TheStreet.com's Jim Cramer explains a prudent buying technique to use when the market has gotten a lot better fast.Is it too late to get into a Caterpillar (NYSE: CAT) (Cramer's Take) or a Goldman Sachs (NYSE: GS) (Cramer's Take)? How about a Bear Stearns (NYSE: BSC) (Cramer's Take) or an International Game Technology (NYSE: IGT) (Cramer's Take)?
The answer to individual stocks is that if they havae had a huge run, you have to be careful about getting in. Goldman Sachs deserves to sell off, given its recent run. That statement is not indicative of whether there are skeletons in the closet or that Goldman didn't mark securities right. It has to do with not being a pig.
I feel the same way about CAT, which was at $70 not that long ago. Same with many of the banks. It is difficult to buy here.
That said, I think that there are more gains ahead, so what's the point of waiting?
I think that when you come in at points in the market like this and you get a sell-off, you will start a kick-yourself process that will blind you. Moments like these are precisely why I like to buy in increments. If Goldman Sachs is as good as I think it is, it will continue to trade higher. But if there is negative news, then you have a situation where $200 is in the cards. I don't like those kinds of situations.
That's why, say, if you wanted 200 shares of Goldman, you can't do it. You have to wait for a pullback, because you will have no room otherwise to buy more.
But if you wanted to buy 500, you buy 100 first. Then you wait.
Traders have to think about their cost basis -- the average price they pay for shares bought in separate increments. If you buy all at once and it turns out to be at a bad time, you'll lose money right away, you will get fed up and sell below the price you paid.
That's not ever supposed to happen, so stage those darned buys! Space 'em out! It's the only way to go after a big run.
Again, I'm not saying that I am worried about the market, despite the currency decline, the gold move and the horrendous oil spike. Those are all part and parcel of the Fed's interest rate cut, and they are not as bad for the market as the cut is good. Everything is a trade off. But at given moment, the combo of oil-currency-gold is going to cause some people to take profits.
You have to be there when they do.
Up 400 points is no mean feat for the market. Prudent people are scaling their way in, buying in increments.
When the scaling tips into a half-point decline or even a point-and-a-half decline, that's when you can buy the rest of your shares.
Related Links:
Why is gold making a new high, trading at $1,118.00 per ounce?
Chasing Value: Ten stocks for 2010 -- Part 1 
Closing Bell: A six-day rally (AIG, REGN, M, MOT, PALM, RIMM)
Reader Comments (Page 1 of 1)
9-22-2007 @ 12:24PM
gene said...
Always remember that Cramer will not personally call you up and tell you when to get out.
The message, you are on your own so be careful what and who you listen to.
10-04-2007 @ 2:25PM
Frank Katzenberger said...
Closed end funds are they a good investment for the long run say 1 to 2 years. Currently funds like Nuveen JGT ALPINE and ETY,EXG, EOD,CSQ,CHW,BGY,BDJ,JGT,JPZ AND DCW price per share are down since purchased. I am on fixed income and retired. Is this a fairly safe place for my money or what do you reccommend. I need income but not risk of losing my retirement monthly income. Please help!
9-24-2007 @ 2:07AM
Frank Katzenberger said...
Should I hold onto Ruth Chris? I'm down $1,000.00 plus. If yes for how long?
9-24-2007 @ 7:04AM
Outtanames Dude said...
I'm glad to hear Cramer say that these stocks might be ready to dip. 8 out of 10 of his Mad Money picks all have charts with a big run up prior to his mentioning them - all ready to take a dive. This makes him look like a stock touter looking for suckers, even though I realize that is not his game. When you add the Cramer effect to that, it really pays to take his advice to wait a few days before moving in.
10-01-2007 @ 11:41AM
Messa said...
Cramer is such a douchebag, I can't believe with all the wrong picks he has come up with lately..SHLD and of course, his "Stock of the year" NYX, just to name a few....anyone still listens to him.... BOOYA !!
10-01-2007 @ 1:27PM
Rick said...
Many of you heard about Cramer’s appearance on the Today show last week, warning everyone to not buy a home now are “you will lose money.”
Question? So, if I am renting will I not lose money this way? Renting is paying for someone who did buy real estate/property. So, I am paying the mortgage on some ones investment.
If I purchase a home...Isn't the tax write-off, stability, having a place to call my own, PRICELESS?
10-01-2007 @ 3:35PM
rob said...
I'd like to see his short sales.
10-01-2007 @ 11:37PM
Rob said...
Anyone who listens to cramer for stock advice will definatley lose. You may as well ask your dog to pick stocks for you. Just look at HANS for example.
Cramer has been saying the stock is no good. HANS just hit its high and keeps going...... Cramer is just a nutbag.
10-02-2007 @ 2:56AM
Java said...
Yes, you can come ahead with Cramers advice. Like he always say, Do Your Homework! Not every stock he gives is going to be good thats where homework comes in. Plus it takes guts specially when the market is down to load up on stock. I am up 60% for the year and it'll look like this will be a Merry X'mas. Thanks Cramer!
10-02-2007 @ 11:59PM
Java said...
To: Frank Katzenberger
Depending when you bought Ruth Chris, basically the stock just yoyo in their teens @ times hitting low 20's. Basically the stock doesn't do anything. You mentioned you're retired. How about looking into dividend paying stocks. Generally this stocks doesn't go up much, it just yoyo say 5 points up n down but you're in it for quarterly cash. Tobacco gives good dividends, those vice stocks. Generally "I" stay away from retail, is just a hard stock to beat. Instead I like innovator stocks like apple, crocs plus other sector. But you have to be on top of things... like Crocs, the stock has been running for a while now it'll one day loose it's leg unless they keep coming out of new stuff..
10-05-2007 @ 3:59PM
Java said...
Funds; I don't know anything about funds. Instead I put my money in individual stocks and create my own portfolio. You don't have to own a lot of stocks, you can diversify n load up instead of owning a little bit of this n that.