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When Hope Has No Place in the Equation

By keeping his long position in Merck, Cramer has broken one of his wife's fundamental trading rules.
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Pricing an after-hours block on the fly is the toughest thing in the world to do. Last Friday night, for instance, after


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revealed that it had suspended its testing for some promising antidepressant, a giant block went on after the close at a hefty discount to the last sale. I was eager to buy some.

First, I had an existing position, courtesy of excitement stemming from its new pain reliever that it will market against


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. Second, I think Merck is a darn good company that has more in the pipeline than just this antidepressant. Third, naturally, like all of us, I like a bargain, and it seemed like a piece of Merck down 7 from the last official sale was that kind of bargain. This seemed like a gift.

What did I know? First, I knew that the waylaid drug wasn't "in" anybody's numbers in any appreciable way. In other words, outyear earnings estimates would not have to come down because of the trial cancellation. Second, I knew that this stock had literally just dropped 10 points overnight, and that kind if dislocation for an intact story seemed wrong to me. St. Merck has a ton of adherents, and I figured they would bull the stock right back up in a heartbeat.

What didn't I know? What the analyst community would say. My principal risk was an analyst downgrade of the stock, something I did not think was in the cards.

I was wrong about that.




downgraded the stock, and it crashed right through my after-hours buy price. I left work Monday deep in the hole on the position as it dropped another point, and at one moment, 3 points, from where I picked up the stock after the close. I had been gaffed.

For me, a disciplined trader, I now have to "hope" that Merck will report a good number. The remaining bullish analysts seem to think that it will, but they couldn't move the stock back up on a plus-80-point day. You never know with these things. I thought I would be able to sell Merck up 3 on Monday absent a downgrade, and as soon as I got two, I knew my goose was cooked.

In the days when I traded with my wife, Merck would have been off the sheets either way. She would say, You bought it because you expected a bounce, but you did not get one, so you have to go anyway. "Hope has no place in the equation," she would say over and over again. "Hope is for sports." Or, "Hope is for religion." And so on. She would have booted it out at the opening no matter what.

But Monday, I rationalized away why I owned it and bought more when the stock was trading at 136. I broke her rules. I am on my own now, and I am worried. I am focused on Merck out of weakness, not strength, because of that print after the bell on Friday, not because I want to be in the stock. That might turn out to be "good" investing, but in my wife's parlance, it would now be dumb luck. The trade has been done, and it was a bad one. In her world, that was all there was to it.

James J. Cramer is manager of a hedge fund and co-founder of At the time of publication, his fund was long Merck, 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 by sending a letter to