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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I'm amazed you still posted this article, over an hour after Cramer spent a good part of his show hammering that he did NOT want us to sell everything, just anything we'd absolutely need liquid for the next 5 years. It's dishonest of you to claim he said "sell everything", when the conversation you quote clearly has him saying: "Whatever money you may need for the next five years, please take it out of the stock market right now". I personally don't need any of my stock/ETF money anytime soon -- and in fact have yet to reach my desired stock allocation -- so per Cramer's advice, I won't be taking money out of the market (heck, I just put a good bit in yesterday morning). Now, maybe the "5 years" figure was too conservative and he should have said enough money for 2-3 years, but he is worried about rising unemployment. Regardless, "Sell everything" is a dishonest characterization of Cramer's suggestion.
Last week my husband and I decided (since we are 58 and do not have jobs) to cash in our stock options and be liquid. We had never had a financial adviser until about 3 years ago. My husbands company was closing down so they had a financial adviser come in and he decided to put almost everything we had into the market. I was against it, but when I did see big profits it eased my fears. We made the decision to go liquid when we had lost all the profit we have made in the past 3 years and the losses were getting close to our principal investment. Sure maybe we may miss out on some gains if we had stayed in the market but if you lose it all or a major portion, what's the point. We did leave a small amount in the market but I would rather be safe than sorry.
Way to go Cramer, at least someone is thinking about the little guy.
Cramer is just another loudmouth on TV.
How come he didn't see this debacle coming?
Hey, Everyone!!!!
Lets run out and privatize Social Security!!!! Just think how rich we will be in our retirements when we can use our own money to invets in the stock market rather than letting the dreaded government take our money and give it to geezers who are nearly dead already.
Those Wall Street firms can take the money deducted from our paychecks instead of giving it to some government trust fund and we can make a fortune directing our Roth IRAs and other fancy bundled instruments.......
Ohhhhhhhhhhhh!!
Well, nevermind.
Wall Street, the Las Vegas of the East. I'm not a college grad, but even I predicted a collapse. Stockholders demanded higher and higher returns, Corporations squeezed every last ounce of profits until to satisfy Wall Street unquenchable thirst they had to close down American facilities and offshore jobs. They then started offshoring profits to save on taxes. They created a housing boom out of thin air at a time when wages were stagnant and everyone bought in because it seemed like everyone was making millions, another illusion. Now we lost a good bit ofour manufacturing base, our infrastruture is in tatters and job growth and wages are going the opposite direction. It was a cycle to the bottom from the very beginning and we are all complicent. Meanwhile, the super wealthy will ride this out and we all suffer the consequences... We've allowed our great country to be sold to the highest bidder in the largest act of treason ever orchestrated. Screw the global economy, we need to start helping ourselves again. Enact "fair trade", which is how we became great in the first place. China is killing us literally and figuratively. Lets make Made in America a slogan of truth, justice and the American way. phew....
Yeah, get out, and do what with the money?
Put it in banks that are failing right and left?
Buy gold bouillion and silver that the US government can (and has) call in and pay "fair market value" for, and then see the world prices triple and quadruple the next day?
Buy dried food and bottled water?
Bury it in the back yard?
Did he say what to do with it?
Yes, I did say what to do with it. Right now your best bet is short term t-bills. Also cash under the mattress is not a bad thing right now. If all the advisors who say buy and hold followed their own advice, the market would go up a steady 5-7% year after year. While they're telling you to buy and hold, they are timing the market and making money. Right now the smart money is getting out; that's why the Dow is falling. You may laugh about the mattress, but if the market goes down another 40% this year, that $100 under the mattress is $170 when the market turns and you get back in. I had approximately $500,000 in a retirement account last October when I got out. That is now approx. $520,000. If I would have left it in an S&P 500 fund, that would now be worth $350,000. A half million under my mattress would be almost as good. T-Bills are the safest investment in the US and possibly the world. They could conceivably default, but if they do, your retirement will be the least of your problems. We will all be in bunkers with food, water, and rifles.
joe-t
Thanks for the info.
Pardon my ignorance, but would money in short-term and long-term (5-yr) cd's covered by the FDIC be considered "under the mattress"? What abt just in the old checking account? As long as all combined accounts are under the FDIC guaranteed limit of course...
And why are T-bills better than the above?
Being that we witnessed what happens when civil society breaks down (Hurricane Katrina) and tend toward self-sufficiency anyhow, we've got that last part covered...
Regardless of time horizon, look at the next 6 months to a year. What are the odds of the market going up vs. down. If there's an 80% chance of it going down, get the hell out. that's where it is today by all indications. Can you time the market day to day? No. Can you time it year to year? In extreme cases like today, I believe you can. I have been 100% in stocks for most of my life, and got out and into short term T-bills last year. I am up 3.4% this year, as opposed to the 30% down I would have been. I'll go back in when the economy shows signs of improving. I may miss a 10% bump but not much more. I will miss a 10-70% loss that will come in the next 2-4 years. Dollar cost averaging is a technique developed by Wall Street to convince the poor saps that when the market goes down, you win, when the market goes up, you win. What it really does is ensure that the brokers win in bull and bear markets.
Excellent advice
So you recommend holding an investment that will probably go down 20% over the next year.
Great advice!
timing the market is tough for the best of us - your choices are 1. Sell now and buy back later when things are lower, or 2. Keep what you have and average down by buying more positions long as the market tanks, or 3. If you think the market will continue down for a while, sell now and go short (ETF funds are a great way to do this without actually taking a short position), going long when the market turns. The challenge is the timing. Remember, whatever you do, that the market will recover before the economy. There you have it.
Since Cramer is always wrong, I think that means we've hit bottom!
I used to work in an investment firm in the 80's. The mantra on the trading desk was that you only invest what you can afford to lose, just like when hitting the tables in Vegas. People forgot that during these last 15 years or so. Baby-boomers saw their portfolios rise and didn't want to convert to more stable investments as retirement neared because of, dare I say, greed? But, hey, like Gordon told us back in those days, 'Greed is good.' If you don't have 10+ years for recovery, I feel for ya' dude.
Comments above refer to the important place the stock market has in growing the economy, innovation. Look at it this way: If I have ten shares of X, and you buy them from me, not a dime goes to company X. It goes to me. So get past the idea that investors have a patriotic duty to buy and hold stocks. The stock market is an approximation of Adam Smith's perfect world, where all decisions are based on individual people's calculations of their own narrow self-interest.
So I have some stock that I bought at 15, it went to 60, and is now at 30, and looks like it could go back to 15. What to do? For me, it's a simple decision. First, the stock doesn't pay a dividend, so I'm not giving up any income by selling.
Second, the past peak isn't too significant. Yes, the stock could go back up there, but when? And also, to the extent that it could return to its high, it could also return to its low. So for me, it's obvious that I should sell, taking my 100% profit (bought at 15, sold at 30), and not cling to the idea that it's going to return to 60.
The point is that if the stock goes down to 20, and starts going up, I can always buy back in. But next time, when it establishes a high with resistance that can't be broken through, then I'll sell.
I don't suppose that if company X (read BAC) has to raise $10 billion in capital that the current stock price has any impact.
I don't suppose that if Company Y form country Z (Read Abu Dhabi) wants to take over part of a US company X ( read AMD) that the current stock price has any impact.
For those who may not realize it, the above remarks are displays of sar casm.
I am no expert, but don't most people have 401Ks chock full of mutual funds that are hemorrhaging and aren't some of those folks nearing retirement? Many of us were herded into these schemes as industry changed its mind about pensions. Taken that way Cramer might resonate with many.
I know he did with me and my horizon is about six years away.
Try a little Paul Craig Roberts and Mike Whitney over at counterpunch.com for a real slap in the face.
Cheers,
Jack
Highly recommended writers, Jack...been a fan of them both for years.
I read everything P. C. Roberts and M. Whitney write at Counterpunch.com. Re 401Ks, both my husband and i resisted the push to put our retirement in stocks. We invested in fixed and haven't lost anything. But the pressure to invest in mutual funds and stocks was intense. We were told that we would be poor in our old age. Everyone in the company was subjected to scare tactics.
The current crash is not only "good news" for the long term, as you say, but INEVITABLE. Stocks, like houses, were vastly overvalued -- artificially propped up by insane quantities or money, due to ridiculously cheap credit, too many nouveau-grillionaires and the destructive 401k movement.
If the present fall stops short of bringing prices back into line with reality, it will have to resume later. "Reality" of course has to do with fundamentals. In olden days of market sanity, when I wrote securities analysis, you looked for a P/E/ ratio of 1:7 or better, plus excellent products, a solid business plan and responsible managers who didn't overpay themselves. In the case of housing, obviously the median price must return to a level that buyers earning the median income can afford.
Always, always, money you can't afford to lose shouldn't be gambled. There's just no way around that.
The stocks that have gone up the most in recent years were based on the strong fundamentals of global growth and had nothing to do with mortgage backed securities or the over-valued houses in CA, FL, Vegas, Phoenix, etc. Some people need to do more research.
Hmmm... sounds like sound advice. Maybe they should rename the DOW to DOH!
Cramer=Homer
Nuff said.
I was thinking more along the lines of
Cramer=Kramer (from Seinfeld)
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