Cramer: Don't Get Shaken Out of Apple

 | Sep 13, 2017 | 3:00 PM EDT
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Sometimes your goal is to not be shaken out. That's right, you don't want to get discouraged, distraught or so worried that you actually are one of those unlucky people who buy high and then sell low, a time honored way of losing money. We see that larger than life today, in the stock that has gripped our attention, Apple (AAPL) , and the launch of its newest iPhone. It colors the entire day of trading.

First let me give you some context. I was both a trader and investor for twenty-one years, taking long-term and short-term positions. Now for my charitable trust, which is part of the club, I can only invest and I am severely restricted in what I can do, but not what I say.

Investing and trading require two very different mindsets and rules. When you invest, you do so with the idea that you are going in for the long haul. You don't want to buy all at once. As club members will hear once again in my monthly conference call, you need to be disciplined, you don't buy all at once, and you buy down in stages in pyramid style.

That's because your first buy is most likely not going to be your only buy and you want to leave room to buy on the way down. Because of the idea that you have done your homework and therefore you know or believe that your stock gets cheaper on the way down, you save extra room to be able to buy more of it than when it was higher. That's how I run my trust, it is how you should run your investments. It won't make for perfection but it also won't shake you out as you will embrace the decline as a way to buy more stock cheaper. Imagine if you are buying an Hermes tie, like the expensive one I am wearing today. If you buy one for some godawful price like $200 and suddenly soon after you see that the same line of tie is selling for $150 you don't assume that the value has been lost and therefore you should throw in your current tie. Instead you buy more ties because Hermes makes a quality product and you can't wear the same tie every day. They offer you bogo, trade talk for buy one get one even better.

Now if you had bought all four ties at the same price and you see the sale whose fault is that. Hermes? No it's you.

That's how you should think about investing. You won't get shaken out. You'll buy more.

Now how about trading? Okay, this is an entirely different discipline.

I like to trade with specific parameters. First, trading is event driven. You are looking for a catalyst, when that catalyst occurs and the trade works, you sell the stock. If it doesn't work you sell the stock. Why? Because you can't turn a trade into an investment no matter how much you like it. You bought it with something specific in mind that drove the stock up. Don't rationalize and come up with a new reason to hold on to it. Blow it out.

Them's the rules, loss or not. Remember it's a loss whether you take it or whether you let it run. At least the loss is contained if you take it off the table.

Second, you do not reach for a trade. The clowns who bought Apple up a buck and a half yesterday almost at $164, and even the chowderheads who bought it the day before at $162, were reaching. They figured one of three things:
A. that the phone would be so great as to shock people into buying the stock;
B. that someone would be even more of a fool than they were and take them out of a stock;
C. they had no idea what they were doing so they didn't figure anything.

People who did A, B and C are almost certain to be shaken out and that's the worst thing you can do as a trader. You are at the mercy of everyone. People who did one of those three are right now thinking, I am an idiot, but you know what I will just own it for the long haul.

No no no. You have just turned a very specific but blown trade into something that you won't know what to do with if the market or Apple's stock goes down tomorrow and you will likely lose money.

How do you prevent being shaken out?

It's easy. You shouldn't have done the trade to begin with. First, you had no edge whatsoever. Everyone and his brother knew the phone would be released so it isn't like you are some sort of genius to figure out that could be an "ah-hah" moment to buy, especially given that it hasn't worked all that well before. Second, it was predictable that the analyst "community" would for the most part yawn and say there's nothing special. There's been nothing special since the beginning of time according to most of these critics and certainly not since Steve Jobs died because wasn't he the only one at Apple who had any ideas?

Everyone misses Steve Jobs. Everyone would acknowledge that he may have been the greatest genius of our era. Nevertheless this $160 stock was at $54 when he died. He did not take the company with him. There were others, too and I am sure if he were alive he would say that.

The others have done an awfully good job in continuing the concept of offering the finest ecosystem which includes the best phone and the best customer satisfaction data of any product ever made.

Which brings me back to the community again. They were for the most part underwhelmed. Plus I heard a lot of people talk about how Samsung has a better product. Well, great, Apple's got an ecosystem that's as bountiful as a rainforest. Samsung might as well be the Gobi desert.

Why does all of this matter? Go back to the original narrative. You buy the stock for an event. The event occurs and, predictably, there are tons of analysts who say "ehh." That's what they do. So you are now going to be shaken out because you hear "ehh" and you know you made a mistake and now you have to cut and run.

That's why I say the best thing to do is to do nothing. Say you missed it. You are too late.

I can't tell you how often I read on Twitter whether it is too late to buy this or that stock and I look where it is and I have to say yes. That's because the odds don't favor you buying a stock, after a big run, especially when it is a derivative of an Apple launch. Don't forget that Apple is the Fight Club of consumer products and the first rule of fight club is you can't talk about Fight Club. So none of these suppliers can come out and say "things are fabulous, stay in our stock as we have tons of Apple orders." You are adrift without a paddle.

Now, what if you want to buy the stock of Apple at this point? Depends. You want to own Apple, not trade it? You can buy small and be ready to buy more as it comes down because of the shakeout I have described. If it doesn't go down any more be glad for the gain.

Was there a good "sell the news" trade here? Sure, you can always play that game. I don't' even mind it. But my point is this. When you are trading, don't buy something with an obvious catalyst in mind and bet you will make money. You have no edge. I told people here who were traders to sell it to the morons who reached.

But the bottom line is that investors can now buy the stock more cheaply from the shaken out chuckleheads. And if you do it right, you'll have started on the pullback and therefore increase the odds that your investment will ultimately make money.

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