Prudence is a virtue.
Only in this business is that concept under attack these days and it's got me all steamed. I cannot believe I have to defend something as simple as prudence. Yet this is what the investment world's coming to and I don't like it so we're going to talk about the notion that being prudent when it comes to your money is a virtue not a vice.
One of the first principals I have ever learned and I have taught forever is nobody ever got hurt taking a profit. I always thought that seemed like common sense. It dates back to the days when I would play the slots at Atlantic City with my mother and when we hit big she would say "come on Jimmy let's go out and buy a sweater." She never wanted to give a big win back and I think that you have to do a lot of soul searching before you go against my mother particularly on this issue.
Then when I got to Goldman Sachs (GS) , one of my bosses, Roy Zuckerberg, called me in not long after I started out and noticed that I had been recommending some pretty aggressive ideas. Stocks, he told me, aren't vacuum cleaners. If they break you can't take them back. So, you have to be very careful with what you suggest people buy. That's where I get the phrase caveat emptor-buyer beware when it comes to buying stocks. They don't come with warranties.
Finally, when I was at my hedge fund I learned from my trading partner, Karen Cramer, a lesson that has been a key mantra of Mad Money, bulls make money, bears make money, and hogs get slaughtered. That's one of the oldest lessons on the trading desk but it always rings anew to younger investors because they often don't know they are being hogs and when you are a hog you do tend to become ham long before you would have expected it. It's fine to bet against stocks, it's fine to bet with them, but please don't let everything ride even after you've made a ton of money.
These are core tenants for me. Yet five months ago I made a call from my hospital bed at NYU Langone that I thought was the essence of what I have learned and I have never been able to live it down, I have never been able to shake the enmity and embarrassment of those who heard me make it.
I am talking about the call I made shortly after I ripped out my catheter so I could have a little more focus: the call, at $400 for people to take profits in GameStop (GME) . The stock was up more than 1700% at that moment, a remarkable run, and I thought people should take something off the table. Not long before my surgery for a burst cyst in my spinal column that left me unable to stand without falling, I had admonished the short sellers in GameStop for being pigs. They watched the video game chain's stock drop to near oblivion and they didn't take their gains when they had them. It was a pretty simple call: they had obviously been pigs.
Now I was saying the same thing about those who had watched their stock going to $400.
It was one of the best calls I have ever made as the stock then fell from $400 to $40 less than a month later.
And it has created permanent enemies who have spilled endless bile on my twitter feed and made me public enemy number one on Reddit's WallStreetBets, the new betting sheet arbiter of so many stocks. These younger investors, or I think younger as the thing is so darned anonymous, think it's a sin to sell no matter how much money has been made. They hate those on the other sides of their trades, particularly short sellers but also guys like me who they have decided should move on because we are baby boomers and we had our chance and it is time to move on.
In other words, my learned behavior is worthless to these people who castigate anyone who tries to help them even if they turn out to be right and could save people fortunes.
Now I understand risk. I am not against buying GameStop. I am not against buying AMC (AMC) . I think that GameStop, with its stock above $300 but is still below where I said sell some. I am not because these companies have the ability to reinvent themselves precisely BECAUSE their stocks went so high. I don't know if they will but I hope they do. I like to sell some, not all, so they've been great.
But let's talk about another example: the stock of Wendy's (WEN) . I have made it very clear that I like this stock, liked it for ages. I like eating there but more important I like their breakfast initiative, which is well ahead of plan, I like their new foray into the United Kingdom, and I like the way they continue to improve their taste especially with my wife's favorite, the Baconator.
Yesterday the stock went from $22 to $30. I share the thoughts of Nelson Peltz, the chairman and large shareholder, who believes that the stock is undervalued. But if I had told you to buy it at $30 and it went to $25 as it did today, I would feel terrible. Maybe in the world of WallStreetBets I would be applauded for liking it at any price but somehow I suspect I would be castigated by the majority of the audience.
I also am not against risk. I think that a part of your portfolio should be speculative, your "Mad Money", and I am probably the only guy out there who encourages speculation, especially the younger investors out there. They have their whole lives to make back the money they might have lost. However, the WallStreetBets folks often think that you should be all in whatever speculative heap that they think you should buy and if you have a bead on why the idea is bad you better shut up. I think that's a doctrinaire, unwise position that I cannot abide by.
I am not a total masochist, just a partial one. I have rhino skin and I welcome criticism, although I could do without the endless ad hominem attacks. But dogma doesn't cut it. If bulls make money and bears make money, you know who these people are and I can't change. Somehow I think that, as baby boomerish as I am, they will regret not listening to me just like I would have regretted disagreeing with my mother, my old boss and my ex-wife, all of whom were gifted with a lot more commonsense than I have ever seen in the scatological cyber pages of WallStreetBets portion of Reddit.com.