Losses can save you. When the fundamentals turn down and the business may be stalling, you may have to take a loss. It is worth doing. If you don't believe me, consider two losses we took last year: Abercrombie & Fitch (ANF) - Get Report and Bayview, a savings-and-loan in San Francisco.
We were unhappy with the management of Bayview, which was expanding when we thought they should be buying back stock and consolidating. We were unhappy with Abercrombie & Fitch when it turned out that the company selectively leaked bad news to one but not all analysts.
We thought both were simply not our style. The debate went something like this: "Well, I hate to take the loss, but these companies are not doing what we want."
But the fact that we were under water is a meaningless irrelevance. What matters is that things weren't checking out. Every night, we get a realized profit and loss run. On the days when we exited these positions, those runs were heavily in the red. It was painful. I was bummed. So was
, my partner. We bit the bullet.
Both stocks are now down more than 50% from where we sold them.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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