Coping With Wall Street's Fickle Nature

Did someone just flip a switch? Did everything that was bad last month just get better? Could the market really be this stupid and forgetful?

You bet it can. Because the market is made up of money managers who all have their own motivations, and they can be as mercurial as all get-out. Something that seems valueless at the end of the quarter can become valuable overnight, because the buyers don't mind returning to the shunned, now that a discrete grading period is over and a new one has begun.

I always want to keep in front of you the rules of the game, the way money managers think, because if you know why they think that way, you can make more money when they pull their shenanigans. One of the key principles of most managers who show their holdings to investors is that they never want to be out of step with the times. As I have said over and over again, the previous quarter amounted to a rotation out of the hottest leaders of 2013 -- the biotechs and the high-valued technology companies -- and into the old-time pharmas, the soft goods, the industrials and lower, value-added tech.

So we saw a slaughter of many a market leader during this period, despite excellent quarters and lots of good news. At the same time, there was an endless progression higher in industrial stocks, as the group-think about the turn in the economic cycle worldwide allowed the endless buying in companies such as Caterpillar (CAT), Ingersoll-Rand (IR) and Alcoa (AA), among others that simply became loved.

We saw the same with value tech, such as Intel (INTC), Microsoft (MSFT), Oracle (ORCL), Seagate (STX) and Western Digital (WDC), just old-fashioned yesteryear tech that got dusted off because it had become too cheap compared with the newer, hotter stocks that had been leaders, chiefly those that celebrated mobile, social and the cloud. Salesforce.com (CRM) had become a whipping boy, as had Google (GOOG) and Facebook (FB). You could barely look at these, and if you did, you were rubber-necking wrecks on the market highway. 

In the meantime, stocks such as Eli Lilly (LLY) and Merck (MRK), companies thought to be left for dead in the pharma space, roared higher, and Celgene (CELG) and Gilead (GILD), thought to be of the highest quality in the land, languished or were slaughtered.

Of course, it didn't help the highly valued techs or biotechs that we got new underwritings in their spaces pretty much every day in the last month, and lots of left-for-dead -- deservedly so -- biotechs came back to life in a speculative frenzy.

You have to understand that in that environment, you simply didn't want to show that you owned anything that had gone out of fashion in the Wall Street fashion show. You can only imagine someone saying, "You mean you held on to Yelp (YELP) and rode it all the way down from $100 to $79? What kind of idiot are you?" Or, "You kept Facebook after that moronically stupid WhatsApp buy and then the dumb-as-all-get-out virtual-reality joke of a waste of $2 billion? Did you go to college to get stupid?"

But now it is a new quarter, and those funds that are drawn to growth and don't need to show their positions can revert to their favorite names. Not only that, but even better, these stocks have now come down to levels that actually might make sense to buy, as opposed to the slower growth stocks that they've been loading up on.

Let me give you a classic example. I believe that Facebook can earn as much as $2.50 a share in 2016. That means this stock is selling at 24x earnings. Twenty-four times earnings, while the average stock sells at 17.25x earnings and has a growth rate that's a fraction of Facebook's? How can that be? That's just ludicrous, but Facebook has indeed come down that much.

You really want something odd, though? Consider two of my Four Horsemen of the Big Pharma apocalypse that I spell out in Get Rich Carefully, Celgene and Gilead. Not that long ago, Celgene had some sort of setback in the U.K. for one of its key drugs. That helped cause the stock to drop from $174 to $138 within the framework of this quarter past. Meanwhile, all that has happened is that the estimates have gone higher. I now believe that Celgene can earn $15 a share in 2016. That makes this amazingly fast-growing biotech cheaper than Merck and Pfizer (PFE). Gilead's new pill to combat hepatitis C has had some bad research about it of late, but the real numbers are huge, and the company could earn $7 a share two years from now. Two days ago in the spring cleaning that threw out everything high, growth managers sold it down to $68. Less than 10x earnings. Meanwhile, lumbering old pharma just kept going higher this past quarter. The disparity became ridiculous.

Now I am not saying that the grand selloff can't return with the flurry of initial public offerings that are in the works. However, if Wall Street is true to form, the analyst backers of the old-fashioned cloud and biotechs, who have been in their bunkers in the last month, should begin to emerge, now that the first-quarter shelling is over. We saw that today when an excellent firm, R.W. Baird, added Celgene to its focus list. It wouldn't surprise me if tomorrow Goldman Sachs, which had in retrospect a terrific call taking Celgene off the buy list much higher, one I thought would be wrong, comes out and reverses that call. Those analysts who liked Gilead and haven't spoken up in defense of it of late should also be squawking.

Needless to say, the Facebook claque, which has been remarkably silent after the pickup of the virtual mask company, will most likely be emboldened to praise the company too. It's only natural that those who like Yelp and Workday (WDAY) and Concur (CNQR) and Salesforce.com will come out from under their desks and say good things, too.

Does any of this make sense? Not at all if you are managing your own money. But remember, no one sees what you are up to. You have the ability to control your money without worry that someone will take it away from you for sticking with that bonehead Facebook. Unfortunately, professional money managers lack that ability. Which is why I always say that you can beat them at your own game, as long as you have conviction and do your homework. You can play by your own rational rules to get rich carefully. They have to play by rules that allow them to gather assets aggressively, and at times, those two missions just simply aren't aligned, and at the end of a quarter they could not be more at odds. 

Action Alerts PLUS,  which Cramer co-manages as a charitable trust, is long CELG, FB and GOOG.