Sneak Preview: Ride the Business Cycle

The mutual funds and the hedge funds are the only players who count, and it's their opinions that determine where a stock goes. The big institutions all obey the cycle. They're the reason I drew up my chart about cyclical investing. And if they obey the cycle, then stocks will obey the cycle, too.

The big institutional investors sell secular growth stocks when the economy is strong, and they sell cyclicals when the economy is weak. End of story. If you try to fight this, if you tell yourself that your stock is so good the cycle can't hurt it, if you believe a stock isn't cyclical when the Street thinks it is, you'll lose. ...

I learned this lesson the hard way in UnitedHealth Group(UNH Quote - Cramer on UNH - Stock Picks). I'd liked this stock well before Mad Money premiered on March 15, 2005, and owned it for my charitable trust. At the beginning of the show, the stock was a split-adjusted forty-five bucks a share. I made so much money in the stock and liked it so much that I was calling myself Dr. UNH. ...

My biggest mistake in this stock was that I tried to resist the cycle. I had been extremely positive on UNH during a period where the Fed was raising rates and the economy seemed slow. UNH is a health-care stock, maybe the health-care stock of health-care stocks. That means it has a place on the cycle: it's a secular growth play. You own it when the Fed is raising rates and the economy is weak. If you obey the cycle, you also have to sell it when the economy starts to turn around.