The futility in this business never ceases to amaze me. Monday, I spent the whole day trying to track down why the networkers were for sale. Everyone from
was knocked flat on the canvas. With no visible assailant!
So beginning Monday morning I called every broker who knows anything about the networkers. Jeff, my able partner, called every analyst. We checked with trading desks. We checked with the companies themselves. We talked with suppliers. We bothered consultants, buzzed salespeople. We examined or kicked the tires for every negative thesis imaginable.
Zilch. Zippo. Nothing.
Nine hours of total bewilderment. Nobody knew why they were going down.
Then off to a dinner with one of the best tech managers in the country and a growth stock guy with unimpeachable sources. Another round of questions. Another group of hunched shoulders and shaking heads.
So now what happens? Typically, at our shop we figure that maybe someone has wind of a big call. Maybe Tuesday's
has a negative piece about Cisco or Bay. (As of 4:30 a.m. when I wrote this, I didn't see any, but gotta check that second edition). Maybe some analyst we didn't get a hold of is about to downgrade the group. Maybe somebody has an earnings shortfall. Maybe there will be another profit warning from some chip supplier to one of the more high profile networkers on top of the decking
administered last week.
But if there isn't we will pounce. Because the stocks will have gone down for no evident reason. That's pretty much what we do for a living. Not every day is spent chasing our tails, but we love to swing into action at Cramer Berkowitz when stocks get hit. We like to use the declines in CISCO, 3COM and Bay, all of which we are perennially long, to buy more once we are sure that the selling is random.
Of course, had we discovered, for instance, that a supplier was getting cancellations from one of these stocks, we would sell first and ask questions later. If we had found out that an analyst was cutting numbers at a company's behest -- the dreaded "guidance" -- we would do the same. Or if one of these companies had pulled out of a conference -- as semi-equipment maker
did last week before its disastrous Monday -- then it would be straight to the options desk for a mass of out-of-the-money puts.
But had the decline been caused by some analyst just bringing his numbers down to where the rest of the Street was, we would not hesitate, we would just buy. Or if we could have learned that one big dumb seller was creating the havoc we would do the same thing.
By Tuesday morning Jeff surmised that perhaps the culprit for the networker drop was
consolidation announcement. His argument: That move means less purchasing of equipment to build the 'net. Could be. Unfortunately, that isn't much to hang our hats on.
How often does this happen? How often do stocks go down without reason? Strangely, it happens all of the time. Most of the time, in fact, stocks get hit because of mindless portfolio rebalancing, sloppy sellers, worried money managers, all of which in a sane world would have no long-term effect on a stock.
But because of that relatively rare instance where the selling precedes word of a major downgrade or an earnings disappointment we always sit close to the sidelines to be sure that someone does not have better or illegal information and is taking advantage of the rest of the marketplace. That's because the consequences of being wrong so outweigh the point or two that we could make from being right. The risk reward simply isn't there.
None of this would matter if stocks weren't so darn high. But all of the networkers traded substantially lower earlier in the year. Now is not the time to make the big bet that sellers know nothing. Until we are sure that's the case. Then we can strike with precision.
With the advent of conference month -- back-to-back, wall-to-wall conferences in every hotel room in Manhattan and San Francisco, comes a new chore: conference cancellation watch. Most of the companies speaking signed up during the halcyon late spring. Now a tougher summer has given some pause to reconsider, and has made it impossible for others to disseminate good outlooks with shoddy near-term potential. Hence our constant checking and rechecking to be sure all hands will be on deck...
Now I know why AOL can charge guys like us to get distributed: They are the only game in town! Got to love the new Standard Oil of the Web. My hat is off to Steve Rockefeller Case...
Must reading: Stephen Fidler's incredibly good piece comparing Latin American strength to Asian woes in this morning's expanded
. Thoughtful and provocative, despite the between/among grammatical error in paragraph seven...
It didn't matter that
is being investigated by everybody from Columbo to Kojak. Now they're going to miss the quarter. That's a capital crime around here...
James J. Cramer is manager of a hedge fund and co-chairman of
. His fund holds long positions in
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. 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 welcomes your feedback, emailed to