Cramer's Mad Money - Cramer's Day of Atonement (9/28/09)

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Includes: AIQUF, BA, BAC, MON, POT, SKF, TNH
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday September 28.

Cramer Was Too High on POT: Potash (NYSE:POT), Monsanto (NYSE:MON), Terra Nitrogen (NYSE:TNH)

Cramer devoted Monday's program to repenting for his mistakes in the past year. He atoned for his "sin" of recommending Potash on July 29 based on the company's bullish conference call. However, he should have looked beyond the rosy predictions the CEO made for his own company and looked at other sources. Cramer knew fertilizer was in a decline anyway; this is one reason he only recommended Terra Nitrogen up until then, because TNH has a strong dividend that would pay investors to wait for an upturn in fertilizer. If he had paid more attention to the end markets for corn, wheat and soy, he would have been more certain that Potash was not a buy; farmers only spend more on fertilizer when they can afford to. While charts don't tell the whole story, he should have noticed that Monsanto's chart was poor. If Monsanto, a stronger company than Potash, was not faring well, why was he so high on POT? The problem: he trusted the company too much.

"When you’re too reliant on what a company has to say about itself,” Cramer said, “and not reliant enough on the big picture, you can really screw things up.”

Boeing (NYSE:BA): Don't Turn an Investment into a Trade

Another mistake Cramer owned up to was his call on Boeing. He was bullish on Boeing prior to June's Paris Air Show, because it was rumored that Boeing would unveil its long-awaited Dreamliner. However, the Dreamliner never took off or even appeared (the continual delays in the release of this aircraft have become almost a running joke on The Street).

Was Cramer wrong to buy Boeing? No. He still believes in the return of aerospace, and the stock is a buy up to the low $50s. His mistake was turning an investment into a trade; Cramer said he should have counted on another delay in the Dreamliner and planned to buy more Boeing on weakness rather than speculate on a launch that never happened.

Knowing When to Get Out

Today's trading environment does not allow investors to wait patiently for the market or trends to change. Thanks to high volume trading, the market's ebb and flow can seem more like a torrent that can catch investors unaware. It is essential to have an exit strategy, said Cramer. He suggested making a list of factors that would make a stock a sell and keeping the list handy to avoid getting caught up in the whims of hedge-fund frenzy.

“If you’re wrong about one of your stocks,” Cramer said, “then being able to recognize that fact quickly allows you to try to avoid big losses and catch great opportunities that you otherwise would have missed.”

Don't Let Fear Trump Judgment: Airgas (ARG )

While a healthy dose of skepticism is always a good idea, Cramer confesses that he was far too cautious with one of his favorite stocks and CEOs: Peter McCausland and Airgas. Although McCausland has made ten appearances on Mad Money and Cramer says he implicitly trusts him, a 46% decline in the stock between March 2008 and October of last year caused him to abandon the stock. The very next quarter, Airgas beat estimates, raised guidance and was $33 higher; "I think I let fear get in the way of my judgment," Cramer said.

The SEC's Day of Atonement UltraShort Financial ProShares (NYSEARCA:SKF), Bank of America (NYSE:BAC)

While Cramer devoted the program to confessing his errors, he thinks it is time for the Securities and Exchange Commission to repent and fix its mistakes. First, it must reinstate the uptick rule that requires investors to wait for stock to tick up in price before selling short; "Without the uptick rule, bad markets became awful."

Second, destructive UltraShort ETFs, which have damaged the banking sector, should be eliminated. While these UltraShorts are supposed to double and triple investors' money, the stock levels are reset every day and wipe out gains. UltraShort Financial ProShares was making investors no money even with the sharp decline of the financial sector. The SEC also needs to ensure those who deserve punishment are not let off with a slap on the wrist. Bank of America was given a measly $33 million fine for giving illegal executive bonuses, and the taxpayers had to pay the fine, not those who were unjustly rewarded.

Finally Cramer says the SEC needs to be more alert so another Ponzi scheme like Madoff's does not continue for years before it is finally discovered and dissolved.

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