I sent a copy of my post on Biocryst (BCRX) to Jim Cramer at his CNBC e-mail address, even though I'd said some unkind things about his pick, and he was kind enough to respond. His take was exactly that of a man who used to trade stocks for a living. He pointed out to me that the stock opened between 13 and 14 after he recommended it, then climbed to 17. If I'd bought a thousand shares, he went on to say, I'd have "the down payment on a decent car", and if I'd bought 5000 shares I'd be looking at tuition money.
As he put it, he's not asking for any praise from me, but feels that I "should at least accept the fact that the trade was money good." Well, I can't deny it: I do accept that anyone who ran out and loaded up on BCRX after he boosted it made money on the trade, and that's what that a stock transaction should do for you. But as I said to him in my reply, 5000 shares at $13 is a bit more "mad money" (to use the title of his CNBC segment) than I happen to have sitting around, so that may not be a very realistic example.
I should add that anyone who opens up a $70,000 position in a small NASDAQ stock because someone on TV said it was a good idea had better have a lot of money to lose. Most people who can afford to drop that kind of money probably aren't acting on tips they hear on investment shows, though, or at least I hope they aren't. This kind of thing can actually turn a profit on a majority of your individual trades, but the whacking losses that show up every so often will more than make up for those. Rabbits that try to make a career out of dodging 18-wheel trucks have exciting careers, and may feel for a while as if they're ahead of the game, but tend to end badly. You may be able to tell that I'm not what they call a "momentum investor".
And there's another factor that Cramer (and other well-known stock pickers) don't always want to address. As stock-blogger The Stalwart put it the other day, "Jim Cramer likes to say "There's always a bull-market somewhere" and in the short-term he's right; it's wherever he says it is". Exactly. Cramer's counterargument to me is, basically, that he was right because he told a million viewers to go buy the stock and see? It went up!
To his credit, though, I see that he fielded another question on his radio program today about Biocryst, and advised people to take their profits: "the trade's done". He doesn't seem to have sent it down by doing so, though, which is only natural. People are much slower to pull the trigger on sell orders than they are to buy, and there are plenty of hopeful sorts who still seem to be crowding into the stock.
I've little doubt that BCRX will continue to go up for a while. The public fears of avian flu will lift it. Am I going to buy any? Absolutely not. I know too much about the science to be comfortable joining that kind of herd. Am I going to short it? Not yet, although I've heard from a reader who was already short before I wrote about the possibility. I hope he's got some reserves handy.
If I join him, I'll post the trade. My temperament generally doesn't allow me to try to make money by counting on ignorance on the long side, but for some reason I've no problem letting ignorance help me out on the way back down. The problem is, I tend to underestimate the craziness and greed of my fellow investors. . .