A Tale of Being Blindsided

Cramer tells of taking a loss today and helps you learn from his missteps.
Author:
Publish date:

You hear all of the time about great trades that people have done. Heck, everybody who comes on TV has never had a loss. Those guys are amazing! Every professional makes successful trade after successful trade. No wonder I hang out with my kids when I am not busy. So, let me give you the flip side, a story about what really occurs when you get blindsided.

This morning, we read about the

IBM

(IBM) - Get Report

team-up with

AT&T

(T) - Get Report

. Every time one of these fluffy PR deals hits the tape lately, both stocks go up, as absurd and as rote as that is. So, I take 25,000 IBM at about 122 right at the opening. I can't believe that I am able to get the stock in roughly unchanged, given the love of hoopla this market has.

My antennae immediately go up. Something's wrong.

Next thing I know, my trader says there is someone out there trying to get short IBM. (You hear this kind of talk from sales traders; they are trying to help a client get short IBM by having someone pay a plus tick, or a higher buy than the previous trade, which is what you need to get the short off.) And I see the stock for sale at another desk ("see" means "hear," really).

I scan my research. Sure enough,

Savoir Tech

(SVTG)

, some outfit I don't know, is talking about how sales were bad. Sales of IBM products. I know I am a dead man.

I don't have time to check out the Savoir Tech story. I don't have time to call IBM. I just have my instincts, which say get out, fast. I bail at 121, taking a $25,000 loss.

Time expired: about 12 minutes.

Reason for loss? Didn't know Savoir Tech.

What should I have done? Not bet on a buoyant market off the AT&T announcement.

Second line of defense? When I saw that the stock was not up, I should have immediately sold it, not waited 12 minutes, as I bought it only for this story, and if the story didn't impact the opening, then it would not matter.

Amazingly, so many people acted on this story in a negative way, so many people have gotten short IBM off this story, that I now wish I had held on.

But in the world I live in, the stock traded almost immediately to 119, and I regarded it as a win that I did not ride it down to 119 and then take the loss.

Some life, huh?

Random musings:

For those of you who wish I had written about this as it happened, no can do. I am not about trying to impact IBM stock while I am involved on a trade. For example, let's say I decided to short IBM off this. I am not going to come to the site and say, "I hear bad things about IBM," and then try to profit off my readers (despite what they say about me on the boards). That would be just plain wrong. Sorry. The diary form works only so far. I don't want to move stocks even by mistake.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.