Flummoxed by the volatility, and searching for a method of less harrowing Net trading for the coming -- now actual -- selloff, I went to the oracle this weekend, the best day trader I ever met, the Trading Goddess, my wife.
I approached it subtly, during a Monopoly game with my eldest. (Fortunately I brought it up before I swindled my 7-year-old into paying me $500 for Atlantic when she only had Marvin Gardens and my wife had Ventnor!!)
Karen, I said, how can you handle these stocks that jump routinely in 10- or 15-point increments? The TG is always quick to analogize, always to something that everybody could understand, which is one of her greatest strengths. It's like playing Monopoly Junior vs. real Monopoly, she said. In the kids' version what would be $500 is $5 and what would be $100 is $1. Just translate these stocks from Monopoly to Monopoly Junior. Every 15 points in
is a point-and-a-half in a non-Net or Junior stock. Be darned if she isn't right. For two days now I have traded these stocks with a divisor of 10 and I can begin to get my arms around them. "It's like dog years vs. people years," she says. "You have to find some way to make yourself comfortable in understanding the differences and then exploiting them."
Karen couldn't be more right. If you allow yourself to be intimidated by the wild pricing of these stocks, you will surely miss big moves either way. Just because a stock can move 30 or 40 points in a session doesn't mean it has to be avoided or be considered playing with fire.
(This method has helped me tremendously as most of the firms we trade with have in recent days given up making real markets in these stocks. They only want to make what is known as agency markets, meaning they will work as your agent to get in your stock. That means you are no longer guaranteed to get any stock at the price that is on your screen. So, when you go in to buy
, you can't expect
to short you 5,000 Lycos and then work. He can't be on the hook any more. That's an invitation for that firm to lose $50,000 with no chance of recovering.
Many firms in the last few days have reported horror stories to us about the 2,000
they were caught short on or the 5,000 Yahoo! they sold that they got bagged on by Netheads. Now Smith Barney, or anybody else, "goes out into the street" and takes 5,000 Lycos with a wide parameter -- maybe with as much as three or four points give. He shorts you nothing. Hence the absurd increments these stocks now trade in, as professional desk shorting is a method aimed at facilitating even trading, not making bets against stocks.)
Does this Monopoly method make it less of a mania? Of course not, but it does allow you to think in terms that take away the single most daunting aspects of these stocks, the fact that you can be down big instantaneously.
Any crutch that makes you trade better is a crutch worth leaning on. This one works for me. Oh yeah, and don't worry, the whole "Monopoly money" irony isn't lost on me. In fact, I kind of like the symbolism!!!
More thoughts on Yahoo!. If people are spending an hour watching Yahoo! vs. an hour watching the news on TV, why shouldn't advertisers eventually pay the same price to Yahoo! that they pay to the networks to advertise on my.yahoo.com? This despite literally no cost of programming for Yahoo! and billions in programming costs for the networks.
There is only one Yahoo!, and there are a ton of networks worldwide. Remember, I am not trying to rationalize the stock price. I have stipulated "mania." I am trying to rationalize why I should play with that stock price even if I think that a mania is going on. In 1987, I routinely bought Japanese stocks and then sold them up 10% to 15% with much less brainpower and reasoning. Sometimes when you were trading Japan in that period, you would get the call that
was going to take up the rails that night, so you better buy them. Or the fisheries. Or the tile makers. Yes, it was that mindless. And that profitable.
That's what Net trading is like right now. We all know and accept mania. For some firms the analysts have to go through painful contortions to justify these prices. I have heard the term Net blue-chip quite a bit lately, and I find it a tad unnerving, but fitting as a method of identifying future winners vs. losers. Other analysts simply play a relative game, assuming that Lycos is worth .5 Yahoo. Privately everybody knows what is going on. When you sit down with the pros, they are all aghast and besides themselves at the sheer lack of rationality behind any of this stuff.
I wonder whether in Holland during tulip bulb mania there weren't hundreds of guys like me knowing full well that it was all totally crazy but confident that they could get out in time. Remember, I regard myself in Holland, the
, where the griddle is set at Fahrenheit 451. I can stay for a second or two each day now, but any longer and I fear being burned beyond recognition.
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At time of publication, his fund was long Yahoo! and had no position in the other stocks mentioned, although positions can 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 a letter to TheStreet.com.