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By James J. Cramer

2/29/00 9:42 AM ET

Editor`s Note: James J. Cramer is the keynote speaker at the 6th Annual Internet and Electronic Commerce Conference and Exposition, held today at the Jacob Javits Center in New York City. We`re running the full text of that speech here.

Click here for the latest from James J. Cramer.

You want winners? You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.

OK. Here goes. Write them down -- no handouts here!: 724 Solutions (SVNX:Nasdaq - news - boards), Ariba (ARBA:Nasdaq - news - boards), Digital Island (ISLD:Nasdaq - news - boards), Exodus (EXDS:Nasdaq - news - boards), InfoSpace.com (INSP:Nasdaq - news - boards), Inktomi (INKT:Nasdaq - news - boards), Mercury Interactive (MERQ:Nasdaq - news - boards), Sonera (SNRA:Nasdaq - news - boards), VeriSign (VRSN:Nasdaq - news - boards) and Veritas Software (VRTS:Nasdaq - news - boards).

We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over -- and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don`t even have earnings per share, so we won`t have to be constrained by that methodology for quarters to come.

There, now that that`s done with, can we talk about the methodology that produced those top 10 so that you can understand how, in a universe of a gazillion stocks, we arrived at those, so you too can figure it out? I hope we can because I have another 10 and still another 10 and another. They all do the same thing: They make the Web faster, cheaper, better and easier to access anywhere, anytime. They allow you to get on the Web securely anywhere in the world. They make the Web economy the only economy that matters. That`s all they do.

We try to own every one of them. Every single one. And if I had my druthers, I wouldn`t own any other stocks in the year 2000. Because these are the only ones worth owning right now in this extremely difficult, extremely narrow stock market. They are the only ones that are going higher consistently in good days and bad. I love every one of them, just as I loathe the rest of the stock universe.

How did this stock market get like this, to where the only people who can make a dime in it are the people who are interested in the most arcane subject, the moving of data from one space to another, via strange new machines and software? How did it get to the point where nothing else matters, most particularly the 90% of the stock market I have studied for the last 20 years? How did all of that knowledge become totally irrelevant and the only stocks that work are the stocks of companies that didn`t exist five years ago and came public in the last two or three years?

Let`s start with the world in the early 21st century, a world where capital is abundant for a chosen few and nonexistent for just about everybody else. It is a world where the whole of Wall Street and Silicon Valley is at your fingertips if you are creating the infrastructure for the New Economy, and a world where neither Wall Street nor Silicon Valley could give a darn about you if you are using that infrastructure.

Or in other words, we don`t care if General Motors (GM:NYSE - news - boards) and Ford (F:NYSE - news - boards) are going with Oracle (ORCL:Nasdaq - news - boards) or with i2 (ITWO:Nasdaq - news - boards) for their new parts procurement process. We don`t want to own GM or Ford on any occasion. In fact, we would rather own the loser in that tech bake-off than the winner in nontech, because in this new world, there is so much business to be done for the i2s and the Oracles that the capital will remain plentiful for them, win or lose a particular piece of business.

Just yesterday I found myself wishing I had bought i2 when it lost out to Oracle for the giant business-to-business contract for the Big Three automakers. Others had the same idea because i2, the loser Friday, was up much more Monday than GM and Ford could be this year. i2 can own the world because the company with the access to cheap capital always wins. And the companies with no access have to lose.

Or, closer to home. We in the stock market don`t care that The Street.com Inc. (TSCM:Nasdaq - news - boards), a company I helped create, has built a compelling new brand, has more than 100,000 paid subscribers and has $100 million in the bank. We just want to know which companies TheStreet.com employs to publish each day. We want to know who the host is, which publishing tool works best, which wireless strategy TheStreet.com is adopting and how does it automate its email? (By the way, the answers are Exodus, Vignette (VIGN:Nasdaq - news - boards), Motorola (MOT:NYSE - news - boards) and Kana (KANA:Nasdaq - news - boards) -- all at or near their 52-week highs as TheStreet.com languishes at its 52-week low, a triumph of the arms merchants over the combatants if there ever were one.)

How did this bizarro world where nine-tenths of the companies I have followed as a stock picker for the last 20 years are losers and one-tenth are winners? To answer that question, you have to throw out all of the matrices and formulas and texts that existed before the Web. You have to throw them away because they can`t make money for you anymore, and that is all that matters. We don`t use price-to-earnings multiples anymore at Cramer Berkowitz. If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn`t have a dime under management.

So how do we sort through which stocks get bought and which stocks get assigned to the waste bin?

We have a phrase on Wall Street. It`s called raising the bar. If you can raise the bar, or brighten the outlook for your company, if you can see your growth accelerating, your stock will go higher and you will be given the currency to expand, acquire and do whatever you want. That`s the secret of the quintessential New Economy stock: Cisco (CSCO:Nasdaq - news - boards). This giant networker has the ability to control its own destiny. It can, as my colleague Adam Lashinsky says at TSC, buy any company it wants to. It can pay any price. Because it has a currency that it better than U.S. dollars: It has Cisco stock. It can do that because it raises the bar every quarter!

But what about the Old Economy stocks? Can Merck (MRK:NYSE - news - boards) raise the bar? Can Pfizer (PFE:NYSE - news - boards)? Can U.S. Steel (X:NYSE - news - boards)? Or Phelps Dodge (PD:NYSE - news - boards)? Union Pacific (UNP:NYSE - news - boards)? No, no, no, no, no and no. So what happens to them? Despite the billions in buybacks and the plethora of strong buys that the Street has put out about these companies, their stocks have no traction. They just stumble along, rising and falling haphazardly with every whim and quizzical speech of the Federal Reserve chairman that still controls their destiny. If Greenspan indicates that there is more tightening ahead, these traditional companies, the ones that you measure with traditional matrices, get pole-axed as we worry about where the capital will ultimately come from if credit gets choked off, while the arms merchants in the Web war, with capital to burn, just go higher.

It is no secret that the Dow, made up principally of companies that can`t raise the bar, is down 12% while the Nasdaq, which is made up of companies that can raise the bar, is up 12%. And in the self-fulfilling jungle that is Wall Street, only growth can maintain growth!

So how do we find what are the great growth companies, knowing that growth and not cheapness of stock to company is what matters? We have to look for the fastest-growing industries and then select the companies that can make the infrastructure happen the fastest and the cheapest in those industries. The growth must be positively organic, if not viral. There must be heavy technological barriers to entry. And there must be an ability to scale without any thought to human cost. These companies must be able to dominate their businesses or be willing to become part of a larger institution that dominates.

So, whom does that eliminate? First, any company that is a commodity producer simply can`t be owned, no matter what. The New Economy makes those be simply a function of low-cost producer with no ability ever to raise price. This, of course, is the crying shame of the way the Fed is trying to break the economy because the only place that could stand for a little inflation is in the deflationary commodity industries. But their inflation revolves around the ability to build inventory to anticipate future price hikes and the Fed is taking short rates to a height that makes it uneconomic to stockpile.

Second, it eliminates any bricks-and-mortar company that doesn`t embrace the Net. To not embrace the Net is to give a cost edge to a competitor who does. It does so because the Net removes the middleman that was a product of the regional economy. There is $4 trillion worth of wholesaling that gets instantly eliminated by the Net. Before only the largest orders could be processed by the biggest companies because it was too expensive otherwise. Now all orders can be processed by the biggest companies through the Web. There is no need for the jobber or the wholesaler. Obviously, if you are still using that old distribution network, you can`t compete against those who do.

Third, it eliminates any industry that does not have a proprietary brand. This is one of those weird features of the Web that people haven`t woken up to yet, but it will seem obvious a few months from now. In the New World`s economy, the desire to "name your own price" is too great to squelch. An outfit like priceline (PCLN:Nasdaq - news - boards) will change the very nature of brands in this country. It won`t destroy the premium brand, but it will force everyone else out of the market. Why? Because the way priceline works is that we are trying to buy the premium brand for the price of the off-price brand. That means the off-price brands, whether they be Colgate (CL:NYSE - news - boards) or Dial (DL:NYSE - news - boards) or Hunt`s or Ralston (RAL:NYSE - news - boards), are simply doomed by the Web. Why would you ever buy the second- or third-best when you can get the best via priceline for the same price as the lower tier? Ahh, that`s a real killer. It leaves only the top brands to vie for supermarket space. The others won`t be worth carrying. They won`t move! Oh yeah, same goes for the airlines and the hotels and just about everybody else.

Fourth, it just destroys retail as we know it. Why? Because the companies that embrace the Web more vigorously will eventually be pitted against other companies that embrace the Web more vigorously, creating a virtual constant price war, the kind of war that Marx, of all, actually predicted would happen to capitalism. It will happen to retail once everyone realizes that Amazon (AMZN:Nasdaq - news - boards) recreated Wal-Mart (WMT:NYSE - news - boards) online because it will forever have access to cheap capital. Why do I say forever? Because at a certain point, it will be done with its buildout and will effectively be able to cherry-pick whomever it wants to destroy while having it be subsidized by other areas. It will be Home Depot (HD:NYSE - news - boards) vs. Wal-Mart vs. Amazon in the end. Nobody else. And that`s only if Home Depot figures out it better get on the Web and fast.

Fifth, it wipes out everybody who straddles the Old and New Worlds. Let`s take the brokerage industry. If you are trying to preserve a price point, because you need those margins, you can`t and you become roadkill. Same with journalism. If you are free online and cost offline, you will eventually not be able to charge offline. Why not? Because the Hewlett-Packards (HWP:NYSE - news - boards) and Intels (INTC:Nasdaq - news - boards) and Ciscos are bent on making the online version far superior to the offline version. And they will do it. They, too, have the access to capital to make it happen.

I can tell you from TheStreet.com that we have substantial cost advantages over our printed cousins. We can come out around the clock. We don`t require paper, ink, delivery people or trucks. In that sense, we are much more like television, personal television, which is why we were wrong initially to think we could charge for basic news, and right to think we can charge a huge amount for proprietary analysis that can make you money.

The struggle between the offliners and the onliners in banking will also pan out just like these other industries, with huge wins for those with a fresh online culture and hideous losses for those who don`t see it coming or are slow to adjust. If you have to preserve your giant branch network and the costs that come with it while someone else perfects secure wireless Internet transactions, you can forget about it. You can`t afford to compete. How can Bank of America (BAC:NYSE - news - boards) compete with Nokia (NOK:NYSE ADR - news - boards) as a way to bank? How can Goldman Sachs (GS:NYSE - news - boards) compete with Yahoo! (YHOO:Nasdaq - news - boards) as a way to invest? Isn`t Nokia, with its wireless machine that goes everywhere a better bank than one that needs branches? Isn`t Yahoo!, with its access to all of the information and quotes in the financial world a better place to buy stocks than Goldman?

Of course they are.

So, if you can`t own the retailers, and you can`t own transports, and you can`t own banks and brokers and financials and you can`t own commodity makers and you can`t own the newspapers, and you can`t own the machinery stocks, what can you own?

A-ha, that just leaves us with tech. That`s why we keep coming back to it. That`s why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10. And my next 10 and my next 10 after. Only those companies are worth owning. The rest?

You can have them.

Thank you.

Heute ein Jahr später schreibt Mr. Cramer immer noch, allerdings in leicht verändertem Stil.

Thursday March 15, 7:52 am Eastern Time
TheStreet.com - Wrong!
Tech Junkies, Listen Up!

This column is for you.

By James J. Cramer

If you have more than 40% of your holdings in technology, this piece is for you. If you have less than that, don`t even bother to read it. You will do fine in the coming months! ! . I will have some stuff for you later today. OK, now we are just preaching to the tech-aholics, those of you who think a diversified fund is owning Redback (Nasdaq: RBAK - news) , Vignette (Nasdaq: VIGN - news) and Intel (Nasdaq: INTC - news) and Microsoft (Nasdaq: MSFT - news) and Cisco (Nasdaq: CSCO - news) because you are with blue-chip tech and speculative tech.

First of all, like you, I think tech is the future. I think George Gilder is a brilliant man. I think American technology is fabulous. I think we make great stuff.

Like you, I believe we are overdue for a rally in tech. Like you, I think the rally we had on Tuesday looked good and that very few people believe in it. Like you, I came in and was horrified about how terrible the market is looking now.

However, unlike you, I took action. I diversified away from tech. You see, I am a generalist, and I can make money in many different places. I see opportunities every day in the Fluors (NYSE: FLR - news) and the General Millses (NYSE: GIS - news) . I see how Lowe`s (NYSE: LOW - news) is doing, and I watch Sysco (NYSE: SYY - news) as well as Cisco.

Also unlike you, I talk to these tech companies constantly and they are honest with me about their prospects. Also unlike you, I have run money for many many years and I know that when we get in down cycles managers do bad things with peoples` money -- like lose it.

And unlike you, I have been pretty negative on tech for a long time. I have not been on television saying I would load the boat up with tech.

At the beginning of the year, I frowned on a long QQQ (Amex: QQQ - news) strategy right in the face of a proponent of it on CNBC. I thought it foolish. I am not someone who has advocated riding tech all the way down from 5000 and am now telling you to get out.

The opposite is true. I am a credentialed tech bear and I am not going to have it pinned on me that I just got bearish on tech, as so many others around me have. I made great money last year betting against tech and was vocal about it. I told you as late as yesterday to take those prices we had in the rally and reposition.

Not everyone got this one wrong. Yesterday I spoke to a Washington Post reporter and she said I was the only one saying to sell tech of all the people she spoke to. I just said "typical" and moved on.

Now, that we understand each other, let me tell you what I think you should do. During any rally, I want you to take a quarter of your tech mutual funds and sell. I want you to take a quarter of your tech stocks and sell. No more than a quarter. It is too late and there is too little left to do more than that.

Put it someplace where the money is being made. It is being made in many different areas. Or don`t put it anywhere at all and have money to put to work when tech is right again, even if it is at lower levels.

OK, let`s review: I did not say "sell all tech." I did not say "We are going to 1500 on the Nazz." I did not say "I think we are going to crash." I did not say "I hate Cisco (Nasdaq: CSCO - news) the company here." I did not say, "Sell into the morass of this opening."

I am being explicit about this because I am now hearing from so many people, "You are telling us to sell tech at the bottom." I want to reiterate that I told you to sell most of your tech when it was much higher. I can`t say that now because it has come down so much. But it doesn`t matter. I don`t care how far it has come down. I care about making money, and I don`t think that we will rally back to NAZZ 3000 or 4000 or 5000 and I want you to stay in the game and not get wiped out if we dip below where I think the Nazz can go.

I want you to have enough money to keep reading me.

I make these judgments because, if I were running your mone,y I would still be very underweighted in tech and would be shorting tech on the bounce. I don`t fear missing the move up. I think that with your remaining tech holdings you will catch whatever there is to catch, if there is something to catch.

I have noticed ever since I recommended sales of stocks last year at this time that nobody ever recommends sales without being hounded or attacked every time the market rallies 4% to 9%. Yesterday was typical.

Even though I said, "Please sell into the rally," I was hounded for selling at bad times. When is a good time? I don`t know of any.

Look, often it doesn`t seem worth it to go through the aggravation or the heat I am getting for this negativity. I swear, unfortunately, that it is much easier to be Joe Battipaglia or Abby Joseph Cohen or Tom Galvin than it is to be me. They get credit every time it goes up and they look like white knights every time it goes down. They seem like the friend of capital. When I say sell I seem like the enemy.

Objectively, in the real world of professional money, however, that is wrong. These people are, in the real world of big-time performance management, regarded as glad-handers who would have annihilated you if you listened to them. I am from the real world of big-time money management. I`d rather be right and make money than be wrong and make everybody feel happy.

Was für ein Joke. Kein weiterer Kommentar.
The Bottom Line
Bubble Boys
The press has us convinced that every Wall Street analyst is corrupt. Okay, yeah, some are. But the truth is, the most exuberant of the stock boosters were merely incompetent.

By James J. Cramer

The case against Wall Street`s analysts seems so easy to make. We have e-mails from analysts to corporate-finance bankers joking about having to recommend pure crap in order to get big bonuses. We have e-mails from analysts pleading with banks to be able to downgrade horrid stocks simultaneous with the release of positive recommendations of those same stocks. We have damning correspondence that shows that buy recommendations were for sale at Merrill Lynch and First Boston for the price of follow-on business, a secondary here, a bond deal there. Heck, these e-mails are a prosecutor`s dream; a first-year law student could find these clowns guilty of fraud.

The New York Bookshelf
TheStreet.com co-founder James J. Cramer`s latest book, You Got Screwed! Why Wall Street Tanked and How You Can Prosper (Simon & Schuster; $20), is now available at bookstores everywhere.
But before we convict the whole analyst industry and send it to Sing Sing, someone in the prosecution`s got some explaining to do. How is it that while there are many documented instances of analysts` being pressured to stay positive long after the stock bubble turned into a fiery zeppelin, there were far more totally independent analysts still willing to hop onto the balloon as it disintegrated into the proverbial Lakehurst grave? While we all know that Jack Grubman, the now-disgraced telco analyst late of Smith Barney, loved WorldCom literally to death, what was the excuse of the dozen analysts who got no investment-banking business but loved this giant scam anyway? These WorldCom acolytes had nothing to gain for their recommendations, because WorldCom did most of its banking with Smith Barney. Yet they banged the drum, in some cases even more ferociously than Grubman.

And WorldCom isn`t anomalous. Wall Street analysts routinely recommended stocks that eighteen months later would fizzle or go bankrupt, and received absolutely no extra recompense for doing so. They simply blew it. As Eliot Spitzer pointed out last week in his deconstruction of Institutional Investor`s All-America Research Team Awards, even the so-called stars usually got it wrong.

Of course, Smith Barney`s Jack Grubman loved WorldCom literally to death, but what was the excuse of the dozen analysts who got no investment-banking business but loved this giant scam anyway?

While there was corruption behind some of these buy recommendations, I think stupidity played a much bigger role. Either they thought that stocks would keep rising and they didn`t want to rock the boat or they genuinely believed in the promise of the New Economy.

As someone who has spent his career trying to discern which stocks are going to go up and which ones are slated to go down, I can tell you that the process is harder than it seems (despite what everyone presumed during the bubble). At Cramer Berkowitz, the hedge fund I`ve since retired from, I interviewed dozens of people a year who insisted that they could pick winning stocks. As a ritual, I would ask them to pick some for me. But in a dozen years of trying to find talented stock pickers from the sell side, I found only two who could demonstrate the ability to pick stocks right. I passed on hundreds who simply couldn`t pick stocks to save their lives. And that was in a bull market! It`s just simply a very difficult process that most can`t get right, even when they have the potential to make far more money working on the buy side, at a hedge fund, than they could kowtowing to their investment-banking masters in order to get lucrative bonuses -- the essence of the prosecutors` case against the research analysts.

To be sure, that doesn`t mean the current scheme is corruption-free. In the late nineties, when you brought your company public, you pretty much were buying a positive research report to be issued, like clockwork, 30 days after your company came out of the chute. These "initiate buys" fooled no one except the hapless public, which didn`t know how the game worked. Why get in the way of a freight train in the name of principle?

Now let`s make things even more complicated. Wall Street`s no monolith. Some firms apparently had very weak controls and coerced analysts into upgrading stocks that belonged in the dog pound. Those who balked were fired, and more compliant people were brought in. But other firms, notably Morgan Stanley, pressured no one and even took the incredibly unusual posture of downgrading some of the most lucrative clients out there. The decision by Morgan Stanley telco analyst Simon Flannery to take Qwest to a sell at a time when Qwest would have loved to do business with Morgan Stanley distinguished that firm as honest in my eyes. To make matters even more black and white, Morgan Stanley had no Enron analyst at a time when Enron was doling out millions in investment-banking fees to any firm that touted its securities. Even Morgan Stanley`s Mary Meeker, the analyst who is claimed to be among the more ethically challenged for her buy recommendations of dubious dot-coms, did the most rigorous work and was far less enthusiastic than her dot-com-analyst compadres in the end.

Still other firms, such as Goldman Sachs, Lehman Brothers, and Bear Stearns, plied their allegedly corrupt research only to wealthy people, who the government has long held do not need the special protections others in the marketplace are afforded. Why should these firms be held to the enforcement standard meant for those who sold stock to the great unwashed masses of investors? If the rich lose money, to paraphrase Lenin, isn`t it their own darned fault?

Of course, the current investigations don`t even begin to take into account so many of the other pressures on analysts: They are always loath to downgrade the stocks owned by the big mutual funds that pay the commission bills. They are also desperate not to alienate those who have bought the stocks on their recommendations, even if the companies behind the stocks start disappointing. Better to let the companies disappoint the clients than disappoint them yourself.

No matter. We are now in the massive-recrimination stage, and these niceties -- patient consideration of extenuating circumstances -- have no place in the process. Given that no firm had totally clean hands or heads during the boom, we can expect that the government`s piper has to be paid. I just hope there`s someone at the table for the brokers arguing, "Call us stupid, call us dumb, but don`t call all of us corrupt."

That`s the position, in this murky moment for Wall Street, that has the most truth on its side.


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