No pain, no gain in this market

High-quality stocks are falling to bargain prices in this rocky market -- but owning them might cause you to suffer short-term losses.

By Jim Cramer May 20, 2010 10:09AM

TheStreet's Jim Cramer"What do I do with gold, Jim?" "What do I do with Citigroup (C), Jim?" "What do I do with tech, Jim?"

 

OK, here's what you do when you are in a bad market. You make judgments -- judgments about pain. These assets are going down. They are going down for a variety of reasons -- bets from hedge funds going wild, fear from Europe that we will be in deflation mode, and worries about government intervention.

 

So, you have to ask yourself: Can I take the pain if they go down more?

I am not allowed to flip stocks for Action Alerts PLUS. I buy down in pyramid style, as I describe in my old hedge fund handbook, "Real Money." I don't buy all at once. I leave room to buy more.

As a stock goes down, I get bigger. I accept that the market might be creating the weakness.

 

If I didn't have this philosophy, I would cut and run and hope to buy back, but not many people are that good.

 

I accept the fallibility of human judgment. I have no idea when the market is going to get out from beneath the shadow of Europe. But let’s take each situation individually.

 

I think you need gold in your portfolio. You buy some shares of the SPDR Gold Trust (GLD) now and you wait to buy more. But you need it. Don't have it? Start it.

 

Citigroup's been going down. That's fine with me. It's going lower because the market is going lower and financial regulation is hurting it, as is the perception that its international business will be weak. Plus the government's a seller. It's a classic pyramid buy.

 

Tech -- OK, let's look at Apple (AAPL). Own no Apple? Buy some. Own a full position in Apple? Accept that you could get hurt. Can't take the pain? Sell some into this rally. Want something less volatile? Hewlett-Packard (HPQ) just reported a great quarter. Buy that one. Or buy Intel (INTC) , which pays its shareholders dividends.

 

It’s simple when you view it through the prism of "self," which is what this is all about. Pain versus no pain. If you can’t handle this market, you’re getting some lift that lets you take stock off the table.

 

So which do you want? There’s no gain without pain in this market. Personally, I want the quality stocks that are falling in this market, and I am picking, picking, picking. It’s the only way to go.

 

At the time of publication, Cramer was long Apple and Intel.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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