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Cramer Rewrites 'Getting Back In: Part 2'

Staying in the game means knowing what kind of market you're in and making a judgment.
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Editor's note: This is Part 2 of a two-part article. Please be sure to check out Part 1.

Staying in the game means knowing what kind of market you are in and making a judgment. On the

New York Stock Exchange

, right now we are in a benign market where good news moves stocks up and bad news gets glossed over. On the

Nasdaq

, any news is bad. Can that change? Yes, on a dime. Do we know when it will change? No, but we know that when it does it will be so swift that, unless we enter in gradually with our cash, we will miss it.

(I don't like labels such as "bear market" and "bull market" because, with so many stocks, there are plenty that are not dancing to the big piper's tune. I don't want to miss something because I say "it's a bear market." That said, only cash really works in a bear market, as the bear is punctuated by short sharp rallies that take your breath away. Right now it doesn't matter how good earnings are. But how do we know on Tuesday evening, if Intel (INTC) - Get Intel Corporation Report reports a good number, that the psychology doesn't reverse? How do we know that?)

The trick is to balance the near-term losses that come from committing new capital with the potential gains that come from a possible snapback. It is very hard -- a grueling balancing act.

If I didn't have to make it (that is, if I didn't run money professionally), I wouldn't make it.

But I am a professional and it is what I do.

(In other words, as a professional I am paid to make money in good and bad markets. Most of you are not. I can't give back the money to my investors and say, "Hey bosses, crummy tape, it's all yours." I have to be creative and find ways to make it work. I have to use combinations of shorts and hedges and cash to lose less on the downside, or lose nothing. Right now we have lost much less, but that's not the game. The game is to make a lot of money and it's hard right now to do that. That's why I say that if you don't have to try, right now don't. It was too easy to make money a few months ago. Now it's too hard. That's just the way it is.)

In the last few years many of you have taken on the attributes of professionals. You monitor the market, you watch it on TV and you read about it. You have become players in it. Being a player has its advantages when things are rocking.

(Almost everybody I know who is an amateur has beaten me in the last couple of years. To which I say, I sure hope so. We run a fund to maximize returns and minimize risk. But it is, in the end, a business. Nobody likes to admit that it is a business except me. It reminds me of the medical profession. For the longest time they didn't regard their business as a business; it was a profession. HMOs and the runaway costs changed that. Same thing with lawyers -- when I helped start American Lawyer in 1979, lawyers used to tell me, "This is a profession, we don't think about money." Well, that was wrong, too. We are now where doctors and lawyers were until recently, and my "profession" is clinging to notions that consumers of our wares know nothing and can be overcharged and fooled. That's how many of us now view the doctors and lawyers of old. This gig came naturally to me because of the superb training I had by Steve Brill, the founder of American Lawyer and a partner of mine in many ventures. Steve, who is up there with the smartest, most penetrating, most rigorous -- and greatest -- guys I have ever met, managed to change my mind about the professions (I confess I grew up in a household that was in awe of the great doctors and lawyers. I didn't even know there was such a thing as professional money managers or I would have been in awe of them, too!) Now you all know what I know, and what Larry Bowman, the best tech manager in the universe save Dan Benton, said this week in Barron's: "A lot of information that has been available only to the institutional marketplace is now available to the retail investor through companies like TheStreet.com." Unfortunately, though, knowing that the "profession" of money management has no particular edge on you is not the same as knowing that money can be made. We all confused that notion in the last heady days of the Nasdaq romp to 5000. Now many of you are wondering whether you should have left it to the professionals. To which I say, many professionals got burned here, too. We do, however, understand the risks of the instruments -- like margin, calls and puts -- better than most amateurs. And we understood that things can go very wrong, which is something many cocky emailers didn't when they routinely bragged that they were beating my brains out the last few years. I know my business; unless they took something off the table, they ain't beating me now.)

But it has a huge downside when we are in markets like the one the Nasdaq just morphed into. Accept the downside and the periodic power of the bear, and respect the possibilities of losses, healthy or unhealthy.

(I can't stress this point enough. Markets move down much faster than they move up. Markets don't function smoothly on the downside because the people behind the markets are human. And they are scared. They say they will be there for you. But they are there, in the end, for their spouses and their children, and I don't begrudge them that. I just wish they wouldn't claim they will be there for us when we know otherwise. The bear is a cruel taskmaster.)

Don't look to anybody to turn around this market.

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(You hoping Abby Joseph Cohen gets in front of the train and stops it? Abby's hoping the train stops so she can then go in front of it and say it has stopped. You hoping that Joe Battipaglia is going to stem the tide? Joe's a great guy, but markets run their courses in corrections with or without prodding by individuals.)

Don't make silly bets like "

Cramer's bearish; I gotta be bullish," or, "It can't go down anymore," or "When it touches 283,938 on the

intraday wobistics charts, I have to act."

(Gawd, I find this stuff insulting. How good do you have to be, how seasoned do you have to be, to ever get to the point where people don't see you as a contrary indicator? How much money do you have to make in the stock market over how many years before you don't hear the catcalls? Relax. I know the answer: It's the nature of the beast. But it won't make you any money.)

"It can't go down anymore."

(There is no "it." Some stocks are probably done going down right now and some are headed right back up and others are just wasting assets hanging out to steal your capital from you.)

Or, "When it touches 283,938 on the intraday wobistics charts, I have to act."

(The Vix, which measures stress, the trin and the tick which measure pressure, the averages and their charts -- these are all pieces of a puzzle, but they don't always tell you what to do and they don't always get it right. You never know if you are in that once-in-a-100-years storm that the probabilities don't really allow. I wish I knew! Wobistics, by the way, is the pump and dump scheme in the Sopranos.)

If it turns out that the declines and the losses -- and the swiftness of both -- are too much for you, that's fine, too.

(In other words, it's not the end of the world. How can I be so glib? Because the number of comebacks from the abyss that I've had are too numerous to count.)

A a few months ago we believed that this market was for everybody. We believed that the young managers who just studied charts and had big marketing departments could make us fortunes.

(We got promoted too, and we believed the promotion.)

We believed that, when we bought something, it made us a fortune.

(It did get pretty intoxicating, didn't it? That's just how it happens. Don't blame yourself, there was an awful lot of money to be made.)

Now we know otherwise. That does not mean that the process is corrupt or evil or biased or phony.

(So many of you want to see corruption and conspiracies in losses. So few of you are willing to "assume the risk" -- a legal term that has to do with understanding that you were playing with fire the whole time, it just never got too hot before.)

It just means that things got too great. Now they are getting really ugly. If you are cool about it and don't lose your head, if you can reach back and summon how good it felt to be making big money and accept that this is one of those down times, you will do fine. If you can't, there is a lot more to life than the stock market, believe me.

(Again, I have never hidden anything from this diary. My darkest despair when I lose money can be lined up against yours and quantified, and you'll find that I make a compelling case for empathy and compassion. But I shouldn't -- I don't know how many times I have to tell you it is just money. You know I just put my wife and kids on a plane for vacation, without me, because I have an obligation to manage other people's money. If you don't have that obligation, take a deep breath, be calm, read other things on our site that will help you get your bearings and go on with your lives. Remember, you got the edge on me -- my family will be on the beach while I'm studying the &^%*%# stock tables!)

I write these words because my email has become a barometer of desperation and despair so fast that it saddens me. For almost 15 years the market's mood has been my mood. But I have worked hard to make my mood less dependent upon the swings, because sometimes I am going to be positioned wrongly during a swing. We have worked hard as a team to limit the possibilities of a dramatic downside, even as it cuts off the upside, because we don't want to be held hostage to the bear.

(Our team is the best in the business and we are struggling. I say that not out of hubris, but out of the judgments that other professionals have made about us. Yet we struggle. We admit to pangs of worry. We are human. And we, unlike those people you see on TV, are not actors. We have passion and moods and swings.)

Go with me on this. Understand that we are in a fragile time. It could turn on a dime. It might not. Don't make it so it has to turn in order for you to stay in the game.

(I'm glad I wrote this before the Friday crash. Nice to know what kind of time we are in at least!)

It just doesn't work that way.

Random musings: I see where Alan Abelson makes sport of me this week at the beginning of Barron's. I will say only one thing about him: He told you to take money off the table at Dow Jones 1100 and the equivalent of Nasdaq 500 and never told you to put it back in. I told you to take money off the table at Dow Jones 11,000 and Nasdaq 5000. In the world I'm in, that's all you need to know about the two of us. Or, as my five-year-old would say: "Alan, shut up already."

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long 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

jjcletters@thestreet.com.