Smarter Money: Get Out of the Mutual Fund Meat Grinder -- Now! - TheStreet

With a week of business days left in the quarter it is time to take a hard look at your mutual fund. If it is down 25% right now, before the quarterly walk-up of performance that so many of these funds do, I want you to do me a favor: I want you to pull some money out. That kind of performance doesn't merit additional contributions. It merits withdrawals.

Fund Junkie

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I am not prescribing punishment for bad managers (although many of those who are down that much are just plain bad managers). I am suggesting tax planning. You take your loss and you go invest in a diversified fund that I think can do better. (I have written about a large number of the good ones in the last few months and I call your attention to the archives. Similarly,

Ian McDonald

, a.k.a. the Fund Junkie, has written an endless number of pieces about managers who are doing quite well in the market, and I would gravitate to those with any new contributions.)

My certainty about this involves two issues: One is that the people who are running your money into the ground are most likely doing so in telecom-tech. Frankly, after all of the harping and the carping we have done about this sector, if your manager is still in it, I think it is safe to say that he doesn't know what he is doing. Yes, indeed, there are many people who don't know what they are doing. They tended to start funds after 1995 and have never seen anything like this market and will most likely not be in business next year at this time. By selling out now, you avoid the inevitable liquidation of these funds by another manager or a fund family.

The second issue is that there is most likely not going to be a second-half turn for many of the companies these kinds of funds are invested in, which means, beginning next quarter, you will see more bad earnings and lower stock prices and then losses taken because of those prices and then a round of redemptions that will include selling the lone winners to fund the losers as these bad managers so often do. Why be part of that meat grinder? Start opening those other mutual fund accounts

now

so you will be ready to transfer money out of the losers.

Many mutual fund managers hate what I just wrote. They are so used to getting that free pass everywhere they go, either because of their giant ad budgets or because the televised media is fearful people won't come on if they are made to feel embarrassed by their record. I, on the other hand, could give a rat's butt about anything other than the truth: Truly bad managers don't deserve your hard-earned money. Stop being fooled by managers who claim to know what is going on. They are over their heads.

Ten days. Ready the withdrawals. Don't take any more punishment. Book the loss for 2001 and get ready to make some money with people who know how to play this game. And managers who take this personally, stop reading. You obviously paid no attention when we were jumping up and down about telecom-tech. I know, your feelings are hurt by this article. Better your feelings than my money.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to

jjcletters@thestreet.com.