By now you have heard of FOMO, or Fear of Missing Out. It's what happens when you watch stocks go ever higher and decide, what the heck, I want in, I want to buy stocks, I want ETFs, I want index funds.
We don't have FOMO now. We've got FOBS, Fear of Big Sellers, and it is so palpable that its coloring everything and every sector.
Now I understand that there's only one reason you buy a stock. Because you think it will go up.
There are multiple reasons why you sell: you need the money to cover bills, student debt, credit card interest. There's a divorce. There's an estate sale. These are all legitimate every day events.
But that's not what drives big institutions to sell. Typically, they want to sell because they think that the market's going down and they fear that someone else even bigger will want out and there will be no buyers.
Being an institutional seller is a little like hiking with a bunch of friends and being attacked by a bear. You don't have to outrun the bear. You just have to outrun you friends.
Consider the bear the motivation. Consider the big sellers those whom you have out run.
Why are big institutions running and can you outrace them? We need to go sector by sector to figure out the particular reasons other than the fact that they are stocks and big funds often just sell baskets of stocks.
Most important, you could easily see that the market is up so much that there are big funds that just want to take gains off the table because they have big ones. They don't want to give back what they have made.
Don't believe this? Let me tell you a FOBS story. In August of 1990, Iraq invaded Kuwait. We had been long a lot of oil stocks going in to it. We didn't know anything other than Karen Cramer, my trading partner, said they act too well to miss them.
We were in Martha's Vineyard when we got the call that Iraq had moved in. She sold all of the oils that morning. Great trade. You did it, she said, because now everyone knows what we knew, which is to buy oil stocks. So it's too late.
For the next five months we just day traded because we didn't want a lot of exposure to the stock market because we, like everyone else, had no idea what would happen.
But we did know this. We were going to win this war and win it in a very short period. You see I had studied warfare for years and years, part of what my father taught me from his time of hot landing after hot landing with the Sixth Army in the Pacific Theatre in World War Two.
I know it seems ridiculous now to have any worries about how the war would be won.
But not back then. We heard endless story about how elite Iraqi troops could go toe to toe with us. The mainstream media was very down on our army and very up on theirs. I am not kidding.
So what Karen did was say we need to use the pessimism to our advantage. We are going to buy as many calls as possible into the pessimistic media-infused decline that she expected would permeate year end as well as tax loss selling that would be endemic.
I picked dozens of stocks that I loved and bought all sorts of calls, deep in the money, in the monies at the monies out of the monies, you name it. Particularly on the high fliers of those days. When we got near Christmas she said enough already, we are out of here.
We went to St. Johns, stayed at a Hyatt, and waited for the war to begin. We didn't have long to be begin. Two and a half weeks later the firing started.
She said how long would I take to win. I said about a week.
She booked us for a plane home.
We waited five days, just when it was clear how superior our army was to theirs and then she sold everything. Everything. It didn't matter how much it was up. It didn't matter whether I thought the prospects were great. I remember begging her to at least let me keep some Home Depot (HD) and Merck (MRK) calls. She told me fine, go get her a soft pretzel and a Diet Coke. When I got back they were gone, too.
Why were we doing this? Why did we have to be so sweeping? Simple, she said, everyone now knows what we knew. It's time to Skeedaddle Skeedaddy. We had to get out before everyone else who was dumber than we were, the people who waited for the war to be over to buy. We had to sell them our stock because they would be gigantic sellers themselves once they realized that the easy money was over.
I don't want to sound like Cal in East of Eden, a war profiteer, but Karen was right as she was so often. The market proceeded to fall and fall for months as big sellers bailed by the boatload. Us? We closed down and moved to the country where we built a little office so we could do some periodic day trading. We almost never owned a stock overnight.
We had a huge year. I spent more time gardening that summer that working. I used to hang out with Pop constantly at his office. I read more books and saw more movies that year than I did in my whole life.
Right now I see monster sellers in the Semiconductors. They reload every day. They seem completely insensitive to price. These owners are exiting sellers totally because they have fear of big sellers because nothing's really wrong except the stocks have run too much.
Have you seen the stock of General Electric (GE) ? It was up huge going into yesterday's analyst meeting at JP Morgan. Now we can all play a parlor game about how much was new at that meeting and how much wasn't, and how much was awful and how much was just plain bad.
I would contend it doesn't matter. The stock rallied so far so fast, up about 40% from the bottom, that plenty of investors and traders just wanted to beat larger sellers out of the joint as the company did indicate that 2019 would be a real bummer of a year.
You know where else I see it? The cloud kings. They were flying high going into Workday's (WDAY) fantastic quarter and when that stock went down after an amazing result that was the signal that money managers fear their fellow investors.
Then there are the drug and drug store companies. Their stocks are so horrible after being so great for so long that there are investors who seem insensitive to price but what they really are is sensitive to other, bigger sellers who want out. I know it seems stupid but I would contend that it might be as stupid as Karen was when she sold everything without a whit of caring what price she got. She just knew it was well above what we paid.
You want irony that proves the point? FANG, or, in particular Facebook (FB) , Amazon (AMZN) and Alphabet (GOOGL) . What do these companies have in common? They haven't done anything. You don't need to fear big sellers where there aren't big profits. That's what those stocks define these days.
So when does it end? I would argue that it might not end until you have stocks without profits in them. That's going to be the bottom for certain. Unless we get a trade deal. Right now there is no FOMO in the market from anything China. It's all FOBS and therefore for now, it's almost all bad. It won't last forever but always remember me trying to hold on to my favorite stock, my precious Home Depot shares, only to discover that in the time it took to get a hot soft pretzel and a cold diet coke, they were gone.
(Home Depot, Facebook, Amazon and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells HD, FB, AMZN, GOOGL? Learn more now.)
