Many think that complacency is a disease that only applies to bull markets, but Jim Cramer said that is not true. It is also possible to be too comfortable in negative beliefs about the market, and totally miss a market bottom.
“Complacently negative investors dismissed yesterday’s ugly close as just more of the same horrible action. But opportunistic investors? The ones who sense that stocks are getting too cheap and change their view? They look like real winners, at least for the moment,” the “Mad Money” host said.
On Wednesday Cramer confirmed that his charitable trust had purchased stocks in the last hour of trading because the market was so ugly and miserable, it was time to buy. The trust purchased stocks because it had set price levels a long time ago, and those levels were reached.
Cramer did not want to buy the stocks, especially since the market backdrop was so terrible. But he reminded himself that one cannot freeze up and stay negative when a stock hits a price level you set just because it’s an emotionally charged moment.
“If you don’t buy something when the market is universally and deservedly despised, then when will you buy, especially if you’re sitting on a boatload of cash?” Cramer asked.
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Cramer reminded investors that there will be no bell that goes off and tells you when the coast is clear. That means one must have discipline to buy when everyone hates the market, and the same discipline to sell when everyone loves it.
Ultimately Cramer does not know if the move on Thursday was a real bottom, or if it is just another bounce. But when the market gets as oversold as it has lately and people are this negative — it won’t take much to spark a rally.
“Today was a textbook example of the importance of discipline. Nobody wanted to buy stocks yesterday afternoon — it felt like the world was ending, for heaven’s sake. But you can’t let those emotions influence your decision-making process,” Cramer said.
In the end, discipline always trumps conviction, because those with negative conviction would have sold everything on Wednesday right before Thursday’s phenomenal rebound.