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Wrong! Rear Echelon Revelations: How the Game Works: Part 1
By James J. Cramer
11/13/00 7:34 AM ET Editor's note: This is the first part of a
three-part article. Please be sure to check in later today for the
other installments!
The electronic brokerages have done yeoman's work in getting people
involved in the stock market. As long as it was going up, you could
only stand back and marvel at how joyous it was that so many people
new to the market were making money.
But now things have changed, for the worse. Now people regularly get
blown out of this game as quickly as rookies get blown out of the
NFL. It's painful to watch and even more painful, of course, if it's
your money that's getting vaporized.
Those who got into this game post-1996 seem completely mystified as
to why bad things are happening to good dollars. They seem aghast that
they can buy high-quality stocks, name-brand stocks, and lose money.
Sure, they understood that if you bought the high-roller dot-coms you
could lose, but somehow they thought that if you bought "blue-chips"
like IBM (IBM:NYSE) or Cisco(CSCO:Nasdaq), then you just made money
more slowly than you did in the highfliers.
The idea became ingrained that the pace of profit was all that
mattered. Losses? Those happened to people who didn't know how to buy
stocks. When Phil Jackson and Geena Davis bought stocks, by golly,
they went up. When the nail salon gang got those email bulletins, hot
darn, that's money in the bank. Jackie Chan? No burglars going to get
his picks. He has studied up on storage. We know that woman with the
toe jam knew how to distinguish among those highflying fiber plays.
How else could she afford that handsome trainer? Rich Kotite might
have been the worst manager who ever lived, but when it came to
picking stocks, I guess he was a genius. I hear Kotite loved Vitesse
(VTSS:Nasdaq) and Veritas (VRTS:Nasdaq) and knew the difference
between the two, which is a heck of a lot more than he knew on the
gridiron.
Now, of course, we have taken out and shot both the highfliers and
the blue-chips. We leave some scattered biotechs and Brocade
(BRCD:Nasdaq) on the 52-week-high list but they seem like endangered
species to all but the true diehards and the portfolio managers that
play in those high-falutin' areas. The idea that Kotite or Jackson
has enough time on his hands to pick stocks, or even an adviser,
seems downright ludicrous. And the legacy is one of an embittered
public who thought that there was nothing to this game. Nothing at
all! Of course, as someone who has picked stocks and made a living
doing so for 19 years, I saw this stuff and shook my head. Holy cow,
had the game just gotten easier? Did they put more fluff in the ball?
Did they now allow stick 'em and I was playing by the old rules? Was
I stuck in tackle when they were playing flag?
Like the beginning of Moby Dick, "Call me moron?"
Now what are the people still in the game supposed to do? Do they go
back to betting on brand names? Do they go back to cash? Do they buy
bonds? Do they lick their chops and hope for better times? Do they
just go back to low returns?
To my partner, Jeff, the answer is pretty clear: Let others do it.
The game is too hard. Just tune out all of those commercials as they
encourage you to do the impossible. They were always just unfair.
To me, well, I keep thinking, let's help and educate. I figure that
if you have the time and the inclination, you can stay in the game.
But you have to know how the game works.
They usually try to simplify the game in the papers, urging a
buy-and-hold strategy of blue-chips. But we know now that there's
nothing magical about blue-chips. They can go down every bit as fast
as the highfliers. And we know that there's nothing permanently
brilliant about buy and hold. Those who bought and held Unisys
(UIS:NYSE) or Lexmark (LXK:NYSE), two loved stocks, haven't done so
well. Nor have those who have bought and held Applied Materials
(AMAT:Nasdaq) or Mattel (MAT:NYSE). Those have been losing
strategies.
What I want you to do is think like a pro. That never goes out of
fashion, whether you're the client of a broker or an adviser or a
client trading electronically. If you think like a pro, you'll be
able to recognize danger, and acknowledge that sometimes things go
wrong even when you least expect them to.
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com. At time of publication, his fund was long Cisco.
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