For weeks, I had been telling anybody and everybody to take something off the table, that this market didn't feel right, too much margin, too much craziness, too many players, too many sellers. And we had practiced what I preached at Cramer Berkowitz, our $360 million hedge fund, steadily reducing our exposure to a market that seemed to be racing through NASDAQ millennium marks as if they were meaningless base camps on the way to a light lunch atop Everest. Ho hum, Base Camp 5,000. Hmmm, nice day. Air's not even thin yet. Not a cloud in the sky.
So when Tuesday's storm struck, we thought we were ready. We had our core positions -- the ones that we vow never to get rid of -- and quietly began adding to them on the way down. Just like the textbooks advise. We were sharp, ice water in our veins, as we made our first tranche of buys when the market was down about 100 points. But by 10:30, we could tell this was no garden-variety sell-off, where they take them down a hundred, hold 'em, then walk them back up again as the mid-morning mutual-fund contributions in the day's mail get put to work.
Our screens were bathed in red. Only some hapless gold contract and a couple of down-and-out silver-mining and gypsum companies flickered green. My right terminal, earmarked only for quotes of high fliers, was pumping red like a ripped jugular. I searched for a stock that wasn't down double digits, but as most of these companies had somehow run up to the 100s, even the most mellow of declines were teenage, as we call them.
No matter. We were in automaton buy mode -- my cerebral research partner, Jeff Berkowitz, and my head trader, Todd-o Harrison, all of us schooled in the panics of the past dozen years. We knew not to flinch. Let others panic. We had raised the cash. We had taken money off the table. Now it was time to put that money to work, unemotionally.
By 11 a.m., the market was dropping faster than Skylab. We got off the trading desk -- meaning we went into Jeff's office, which is twice the size of mine, because, like all traders, I never go to mine unless someone's about to lose his job -- and took stock. We had put a ton of money to work in the first hour and a half, and nothing was holding. We were routinely down three points on every stock we purchased by the time we got the report back. And as swashbuckling hedge-fund managers, we get our reports back instantaneously!
We approached the developing decline precisely and levelheadedly, quietly running down our 36 positions one at a time and trying to figure out if it was time to buy "another round of 5s," meaning another 5,000 of each stock. Normally, we like to buy 5,000 shares down every point or two when we are accumulating a position. But on a day like Tuesday, we "widen the scales," and leave more space between buys. No sooner had I said "Buy 5,000 Nokia at $200 and stick a $195 bid in beneath" than Todd would shout that we had bought 10,000 shares at $192. Nokia had plummeted to levels lower than I was willing to pay. In a matter of seconds.
No sooner had we finished our droning cadence from "America Online, $64, buy 5,000," to "Yahoo!, $161, buy 5,000," than we had to start back at the top of the alphabet and work our way down again because AOL was now at $62 and Yahoo! would soon be at $151. We were clocking this sell-off at 25 NASDAQ points a minute on the velocity meter, the fastest I've ever seen. In the background, on CNBC, I heard the word crash. We don't break out that term lightly. I had traded through 1987, and I know that a lot of moves down look like a crash, but this thing was only down 4 or 5 percent so far. That's no crash.
After a couple of bad salads on the trading desk (I haven't taken a lunch in eighteen years -- no money's made at lunch), we retreated to Jeff's office to go over it again. An 11:30 a.m. rally had just failed. We had come into the day with an existing call option position that allowed us to "play the upside" for the Nazzdog, trader argot for the NASDAQ, and we had quietly begun to lose millions of dollars in the position. Our scale purchases had not anticipated a 5 percent decline on top of a 5 percent decline, but the ice-water-in-the-veins mentality kept us buying.
Now the Nazzdogs were down 7 percent for the day, and our purchases continued by rote. Off the desk, we talked about how we had seen it all and we weren't going to puke this one out at the bottom, and that the market would soon have to turn, because, well, it just had to, always did. We tried to reassure ourselves. We had been the ones calling to take money off the table. We had done so. We weren't going to be scared out of what could be the greatest trade of our lives when this market turned. "We were put on earth for this moment!" I said with determination. But at noon, with the Nazzdogs in free fall, we got off the desk again. Nobody looked like a Master of the Universe at that meeting. I knew that Todd-o had been furiously Instant Messaging Jeff at his trading turret, and I could tell we were thinking big now. "Ten percent decline, wasn't that time to double down?" our trader asked. I made a few faces, and we agreed: Time to take a big chunk of that cash we had so jealously hoarded and put it to work. Because, as my wife and former seven-year trading partner, Karen Cramer, always said, "You've gotta buy them when you can, not when you have to."
And so we did. Coolly, calmly, professionally. Like the late Tom Landry at his legendary unemotional best, sending in some precision 55-yard touchdown-pass play with a quick dipping of his hat.
Forty minutes later, we were back in the war room. The market hadn't held. Our lunches hadn't held. Our bet had fizzled faster than anyone could imagine. Nobody spoke. CNBC droned on in the background. No more crash denial. We used the word freely.