Not long after my wife and I started trading together, I came up with this Jim Dandy idea of shorting
. The stock had gone up three or four points every day, it had passed the market capitalization of almost every drug company and it did not even have a drug on the market!
The whole notion of this start-up trading at a higher valuation than seasoned pharmaceutical operations with far-flung empires and proven ability to bring blockbusters to market stunk to high heaven.
As was always the case then, I had to make a presentation to my wife before the opening. Any new position always got heard out, discussed and vetted by her, a veteran of hedge-fund trading shops when I was still in the
training program. If she said thumbs up, it got on the sheets. If she said thumbs down, I would come back and argue some more or I would give it up.
I came in with guns blazing. I had all sorts of market-cap tables and doctors reports and
arguments. I was not going to be denied. To which she said, at the conclusion, "That's the stupidest idea ever. Never short on valuation. You will lose everything. And don't ever come back in here again with that ^&%#."
Hmmm. Heat-seeking missile finds red-faced target and destroys it.
Of course, Genentech subsequently doubled and then doubled again, almost overnight, and, although its pipeline never really materialized into a
-like business, it did hit a home run with
. I would have been wiped out by this short, and the next 11 years of profitability for my company would have been history. I would have been history at 31 years old.
All year this year I heard the same arguments about Net stocks. First,
was half the size of
Barnes & Noble
with a fraction of the sales. Then it was equal to Barnes & Noble with a fraction of the sales. Then it was bigger than Barnes & Noble. Then it was bigger than Barnes & Noble and
. Then it was bigger than all the books sold. Then it was bigger than
. Blah, blah, blah.
The obvious implication of all of this rigorous comparative analysis is that you are not an intelligent person -- or you are a cojones-less person -- if you are not short Amazon. In fact, I will go a step further, if you advocate the purchase of or if you are long Amazon, you are a charlatan and should be sentenced to reading
annuals for the rest of your life to learn what real value is.
Of course, I am picking on Amazon. I could be talking about
(EVFT:OTC BB) company or whatever else seems to be doubling or tripling at the moment.
These may all very well be shorts -- haven't I had the nationally televised pain of such a view? -- but I'll be darned if I am going to do it with my money. Because I want to stay in business. Because, in the end, this is a business about making money, not about being more intelligent or rigorous or doctrinal than others. That's what journalism is about. That's what academia may be about.
But it's not what running money is about. I
short on valuation because my wife, the
, made me feel incredibly stupid about shorting Genentech a decade ago. And she was right.
So remember this: When someone tells you that such and such a stock should be shorted because it has a fraction of another company's comparables, in 1998 we discovered that those comps simply don't work any more. Oh sure, maybe
and Sears will repass Amazon. But if you were short Schwab and Amazon, you would not live long enough to pronounce victory.
And living long enough to play the game
what the game is about.
Get a sense of deja vu when you read all of those
articles today about the stuff I have been writing about for weeks? Me too!
The fate of the next two days lies squarely at the feet of the
Federal Trade Commission
. If this
deal gets done, there will be no pressure on the
. But if it doesn't, I believe plenty of funds will have to sell S&P futures to get in balance. It's weird what drives markets these days! Certainly not the fundamentals, which are seeming mighty quaint in these here markets.
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication, his fund was long Amazon.com and Charles Schwab, though 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.