When to take profits off the table
If a stock is up 500% in a straight line, that's a clue.
I stumbled onto a cult of true believers these last few days, not unlike the cult behind Dendreon (DNDN), the last hornet's nest I tried to navigate, and I think the consequences will be similar for both the hornets and me.
I'm talking about Arena Pharmaceuticals (ARNA), the company that has the first new diet pill approval in more than a decade.
Arena was the best-performing stock in the first half of the year, and I had posed the question to viewers of Mad Money whether it could continue such prowess or whether other strong stocks from the first half, including Onyx Pharma (ONXX), US Air (LCC), Mellanox Technologies (MLNX) and Pharmacyclics (PCYC) were going to do better.
Viewers voted overwhelmingly for Arena, clearly believing that we are in the early innings of the story even as it is up more than 500% for the year.
Put aside the fact that the anti-obesity drug may not cause you to lose more than 5% of your weight, or that it may not be paid for by insurance, or that you can take it for only a certain period rather than for a lifetime like, say, Lipitor, and you have to admit that a 500% gain is worth preserving. Layer on that a rival drug, arguably as good as if not better, from the now well-capitalized Vivus (VVUS) might be approved as soon as next week, and you might have an even better reason to be worried about losing that gain.
But when I stated these risks and suggested that you sell half or take out your invested capital and play with the house's money, Twitter @JimCramer lit up instantly. I got the usual charges against me, that I am a tool for so-and-so or that I was secretly short.
I can handle that. It's been said before. Pack of lies, of course.
But what bothered me was that -- as when I suggested a few years back that Dendreon might not live up to the hype with Provenge -- the true believers blew their stacks.
Look, it is great that Arena got as far as it did. I hope it goes further. But I don't care if it has a cure for the common cold. If a stock is up 500% in a straight line, you take something off the table. There is nothing sinister about that. It is called common sense.
When I started this site, I very quickly realized that you have to have a thick skin when you are attacked. I used to do a lot more provoking 16 years ago than I do now. Call it callow youth.
But when I am criticized for being critical of a stock that has rallied huge, I am not going to praise and hype it simply because the viewers have spoken.
Here's something the viewers and readers should listen to, and it's one of the first rules I ever learned in this business: Nobody ever got hurt taking a profit.
If you can't handle that wisdom, if you think that's an attack, if you think that view is motivated by short sellers, then you don't belong in the game and you certainly shouldn't be wasting your time reading or watching me.
P.S. As I was writing this column, BofA/Merrill downgraded Dendreon to "underperform" from "neutral."
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.
More from TheStreet.com
Jim Cramer and Adam Feuerstein were both bashing ARNA into the ground below $2 in 2011 promising no FDA approval, and now ARNA above $11 they are suddenly desperate to remove retail who won big in the face of mighty hedge funds all who bet wrong and lost.
Btw we're the same group that ran DNDN $4 to $54 2009/10, reloaded DNDN at $26 on CMS review, then sold out $38 to $43 in 2011 to load ARNA heavily under $1.30. We told everyone who would listen in 2011 to cover ARNA at $1.28 (Cover $1.28 or $1.29) the post exists in real time at ARNA YMB, and yes we stole valuable shares away from hedge funds that were earmarked for their covering.
We also called DNDN"s August 2011 bear raid 5 weeks early late June 2011 and that post exists (Dendreon Bear Raid Game) in real time as well at DNDN YMB.
Now is NOT the time to sell with big news coming before month's end- Qnexa PDUFA and EMA updates. We are selling zero shares in 2012 with EMA approval and either Europe partnership or full buyout coming. If anything accumulate the dips as Wall Street is very trapped short ARNA, and there is a huge scrum for shares going on right now.
Keep up the great work JC as your hedge fund bashing game film for many years has been thoroughly studied, exposed and defended well by smarter longs. We stopped listening to your show years ago and our portfolio has skyrocketed as a result. Maybe CNBC will finally concede they're in on your scam and terminate your contract in effort to disassociate their show from obvious hedge fund manipulation. Telling complete liesto your viewers just to keep from losing and for Wall Street to make a buck no longer sits well with retail investors on Main Street who bailed out Wall Street Fall 2008 because they lost big time then as well placing wrong bets on America.
Btw who is Corey- the guy who keeps calling in about ARNA every few weeks. Is he a Street employee?
7) Cramer misrepresented BELVIQ ‘s earnings potential because of its marketing company taking about 40% of its revenues in the United States. He neglected to mention that outside the U.S (Europe, Latin America, and Asia), ARNA will get significantly more, if not all, of the earnings.
8) Cramer said QNEXA will not need to be a scheduled prescription, and BELVIQ will. He got this just backwards as well . It is highly likely QNEXA will be scheduled. BELVIQ has yet to be determined, but far less likely as highly classified as QNEXA, meaning more restrictions on it. QNEXA will have to be mail ordered, whereas most all pharmacies will actually stock BELVIQ.
9) Finally, the ultimate blunder is that Cramer blatantly said that NO INSURANCE COMPANY WILL EVER COVER AND ANTI-OBESITY MED? Why? Because he had asked one! This is preposterous, because as we all know, covered formulary changes take time. When insurance companies can actually SAVE $, by eliminating other costly meds by addressing the root health problem (obesity), instead of its sequellae, we will have stumbled on a major solution to the cost of healthcare in America!
The media (and Jim Cramer) have it all wrong as far as Belviq efficacy in weight loss and he misrepresented Belviq last night.
*****The AVERAGE WEIGHT LOSS WITH BELVIQ IS 8% OF BODY WEIGHT AMONG RESPONDERS. About 50% of patients will lose MORE than 5% of BW in 12 weeks. If not, they need to stop it. Among those that do reach this threshold, 35% lost > 10% of BW, and the top 25% of responders lost > 16.7% of BW!
3) Cramer is mistaken regarding his interpretation of FDA data. Regarding weight loss efficacy, he related BELVIQ was not placebo-controlled, and QNEXA’s data was. Wrong! He has it just backwards. BELVIQ’s data was placebo-controlled, and QNEXA was not. This makes a huge difference in accuracy of drug efficacy.
5) Cramer made another blunder in attempting to use scare tactics about “hallucinations” with BELVIQ. The incidence of hallucinations is ridiculously miniscule as to the absurd. We will not go into the significantly elevated risk of cleft lip incidence in babies born of QNEXA mothers, and the mind-numbing “dopey” side effect of topiramate (called “DOPAMAX”). Who needs that? None of this was discussed by Cramer.
I hope the SEC look into these frauds and manipulation going on with ARNA.
i agree watching you is a waste
alcoa as the BEST stock of the dow 30 for 2011 at 18 now forever at 8 is
clearly evidence that you are a fraud..............that's why YOU are out of the game and selling advice
.................because you are a hack
This lowlife KNOWS there is a huge manipulation happening to ARNA and he IS a part of it. Listening to thi goon is like listening to a pimp promising you a way out with a happy ending.
IF YOU SPEND MORE THAN YOU MAKE YOU GO BROKE
IF YOU EAT MORE THAN YOU BURN YOU GET FAT
IF YOU FOLLOW LINK AND CRAMER YOU ARE BROKE
the scam man is always upping his scam.............now occasionally he apologizes for
his gap down picks.....this is an attempt to appear honest................he now trots out
his partner S. LINK in an attempt show that another "expert " also recommends his pump
DON'T FALL FOR THIS CRIMINAL'S SCAM
I suppose owning equities right now is a lot better than owning California munis.
People are going to get real familiar with not getting their principle back on maturing bonds. Bonds from all different issuers. Including the U.S. Tell Grandma and Grandpa to cash in those Savings Bonds now while they can!
When I'm up 30% from my buy-in at a dice table, I cash out and go outside for a smoke.
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.