It's All About Confidence

Even though it's tough to be cool about this selloff, it's possible to use it to your advantage.
Author:
Publish date:

Last year this week, I sat on a panel at the Goldman Sachs tech conference dripping with sweat, as I wondered when the selling in tech would stop. Two years ago this week, I sat on a panel at the Goldman Sachs tech conference dripping with sweat, as I wondered when the selling in tech would stop.

This time I was ready. I put on extra deodorant.

What can I say? When 2,000 people are in a hotel, virtually the entire firepower of institutional tech money, it is reasonable to believe that nobody will be at his desk to take advantage of the carnage that seems to happen every year about now. And sure enough, all during my just-completed lunch where I spoke about tech, of course, there was that same look of worry -- if not panic and disgust -- that I see every year among the investors in this greatest of all groups.

I can never be sanguine about such a selloff. I can never be cool about it. But I can use it to my advantage. I can wait until the selling is overdone and deploy cash -- and I have cash. If I didn't, I would probably be selling other stocks to get into the tech stocks that are being hammered.

But let's not forget, tech valuations are high. My largest positions include some tech positions, but I have also stockpiled a growing but motley assemblage of stocks that should do well if the economy slows down a bit, which I think it will. I own tech and I buy tech on weakness. I am not, however, oblivious to what is going on in terms of valuation.

As a trader with a fundamental bent, all I can do is try to figure out who is doing well and who is doing badly and take advantage of dislocations caused by overaggressive buying or selling to get out or into situations.

What does that mean? Well, how about this: Do I love

Cisco

(CSCO) - Get Report

at 70 times earnings? Did I go to college to get stupid? I don't love anything except my wife and kids and my immediate family. I am used to paying half this multiple for the great networker. But when Cisco is being sold down like this after a no-flies quarter, I am not going to join the rout. I am going to take the other side. That's what I know to do.

To me, Cisco is a security that ran up a tremendous amount off its Oct. 8 lows. Too much, it turns out. But now that it is 20 points from its high, I like it much more than I did at the high, and more than I did at 105. BUT LESS THAN I DID AT 50!

Fact Jack. Like it more when it is cheaper. Like it less when it is expensive. I know I should finish this paragraph with some mumbo jumbo about price-to-cash-flow or price-to-sales-growth or price-to-employee, but those are all so high that I should have sold the stock at 70. But I didn't, and I was able to make good money selling this stock at the 110 level when the griddle got too hot.

I wish there were more to it. I wish I could tell you that I am not worried about Cisco and that only fools worry about it going lower. But that would be wrong. In the end, it is a stock, a piece of paper, harder to handicap than an oblong ball on a Sunday.

Nevertheless, I am in the business of making money, and I think I can make money in Cisco, maybe not today or tomorrow or next week. But I am confident that I will.

That's all you can be is confident. If I were not confident, believe me, I would not own a share.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication, his fund was long Cisco, but positions 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 by sending an email to letters@thestreet.com.