Should You Really Panic And Sell Everything Like Cramer Says?
On the Today Show Monday morning, Jim Cramer told investors to sell everything and get out of the stock market. A Wall Street friend described this as the market's "Munchian scream moment."
"I thought about this all weekend," Cramer told [the Today Show host]. "I do not want to say these things on TV...Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now"...
"I don't care where stocks have been, I care where they're going, and I don't want people to get hurt in the market," Cramer told Curry. "I'm worried about unemployment, I'm worried about purchases that you may need. I can't have you at risk in the stock market."Still, those with the assets -- and the stomach -- to ride out the stock market's ups and down over a five-year period might be best served by holding their nose and holding onto their stocks.
"I think what you have to do, if you can withstand it, is just ride it out," Cramer said.
Why does Cramer think you should get out now? Because the market could decline 20% from here. That's possibly the worst justification for selling medium-term holdings I've ever heard. (The market could ALWAYS decline 20% from here. And it has already declined 35% from the peak.)
For what it's worth, I agree with Jim that the market will likely go lower over the next year. I also agree that people should not have any money in the stock market that they need in the next five years. But "those assets" never should have been in the market in the first place. The stock market is always unpredictable and dangerous over such timeframes, and people should never count on it to fund near-term expenditures.
I also couldn't disagree more with Cramer's recommended strategy of suddenly selling everything now, with the market down 30%+ from the peak. This is market-timing at its worst. Adjusting your long-term investment strategy because you've realized that you can't stomach risk is one thing. Panicking and selling because the global economy and markets are temporarily collapsing is another. After more than a decade of being overvalued, stocks are finally approaching fair value, and, time and again, emotional selling based on market conditions has been shown to be a terrible investment strategy.
For those with horizons of a decade or more, moreover, the current crash is actually good news. If you're saving for retirement, you will do best if stocks crater like this and then stay down for a decade. The dividend-reinvestment will make you buy more shares at lower prices, and when the market does eventually recover, your gains will be compounded.
If Cramer really doesn't "want people to get hurt," he should stop telling them to try to pick stocks and time the market and just gradually invest in a globally diversified portfolio of low-cost index funds. That won't eliminate risk (because nothing will). But it's by far the smartest investment strategy for the vast majority of people who watch the Today Show.
See Also:
Oops, Guess That Wasn't The Bottom. Will Cramer Call Another One?
You Bought That Cramer Bottom Crap? Sorry...DOW Headed Below 10,000
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Cramer along with Bill O’Reilly and Dick Morris are the best prognosticators with which to make money. The process is simple. Every time one of these three make a prediction, bet against it. You can’t loose, they are wrong more than 75-percent of the time.
Wow Henry you have such a good track record too, I guess we should listen - NOT. Why LOSE for 3-5 years? Why not be flexible and make money EVERY year? Or at least, lose less?
Because - Wall Street is now dependent on uninformed people blindly sticking $$ into their 401(K) every month, because the smart investors get out. So they can't tell you to stop.
I think people are confusing capitalism with free markets. This crash is not a reason to abandon reason and condemn all corporations or all business. Our country is built on capitalism with strong regulations to prevent greedy bastards from stealing everything. Our country and our capital have grown ever since Teddy Roosevelt first started clamping down on the train and oil companies. Capitalism is the investment of money (capital) in business to share in the growth of that business, for that you get a reasonable return. Creating financial mechanisms that are just thinly disguised gambling events is not capitalism - that is what we got when we deregulated our banks and investment houses. Capitalism is still a good idea and it still makes absolute sense going forward to invest in businesses that are well run and well capitalized. What we are seeing is a failure of government to regulate the greedy bastards. That can change, and it must change going forward. Completely Free Markets lead to only one thing, monopolies where 1% of the people own everything and 99% are their servants or slaves - that is where Ann, Milton, and Greeny were going. That is why we need regulation and competent enforcement. Don't throw the baby out with the bath water. Instead lets get on the road to re-regulating business and finance, to produce a stable and growing economy. Otherwise you might as well jump out a window, cause the alternative is much worse.
I come not to praise Caesar, but to bury him.
Do not forget that "one" party in the current elections would by now have had up to half (the first plan was all) of our social security savings in the stock market by now, if we had let them.
One month ago, according to the powers that be, the market was "sound." Turns out, the powers that be were just deaf to the sound of the termites gnawing at the foundations. If you want to feel better at this point, just imagine that its not just your 401K evaporating now, but ALL of the retirement funds you ever had in your name; rotting away with systemic bad equity.
See? Much better.
I'll say this once more: Social Security can be (and would be) quite healthy, if it were rid of the insidious influence of interest-free governmental raiding, and if the money that was proposed for the above-mentioned shift to private casinos, were instead used directly to shore up the SS fund.
What did they guess the transition would cost us? Wasn't it in the neighborhood of four trillions of dollars? That could pay for A LOT of shuffle-board courts.
Not because of what he said but because I have a brain that half way works I came to the same realization. The money in the stock market is money lost. Cash is king again and that's where I am
The stock market does appear particularly risky right now, but we are also "printing" money in a big way -- $800B for a rescue, a trillion for a couple wars, tax CUTS as the answer to every need (gas, health care, etc). That adds up to a radical inflation! It may be that at this time next year, cash will have been the biggest loser.
What is the money of china? I'll go exchange dollars for chinese money right now. What is the exchange rate as of today?
What is the stock market really. It's Companies and Corporations allowing you the privilege of loaning them money so that they can grow. So they sell you I.O.U.s in the way of stock certificates. As time goes by they give you little driblets of change by way of interest. Only it's not really interest is it because interest you get to keep. So my guess is that now that many of these companies/ Corporations decided that they had grown enough and had plenty of cash in the hands of the owners. Once they've skimmed all the profit by awarding it to themselves via pay , compensation, bonuses, stock options and Golden parachutes, they allow their organizations to go bankrupt thereby invalidating the I.O.Us or stock as they are called. No need now to repay those loans since the company or Organization can use a legal means to default on them all. To bad for you investors, that's life and as the Republicans are good at saying, "Suck it Up". They suck up the bucks and you just get to suck up their exhaust.
Jim Cramer proclaimed in a 7/21/08 article on HuffPo (check it out) that market had bottomed-out. Full steam ahead! Now he says sell everything. Come on Jim.-- He would have made a great hell fire and damnation evangelist. He's a nice guy, knowledgeable and colorful but given to hyperbole. Take some time off Jim. Go fishing.
Just as the baby boomers are set to retire and begin pulling more money out of the market than is put in, this happens. Coincidence? Of course not. The expectation of a decline in the value of stocks has long been just over the horizon. Now we have reached the end of the earth, so to speak. May as well cash out and stuff your matress. Bushonomics (the voodoo kind) have destroyed what America thought of as it's greatness. "The economy is sound" is just that--sound.
I think it makes little or no difference. The days of making out financially by investing are over. The stock market always was and always will be a rich man's casino and in casinos the winner is always the casino owner; in this case the traders and CEO's The real lesson from all this is that the days of corporations are over. So what should we be investing in? ... People; and their energy, I say. We've believed for far too long in this system of the symbol of money--economics. Money is nothing more than a fantasy, it has no real intrinsic value within the nature of our being. When the whole thing has collapsed we will find a renewal in people and their efforts and that is not frightening at all. We'll soon be there.
Cramer is absolutely right. He is trying to warn people. It doesn't matter if the market is already down 35%, it is going to go down a lot more.
For evidence, all we need to do is look at the major crashes that have occurred in the past. We see successive days of 4-5% sell of before the real crash occurs. After this series of smaller sell offs (what we are seeing nor) we see the real crash which is historically has been a loss of 20% in a single day.
Our current crisis has all the underpinnings of the '87 crash and the Great Crash of '29.
See my blog post here about this subject:
http://blog.alexanderhiggins.com/2008/10/dow-crashes-below-10000-another-20-stock-market-crash-looms-ahead.html
It depends on how fast the Treasury can get moving on the $700 billion. They should start with the companies that took on the failed companies, like BofA and JP Morgan. Let's get moving.
The market will respond to action just like it did when FDR took action in his first 100 days.
Problem is this Admin looks more like Hoover's Admin every day.
I don't think it's this administration, Bush has been trying to get this passed and moving, I think it's this Congress. Now that they have the o.k with the money, hopefully they get moving on it. But who know's they have done a lot of dumb things.
I think the Treasury held back on the bail out so as to stampede Congress just as the elections are upon us. Furthermore, the rescue is a Bush-kind of rescue; possibly better than nothing, possibly we can only hope to survive it with luck. The very bulk of the new money may have a short term stimulant effect, but the longer term effect is the ruin of the dollar.
These big companies should be broken up by anti trust prosecutions.
I agree, not only are stocks 30% lower than a year ago, but they are about where they were 10 years ago. It's probably a good time to look for some bargains. I wouldn't put all of my money in the stock market. But later in this month, if we have another 1987 type stock market crash, I'd invest heavily in the stock market. Unfortunately, that's easier said than done, as the recession has left me with no money to invest.
Why is it every time there is a stock market crash I have no money to invest?
correct me if I'm wrong (and I'm dead serious, PLEASE correct me if I'm wrong) but isn't a massive collective selling of stocks what caused Black Tuesday back in '29? So by advising everyone to sell off investments he would be fueling our current fire?:
I am not the most economically literate person, so if I have a disconnect in logic here or am just completely wrong, will someone please correct/educate me?
Selloffs are primarily caused by underlying fundamental economic reasons. The market is currently selling off because the deleveraging post housing bubble has created a crises which will have long term implications on the economy. Mutual funds, hedge funds have been liquidating for a long time and in a bear market all rallies will get sold until economic conditions change. It will take time for the deleveraging process to work through. Fund redemptions, massive liquidations do cause markets to go down but that does not mean individuals should not sell at the right times. I am by no means advocating selling here, see my post below. But the market is down again today and it has nothing to do with Cramer's comments or anything that talking heads say on TV. Bottom formations is a process that is function of not just price but time. We are also in earning season and companies are reporting terrible earnings.While uncertainty persists, the bear market will continue; rallies will be sold until market can see some signs of stabilization and fundamental improvement. When market trend changes, believe me there will be plenty of signs in advance. Just like bull markets, bear markets can last for a long time.
Your right, there was a massive selling of stocks back in 1929. However whats going on now is that we are so world connected. I lost thousands in an energy and utility company because that company borrowed money from a bank across the world to acquire another energy company here and the bank across the world is having financial trouble probably because they are connected to some other bank somewhere. It's a domino effect. But your quite correct massive selling is whats driving it down. What to do, stop selling, but how do you convince everyone to do that. My stock took a big dive south, but I'm not going to sell because it's basically a good company and I get a good dividend check from it. Although I'll probably be sorry because I think it will take a long time for it to come back. When it starts to bottom out and I believe where in stage 4, stage 5 should start the bottom and reverse it and people will pick it up at cheaper prices. They will get a deal. That is if their not afraid to.
Wall Street is becoming more and more irrelevant. The idea that the value of good companies can go up and down based on imagination is as bizarre as borrowing and paying interest on our own currency. The idea that Wall Street can cause a company to go out of business by short selling is nuts.
All of this needs to change.
http://ewebsmith.com/Self/standup.html
I totally agree with you, do away with the short selling. People try to hedge their bets with it, but more people see the trend jump on and ride it down just for the profits. That should be outlawed. Especially when it contributes to a crash.
If you're investing for less than five years (saving for a car, roof repairs, etc.), why would you put your money in stocks in the first place??? You should only buy stocks (pardon me - MUTUAL FUNDS, not individual stocks) if you're investing for retirement or anything 10 years or more. For less than five years, you should park your money in money market accounts (and possibly bonds).
If Cramer has EVER said that you should invest in ANY form of stocks for a five year investment or less, he's a hack with no credibility.
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