How To Bottom Fish

By James J. Cramer

Sometimes you have to forget about the Dow and all the other averages and indexes. You have to forget whether the market is rolling over or about to dive 1,000 points. In fact, you have to forget about "the market" altogether and remember that you're buying stocks of individual companies--or, if you're in mutual funds, that you're paying a manager to know and buy those companies for you.

The market's craziness last week brought that lesson home to me. While everyone knows the troubles that left the market vulnerable--Asia, Lewinsky, stock prices that are historically high relative to earnings--what set off last Tuesday's rockslide was one of those oft-quoted gurus, Ralph Acampora of Prudential Securities, who reversed his prediction of a day earlier and said on CNBC that we may be entering a bear market for blue chips. The Dow Jones 30 industrials shed 300 points in a flash. But the real pain came Wednesday, when the market dropped an additional 100 in the time it took me to get a Diet Coke out of the office fridge. That took us down 10% from the recent tops of the Dow and the S&P 500--an ominous benchmark.

My wife Karen, known as the Trading Goddess before she retired from professional investing, happened to drop by the hedge fund that I manage on Wednesday to see what all the commotion was about. As I sat stunned by the decline, she eagerly flipped through the charts looking for bargains. I told her not to waste her time--the market was in free fall.

"To heck with the market," she said. "Let's buy some companies."

But if we buy now, I insisted, we'll be down 2 or 3 points by the time we get confirmation of the trade.

"O.K., let me put it another way," she said. "Would you rather buy them cheaply today or expensively when everyone wants them? Wholesale or retail, what will it be?"

What do you have in mind? I asked.

"How about Maytag? I love their washers and dryers. The stock is down huge from the high. The balance sheet is great, and so is the management."

But...but, I spluttered, the chart looks terrible, and the consumer might be tapped out if the market crashes.

"O.K., how about America Online? You use it constantly and love it, and it's down 12 points in the last 10 minutes. It just reported a great quarter. What's your excuse there?" Knowing she would persist, I grabbed 10,000 shares at 99. Then, emboldened, I bought some Compaq and IBM and Dell, all of which were similarly headed south.

Suddenly the market did a U-turn--no, a V-turn--and rocketed 100 points. I was up $70,000 on AOL before I got confirmation that I had bought it. Dell moved 6 in less time than it takes to order a computer on the Web. Yes, you could make money if you were willing to buy something you knew and loved.

Oh yeah, the Maytag I didn't buy on Wednesday? At the closing bell the company announced a massive stock buyback. I bought it the next day at $1 a share more than I would have paid if I'd listened to my wife.

Sure, we can all hold off buying until the TV stock gurus tell us some market "bottom" has been reached. We can all sit in cash and never take any risk. Or we can buy companies we've researched and believe in that are pulled down by panicky selling of the overall market. The latter is what's called investing.

James J. Cramer writes for thestreet.com an investment website. He holds investments in AOL, Compaq, Dell, IBM and Maytag. Nothing in this column should be construed as advice on whether to buy or sell stocks.