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Barron's Debunks Cramer

by: SA Editor Eli Hoffmann August 19, 2007    
Eli Hoffmann

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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Shorting Cramer by Bill Alpert

Summary: After analyzing infamous TV stock-picker Jim Cramer's picks using all available means, Barron's says the only way to make more money off his picks than buying a simple index fund or ETF is to short a stock's 'pop' the day after a Cramer mention. Based on YourMoneyWatch.com, a website run by a retired stock analyst and Cramer fan, Cramer's picks consistently underperformed the market, making 12% over the past two years (before commissions) -- vs. 22% for the Dow and 16% for the S&P 500. A database of Cramer's Mad Money picks maintained by his website (http://MadMoney.TheStreet.com) which covers picks over the last six months were flat to down compared to the broad market. It also showed no performance difference between Cramer's Lightening Round picks (in which he judges stocks mentioned by callers with no advanced notice) and his pre-prepared Mad Money picks, despite his insistence to the contrary.

CNBC, which airs Mad Money, told Barron's it was looking at the data incorrectly -- and that viewers should buy only the show's picks a week later. In an erroneous Jim Cramer 19 08 2007analysis, they say that Cramer's 'most-researched' stocks (about 12 a week) would have beaten the S&P by 0.8% over one month and 1.7% over two. The truth: They beat by 0.4% and 1.2% respectively, and fall short by 2.2% YTD. Barron's also questions how viewers are to know exactly which picks they should trade. His show's popularity, though, have been kind to Cramer's website, TheStreet.com: traffic, ad sales and shares have risen since Mad Money's 2005 launch, even as Cramer has sold off $4.6 million of his stake. When contacted by Barron's editor Bill Alpert, Cramer was belligerent. "I can show exact data, which says my picks are much better than the S&P," he insisted. Alpert spent weeks pursuing the not-forthcoming data.

Related Links: Boo-yah! Barron's Shorts Cramer • Jim Cramer: Sometimes I Hate Myself • TheStreet.com Jumps On More Cramer Commitment • Cramer Podcaster: Jim's Picks Underperform • Can You Make Money From Jim Cramer's Picks? • Will New Coin-Flip Cramer Study Threaten TheStreet.com? • Jim Cramer the Coin-Flipper?

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This article has 26 comments:

  •  
    Aug 19 09:30 AM
    In discussion of another article on Cramer a few months ago, I stated my opinion that Cramer should be taken off T.V. I read his rants daily here at Seeking Alpha only to be sure one of my carefully researched holdings are not one of his "SELL!! SELL!! SELL!!" recommendations. It is difficult to construct a rational portfolio with this idiot ranting daily nonsense. How could one act on his buy recommendations anyway? There are dozens every day.

    As for his wonderful recommendations? Let's remember that his "Pick of the Year" for 2007 was and still is NYX, which was somewhere around $100/share when he made his "Stock of the Year" recommendation. It is now mid August, and NYX hovers around $73. Stock of the year?
    Reply
  •  
    Aug 19 10:27 AM
    Camer is the 21st Century's answer to the 20th Century's Dan Dorfman. He's a name-dropping bafoon who was whimpering about his millionaire bonus players at Goldman getting smacked for their stupidity. He and Kudlow are hypocrites "Free Market Capitalists" until they and their Wall Street buddies get their heads handed to them. "Please Big Government bail out these rich predators" They never worked a day in the Free Enterprise Economy so they are clueless when the shit hits the fan. A couple of years on the line in Iraq might wake them up to how the real world works.

    Wall Street isn't Free Enterprise. Never was never will be. The guys and gals down the street owning the grocery stores and barber shops are entreprenurs not the manipulators on the Street. Like Enron, investment bankers think they are the smartest guys in the room That is why every few years these over rated elitist imploded on their own hubris.

    The stock markets should be open one hour a day so people can exchange their investments. The crap shoots should then go to Vegas as all this trading has absolutely nothing to do with investing. If it was so important to respond to events they would be open 24/7. To paraphrase: "Its the greatest con never told". How unproductive, useless and, in effect, couterproductive as too many executives watch their stock rather than their businesses.
    Reply
  •  
    Aug 19 11:06 AM
    Agree in part - that free-traders are quick to ask that their debts be "fairly distributed" while their profits are "privatized"...

    It seems to me that part of betting on the market includes betting on who the government will subsidize. A Rational portfolio, it seems, must include the view that the government will invariably intervene on behalf of the largest polictical constituient.

    Can we prove that an a-political, or oligarchic market is more efficient than one controlled by a democracy?

    I tend to doubt that we could.

    Ben
    Reply
  •  
    Aug 19 11:17 AM
    Before you start calling someone a "baffoon", you should at least know how to spell buffoon. If you think the stock market is a "con game", put your money in a mattress and quit whining about how Cramer's piucks don't makey you any money.

    If you're too lazy or inept to do your own research, you don't belong trading in the markets. Go buy some annuities and let those clowns rip you off.
    Reply
  •  
    Aug 19 11:14 AM
    A: buy on rumor, sell on news.

    Cramer is news.

    doesn't discount his show however; it's informative, at least for its view on how one hedge-fund manager thinks. Hopefully the individual investor is better informed - not on what stock to buy, but on how to research a stock. A better-informed investor yields a more efficient economy.

    The value of MadMoney should be measured in the marginal value of educated investors, and the degree to which fewer investors are hoodwinked by real snake oil scams. The value of public commentary of the market is not in creating a mob mentality in support of specific stocks, but rather in preventing thoughtless investing.

    In that respect, it would appear to be effective.

    Ben
    Reply
  •  
    Aug 19 10:09 AM
    Cramer will go from loved to most despised on Wall Street as this bear market unfolds. I can't wait for the day when he eats Humble Pie on TV.
    Reply
  •  
    Aug 19 10:53 AM
    I long ago gave up on Cramer's show. At first I listened to it is spite of his personality, thinking "I might leann something". I did!!! Shooting from the hip is no way to pick stocks. Now I just keep him on Seeking Alpha to make sure I know when to sell- the day he yells "BUY-BUY-BUY. Because the day after it will fall. I mute the TV when he is on with Erin Burnett
    Jerry Parsons
    Reply
  •  
    Aug 19 10:58 AM
    Everybody debunks Cramer! Anyone with a brain knows to take Cramer with a grain of salt. He's more entertaining than anything.
    Reply
  •  
    Aug 19 11:16 AM
    If you watch the after hours trading when he recommends a stock, it's no wonder there are performance issues -- people hear a name and buy it blindly. I like to listen more for the logic of what he likes than what it is. And he is entertaining. If you can't do your own homework without his recommendations, you belong in index funds.
    Reply
  •  
    Aug 19 11:43 AM
    Over 50% of American households own equities, either directly or indirectly. In a society that generally eschews higher education, and is woefully less educated than its closest ten competitors, Cramer raises awareness. That is a social good. The fact that he's occasionally prescient is a bonus.
    Reply
  •  
    Aug 19 12:34 PM
    Anyone can cherry pick someone to death. Cramer may give his stock picks that he has researched and some will fizzle and some will take off. Yes there is an after hours bounce that happens when he mentions a stock.

    Importantly he does say do you homework and be diversified. More importantly he lets you know what home work to do and to listen to the conference calls. This is far more information than any other “stock, money” show talks about. So his stock pics aren’t right 100% of the time. If he is right 40% of the time, that would be doing well.

    My questions for the Barron’s reporter ( and I use that term lightly) is have you worked over the other stock pickers on the Saturday shows? Anybody else at all? What about him picking stocks, oh that’s right he’s a reporter and cannot own stocks or can he.

    Lastly Mr Fredricks mention of NYX is quite true. But he failed to mention the previous stock of the year ATI which started 2006 at 36 and went to 90. That’s little more than double. And of course Mr Fredrecks fails to mention Apple which started the year at 80 and is now at 120.

    It seems that Barron’s must have an underlying stake in trying to discredit Jim Cramer like circulation? MMMMMMM Maybe?
    Reply
  •  
    Aug 19 01:14 PM
    You guys are being too hard on a guy that could easily be playing golf every day and sitting on his fortune -- instead he is helping others get interested in an esoteric segment of Americana. Most of the bitter hate is unfounded and as someone who has met Cramer in person, he is has only the best intentions for his viewers. Trust me on that....

    Stocks go up and down, not up OR down. Even if his overall numbers are not up to par, he has gotten millions of my peers interested in the stock market...he has a "teacher's gift" and I think most people are envious of that.

    I read Barrons every weekend, but they carry a negative tounge and a tirade against JC was expected at some pt or another.

    Lastly, this is TV for heaven's sake. If you are watching TV and pulling the trigger every time Cramer throws out a ticker, how can that be his fault? Alas, it is yours, compadre.

    I think Cramer put it best -- "do your own HW"


    Jacome/Indiana University
    Reply
  •  
    Aug 19 01:23 PM
    Maybe Barrons is trying to save us again. Like their garbage cover story "GURGLE" as relating to Google. If I'm not mistaken they have tried to save us at least twice from Google!
    Good thing I didnt sell Google- It has doubled in two years. One of Cramers stock of the year pick
    Reply
  •  
    Aug 19 05:02 PM
    With Cramer on Barron's cover, I read the story with more care (not this excerpt, but the hard copy itself). I think the reporter tried very hard to find more researchers on Cramer's picks. I think he indeed tried, but there are, surprisingly, few such researches. While I am somewhat surprised that Cramer's picks did not do any better, I think lumping the results in one 2-year period is unfair. The study should be broken down to 4 six-month periods. Cramer is worth probably 50-100 million; there is no reason why he has to do the daily show. It is not easy. The reporter was impressed by Cramer's Lightening Round -- and one indeed has to. I would have a hard time remembering the closing price of a few stocks in which I have positions. Let us be generous, and treat the show as an educational program that brightens the deadly 6pm time slot. In terms of news value, the 8-o'clock show, featuring 4 traders with an MC, is far superior. omooc
    Reply
  •  
    Aug 19 05:41 PM
    Barron's scoffs at the Lightning Round picks and the pop-and-drop phenomenon after Cramer recommends a stock. He says it again and again in his show and even his book that you should not buy in after-hours or the next day after Cramer makes a pick. He knows that the stocks he recommends have a spike and relentlessly warns his viewers to wait before buying.

    Before the Lightning Round begins, I don't think he can stress enough that those picks are not a full analysis like he does during the other segments. The Lightning Round is for show and gives viewers a chance to call in. It's TV! It's entertainment! ... and what's most important is that his fans enjoy it.

    The show is not so much about what to buy or sell but about learning. He has inspired viewers across the country to take a better interest in the market and has helped students make career decisions.

    Finally, a big flaw in the Barron's article is that it assumes every one of Cramer's picks is a long term holding. This is not the case. He tells you to take money off the table! A good number of Cramer's picks are intermediate-term trades (lasting only months). Taking profits is one of the show's motto's!
    Reply
  •  
    Aug 19 06:33 PM
    I agree with most of the above comments made by everybody. They all have a pointor two. The major problem I experienced by following Cramer's stock picks is that he changes his opinion about certain stocks frequently. Not very long ago, he thought North American Palla (PAL) is a good stock but he now lists the stock under Bearish. This means that he did not spend his time doing a good research on the stock before he recommend the stock. I hope he does not recommend any more stocks he has to black list them later. I wondered how he finds time to research all the stocks he makes comments on.

    Jim Cramer is not the only sotck advisor who makes such mistakes. Motely Fools advisors actively advertised in Yahoo Finance web-site to become their member and follow their stock picks to become rich. So, I paid the membership fee and bought some stocks they recommended (e.g. MINI, NTGR... and lost lots of money. Now they are advertising something called Hidden Gems. If we pay extra membership or a new memberhsip, they will send us the list of Hidden Gems, which will shoot out in the near future. Why the list of Hidden Gems not considered as common stocks and allow the already paid members to get the list? Is there any law against this kind of practice in the is country? Why is this kind of practice allowed? There got to be some kind of rule for advertisement in the web site.
    Kay Young
    Reply
  •  
    Aug 19 07:47 PM
    I heard Cramer's wife left his ass. Is that true?
    Reply
  •  
    Aug 19 11:04 PM
    i heard the same thing....his wife and 2 girls.
    Reply
  •  
    Aug 20 12:33 AM
    3,000 recommendations in 2 years? Slightly excessive, I say. But, the TV show is entertaining. If you don't like it, don't watch it. I have never bought a recommendation. But, if it is a stock I am not familiar with, I then do some research on it. I just don't buy or sell the next day because ANY talking head on TV tells me their opinion. The hedge fund guys are the worst. They get on TV and talk up or down a stock, hoping it will move in their long or short direction. As if I really care about their opinion. Anyone putting money in a 2% and 20 hedge fund is a lunatic.
    Reply
  •  
    Aug 20 02:44 AM
    No one should be upset with Cramer, CNBC and/or GE since they have provided full disclousre: "MAD MONEY"
    Reply
  •  
    Aug 20 05:21 AM
    The only thing wrong with the picks Cramer comes up with is the price. If you waited until the price of the picks he rants about fell by about 50%-60%, you would end up owning very solid companies at very attractive prices. So while I'm not a Cramer fan, never have been and never will be, the companies he picks are usually great companies. He just needs to work on his valuations a bit.

    Wax
    Reply
  •  
    Aug 20 12:28 PM
    Though I enjoy the show immensely, it doesn't surprise me that his picks are underperforming. I think Cramer has 2 things of value to teach investors: on his television program, I think the thought process he describes for evaluating companies is reasonably close to the canon of value investing and worth hearing for the inexperienced (although I'm doubtful that "value investing" has much merit today beyond making timid investors feel good about their choices). In his books, he describes how hedge funds load and unload shares into and out of the market, a process which helps the unitiated understand the behavior of the market in volatile periods. Beyond that, profiting in the market is a timing issue rather than a value issue, and any static "portfolio" tends to look mostly like the market indexes...
    Reply
  •  
    Aug 20 01:54 PM
    Great article on nobosh about Cramer & Index Funds: FA on nobosh
    Reply
  •  
    Aug 20 11:35 PM
    Jim Cramer has cost me alot of money. He has no right to mislead the public. In my opinion there is a definite connection between his recommendations and his former friends at Goldman Sachs. A good lawsuit against General Electric and Jim Cramer is way over due. An earlier poster referred to him as a "Dorfman" of the past. I agree wholeheartedly. If my memory serves me correct, Dan Dorfman's illegal activities cost him his job. I don't know if he went to prison or not. Cramer should. Bravo for Barrons. Cramer, imo,appears to be front running.
    Reply
  •  
    Aug 21 07:04 AM
    Front running? With all the scrutiny he gets? You should not invest your money in stocks, save it for substances that will help you continue to escape reality......
    Reply
  •  
    Aug 22 09:06 PM
    I have been reading Cramer's recommendations since late last year and have kept a log on the stocks he has recommended. Most of them have not done well. There is usually an initial bump after he recommends a stock and then it settles back. I don't think he as any more insight than I do at this point. I wish he would just shut up and let the maket (and investors) play it out without him trying to influence it.
    Reply
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