Where in the commandments of investing is it written, "Thou shall not change one's mind, even if it may be wrong?" In a perusal through the message boards last night after my Internet service provider finally came back up (that's another story), I read about people who were angered at my changed stance on
The one that stuck with me more than any of the other stinging criticisms was from an individual who heard me speak at a
investment forum. I had to list stocks that I thought would be good bets for the long term. I usually hate doing this kind of talk because we are talking about businesses -- not stocks -- when we do those kind of presentations, and businesses change.
I mentioned I liked WorldCom for the long term. I had "used" WorldCom for a long time because it had been a core position of mine for a long time. Core position, to explain Wall Street terminology, means that I have no intention of selling it and if it goes lower, I would be inclined to buy more. As I have mentioned in these columns many times, I trade around core positions to capitalize on incremental opportunities. A research firm might push a stock too high momentarily and I would sell some to buy it back lower.
Indeed, I have owned WorldCom for many years, and it was a giant hit for my firm. But did I "love" WorldCom? (I tend to love my wife and kids, not a piece of paper representing an uncertain profit stream.) Why did I love WorldCom? One was because it was the low-cost producer of long distance. Two is that its management is superb and aggressive, Three is that the stock had a lower multiple than its growth rate. As long as these principles held up, I was on board.
But beginning this year, the environment for long distance changed. WorldCom had been taking too much market share from everybody else. Its competitors woke up and got aggressive on pricing, even to the point where they were willing to compromise near-term earnings. I began seeing commercials for companies that used the Net for long distance at unbeatable prices. I didn't like the way WorldCom, which has a tendency to blow away the numbers, reported a couple of funkier quarters.
When the stock was in the mid-80s, I grew tired of defending it daily in my six-a-day meetings with my partner,
. (As I have said many times in these columns, Jeff and I constantly challenge each other about ideas, very similar to the way we challenge managers on our
TV show, which is why I regard our show as so natural and realistic vs. the usual softball stuff that goes on away from our show.) Now, at that point, I could do one of two things. I could demand that we stay long it because
, the man who runs WorldCom, will figure out this new world and triumph in it. That's an attractive proposition and he has done it before, but that requires an ability to take some pain and to step aside from the performance game while Ebbers figures it out.
Two, I could sell it, and admit that the world had changed and WorldCom was no longer as attractive an investment as it was when it was appreciably lower or before the competition started coming on like gangbusters. I chose to do the latter.
One option I never considered was selling the thing and then proclaiming to the world that I like WorldCom as much as ever. That would please all of the people who had bought WorldCom after hearing me praise the company. (I am not a broker, but I am conscious that people would be attracted to buy something that a performance manager speaks highly of here or in a speech.) But it would be wrong! It would be acting against my conscience. If I no longer own something, it is because I think it won't do as well as stocks I do own.
The problem with the flip-flop perception, by the way, is really one of image, in my opinion. I look through funds I own and funds that are written up in
Investors Business Daily
, and holdings change all of the time. All of the time. Most people don't speak out about it. They don't, I would gather, because there is nothing to be gained from it. Why do I do it? As it says in my disclosure, I do it because I want to show you how the game is played. I want to strip the hocus pocus out of this business because I genuinely believe, when it comes down to the basic decisions we make as managers, that if you have the time and the inclination, you can do it as well or better at home than we can. If I didn't believe that, I would, frankly, be performing an act of outlandish cynicism where I am simply trying to dupe you into believing that you are smart enough to do arithmetic and some reading
in order to get your 10 bucks a month
! Ouch, that hurts just to write it.
It is much easier never to change your mind. It is much easier to stay the course at all times, regardless of the change in circumstances. But does it make you more money? If it does, then my whole career has been a sham and a farce, and my numbers sure don't indicate that. I changed my mind on WorldCom because I thought it would go down. It has gone down. It bounced yesterday. (Hey, wrong for a day.) But that's not what this game is about. It¿s about making judgements on stocks
WorldCom is a fabulous business, just fabulous. I just feel there are better stocks right now than those involved in the business of long distance. In the early and mid 1980s, I was in love with
. I could recite chapter and verse about them. I knew them cold. I lived and breathed them. If you came near me you bought them. (I was a broker then.) But when the manufacturing sector of this economy came back at the end of the previous decade -- when I speak of manufacturing, I am thinking about
, although they came back too -- I had to switch gears. I embraced tech wholeheartedly.
People who had listened to me about the Cokes and the Pepsis deemed me a joker, someone who changed his mind after a short period, someone who had no rigor. Not listening to those catcalls was the smartest move I ever made. It allowed my stock picking, which had been on fire in the '80s, to remain on fire in the '90s. Of course, it was hard to switch. Heck, I used to go to Merck annual meetings just to shake the chairman's hand and thank him!
But this is the business of stocks. The stock business changes. For me, the long-distance business changed. And I left it.
That's just the way it is.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Microsoft, Intel and Sun Microsystems. 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