The Managers With No Clothes

The fund managers who invested in the mo-mo New Economy are now feeling a bit like naked emperors.
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Did the managers not know what they owned? Could that be why the slaughter has been so intense?

Here's a new theory. Many mainstream managers with less pride or stubbornness than Julian Robertson dabbled in the New Economy stocks this February and March. They couldn't take the pressure any more. They bit. They went in. They started buying stuff they didn't know, but that kept going up.

When I say "didn't know" I don't mean they didn't know the symbols -- although that was certainly the case with some of these four-letter Baby Billion Behemoths. I mean they didn't know them that well -- in fact, maybe just enough to put them on the sheets for the inevitable markup that the momentum funds seem prone to do at the end of the quarter.

But we had the selloff instead and suddenly these managers find themselves saying, "What does this

Micromuse

(MUSE)

do except go down every day?" Or, "What was I thinking with this

MicroStrategy

(MSTR) - Get Report

?" Or, "I have my

E.piphany

(EPNY)

hat and I love the stock, but now it is going the wrong way -- and you mean to tell me that customer retention isn't something that everyone else is doing? Isn't that a competitive business?" Or, "Aren't all of these four-letter companies Web consultants?"

Nothing makes you more scared about what you own then a downturn -- unless you own

Gillette

(G) - Get Report

or

Merck

(MRK) - Get Report

or something where your hand can be held, or has a multiple.

So now we are in that bizarre period where the margined players are being cashiered and the mutual funds who were momentum masqueraders now want their old clothes back. They are feeling like naked emperors.

Makes it a tough call. We are all looking at the

NDX

index and thinking, "Hmmm, will it hold, will not hold?" I like to say, "What will take my stocks down more so I can buy more of them." That's something that a lot of these naked emperors can't say.

Random musings:

Yahoo!

(YHOO)

investigation by

FTC

? Oh, great. We are waiting and then will pick a little up. We don't think it will impact earnings.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long 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

jjcletters@thestreet.com.