One Question for Jim Cramer

Jim Cramer is host of CNBC's "Mad Money," featuring lively guest interviews, viewer calls and, most importantly, the unmatched, fiery opinions of Cramer himself. He serves as the viewer's personal guide through the confusing jungle of Wall Street investing, navigating through both opportunities and pitfalls with one goal in mind — to help them make money. He's also co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street" (M-F: 9 a.m.-12 p.m. ET). Cramer is the founder of TheStreet, a multimedia provider of financial commentary.

He graduated from Harvard College where he was President and Editor-in-Chief of the prestigious daily, The Harvard Crimson. After graduation he became a reporter for the Tallahassee Democrat and later for the Los Angeles Herald Examiner where he covered stories ranging from homicides to sporting events.

Cramer is a former hedge fund manager and founder/owner and Senior Partner of Cramer Berkowitz. His compounded rate of return was 24 percent after all fees for 15 years at Cramer Berkowitz. He retired from his hedge fund in 2001, where he finished with one of the best records in the business, including having a plus 36 percent year in 2000.

Jim Cramer of Mad Money

Q: What’s the most significant risk you’ve taken professionally?

Jim:  

You want risk? Walk away from a job that you worked years to get, walk away from a job that paid you more your first month than you had made your whole life. Walk away from Goldman Sachs.

Yet, that’s what I did in February of 1987 because I always wanted

to work for myself and even though I loved the place, I knew that if I didn’t make a move I might never do so.

I first tried to get a job at Goldman in 1981, the year I enrolled in Harvard Law School. I loved the stock market and while I wanted to be a prosecutor, I knew that the summer between your first and your second year at law school tended not to impact where you ultimately worked.

I figured if you want to go to work in stocks, you might as well go for Goldman Sachs, the best there was and the best there still is.

There was a huge problem, though. They didn’t want law school kids. They wanted business school students. So began what amounted to a two year odyssey to prove that I deserved a slot, one of the coveted 25 or so positions that they granted to those who graduated business school every year.

In the next two years I interviewed with Goldman Sachs ten times, got turned down three times and simply didn’t take no for an answer.

And when I got hired for Securities Sales, advising high net worth individuals and smaller institutions on what to do with their money, I couldn’t believe my good fortune.

The payoff was immediate; the commissions bountiful, the people terrific, the excitement non-stop.

Yet, somehow, it wasn’t enough. Somehow I wanted to work for myself. So I made the most stupid and the most brilliant move of my life, I quit. Four years into it I walked away to start my own hedge fund.

Stupid? Yes, because two months after I started I was already down ten percent for the year. I had lost almost everything I had made in the time I worked at Goldman. Then, after clawing back to plus 3%, I ran smack into the 1987 crash. Fortunately, I had been able to cash out ahead of it, one of those moves that in hindsight looks like genius but at the time was just total self-preservation because the market before the crash had been horrendous.

And that’s where the brilliant came in. Because I had cashed out ahead of the crash, I managed to have a positive return, something that almost no hedge fund manager was able to claim.

In fact, almost everyone else I knew who struck out on his own to run a hedge fund during that period ended up blown to bits.

That meant tens of millions of dollars came my way to manage. Fortunately, I got back in close to the bottom, and the rest was pretty much history as I managed to rack up a return of 24% after all fees over a 14 year period and then retired to move on to full time writing and television.

When I look back at what I did, I still can’t believe that I took that risk. I would have been happy if I stayed at Goldman Sachs, I know that for certain. By my goal had always been to work for myself and when I had enough capital to make a go for it, I jumped at the chance. Even as it was catastrophic at first, I would do it over again in a heartbeat.

But, and this is the big but, I was single at the time, I had no kids, I wasn’t fearful. I didn’t have responsibilities beyond my own rental apartment and share in a place in the Hamptons. So while it was the riskiest move I ever made in my professional life, I knew I did have the rest of life to make it back if I failed.

Looking back 25 years later, that’s certainly not the case anymore.

What Do Glenn Beck, Jim Cramer, Rush Limbaugh and most bosses have in common?

They don’t understand their anger. “In a culture where it’s easy to fire of a snippy e-mail or text,” reported Elizabeth Bernstein in her Wall Street Journal column ‘Friendly Fight:  A Smarter Say to Say I’m Angry,’  “most of have a hard time honestly expressing anger face to face.  If someone upsets us, often we shout, stomp off, roll our eyes, refuse to speak to the person or complain to everyone else.  Or we kid ourselves that we aren’t upset and subconsciously fume – until one day we explode over the seemingly littlest thing.”  And no one likes to be on the receiving end of explosive anger.

Sound familiar?  I bet it does.  In the research I conducted for my book, 60% of all Americans reported seeing their boss get angry with someone on the job during the past year.  And yet, none of us are ever taught how to deal with managing our anger or how to deal with others.

Anger is a biologically driven response to threat.  When threatened, we release the hormone epinephrine, followed by norepinephrine (noradrenaline), prepping the body to react – increasing our heart rate and blood pressure, and narrowing our focus as we prepare to flight or flee.  And this is what is at the crux of the issue for modern homo sapiens in the workplace:  pretty much as they did 200,000 years ago, our bodies continue to automatically process psychological threats as physical threats.  Deep inside we are all irredeemably very old school.  But the reality is that reacting to a psychological threat with a physical response is wildly inappropriate.  And this disconnect – this evolutionary lag in the development of more emotionally calibrated or sophisticated responses to psychological challenges – is a huge contributor to what makes navigating modern life so incredibly hard.  As the economist Terry Burnham, the author of Mean Markets and Lizard Brains:  How to Profit From the New Science of Irrationality, put it, “The caricature view would be, the caveman wins the battle, has more babies, crushes his enemies, then puts on a suit 10,000 years later and goes into a boardroom and still wants to crush his enemies.”

To be effective at work we need to learn how to handle this evolutionary gap in responding to non-physical threat.  I have created many tools to aid us in developing this challenging skill and one of the best is something I call DING.  Which relates to the concept of self-reflection or meta-cognition, which I’ll address in another post.