The Reluctant Bride

Stocks hate to be loved. The moment they are embraced with passion and gusto, that’s when they turn around and rip your heart – and your wallet – right out. Which is why this rally, which began in the dark hours of September, thirteen days after the Cataclysm, still has so much farther to go. People simply can’t stand stocks despite the 2,000-point climb off the bottom. Between the unfathomable losses in 401(k)’s and the unbearable helplessness of options forever underwater, people don’t even want to consider committing more capital to something they know is capable of causing so much pain. We can’t all invest in irony, but isn’t it true that when we did care, when we went online and checked our net worth every few hours and saw it rise each time, we should have been dumping stocks furiously? Therefore, isn’t it also true that when we skip the business section entirely and click right past those shows with stock tickers running along the bottom of the screen, we should be grabbing every share that comes up for sale?

So what’s with all the resistance? Why so reluctant to dive back in? Part of it is intellectual, part of it is cynical, and part of it is just plain fear, fear of losing even more money despite some incredible opportunities out there. First, the intellectual. It seems counterintuitive to be placing bets on the possibility of an economic comeback when your neighbor just got laid off and your bonus has vaporized. New jobless figures are staggering, and though it’s no solace to the recently unemployed to know you’re a lagging indicator, when pink slips are flying fast and furious, that usually means the turn is already at hand. Colossal layoffs mean you can bet that earnings are in a trough and will skyrocket when things get better. That’s the time to buy.

Second, the cynical. My mother told me that things always work out for the best. When I was a boy, I believed that. But then I grew up and concluded that while my mom hoped for the best, the reality is that shit happens. When the devil triumphed on September 11, there was a belief that despite the commercials and flags, the bad guys had got us but good, and now we would have to pay economically with a continuing, if not deepening, of the miserable bear market that had started in March 2000. After the Towers, we began to read how we were joining Japan in the permanent-recession camp. Right when things looked most bleak, Paul Krugman said in the Times that basically, we’re never coming back.

We were, of course, too cynical. My mother got this one right – not, of course, about the death and destruction at the WTC but about the stock market. Since September, things have worked out. It may seem like a fairy tale in a town where daily “Portraits of Grief” still bring tears to the eyes of so many and, on bad days, when the wind blows east downtown, the rubble still reeks with the stench of God-knows-what. But the attack on the Taliban and al Qaeda has been accomplished with miraculous precision. Amazingly, the destruction of al Qaeda’s nerve center took place in time for the Christmas shopping season! Electronics retailers are reporting better than expected sales. Hotels, airplanes, and restaurants, which had gone begging, are now being filled again. Intel, Cisco, Dell, and Microsoft, the bellwethers of the tech world – and therefore of American manufacturing – all say that things haven’t just gotten better but are actually good. In the case of Microsoft, one could say things are outstanding, in part because of strong demand for personal computers and in part because of the biggest new hit in computer games in years, the Xbox. (Tell me about it: I had to journey to Brooklyn to get mine because I couldn’t find a Manhattan store that could keep them in stock long enough.)

Helping the fairy tale along is a massive reduction in interest rates that virtually rules out “investing” in cash. It is simply imprudent to stay liquid at a time when you are getting returns below what you expect from a checking account.

Finally, the fear of losing money has kept many of you from putting new money to work. However, I know from being a professional money manager for twenty years that it’s when you fear it most that you have to break the piggy bank and get more money into stocks. When things looked horrible and nasty in stocks, and there was no hope, I would insist that we put a group of stock symbols in a hat, pick some out, and force ourselves to buy them. Choosing by lots kept us from finger-pointing over the next loss, even though, invariably, there would be no more losses because we would be at the bottom.

The time, of course, to fret over losing money is when you have made a lot of it, as so many had in 2000, not when you have already lost it. That horse left the barn nineteen months ago. So is it too late now, after a 2,000-point advance, to keep things on the table? I think that’s the wrong question to ask. Here’s the right one: Are things going to be better next year than this year? And given the amount of stimulus in the system, plus all of that cash hanging around earning next to nothing, it is reasonable that stocks could go up even if the economy stays in the doldrums. But the economy won’t. By this time next year, things will be fairly booming in this country, with jobs being created and earnings per share looking terrific versus what they are now. Then, when everyone’s feeling terrific and checking their stock prices on the Web and buying on margin and bragging about their hottest IPOs, we will politely excuse ourselves, book our gains, and get the heck out of here.

What should be in your shopping cart for the New Year? Three groups: finance, health care, and tech. With finance, the calls are easy, the three large banks: Citigroup, Bank of America, and Wells Fargo, all of which can leverage the ultra-low rates to print money. Health care? Stick with the majors: Pfizer is the best drug company, UnitedHealth Group will soon be the largest health-maintenance organization, and Guidant is the medical-supply company with the most momentum. And tech? Shades of yesteryear: Nokia, Dell, and Microsoft, all poised to move dramatically higher in 2002. Check out’s “Mutual Fund Monday” feature this week. Fund managers of the year will be announced. Available free of charge at

James J. Cramer is co-founder of At the time of publication, he owned stock in Microsoft, Cisco, Nokia, Guidant, United Health Group, Pfizer, Wells Fargo, Dell, Citigroup, and Bank of America. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions that he takes may change at any time.


The Reluctant Bride