes.)
If I took it personally or tried to find a sinister motive, it never panned out. Kurlak was about making you money. So is Joseph. I know he didn't score in TSC's analyst polls. But that doesn't mean he can't be a factor. (Look, I value our poll immensely. It is the most scientific I have ever seen, a first-class effort to match calls with reality. When I say that Joseph is at the top of his game, I meant his "impact" game. He can make these stocks go up or down. Time will tell if he is right. But don't judge him yet. He was meant to be early. If, a month from now, these stocks are appreciably higher, he will be dead wrong. We don't know yet, however.)
And, no, I don't agree with him. I bought stock on the downgrade. I made that plain. (Although I sold some of that stock already, as I said, I was long the group and remain so and didn't want more exposure.) If you thought he was wrong or think he is wrong, use it to your advantage and buy, for heaven's sake. (This point is really the main takeaway of this piece. If you think Joseph is wrong and you have conviction, why not just bet against him? That's what I say all of the time to readers who think I am wrong. Just bet against me. This was an ideal day to take down the semis if you believed. And by week's end you made a ton of dough. Again, that -- and not blasting Joseph -- is the goal. You could look at it the way I did: "Hmmm, Joseph did some damage; I don't think that's sustainable." I got hit. But I think that the Street will reiterate its buys and the stocks will come back. That's logical and unemotional, and as we all know, I am a wildly emotional and passionate guy.)
But don't blast his right to make the call as he sees it. That's just silly. He's paid to try to make you money. If he doesn't, he will eventually lose his job -- no matter how much I like him. It was his judgment that it was time to take something off the table. Heck, that resonated with me. I understand it. And I defend his right to make that call any day of the week. (I meant this. Wall Street is a high stakes game. If the semis fly up and up and up Joseph is either going to have to get back on, and eat the crow, or he runs the risk of hurting his career. That's why they pay these guys the big bucks.)
Stop treating stocks like you love them. They don't love you back. They are to be bought. And they are to be sold. That's the way it is. (Way too many of you somehow think that stocks are meant to go up, and that as long as everybody plays by the rules and stays bullish, money can be made. I can't believe after the licking so many people took in the last few months that there are so many of you who don't understand that stocks can take your heart and your money away. They can ruin you. They can be the devil incarnate. They are not put on earth to make you money. They are risky instruments that can produce spectacular rewards and lousy losses. Respect those who are trying to keep you from the losses, even if you think they are wrong. And if you think they are wrong, buy what they are selling, live long and have the best revenge!) |
