By James Cramer
Once again the institutions missed their chance to get in.
When stocks were in free fall Monday and you could buy all the
you wanted, money managers turned tail. I guess they figured that John Q. Public would be scared out of the market by the decline and begin to pull money out to lock in whatever gains they can.
Wrong! Monday turned out to be a colossal buying opportunity that only a few nimble managers took advantage of. Instead of being able to buy BMY down a few points, as it was midday Monday, these same institutions paid up 9 for Bristol-Myers the next day! They'll probably pay up again Wednesday.
Now with the last few days of the quarter upon us, they will have to come in and buy at these inflated prices to show they are invested. Their last chance to outperform the
has come and gone for the quarter.
Why is it that institutions can't get it right? Why didn't they buy when they had the chance to do so on Monday?
Here's my handy-dandy three-part answer to why you at home can beat me, the manager, because of the professional restraints placed on us.
The decline is simply too swift to buy. By the time the average professional manager had talked things over with his other professional managers and researched whether Hashimoto can deliver the sellers, the market had closed. Very few managers in our business have a plan of action ready for any contingency. Never confuse a mutual fund with a Delta Force.
If the average manager is underperforming, he is per se rooting against the Dow. He wants it to come down. This translates into a kind of mass paralysis: If I don't buy and you don't buy and he doesn't buy maybe the darn thing will go down and I won't look so stupid versus the Dow. If no one takes the plunge, we'll all do fine. Do we really think like this? You bet we do. Of course, someone breaks ranks when the public sends in money rather than withdraws it, and the scramble to pay ever-higher prices is on.
The decline was concentrated in index fund names. But the average active manager doesn't look like an index fund at all. His names didn't come down. He probably thought Merck was just as overvalued at 99 as it was at 101. He didn't regard the decline as steep enough to get in. But Monday's selloff was a quintessential bull market selloff. It was only going to let the most bullish managers get in. Everyone else would be left watching the train pull out of the station.
Individuals on the other hand can pull the trigger immediately. They don't have to worry about this silly competition versus the Dow. They don't have to convene big meetings about whether to take advantage of the Hashimoto decline. They don't have to fret about halting the market's decline by going in and buying size amounts of stock. They just put in their good-til-cancel order on the book, get hit, and finish with a great price.
Maybe this will be the quarter when the people at home realize they have a terrific advantage over those of us who pick stocks for a living. Maybe this will be the quarter where they figure out that they can do it better and cheaper by themselves.
Random musings: Painful reminder of how great small savings and loans are. In 1994, I was the largest shareholder of
Show Me Financial
, when I blew all my stock out in a margin call at about $12 a share. Tuesday it agreed to be acquired for triple that price. They Showed Me.
James Cramer is manager of a hedge fund and co-chairman of
While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to