Stick with strong stocks, especially now
The really bad stuff you might be cycling into will simply not hold up as well on a pullback.
We've got the Replacements out there right now!
That's right, we are now picking stocks to replace perfectly good ones that we sold because we thought they were done rising, or because we feared that they would be vulnerable to the FBFH -- the Federal Reserve's Bolt From Hell -- which is the new term I am inaugurating to describe the moment when central-bank chief Ben Bernanke goes from bond-buyer to bond-seller.
The FBFH is so widely anticipated that Friday morning I heard someone predict it would transpire by Memorial Day -- that you know the best stocks are being sold lest they be struck by Bernanke lightning.
For example, we trimmed some retailers from the Action Alerts PLUS portfolio in part because of the anticipated FBFH. But now what are you supposed to do? Are you supposed to replace Costco (COST) with Big Lots (BIG) because one's up and one's lagged? Is this the chance to replace 52-week-high achiever Macy's (M) with cellar-dweller J.C. Penney (JCP), especially after my friend Scott Wapner at CNBC broke that story about the troubling aspects of Penney's balance sheet?
Do you replace, say, Cummins (CMI), because it has moved up so much, with a stock like Emerson (EMR), which has moved up less but isn't as good?
You sold Accenture (ACN), thinking it has to come in because of Europe or the FBFH, and it doesn't. Do you now say something like this? "You know what? I will go buy Hewlett-Packard (HPQ) because maybe its consulting business is coming back." Is that prudent?
The replacement factor is figuring huge here, because without a pullback, the cash is just killing managers. If you take your cash position up, say, to 10%, the stocks you do own have to do an awful lot of heavy lifting in order to stay pace with the S&P 500 ($INX). Forget beating it; that's almost impossible.
So you sell, because of the FBFH, and it doesn't strike, and the market keeps going, and you have to put something back on. You can either admit defeat and go right back in at a higher level, or you trade down and risk the replacement factor, like the replacement referees at the NFL or the replacement players during the NFL players' strike.
For many portfolio managers, this is a new phenomenon. They know markets can't keep going up like this. But they also look at their run-ups and they see the basis points growing between the red-hot averages and where they are, and they start taking risks and trading down.
It is only after they have traded down -- putting that sidelined capital to work, and thus finding themselves in inferior merchandise, or without any shorts -- that the market can have a serious correction, even if we do not see FBFH. In other words, at any short-term pop you tend to have less cash and more subpar names, simply because you layered on replacements to stay closer to the S&P.
I think the replacement army is out there in a lot of portfolios. Just stick with the quality, even if it means eating some crow. The really bad stuff that you might be cycling into will simply not hold up as well when we do see a pullback.
Yep, staying up with the averages now is almost impossible if you are a prudent manager. But don't compound it by replacing the good with imprudent choices of hitherto underperforming stocks. You can only imagine what happens to those when we do get the FBFH!
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 and has no positions in stocks mentioned.
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i've done my rants here in the past that since we did the moon race or space shuttle, we did nothing of substance.
i swear we should build water desalinization plants, nuke plants, use solar pannels on top of every roof, mall parking lots, etc. gain jobs like crazy and gain a truer payback from the investment.
if what we "get" from QE3 was accomplished via the form of jobs and infrastructure, we're see serious gains. although it would likely get all fowled up from the unions who want to be involved in it.
Cramer --- "Buy Gold at 1900 --- it can only gp one way from here .....up"
I thought Cramer was saying the stock market was going striaght up and don't fight it.
""" the moment when central-bank chief Ben Bernanke goes from bond-buyer to bond-seller."""
~ the one valuable line from the article. it WILL happen "soon", and just what will the result be?
Cramer 5 Years ago: "Get out of this market now ......" (this is after 5000 point loss already) ....DOW goes form 8000 ish to 14000 today !!
"Those hoarding and dumping more and more into equities does what for the economy? And the corporates are going to reinvest now?"
Actually, they are trying to re-invent themselves at light speed. Like-- an Oil Change place that will start selling i-Pads or insurance products from a fertilizer platform. Grasping-- is a minor word for this shifting and it comes really really late. The key people ALL platforms need, were terminated, and shifted back in that day. The only hope I can see-- is expedition-like forays outside the button-presser realm to find the old skill sets and hiring them like shadow management (Sargeant Major status) to second-guess what degrees do. Be careful what you wish for, Corporate America... zero tolerance for texting, surfing, sports pools and fishing off the cubicle dock were no-no's that got you fired. You lack a work ethic and you know it. When you restore those who had them, expect to get cracking, not slacking on crack.
CGT1....Thanks for all the help; Everything we bought today in the A.M. has went up by the close.
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Chipotle is an extremely well-run company in the midst of robust growth. But its stock, like Wal-Mart's a decade ago, may nonetheless be hitting its peak.
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