You get the call.
It's the breathless broker. He has a hot one for you. "Buy
." His top analyst is upgrading it as he speaks. If you have to own just one stock, it is this one.
Smarter Money: Join the discussion on
You hesitate. But he persists. "Everybody is buying this one. It is really right. They are talking about this upgrade right now on
. It is really that significant."
What do you do?
May I suggest that you ask a simple question? "Has anyone else recently upgraded this stock? Are we early into this, or has everybody just recommended it?"
A simple inquiry like that, something that you can do whether you have read
or have just been a casual chart observer, could save you a fortune.
Let's take the case of AT&T. At the end of November, it outlined a series of strategic initiatives, including some that would require massive investment banking and the attendant fees to get it done. Maybe the plan was great, or maybe, just maybe, lots of firms were hoping to get AT&T's investment banking business.
Whatever. (Until there are rules that say you can't do the investment banking business and recommend the stock, this stuff is bound to happen.) A whole series of brokers jammed this thing on the recommended list for clients. The result? A giant gap up from the low 50s to the high 50s.
Now click on where the stock is. Trader, investor, it doesn't matter -- you were a sucker if you bought this stock after the multiple upgrades. Quite simply, there was no one left to take you out of your position after you plunged in.
When I used to sell stocks for a living, I was always amazed at how few people ever asked me if I was "early" to a story or whether it has already been recommended around the Street. But since I've become a money manager, I have seen this mass buy-and-then-retreat pattern constantly.
So do yourself a favor. Don't get caught up in this kind of frenzy. Oh, and if your broker doesn't know the answer, that's a no-do on the spot. In this day and age, anyone with a personal computer can look up this kind of information. Don't let the broker get away with "I have no idea what else is happening at other firms."
That's a very 1980s answer. And we are about to embark on the new millennium.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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