Biting the Value Bait

And it bit back.
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It should have happened this last week. The value guys had the growth guys in their sites. They had us all in the crosshairs. But they couldn't pull the trigger.

You know why? Because in the end we growth guys aren't so much driven by the chart as the fundamentals and, like it or not, the fundamentals just aren't cooking for those old value hounds. The numbers just aren't there.

Oh, I pushed the value buttons internally this week. Let me tell you about an incident that occurred that tells the truth about the alleged rigor that the value guys throw in our faces, that explains why their high moral ground is made of quicksand.

The situation: It's Thursday. All of the talking heads are talking about the traditional stocks, got to own them. After two days of shift, nobody is going to stand up for growth. The bookers bring on the value guys. The journalists are all value guys anyway and their sources are all value guys. And everybody likes a horserace. It sells more papers.

Gets better ratings.

I think, heck, OK, I will listen to the sirens. I see the broken downtrends. It's old timers' revenge! I can wear their stripes. I will play their game.

I come up with

Continental Airlines

(CAL) - Get Report

. OK, let's do some stipulating. Continental is *&%$!&$*%# cheap. It sells at a ridiculous multiple to earnings. It is the best-run airline, if not one of the best-run companies, in the world. It is managed superbly. It is the leader. It is fantastic. Trust me, I live next to its flagship airport at Newark. CAL is low, inexpensive and textbook of what these value panjandrums would have us own.

So we bought some into the cyclical uplift. I jammed it on to the sheets. I had to own it. I knew it was right. Heck, I have traded for 20 years and if I know it is right, O*&%*&$ it is right. My young staff looked at me worriedly? Does he know what he is doing? I could feel the skepticism in

Matt "New Economy or Bust" Jacobs'

eyes. Jacobs had gotten beaten up but good in the

MUSES

(MUSE)

and the

MSTRs

(MSTR) - Get Report

. But he knew, at least, that the next bit of news would be good, not bad, and the next bit of news is what controls in our business.

I was tolerated; my idea was tolerated. Old guy, give him a break.

On Friday morning

CIBC World Markets

cut numbers on Continental. Oh, it was an innocent cut. Fuel, fares, some gibberish that makes numbers go down. On the same day

AMAT

(AMAT) - Get Report

and

LSI

(LSI) - Get Report

got their numbers bumped up. On that same day the semi equipment guys let people know that business was smoking. On that day

Brocade

(BRCD)

was giving you the heads-up that is was winning huge business and

BEAS

(BEAS)

was crowing about all of its contracts. On that day wireless companies described growth rates that dazzled the Street.

NT

(NT)

raised the bar; so did Hot Water Pipe

(HWP)

.

And CAL's numbers came down.

At our morning meeting,

Jeff Berkowitz

, my partner, my friend, my colleague and the man I respect most in the business, looks me in the eye and he wants to know what I was thinking buying Continental Air. I mouthed something about a

US Air

(U) - Get Report

strike and a low multiple. He asked me again -- the way my wife used to ask me in the seven years we traded together -- what were you thinking? What was your edge? Numbers are going down, not up. Berko doesn't care that

Floyd Norris

in

The Times

said value was right. Berko doesn't read

Abelson

or

Samuelson

. He's too busy making money.

I agreed that CAL would be down while our tech stuff would fire right back up. I agreed to cut the position in half. I acknowledged that the stock would be down a buck and a half and we would be down 100 Gs by midday. I acknowledged I had hurt us because I had strayed from the narrow and true path of growth.

And that's exactly what happened. CAL opened down, stayed down, and finished at the low of the day. I was shamed. And angered. I had bought into the rap of my critics that I had to buy cheap and sell dear and that little lesson cost 100 Gs in less than 24 hours. I apologized and promised I wouldn't do it again.

So be careful this week when the value guys knock the highfliers. Remember, in the end, the stocks of companies that are doing well go up and the stocks of companies with numbers that are coming down go down.

I wish there were more to it than that. There isn't.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Continental Airlines, Hewlett-Packard, Mircomuse, BEA Systems, Nortel, Brocade, Applied Materials and LSI Logic. 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.