For most of my career, the marginal dollar in this business went to some place that I could justify. I understood why everyone piled into the oils in the late 1970s: Oil was going to be much higher in price in the out years.
I understood why the marginal dollars went to food, beverage, drug and entertainment companies in the 1980s: Those were areas in which the Japanese couldn't kill us.
I understood why the money went to certain tech companies in the 1990s: There is the tremendous growth of the personal computer and the networks that linked them for voice and data.
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But now I don't understand what drives the marginal dollars. Splits drive marginal dollars. And yes, I know that, I can even play it, but unlike oil, or the Japanese or the personal computer, I don't really believe in the logic behind it. I understand the need for better, cheaper, faster Web sites, but I don't understand why the companies in that segment should be $30 billion companies until they have at least won the segment.
Don't get me wrong. I have, at times, understood
because I shop at Amazon. I understand some of the companies that make Web sites better or help you retain customers because of my role as a director and co-founder of the Web site you are reading.
But understanding with the idea that two or three years out these companies will be dominant companies? Heck, I thought
might be dominant. I thought
was dominant. And I wasn't the one who allowed
to advertise on
because I thought it was just a games channel. I am not clueless.
That disbelief and lack of understanding, more than anything else, is what has kept me from having a
Red Hots portfolio even as we try to round out that index. I can't have a portfolio of Red Hots because I don't know when they are going to cool and I run a business, not a billboard chart. I have to have some grounding for my portfolio beyond reach.
That said, I am not like Ken Heebner, who proudly says he owns REITs and can sleep at night. Besides my vicious insomnia, I can't sleep at night because I knew enough to pick a list of Red Hots
getting long all of them.
The desire to outperform and the need not to blow up get reconciled by me as having some of everything. I have some Red Hots, but I also have some value stuff. I have some
B2B, but I also have some traditional tech.
I have what I think is the most reasonable mix that would allow me to outperform without risking the whole shooting match. It is a delicate balance. Yes, I am envious of the managers who can come on TV and say they own
here because one day it will be huge, because I know the truth: The stock is
huge. I can't fib. The stock assumes too much. But to not have Akamai? Well, that's a sin, too.
So we balance. We try to figure out how close to Red Hot our fund correlates. If it is too hot, we want to cool it down. If it is not hot enough, we want to spice it up a bit. But, believe me, if I could find a way to understand the valuations beyond gaming splits and thinking that execution was, is and will be perfect, I know this would have been an even bigger year.
In my book, the year is all that matters.
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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long AOL and TheStreet.com, and Cramer was long TheStreet.com. Cramer's fund also may be long or short certain stocks in his B2B rotisserie league or Red Hot index. 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