How to Play the Nightmare, Part 4: Getting Here Was Fun

But now, the caution we threw to the wind turns out to have been valuable.
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A nightmare! In a multipart series this week, Jim Cramer is taking a look at the stock selloff and what individual investors can do to protect themselves in a market that's scaring even the most seasoned veteran. Don't miss Part 3.

Before we figure out how we are going to get out of this fix, what got us here in the first place? What made this market so treacherous and so, well, bearish, to begin with? The pros would tell you "easy money" but if you are like me, that doesn't mean anything. What is easy money? I work for a living. Nothing comes easily. Easy money is one of those economics terms that tells you NOTHING.

We got here because of great fundamental and terrific cyclical conditions.

We had a fabulous combination of low inflation, high growth, stable politics, an intrusive federal government that balanced the budget for the first time in years and a DEARTH OF OTHER INVESTMENTS THAT WORKED.

In short, it was nirvana for equities. Rates became uncompetitive with equities. Same with real estate. Same with gold. The only asset of choice became stocks. At the same time that this fundamentally positive backdrop occurred a few other incredibly serendipitous developments took place.

The U.S. became the dominant economic and manufacturing power after a long hiatus where we ceded leadership to others. The Internet took hold, allowing commissions to come down dramatically to the point where individuals could pay the same rate that institutions received. That encouraged trading immensely.

The information individuals needed to compete effectively with institutions became cheap and bountiful. Portfolio trackers that cost thousands of dollars for institutions were suddenly free on the Net. Charts, graphs, the stuff that only institutions had, also became free.

Information, documents that used to be the province of only the wealthiest of institutions in real-time became commonplace on the Net. The old days where the institutions got the call on Day 1 and the individuals took them out of the stock on Day 2 when the retail brokers called them or they read it in the next day's

Journal

simply went away, casualties of the new democracy of capitalism.

Online brokerages spread the word like wildfire that you could compete effectively with the institutions.

Stuart

was born.

CNBC

put Wall Street at your fingertips. The game, which for so long had been open only to big mutual funds or private hedge funds became the national game.

And it was exciting. People could buy

Microsoft

(MSFT) - Get Report

,

Intel

(INTC) - Get Report

,

Cisco

(CSCO) - Get Report

or

Sun

(SUNW) - Get Report

and make money. They could buy new issues and make money. They could buy

Coke

(KO) - Get Report

and

Pepsi

(PEP) - Get Report

and make money. They could buy

Cat

(CAT) - Get Report

and

Deere

(DE) - Get Report

and make money. They could buy pretty much anything and make money.

One by one, the gurus of caution began to look silly, almost out of touch with reality. The major firms that espoused bearishness lost business. The people who said the market was too high looked like dopes. All along, in the background, the e-brokerages reminded us what a bunch of dolts we were for not being in.

English-as-a-foreign-language immigrants were in the pool. Nail-salon folk played big. Aerobic and meditator types played big. Tow-truck men emerged victorious. Poor people got yachts. Who could complain about these advertisements, they were true! Anybody who stood up to the empirical bogeyman of wealth looked foolish, whether it be the

Fed

chairman with his ill-timed "irrational exuberance" speech or the

SEC

chairman who seemed Don Quixote-like with his tilting at the tow-truck ads.

You had to be in it to win.

Periodically, there would be hiccups. There would be moments when the game seemed over. The Asian crisis. The

Long-Term Capital

collapse. Many pros got faked out. After calling the market right since 1979, I got snookered in 1998, thinking that the world was coming to an end if the Fed didn't intervene. When it did, it was too late for me. A bad headline over one of my articles -- "Get Out Now" -- destroyed my credibility with many of our readers. No matter that I got back in, I was a goat like everyone else who went negative. Going negative meant you were un-American, mean-spirited, a Grinch, too rich or too prudent for your own good.

Along the way

Motley Fool

,

TheStreet.com

and

CBS Marketwatch

were born.

Yahoo! Finance

emerged.

Silicon Investor

brought individuals together to tell tales of prowess. Individuals became emboldened. They didn't care what the graybeards or the old-timers said. There was money to be made here.

Last year, things really started cooking. Lots of dot-coms came public to reinvent the economy. First, it was business-to-consumer, a la

Amazon

(AMZN) - Get Report

. Then it was business-to-business a la

Exodus

(EXDS)

,

Akamai

(AKAM) - Get Report

and dozens of other companies that helped business conquer the Web. Each came public with a big premium as individuals, stoked by the media and their brokers, rushed to get a piece of the New World.

Caution became a sin. Prudence became a joke. Conservatism became being in a go-go mutual fund vs. playing it yourself. What passed for being a fuddy duddy? Staying at your day job rather than quitting and working at your computer to "beat" the market. Whole offices sprang up where you could get money, get a loan, get something, to put to work in the market.

You just had to split profits or pay the commissions.

And was coin ever made. Millions and millions. Billions and billions. Like

McDonald's

(MCD) - Get Report

burgers. The

Nasdaq

, repository of the New World, blew through 2000, 3000, 4000 and 5000. At each level more and more people came in. More and more people quit their day jobs. Midway through to 5000 individuals realized that if they were going to make it big, they couldn't just play with their money. They had to borrow money. Brokerages make much of their money-lending money. (How much can you really make with these low commissions?) It made no sense to show restraint. When you capture assets in the New Economy, you can't make the acquisitions costs worthwhile if you just let them trade. You had to let them trade on margin to get the accounts to be profitable.

Along the way professionals who knew better got blown out or had the money taken away because they were too prudent. Hedge funds that stayed away from the action or lost money got their assets taken away.

In the end, cash became trash. If you were a mutual fund with too much cash, you never got on the cover of

Money

or got on

CNBC

. Your marketing department despised you. You lost your job. If you were an individual who showed prudence you got sick of defending that prudence to others who were more reckless and more rich.

Look for Part 5 tomorrow.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco, Sun Microsystems, Intel, Microsoft and Pepsi. 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.