Selectively Circling the Oil Wagons

This column was originally published on RealMoney on Oct. 11 at 2:25 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Trade around the oils. That's what you have to do now. We are no longer in the phase where you can walk around max long oil. It has become too difficult. That's the takeaway of the selloff that wiped out 15% of many of the good oils last week. We are out of the safety zone.

I pressed my bet when oil got to be more than 10% of the S&P, in part because of the once-in-a-lifetime circumstances involving Rita and Katrina. But from here, you are stuck with the prospects of "hoping" for a cold winter, and anyone who knows my stuff from Jim Cramer's Real Money, Sane Investing in an Insane World knows that hope can't be part of the investing equation.

No, you don't want to abandon the oil patch and yes, oil can still go higher. But when I broke my discipline and held onto big oil higher, I ended up not selling any EnCana(ECA) at $60 or Halliburton(HAL) at $69. And in the world that I'm in, that was just a mistake because I couldn't buy them back when they crashed lower.

That's why today I trimmed back one of my oil holdings because if oil reverses on some inventory number or on warm weather, I need to be able to have some room to put some of the cheaper oils in my portfolio.

Don't get me wrong, the Chinese still need oil companies, we haven't found more oil and there's imbalances abounding.

But let's be honest. The shareholder base has changed. We have a lot of people who don't want to be seen with owning these stocks, margined players, ridiculous momentum buyers, guys who don't know what they own. I feel like I am in Yahoo!(YHOO) in 2000 -- I know it's right, but I have gunners to the left of me, jokers to the right, and I am stuck in the middle owning something that could crush me before it makes me rich.