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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Of course I don't agree with Cramer, all his advice will do is further sink the markets thereby allowing him to botttom feed.
I would have listened to Cramer up until last night's appearance on Colbert. He seriously said (I do not think he can believe it) that this was all the Demos fault. Is he trying to keep a job? I understand the argument that players from both sides have responsibilities. But, to say the Repugs have nothing to do with this is far off the reservation and underminds his credibility. From 2000-2006 they (Repugs) had the Executive, Judicial and Legislative branches if they wanted to do something they had all of the power in the world to do it.
It has been apparent to me that if you just apply logic NO ONE should be in the stock market, except the manipulators, inside traders and professionals.
With executives getting massive "compensation" and severance packages, huge bonusses (for stock brokers too) - far beyond the scale ever known before - and then the economic policies brought on by Republican mismanagement and philosophy (deregulation and non regulation), incentives to cook the books to artificially and temporarily inflate stock prices, how could there be anything left for investers?????
It is a near impossibility, especially for the average invester.
One needs to have the ability to apply ordinary logic to have foreseen all of this. The Worldcoms and Enrons were the first red flag, but the lack of any effective regulation following all that and Bush's reckless spending and tax cuts clearly led directly to egregious income inequality and the diminishment of the Middle Class.
In a word , you can't have executives making 100s of thousands of dollars A DAY on the unprecedented scale we had while the average family's income was declining rapidly. To fail to see the connection between these two phenomena and rail against "socialism" and "class warfare" is the argument the multi-millionaires made and the average schmoe bought into it.
Ok, so you don't understand the Stock Market. That is ok. You are not alone...
But dont go and post this nonsense and think it is doing some good.
The only real change will come when the average person wakes up and realizes they have to take action themselves, instead of hoping someone else will do it for them (cough, Obama, cough).
The whole system reminds me of a casino. Your chances of actually winning anything are very slim. The odds are stacked in favor of the house. If you have a ton of money, you can play a lot, and so your chances of winning a jackpot go up. At that point, though, you aren't playing to win, per se. The money you may lose is expendable. For the rest of us, that illusory jackpot keeps us coming back, over and over, in the hopes of finally 'hitting it big'. And they allow a few to do so. A casino where no one ever wins eventually goes out of business.
It seems similar in this society. 90-95% of people with money were born into families with money. For all the Horatio Alger, rags-to-riches stories of this country, in actual practice it rarely works that way. But, the occasional bone must be tossed to the dogs, or else they might turn on the owner and devour them. We keep following capitalism because of this promise that we, too, might someday live like the folks on the hill. But the house always wins, in the end. The instant we realize that the odds are stacked against us, we might revolt.
On Cramer's advice, Henry seems to agree.
Figure your five-year needs for $$ and take it out of stocks and put it into something else.
Cramer obviously sees a long U back to here.
And Henry seems to agree.
For those wise folks out there who figure they can regain their losses at some point in time, I say this.
Leave your money in, see how far down it goes, and good luck.
As for the measly DOW, I have long predicted 7,500.
Given the $ and the underlying value, all other things being equal.
Not only going there, but staying there.
So my only disagreement with both Cramer and Henry is whether there will ever be another rebound, as we've known them.
If you focus on the incredible, unprecedented activities going on today in the financial services world, it can safely be said that things will NEVER be the same.
The United States of America will never again be the currency-base of free-world economies, in case you haven't heard.
Which brings me to, all other things NOT being equal.
Capitalism has spent its wad.
And borrowed its life breath from the American taxpayer, who can't afford.
The jig is up.
Time for public credit.
And free enterprise.
Completely oversimplified and incorrect. But thanks.
Cramer has a point.
Get your cash needs OUT. Watch your stock or fund history and pick a day to trade at a stated price, never "at the market".
Chose the stocks. Some have better recovery worth than others.
Ride the remainder.
He is WRONG on another "political" point. This problem was not created by Barney Frank forcing banks to loan to mimorities and low income. It was caused by smart people, who are close friends of Creamer, creating investment black box securities "insured" by AIG and others. There are not enough minority and low income people with loans to bust the system. These guys were traiding dirty underware. It doesn't get clean using insurance.
Two things I learned about investing:
1. The 'experts' advice is about as accurate as your own hunches.
2. Investing in the stock market is gambling. If you think its not, you're wrong. Only invest what you can afford to lose.
Cramer says sell. Is that a buy signal? The contrarians look upon pundits like Cramer as inverse barometers. When they are exuberant it is time to take profits and wait on the sidelines. When they are most panicked is the time to buy. Market tops can be associated with a large majority of positive pundits while bottoms are associated with a vast majority of gloomy pundits. This information is available from newsletters although I don't have a reference handy.
The intraday turnaround was a bullish sign yesterday. Only time will tell if it was a bottom or a ledge. Investing is holding core assets that are well thought out, these include cash. Playing the markets is gambling. If you have enough money you can do both. Don't gamble with your milk money.
Henry, excellent post, and right on the money. Emotion and panic make people sell stocks at the lows, and also buy stocks at the highs. This has happened time and time again.
The other thing is for people to stop listening to the news. Go about your normal business, and the economy will bounce back quicker.
The best advise is contrary opinion, in other words do the opposite of the crowd.
This is a tough decision. But Cramer should have said this six months ago. The problem is of course the housing crisis. If you assume that the overvaluation of stocks was linked to the over valuation of real estate, then this market should settle down to around 8500 - that's a 30% decline from 12000, roughly the decline seen in real estate. Now the market will ascend again and five years may be the horizon, but it could be sooner. We have been lulled into thinking of the market as a high interest savings account, but it really is like going to Vegas.
I thik Cramer WAS saying this, and more, six months ago. Love him or hate him, Cramer tries to be a straight-shooter as he sees it. He's called out Wall Street any number of times. And that 8500 mark you cite, bluesman49, is pretty much where Cramer sees the floor. In this instance, Cramer's advice is a lot like Buffet's golden rule: don't invest in anything you wouldn't be willing to hold for the long term. Except... the stock market isn't the problem; the credit market is. Unless we can solve the credit crisis, we may go hurtling through that 8500 mark.
Cramer melted down on TV on a Friday in August 2007. He then went on the Colbert Report the next Monday.
http://bravenewfilms.org/blog/9933-stephen-colbert-talks-to-jim-cramer-about-his-on-air-meltdown
He gave the warning call over a year before the enormous crash, which counts to his credit. Notice that he recommends buying Washington Mutual because of the great yields, which can't be counted to his credit.
Cramer is a playing for ratings... Just a few weeks ago he was advocating to get into Banking stocks and pronounced Wachovia as being one the stronger stocks.
Cramer along with Wallstreet and Bush pressured Congress for the bailout. Guillible Pelosi and the Dems led the charge and as usual gave Bush everything he wanted. All because "They" said we were days from total economic collapse.
Now we are being told that the Bailout won't prevent a recession and that there are parts of the economy which won't be affected by the bailout. In fact, we are now told by the experts that the only thing that will help our economy is for Joe Sixpack to spend money on goods and services.
My question is: WITH WHAT MONEY?!!!! WE HAVEN'T HAD RAISES IN 6 YEARS.
I can't help but feel that Wallstreet and foreign investors have manufactured one of the biggest heist of Joesixpack 's taxpayer's money and retirement funds.
This is a very dangerous assertion Jim Cramer made. A hyped up "sell everything" is probably the worst thing that could happen to the stock market. This would cause a serious loss of confidence of foreign investors in the US market (its already spiraling down) and would kill the dollar. What does Jim Cramer suggest people then do with the worthless green paper they will get in return?
The best thing in the long run is too keep the money in the market as it will eventually go up. In fact, it might even be a good time to buy stocks of the more stable companies out there. Doing so will even help the market.
Until today i myself never invested in the stock market , and call me crazy , but with good research, i think now would be a perfect time to make long term investments in it.
HAHAHAHAHAHA!
Research doesn't do DIDDLY when business cook the books, find legal ways to hide their loses etc. It's all a shell game. They don't WANT you to know the truth.
Good Lord. I got out of the market when I realized how Enron duped some of the smartest people in this country. (I never owned Enron stock). What chance does the average Joe (even one doing thorough "research") when the playing field isn't level?
Good luck to you!
Shouting, screaming, using noisemakers, being more of an circus clown or an informercial pitchman, Cramer is difficult to take seriously. Yes, some who are in mainly riskier stocks or in just a few companies especially if maybe 5 years from retirement (as he was implying) should be more diverse in their retirement savings, but to leave the market in total just encourages more panic that leads to a more severe recession and borderline depression.
Irresponsible.
If there are indeed 'business cycles' with regular recessions followed by booms, then why are we being trained to resist and fear them by the financial pundits and our elected leaders? People who live in regions of the country that have frequent hurricanes or severe winters learn to expect and prepare for the regular occurrence of those seasonal changes. Then, why aren't we 'trained' or encouraged to anticipate and prepare for the regular business cycles as well? When there is a boom, we think it will never end and when the bust follows we think it's the end of the world.
When I hear that Wall Street reacts to emotion as it did on Monday, why aren't there strict regulations to take the 'emotion' out of the decision making. Las Vegas is run more intelligently than Wall Street. The casino operators have it down to a science even though the gamblers have various, sometimes irrational, factors affecting their decisions. It's simply amazing that our economy is allowed to be run by 'fear and greed'. It's too important. Would you want an airline pilot or your surgeon to do his job based on 'emotion'?
Even if there is someone smart enough to design the best way to regulate Wall Street, it's likely he/she will meet so much opposition that he/she won't succeed in implementing it. It's hopeless. There is no hope. Run for the hills.
Let's see: my portfolio has dropped about 70 thousand since April. If I sell now, I will have lost 70 thousand. If I hold on to my investments ( all blue chip) , I will more than likely get my money back plus some. Gee, I don't know what to do.
that is true but it could take 20 years
Good point. I wonder what rate of return it would take to recoup my losses before 20 years? ( Retorical question )
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