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Pastimes : James Cramer Skeptic Thread -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (1039)	12/8/1998 3:00:00 AM
From: Marc Newman	Read Replies (1) \| Respond to of 1254

It's late and I'm going to bed, but my quick answer is that the value added in trading is that it makes one money in up or down markets. If the market hadn't been on such a bull tear the last few years, the buy-and-hold mentality wouldn't seem so overwhelmingly astute. Just my quick take, Marc

To: Oblomov who wrote (1039)	12/9/1998 1:29:00 PM
From: Michael Elizabeth Chastain	Read Replies (1) \| Respond to of 1254

Nonetheless, if you would have simply bought and held equal parts of DELL, AOL, INTC, LU, etc. over the past 3-5 years, then your market returns would have well exceeded Cramer's ... I did that. I put 100% of my IRA money into MSFT in two lots on 19 Jul 1994 and 21 Jul 1994 (right after the antitrust settlement with the DOJ). I figured that Microsoft was going to own the desktop and nobody could stop them or even slow them down. I also had ten years of professional and personal experience with Microsoft products, including some exposure to reading Microsoft source code. I held until 03 Sep 1997 and 12 Sep 1997, when the stock price stalled out for a month because of the next round of antitrust trouble. I thought I would be the world's biggest potzer if I let that gain evaporate, so I sold it all. I had a 71% annual compounded rate of return on the first lot, and 74% on the second lot. And that was my entire portfolio. No leverage, no margin, no options, either. For more than three years, I outperformed almost everybody. Does that make me smart, or just lucky? I've learned four things about this investment from reading Cramer. First, if I still had this position, and I was still nervous about it, I would sell half of it, not all of it. Second, Cramer wrote a column about tech stock P/E's. He said that he does not mind if a market leader has a P/E of 50 or 60, that in fact he'd rather buy a market leader such as DELL, MSFT, CSCO, or AOL that has a premium P/E than an also-ran company with a value P/E. He's right. Go back 1 year, 2 years, 5 years, whatever, and look at who had a high P/E then, and how they have done since then. In fifteen seconds, that column changed how I think about growth stock P/E's. Third, Cramer wrote another column about a great option trade he made, where he bought a bunch of MSFT options just before earnings, and then closed out his position the day after earnings at a big profit. That was in April 1997. I remember that day clearly. MSFT closed at 98 the day before, they blew out their earnings, and it ramped all the way to 106 the next day. While Cramer was raking in the chips, I was agonizing with my best friend Jeff B (what a coincidence!) over whether to sell or hold. Cramer sold and made short-term money. I held onto my stock, with a basis of 24, and I kept making money. Fourth, and most important: Cramer has said that he doesn't write his columns so that you or I can trade the way he does. He writes so that he can rip back the curtain, so you can see what he does, and see his interpretation of it. Why are his returns inferior to a simply buy-and-hold strategy? His returns are superior to buying and holding an index fund. If you want to buy-and-hold some high-flying tech stocks, looking for the next MSFT, go for it. It worked for me. It's working for the Motley Fool guys. Here are the negatives: (1) you have to take on a lot of position risk. (2) per Peter Lynch, you have to be in a position to do a ton of technological homework. For instance, in the stock of the month, WAVO, you have to know a lot more about television signal distribution than that VBI is an abbreviation for Vertical Blanking Interval. (3) per Warren Buffett, you have to know something about the CEO of the company. (4) you have to hold your position after it's gone up 100%, 200%, 300%. This can be very hard to do if you are you a quote junkie. As Karen Cramer once said to Jim Cramer: "you are like a kid watching cartoons with that screen. Quit watching it and do some research."