We played the stupid
-add game on
and we got our head handed to us.
We bought into the idea that there would be a lot to buy and we forgot that there would be a lot to sell -- including all of those people locking in a risk-free short.
It was a bummer ending to an otherwise well-navigated week, sort of like tripping right at the finish line.
We thought we had a
, one of those massive blowoffs to the upside, and we didn't. We took a loss at the bell and moved on for all but a handful.
It was instructive -- like the way a noose is an instructive way to measure the neck size of a shirt.
Don't kick the chair on your way out.
Editor's note: After this article was originally published on March 31 at 4:20 p.m., several readers emailed James J. Cramer for more explanation and clarification. Hence, the trader has provided the following addendum:
What the heck? That's what went through my mind as we saw Veritas drop like a stone in the last hour of trading. I knew we had stumbled on a trade gone awry.
But we didn't understand it. We didn't understand that if you shorted Veritas and went long
into the madness, you could end up making a lot of money.
You could do that because Seagate was
going private at a low price that would probably have to be increased by Veritas. So people could short Veritas risk-free into the add to the S&P -- provided that they bought Seagate. We ran into an arbitrage landslide. And we lost. Losses are part of the game, but this one was as swift and as horrible as I have ever experienced.
Chalk it up to trying to game the ungameable, the potential demand of S&P 500 index funds against the potential supply of people who were sick of owning a highflier like Veritas and those who wanted to get short Veritas and go long Seagate to lock in a potentially great return.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time this column was originally published, his fund was long Yahoo! and Veritas. At the time this column was republished, his fund was also long Seagate. 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