Money on the Line Makes a Big Difference

Skin in the game. That's really the truth, isn't it? Doug Kass has a really great point here. The "no pain, no concept of loss, no concept of gain" thinking of armchair players, including professors, makes their information suspect in my book. These professors who opine on the market seem to do everything on paper, whether it be trashing the banks and presuming they can't raise capital - untrue -- or suggesting the uptick rule doesn't matter.

Skin in the game is not only important to realize how a wrong judgment affects the bottom line. I also think it is important to have a little money on the ideas that you are thinking about, because it helps concentrate the mind. That's what I often think about when it comes to the smaller positions I have in Action Alerts PLUS. I put them on to be sure I am following them closely enough to be able to pull the trigger in the miasma that the market often swirls in.

I learned this at my hedge fund. Having a little something on the sheets makes you focus on and know what to buy when everyone else is losing his or her head because the market's so bad.

We have that now on VMware (VMW - commentary - Trade Now), a small position that was meant to grow large on weakness. Of course we have no weakness, and now it is up on takeover talk. But it is important to be ready, and you can't be ready if you are simply browsing your screen and doing nothing more.

Which gets us back to Doug's point. Without skin, you simply care less. There is absolutely no way you can care as much -- except in a utopian society -- if you don't have money on the line. It allows you to be wrong, to be early, to be late, to be anything you want.

And that lack of discipline leads to decisions that aren't realistic on the battlefield. That's why I simply don't trust their views or their sense of direction as much as I would anyone who has made money over a consistent period of time in the market.

At the time of publication, Cramer was long VMW.

---

Know What You Own: In Wednesday's trading, the most active stocks included Bank of America (BAC - commentary - Trade Now), the Financial Bear 3X (FAZ - commentary - Trade Now), General Motors (GM - commentary - Trade Now)S&P Depositary Receipts (SPY - commentary - Trade Now), the Financial Bull 3X (FAS - commentary - Trade Now), Citigroup (C - commentary - Trade Now) and Regions Financial (RF - commentary - Trade Now).

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.