Jim Cramer Doesn't Know Stocks

Here's a piece I find interesting to say the least. It's from MSN Money and is based on a Barron's study of Jim Cramer's (the Mad Money host) stock picks. Turns out, he's not very good at picking stocks (who would have guessed?) Their summary:

Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the Standard & Poor's 500 Index ($INX) gained 16%, according to a record of 1,300 of the CNBC star's "buy" recommendations compiled by YourMoneyWatch, a Web site run by a retired stock analyst and loyal Cramer-watcher.

We also looked at a database of Cramer's "Mad Money" picks maintained by his Web site, TheStreet.com. It covers only the past six months but includes an astounding 3,458 stocks -– "buys" mainly, punctuated by some "sells." These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market.

The piece goes on and on -- for four pages -- on the efforts the author took to try and get Cramer or CNBC to refute the fact that Cramer's picks underperform the market. Read it if you will, but the short version is that he got nowhere. They stonewalled, didn't respond, gave excuses, and so on.

A couple thoughts here:

1. Jim Cramer is an entertainer as much as he is anything else. He does well at providing a good "show" and that's on reason people like/watch him. Yeah, they think he can earn them some money too, but his flamboyant style is certainly part of his appeal.

2. Is anyone surprised any more when they find out that an "expert" isn't all they're cracked up to be? Or that a financial advisor of some sort is just as interested in making money for himself as he is at helping a viewer/client? Personally, I've lost all sense of shock on this topic.

3. Forget Cramer and his stock picks and go with index funds. Check out these recent posts for thoughts on why:

• Facts on the Benefits of Index Investing

• Illustration of How Costs Can Greatly Hamper Your Investment Returns (And Why Index Funds Do So Well)

• Warren Buffet Recommends Index Funds

Comments

[Carl Heldmann]

An expert it seems, is anyone who has guessed right at least once.

[mysticaltyger]

I can't stand the guy. He's an obnoxious loud mouth.

[JM]

I recall Cramer saying that he made many of his gains during his hedge fund days by short selling and that short selling is his real specialty. They opted not to do short selling on his TV show for a number of reasons. I would be curious to know what his rate of return was for long positions during his hedge fund days.

[Matt Wolfe]

I've always been a stock trader, picking individual stocks. I watched Jim Cramer's show and read his books. Lately, mainly since I've entered the financial blogging community, I'm really discovering that index funds are the way to go. Besides if you track Jim Cramer's picks over at the Motely Fool, he's not one of the better producers any...

[BradM]

I have a co-worker who has been trading single stocks. He just has a few stocks but a lot of money tied into each stock. He hits the ceiling when the stock market hits bottom.
JM is right. I recall Cramer saying that he made most of his money short-selling.
I stopped watching him because he had too many "buys" and not enough "sells". Plus he only recommended 2 "buy" stocks per show. 2 stocks for one hour...too much wasted time for me. I wanted to know where and how he got his data that he was throwing out there.
He's very entertaining but not enough of actual data that I could use to figure out the stock market a little better.
I have about 5 index funds that I have in my 401k. I showed my co-worker the return on the year-to-date. He couldn't believe it. He calculated his and it was at 2% over the same time.
At the time, it was up to 15%. It's down a little from there but overall I'm happy with my index funds!

Pretend you know stocks, act like a madman, collect millions.

Is this a great country or what???

[rocketc]

I find him very entertaining and a lay person like me can learn a lot about the stock market and what makes the financial world "go round".

But I never act on his recommendations.

[Derek]

What ever happened to his top pick Six Flags(SIX) for 2007? The company is almost bankrupt and their stock is down to almost $2.00.

[bryan]

i think cramer is an incredibly smart man. although I dont act on his stock picks, I do listen to what he says and research the ticker symbols he throws at his viewers. most of what he says has a lot of sense behind it and his thinking methods are indeed how one would make a lot of money in the stock market. since I have watched the show, many of the stocks he has suggested have skyrocketed 25%+ in a matter of weeks, only to subsequently plumment several weeks later. if readers listened to him, did their OWN research, bought when he said, and SOLD after they made their money, they would do quite well.

i believe that the fellow calculating cramers %return likely calculated this number over a year assuming that readers held long term. it is a show about TRADING STOCKS. buy and sell. short term. looking for cheap stocks and selling them before everyone else does.

[Martin Kolina]

He's a joke. I feel sorry for the folks that actually think he knows what he's talking about; the folks who bought into Six Flags (now $1.70), and the folks who listened to his recommendation to hold Bear Sterns last week at $60.

I found this 'FreeMoneyFinance' thread while researcing his background out of curiosity. He seems to have solid credentials. I guess he just disengages his brain when he goes on the air.

[Adam]

I lost 50 percent in my index fund. Now what do we do?

[FMF]

Adam --

What's your investing time horizon?