I spotted Cramer’s book in a bookstore recently and was persuaded to read it from the claim of being a national bestseller on the front cover. I do not like to listen to Cramer when he is on CNBC. His autobiography and stories about operating his hedge fund were amusing.
One topic that stuck out was Cramer’s take on CEO’s who pay attention to their company’s stock price. Constantly.
“We also discovered that the chief executives who followed their stocks as a matter of course and cared about shareholders and shareholder value were a breed apart. They were competitive to a fault, disliked anyone who knocked their companies, and took everything said about their stocks personally. The ones who could distance themselves or not take it as a life-or-death experience, who didn’t care about a decline of a couple points, those we culled or marked as sortable, meaning that if we had negative news we were confident we would ‘put the stock out’ and not worry that we would be hurt by an upgrade or a rising stock.” – (pg 63)
Warren Buffett looks at the price of Berkshire once every couple of weeks.
Warren has long established the criteria of the type of shareholder/partner he wants. This is why Berkshire has the lowest trading volume on the NYSE and all other exchanges. Warren’s attitude was never life or death if the value of Berkshire went down on an exchange. On the contrary, if it was low enough, he will buy it.
“It is the biggest determinant of stock price gains over time, yet it is something that almost all of the Wall Street promoters and analysts are blind to because their ‘rigorous’ methodology handcuffs them into worrying about a stock that was ‘cheap’ statistically, something we could have cared less about.” – (pg. 63)
Your margin of error increases when the price of a company goes down. If it is a quality company, you are buying more shares for your money. Cramer is all about riding momentum stocks. Speculating.
“We wanted stocks with buzz, with chief executives who were managers of both their businesses and their stocks. Those combinations began to produce fabulous returns for my fund and we quietly grew over time.” – (pg. 63)
Carl Icahn said a great line once. “Never confuse a bull market for brains.” Enron was known as a company that managed their stock price. The management had their stock price available to be seen everywhere in their headquarters, even in the elevator.
“One of my biggest weaknesses, one of all traders’ biggest weaknesses, is an inability to value myself beyond my last trade, and all of our last trades at Cramer Berkowitz were stinking up the joint.” – (pg. 147)
Cramer was letting Mr. Market control his emotions and actions. Benjamin Graham would not have approved of this. Jumping from flower to flower is not investing.
“They understood that I felt the losses as no one else did, that I carried them with me on my back wherever I went, and that I couldn’t bear to be down even for a day, let alone a month or a quarter. A down year would be the stuff of true personal catastrophe.” – (pg. 171)
Couldn’t bear to be down even for a day? As Buffett stated in the past, “This attitude towards investing would make me feel guilty when I walk to the refrigerator for a Coke.” Cramer’s attitude does not surprise me.
Page 182 describes how brokerages will turn against their clients when they realize their clients’ trades are moving against them. The brokerages will take the other side of the trade, knowing they have a fish in a barrel.
Lastly, Cramer describes throughout the book his start-up website company and the roller-coaster ride he had to endure to just take it public. He had to battle lying employees, a fall-out with his equity partner, equity hungry venture capitalists, and bottomless pit burn rates. It felt like one heart attack after another. Once public, he faced challenges of dealing with venture capital members and the management they installed. His story shows how the odds are against you when investing in any start-up.
Pay a fair price for a quality company.