Breaking Into the Business Part 4: Running Your Own Money

Trading for a living isn't as easy as it seems, Cramer says.
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Editor's Note: While James J. Cramer is on vacation this week, we're reprising a five-part series he wrote on how to get a job on Wall Street. The series was written back in '97, and rewritten in the style of his Saturday "Take Two" columns. Part 1 recounted Cramer's decision to ditch the law for Wall Street, while Part 2 discussed getting your foot in the door. Part 3 explained the difference between the buy side and the sell side.

So you think you are good at picking stocks. You're so good that you could retire on it or feel like you should be running other people's money. You watch

CNBC

, you trade with

Accutrade

, or some other discounter.

(When I wrote this piece, we didn't even know who the big e-traders were going to be. I reached for Accutrade. These days there are so many, I don't know which one I would pick.)

You make a decent return.

Cramer's Series: Join the discussion on our

message boards.

You want to know why you can't be me? Let me give you a big head's up: You can be me. But it is best to get started in a formal setting, because running money is as daunting a profession as they come.

(I see people all of the time who want to run money. I know very few people who can do it as a discipline, even in this greatest of bull markets. There is something about running money without a source of income other than what you make that is scary. That's why I always hope to hear of daytraders who succeed, but all of the studies show they don't. That's why I always listen when I hear people are running money because I know that it is a giant leap to run money from simply trading your own account on the side.)

I remember when I first told my dad that I was leaving

Goldman Sachs

sales to run money. He had just gotten over the idea that I had graduated

Harvard Law

only to become a broker. Now he hears that his son is going to pick stocks for a living.

No one has ever made a dime legitimately in the market, he assures me. Wrong, I tell him. I can do it.

(Here is something that has changed since I wrote this piece. I am in touch with individuals all of the time who have killed, just slaughtered, the averages, with some very good stock-picking. I know that no one should ever confuse brains with a bull market, but there have been fortunes made just owning the best names. It is amazing. The best names in '97 are still the best names now. If you held them, you don't need us. We need you! That's why I am focusing on this community/personal finance thing, both with TSC's message boards and my new Smarter Money column. We can help each other. The TSC community is the ultimate paradigm destroyer. It is the ultimate liberator from the commission- and load-bearing funds and brokers. As long as we keep the discourse high, we can do a great job helping each other pick stocks. It is like the Motley Fool in '96 before it got corrupted by cheerleading, or Silicon Investor in '97, before it became a hate board.)

My confidence, however, did not stem from my ability to make money trading for my own account. That would never be enough. My confidence came from two other sources you must have before you go out on your own: a tidy bankroll and the possibility of going back to work on the sell side because of the "book" of business I had made while at Goldman Sachs.

(The backstop is key. If you try to trade for a living with no money saved, you will never be able to trade it right. You will always be looking to exit before you should and never be able to load the boat up at the bottom.)

In a great tape like we had, everybody looks like a genius. I had ridden the '84 to '87 bull market for all it was worth before I left Goldman to run money. But within the first two months of my new life the market had dropped 400 points. Within the first five months it dropped 800 points. Had I not socked some money away, I would have had to go back to work on the sell side even though I was a hero in the Crash and didn't get hurt. You can't put food on the table with relative performance.

(I still had to sell some of my firm to my dad for a pittance to survive. Good trade, dad!)

Could 1997 be a replay of 1987? If you are worried about this problem and are not a short-seller or have never heard of puts, don't quit your day job. But certainly don't let anything you have done this year convince you to run money full time. These last 3000 points would make a monkey with only a buy key on a computer look like

Warren Buffett

.

(So were the next 3000!)

My suggestion: Sock money away, learn another part of the securities industry that you can fall back on, and then strike out on your own.

(Don't quit your day job until you have enough money to live off of for a year. That way you can ride out a couple of downturns. And leave on good terms. You may have to come back!)

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.