People requested that I rewrite this piece right out of the chute. For many, this piece captured all of the emotions of what it's like to miss a move. How fitting that stocks exploded this week, and leading the pack -- at least in the soft-goods segment -- was none other than Kimberly-Clark (KMB) - Get Report.
Sometimes my email presents the greatest questions, questions that I know must be answered if there is to be any rigor or pattern or consistency to the often -- at times -- irrational investing process.
(First, as most of you know, I read my email, and if it doesn't contain a specific stock that you want me to hype or a request for individual investment advice, I try to answer it. Remember, I get thousands of letters each week, so you are not going to get a chapter and verse response. Lately what I have tried to do is steer people toward our message boards, as I think that the best discussions are the ones shared with everyone. We are gravitating toward community in market problem-solving, in the same way that the
(IVIL) of the world are helpful for women who want to discuss issues. (It took some time to get the boards right, mostly because of the vast minority of people who want to use the boards either to cheerlead stocks or attack people, but we are getting there and I am pushing for a rollout of stock boards to get away from the current ad-hoc nature of what we are doing. It would help, if you agree, that you told the people at email@example.com, so we can get them to ramp the much larger board project up in a hurry.)
Over the weekend I got an email from someone who wondered why he should possibly buy Kimberly-Clark, now in the high 50s, when he passed on it when it was cheaper in the 40s.
(Of course, the quick and dirty hindsight intelligence says you want to buy it in the 50s because it is going to 65, where it traded on Friday.)
I think this question is at the heart of a lot of confusion about stocks in general. I want to approach this by first considering two incredibly simple, some would say simplistic, answers, and then delve more deeply into this particular situation.
(Whether you are a trader or an investor, your goal should be to make money. Don't laugh. I got a lot of angry email from people who were mad that I "brought down"
(MO) - Get Report by saying that I thought the plaintiffs' lawyers were going to win big. It wasn't my stuff that brought the stock down; it was the big win the plaintiffs' lawyers had. Rather than blaming me, people should have just sold when the selling was good. But we have been so brainwashed in this country never to sell, either because of taxes or because it is somehow wrong or immoral or lightheaded, that people react to sell calls by killing the messenger.)
One simple, clear way of looking at things is to say, "I missed it, and I am going to wait for another Kimberly to come along."
(I am not disagreeing that there won't be more like Kimberly. In fact, I was reading
Gary B. Smith's
excellent write-up of
(CMTN) last week and was struck by how he knew it might have been wrong to go long after a big move. But this move from the 40s to the 50s for Kimberly is not a big move. It was not extended if the fundamentals had changed.)
My whole trading being is predicated on a belief that such a view is both shortsighted and wrong.
The reason, coincidentally, is because of an equally simple belief my wife taught me during the years when she ran the trading at my hedge fund:
You should buy a stock if you think it is going to go up, no matter where you are getting in.
(If I only had one criterion that I was using to pick stocks, this would be it: I think it is going up. This is not an oxymoron. Sometimes I know something is going up, and I feel compelled to wait for a pullback. That often doesn't happen. You have had virtually no pullback of sorts with tech since the October bottom last year -- until this summer. You would have missed a beautiful move off a great base if you did not act.)
In other words, the mere fact that you missed it in the 40s shouldn't even be a part of the equation. It is meaningless. Think about all of the great moves, the companies like
that you would have missed with that same illogic.
(The latter is a classic example. Other than the two times that Barron's has written the epitaph for GE, there really hasn't been an opportunity to get in. I missed this last move because, at 118, I decided I had made enough in the stock. What a stupid decision in retrospect!)
It simply has no place in the investing firmament to factor in that you missed Kimberly-Clark in the 40s.
Now, if you don't think that way, let's delve into the specifics. In the 40s, Kimberly was reeling from an acquisition of
(If you recall, Chainsaw Al had done his "best work" at Scott. One of the reasons I wanted to rewrite this story was so I could work in an anecdote about Dunlap. (During his heyday, when I was on CNBC's "Squawk" all of the time, we used to have great banter back and forth. So when he was on some sort of promotional tour -- book? stock? gas grills? -- he came by my office. It was all smiles and hugs and high fives with me. We had had a fabu run in the stock. But
wasn't buying. (We sat around the table, and after Dunlap talked about the 347 new products he was going to introduce in whatever quarter, Jeff asked, "Al, how about the numbers? How do they look? Are you comfortable with Street estimates?" (Al then started clowning around about TV and how much fun "Squawk" is, and Jeff asked again. Al tried to divert the subject to how the
had screwed him and Jeff persisted, wanting to know whether Al was comfortable with the Street's estimates. Al finally had enough and asked what was with this guy Berko. Why didn't he get on the team? After the meeting, we sold every share. Because Al wouldn't answer one question about the numbers. No wonder -- there weren't any numbers.)
The fear in the 40s was that Kimberly-Clark had so overspent that it could never recover. Plus there were rampant fears of tissue price wars and of a suddenly aggressive
Procter & Gamble
taking share in diapers. Europe was also a drag. So was Asia and Latin America, by the way. Things looked quite bad in the 40s.
(Because of all of these negatives, the Street grew quite circumspect about Kimberly's outlook, and it lost a lot of its time-honored support. What we were betting on, correctly, was that the Street would now do an about-face once the worries had disappeared. Kimberly had gone from dog to darling except it had not yet been anointed by strong buys.)
Now, in the 50s, the price war seems to have abated. The diaper market has gotten less difficult. The overseas markets have all improved. And the company has whittled down debt to the point that it wants to start buying stock back aggressively.
(The latter point was particularly telling. There is something soothing, in this time when we are frantically trying to figure out cash positions of hapless Net stocks that are putting all of their resources into advertising, about buying a company that has oodles of excess cash and an opinion that its stock is too low. That's what came through loud and clear in this conference call.)
To me, the question is not whether the stock should have been bought in the 40s; it is whether all of these positives are reflected in the 50s.
I think not. That is why I bought the stock.
(Assessing whether the positives are in is sometimes as easy as calling a bunch of brokers and asking them how they are rating Kimberly-Clark. If no one has it as a strong buy, you have to figure that you get some converts, and that additional promotion moves stocks.)
Investing is an imperfect game. People screw up all of the time. I should have seen the positive changes in Kimberly-Clark. But I didn't. I could kick myself about it. Or I could try to reason whether all of those changes are in the stock.
(The positive changes were there for those who could have kicked the tires harder than I did. But the stock itself had been acting so badly ahead of the quarter that everybody got really worried. It turns out, of course, that some dumb funds were bailing. If there were justice in this world, these guys would come clean and say we did badly because we sold our Kimberly-Clark in the low 50s. But that will never happen. However, I plan on grading these mutual funds on their stock-picking abilities, so look out managers. As I said in my only line in Guys and Dolls in high school, "The jig -- it is up!")
I bought the stock because I think it will go higher. I think it will go higher because things are getting better at Kimberly. Sometimes that is all there is to it.
(We try to layer on all sorts of gobbledygook in this game. Ratios and book values and return on equity -- blah, blah, blah. I ask, Is it going higher? That's what matters. Simple, not simplistic.)
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Kimberly-Clark, Procter & Gamble, America Online, Microsoft, Intel and Yahoo!. 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