James Cramer-A Traders'Tale with TBH
Entry Is Everything
By James J. Cramer
5/19/99 7:09 PM ET
Every day there is a crisis at Cramer Berkowitz,
even good days! Today's fiasco: Brazil. I have
loved Brazil ever since Fraga took over as Finance
Minister.
Actually, love is probably not strong enough. There
are days when our trading sheets look like we
should be trading out of Sao Paolo.
Coming into this week, though, I cut back on my
Latin stocks, because when the U.S. Fed gets
religion, there is often an Inquisition for
international equities, especially ones in an area
as fragile as Brazil. TheStreet.com, in fact, had a
terrific article suggesting that these stocks could
get hurt, and I used it as a cue to lighten up
dramatically.
Last to go were my phone company positions,
including a hefty chunk of TBH, the basket of
Brazilian telecom stocks (split out of what was
formerly Telebras) which has been such a winner
for me this year. So, when I read the article in the
Journal this morning that this time it could be
different, and these stocks might not get hurt so
badly, I felt emboldened.
Similarly, I felt that Telmex might be ripe for a
trade, as that, too, had fallen precipitously from 90
(even though it had rocketed there just as fast). At
Cramer Berkowitz we each have our areas of
"expertise." (I use quotes because it seems
presumptive to use the term expertise in light of
my trading in TBH today.) These foreign stocks
are mine, so in our morning meeting, I could not
resist, I said we had to get back into TBH.
Looks like I ran into a Latin American buzz saw.
I put my first 15,000 of Telebras on immediately at
99.75. That was mistake No. 1. These stocks
were huge for sale, something I could have
detected by simply calling any broker who covers
us and asking for a Floor look. A little extra work
and I could have avoided buying an artificially
buoyed opening -- artificial because while Brazil
may have wanted Telebras, Americans sure didn't.
By the time I got my report I was down a dollar. I
looked at my watch: It was 9:34, and already a
terrible first trade. Such a quick decline should
have been a warning, but no, I was blind to it. I
was watching the bonds, and thinking, wow, they
will bail anything out today. Especially Brazil.
The long end of the bonds, however, was trading
up on the Fed's prospective vigilance, not on a
desire for the Fed to have rates go lower. The Fed
wants to tighten, not ease. Brazil goes up on an
ease and down on a tightening. That's pretty much
the law.
I ignored that law, and thinking, hmmm, down a
dollar, got to buy more. I put on another 10,000
shares. I did it more out of stubbornness, some
sort of silly, "I can't be that wrong" logic, than out
of cool-headed trading.
Sure enough, I bought the stock a dollar lower
from the previous 15,000. I got the report in the
same limp fashion, meaning I was down another
dollar by the time I heard the bad news.
At that point, like a frazzled NBA coach, seeing
the other side suddenly break for a skein of 10
unanswered points, I called timeout and huddled in
the office of my partner, Jeff Berkowitz.
I know the sellers of Telebras didn't realize that the
timeout had the desired effect -- the selling did
stop, right then and there. But because I had
committed so much capital at one level and had
ignored what the market was telling me that day --
namely, that I should be more patient between
buys of a name that is extraordinarily volatile -- I
failed to buy any more at the lower levels.
That compounded a terrible entry point.
I took the Telebras home, rather than taking a
loss, because I now believe that with TBH's
six-point decline from its high to Wednesday's low,
the bad news may be in the stock. Still, the trade
colored the whole day and eroded that day's
confidence as surely as if I had shot two bricks
from the floor at the beginning of the game and
remained gun-shy throughout the rest of the
session -- even though I, correctly, liked the tape.
Which brings me to my reason for writing this
piece: Whether you are daytrading or investing,
your entry point matters tremendously. It affects
your head. It affects your judgment. Don't fire the
first shot, until you are truly ready and the selling
has run its course.
It is a lesson that will save you a fortune. Learn it
from me, even as I violate it.
James J. Cramer is manager of a hedge
fund and co-founder of TheStreet.com. At
time of publication, his fund was long
Telmex and TBH (the basket of Brazilian
telecom stocks split out of what was
formerly Telebras). 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.
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