Entry Is Everything

The trader violated his own principles with a terrible first shot in Latin American stocks.
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Every day there is a crisis at

Cramer Berkowitz

, even good days! Today's fiasco: Brazil. I have loved Brazil ever since Fraga took over as central bank president.

Actually, love is probably not strong enough. There are days when our trading sheets look like we should be trading out of Sao Paolo.

Coming into this week, though, I cut back on my Latin stocks, because when the U.S.

Fed

gets religion, there is often an Inquisition for international equities, especially ones in an area as fragile as Brazil.

TheStreet.com

, in fact, had a terrific

article suggesting that these stocks could get hurt, and I used it as a cue to lighten up dramatically.

Last to go were my phone company positions, including a hefty chunk of TBH, the basket of Brazilian telecom stocks (split out of what was formerly

Telebras

) which has been such a winner for me this year. So, when I read the article in the

Journal

this morning that this time it could be different, and these stocks might not get hurt so badly, I felt emboldened.

Similarly, I felt that

Telmex

might be ripe for a trade, as that, too, had fallen precipitously from 90 (even though it had rocketed there just as fast). At Cramer Berkowitz we each have our areas of "expertise." (I use quotes because it seems presumptive to use the term expertise in light of my trading in TBH today.) These foreign stocks are mine, so in our morning meeting, I could not resist, I said we had to get back into TBH.

Looks like I ran into a Latin American buzz saw.

I put my first 15,000 of Telebras on immediately at 99.75. That was mistake No. 1. These stocks were huge for sale, something I could have detected by simply calling any broker who covers us and asking for a Floor look. A little extra work and I could have avoided buying an artificially buoyed opening -- artificial because while Brazil may have wanted Telebras, Americans sure didn't.

By the time I got my report I was down a dollar. I looked at my watch: It was 9:34, and already a terrible first trade. Such a quick decline should have been a warning, but no, I was blind to it. I was watching the bonds, and thinking, wow, they will bail anything out today. Especially Brazil.

The long end of the bonds, however, was trading up on the Fed's prospective vigilance, not on a desire for the Fed to have rates go lower. The Fed wants to tighten, not ease. Brazil goes up on an ease and down on a tightening. That's pretty much the law.

I ignored that law, and thinking, hmmm, down a dollar, got to buy more. I put on another 10,000 shares. I did it more out of stubbornness, some sort of silly, "I can't be that wrong" logic, than out of cool-headed trading.

Sure enough, I bought the stock a dollar lower from the previous 15,000. I got the report in the same limp fashion, meaning I was down another dollar by the time I heard the bad news.

At that point, like a frazzled

NBA

coach, seeing the other side suddenly break for a skein of 10 unanswered points, I called timeout and huddled in the office of my partner,

Jeff Berkowitz

.

I know the sellers of Telebras didn't realize that the timeout had the desired effect -- the selling did stop, right then and there. But because I had committed so much capital at one level and had ignored what the market was telling me that day -- namely, that I should be more patient between buys of a name that is extraordinarily volatile -- I failed to buy any more at the lower levels.

That compounded a terrible entry point.

I took the Telebras home, rather than taking a loss, because I now believe that with TBH's six-point decline from its high to Wednesday's low, the bad news may be in the stock. Still, the trade colored the whole day and eroded that day's confidence as surely as if I had shot two bricks from the floor at the beginning of the game and remained gun-shy throughout the rest of the session -- even though I, correctly, liked the tape.

Which brings me to my reason for writing this piece: Whether you are daytrading or investing, your entry point matters tremendously. It affects your head. It affects your judgment. Don't fire the first shot, until you are truly ready and the selling has run its course.

It is a lesson that will save you a fortune. Learn it from me, even as I violate it.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Telmex and TBH (the basket of Brazilian telecom stocks split out of what was formerly Telebras). 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

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