Why I Hate Jim Cramer

So TheStreet.com issued a press release today saying that Jimmy Baby is going to spend less time on radio and more time in front of the camera. Hooray! Barf. Now I don't particularly like being the 300th person to pile on 'ol Jimmy, who has been taking some body blows as of late, but what I have to say has a somewhat different spin that most of what's out there. My thesis: he is helping to perpetuate addictive, stupid, self-destructive behavior, and he has to be stopped. Except now he is only getting a larger platform. What does this say about our society? I'm not sure, but I don't like it. Professional investors love this, so they can make money off of the sheep-like behavior of hopeful, drooling retail investors. Sorry, pros, to be "outing" you. You must be paying Jimmy on the side to keep him talking. What's bad for retail is good for the pros, that's for sure.

His Mad Money bs is really no different than Philip Morris selling cigarettes: they're bad for you, they effect those around you, and you shouldn't smoke them. Jim Cramer: he makes you think you know what you're doing when you don't, you tell your friends about it, when you really should be in some good equity index funds and high-grade bonds. But hey, call me a cynic, call me harsh. This is just one man's view.

Eric Savitz of Barron's published a post titled TheStreet.com Shares Jump: They're Upping the Ration of Cramer in the wake of today's release. This news was very bullish for the stock, which was up over 5% in mid-day trading. Did you know that Jimmy has a book coming out titled Jim Cramer's Mad Money: Watch TV and Get Rich Now. You've got to be kidding me. Please don't buy it.

There are a broad array of stories and websites discussing Jimbo's approach and record (and, in general, how they suck). Some of these stories are as follows:

Guru Grades, Jim Cramer Deconstructed - CXO Advisory Group, 11/30/06

Site Update - YourMoneyWatch.com, 11/29/06

Sad Money? Cramer's Stock-Picking Prowess In Question - New York Times DealBook, 3/24/06

Unreal Mad Money Trading After Hours! - TickerSense, 1/27/06

It's Me, I'm The Idiot - Random Roger's Big Picture, 6/3/05

As usual, some of the most interesting stuff is in the comments to the posts. You should see the game of comment tennis between Cramer and the guys at CXO. For anyone with a brain this match was 6-0 6-0 6-0, CXO. I won't repost here but the volley was most enjoyable. Problem is, nobody in retail cares. Because it isn't about making money. They think it is. But they're wrong. IT'S ABOUT HAVING FUN, BEING PART OF SOMETHING AND GETTING A HIGH AKIN TO GAMBLING. Now let me be clear: I don't have my PhD. in clinical psychology. But I think I know enough about investing, psychology and group dynamics to speak with some degree of credibility on the topic at hand. Some excerpts from the comments to the DealBook piece reflected this analysis as well.

The problem is that the average investor fails to realize that there is a gigantic gap between knowledge and practice. Meaning, you can know tons about all these stocks and sectors (e.g. being on a conference call, reading the filings, etc.), and still not be a successful trader. Viewers see Mr. Cramer - with this staggering amount of information and data on every possible angle (”here’s a Patriot Act play” e.g.) - and conclude that all this knowledge must lead to wealth creation. As if it were so easy. And who is going to print that? People just want names to play... Just yesterday a trader colleague of mine reminded me of some of Mr. Cramer’s recent stock picks, and I said, “Thank god for Jim Cramer, he makes my job just a little bit easier.” Let’s work towards teaching a process, rather than throwing chairs.

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Let’s face it. If someone REALLY knew how to make BIG money in the stock market, they would make it and not give away the “secret”. All these talking heads on TV are a joke because if they really knew they would not be working, they would have retired. The old expression: “Those who can’t, teach and those who can, do” is the point. As far as Cramer is concerned, he is nothing than a two-bit loud mouth carnival huckster (no disrespect to carnival hucksters) and in the end will cause vast numbers of “investors” much pain. Every person has their five minutes of fame and Cramer has overstated his 5 minutes. Shame on CNBC for airing this trash program for the sake of advertising revenues.

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If you blindly follow ANY stock-picker, you will get burned. Cramer’s value is in giving you some names as starting points for your own research, letting you know what the big money currently likes as far as sectors go, and telling you why markets really move the way they do. All the wild antics are simply because he thinks the markets are fun, and wants other people to think so too.

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The fact is that most people would do much better buying Index Mutual funds. Do the research. If we all ignored trying to pick the stocks and bought then whole market, we’d beat most of the mutual fund managers with absolutely no pain. When it all boils down, CNBC gives you worthless information just like the major liberal network news shows that pretend to be objective. Did you hear that Dan Rather?!

Reading what I've written on Cramer brings me back to a post I had written in August about a social network-for-stock-picking company called SocialPicks. I went completely ballistic on the concept. Why? For exactly the same reasons I think that Jimmy and Mad Money are akin to a WMD. Believe it or not, I even referenced Cramer in my post, and in a truly prescient way, if you ask me.

It is particularly interesting to read some of the comments to the TechCrunch article. The diversity of comments pretty much represents that of the investing public - most comments have no appreciation for history or empirical research, a few are so far off the reservation (citing "wisdom of crowds" as the reason why such sites make sense) as to hardly warrant comment while a few actually raise the fundamental issues of indexing, risk management and diversification. The feel one gets from looking at these sites is that investing is somehow supposed to be FUN. For those of you who have lived in the markets for a long time, we all know this to be the kiss of death.

Investing life should not about being the next Jim Cramer - or if it is, may the force be with you. Investing in equities for long term profits is HARD, and unless you are professional (and, I might add, one of the few rare professionals whose record is empirically proven to be due to something other than pure chance), then it is best to get out of the way and to focus on the one thing that really matters to building and preserving personal wealth - asset allocation.

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I spent over 17 years on Wall Street in M&A, Derivatives and Trading, and I personally don't feel comfortable trading single stocks. Because I'm stupid and don't understand the markets, valuation, and "the Game?" No. Because I am humble and aware of the barriers to success. If you want to play games and have fun on these sites, go ahead. But if you want to be an investor and increase your chances of building and protecting wealth, it is decidedly not fun and it's serious business. No fooling.

Fun. Is that why we invest? Clearly some people do. Based upon Cramer's sub-par record (at least from what I've read, which is pretty convincing), then this is what it must be about. Make a few good calls, print some cash, and believe you can do it all over again. Now this reminds me of another post, one about stock spam and why people actually act on these bogus tips.

My theory is that the mind-set of those who try and take advantage of "tips" imparted through stock spam is similar to those I described in my earlier post on social networks for stock picking - they are entertainment-seekers for whom deploying capital (now, I am specifically NOT using the term investing) is a game, not a vocation. As a result, the emotional state of those responding to stock spam is akin to that of a gambler - trying to make a quick score, trying to be smart, wanting bragging rights, wanting the "high" of a profitable trade. Mind you, this bears no relation the mind-set of a professional investor (or even the prudent amateur): a keen focus on strategy, controlling all the variables you can, long-term orientation, risk mitigation, taking a deep breath, thinking and then thinking again before entering a position.

I have always thought that gambling, in general, gives rise to externalities because it preys on the weakness of the human spirit and the desperation many people feel. That said, regardless of whether or not stock spam gives rise to a similar externality, until the returns are squeezed out and the "dumb money" stays away, it will be here to stay. My advice to those who think my perspective has redeeming value or for whom any of this or my previous post resonates: JUST SAY NO. The "rush" of a successful trade is a drug (and a highly addictive one at that) for many, and I entreat you to stop. Please.

This is the connection. Cramer and his TV show have the (worst) elements of both social networking (being part of the Mad Money "community") and stock spamming (over time, you will lose). Quite simply, Jimmy is effective at making some people believe. If they are vulnerable. If they are thrill-seekers. If they are grasping. If they have an addictive personality. Please, be careful out there.

Comments

[Sad Investor]

I subscribed to cramer's newsletter and lost a lot of money with his so called charitable picks. He pushes a stock for a year (altria, GE,citicorp, Phillip Morris Int'l, etc) and then suddenly dumps it. I think he's actually lost his mind.

[Bongo Shaftsbury]

As months pass and almost all of the stocks touted by Jim Cramer on Mad Money go down in flames, it's a bit sad to see Cramer looking for a cast of scapegoats to blame for cleaning out his viewer's brokerage accounts. While I can understand that putting on daily entertainment for stock market novices has its pitfalls, Cramer apparently can't just sit back and say, let's sit on the sidelines until the dust settles. No, he has to have at least two or three stocks a day to tout and to feature this and that CEO selling his own particular brand of snake oil. In a grinding bear market such as the one we are in, Jim Cramer is poison to anyone who takes him seriously. Sadly for Cramer, he can't summon up the integrity to admit that, like most other investors, he has badly underestimated the ferocity of this bear and the downward spiral of the economy. Now he sees demons everywhere and it's all their fault that the market hasn't turned yet. How refreshing it would be to have a TV guru who didn't think he had to come up with a daily dose of hot stocks to pawn off on an unsophisticated audience. Does anyone else miss the good old days of old CNN Financial and their brand of neutral market reporting?

[niteowl]

What worries me is that most of what Cramer promotes is what our Employee Stock Fund through Schwab buys for us. We're stuck with these companies and part of the reason is because the company we work for matches the funds that we put in. We've noticed that most of these companies are not socially or environmentally responsible either.

My folks also invest through Schwab so there's even more exposure in our family to the same unethical Stocks. My guess is that most people are in a similar situation.

I like Mad Money for entertainment and some education about Stock Investing but I definitely do my own homework for what we buy on our own and it's rarely what Cramer promotes.

[jack]

Jim Cramer is one of the most dangerous and irresponsible financial influences on television. He has no accountability and makes reckless calls severely financially injuring those who are naive enough to believe. I will be very happy to see him leave the public eye, hopefully soon.

[Retirement Investment Advisor]

I studied the accuracy and one year returns of Jim Cramer's Jan 2007 picks. The result is not surprising to you and me, but maybe surprising to some.

http://investmentscientist.com/2008/03/06/

[Roger]

John, I only spend time writing witty responses to those who take the time to write a meaningful comment. Since yours doesn't meet that criterion, I won't. Have a nice day.

[John Cena]

Those who cant do make lame web pages to critize people who worked hard a got something. Since good shit didnt happen to you so continue to hate freely.

Dear Roger,

Keeping with tradition, please accept this comment only when u have a whitty respone to it.

Love,
John Cena

[Rick S.]

Jim Cramer is stupid.

[Roger]

Travis, dude, a few things. (1) He doesn't know more than me. (2) He isn't balder than me. (3) He and I do nothing remotely alike. You don't know me, my background or what I do so you are way, way off. Further, his brand of fame I can do without. Thanks for playing. Enjoy Mad Money, genius.

[Travis]

Dude,
Why don't you just focus on investing and get off Cramer's nuts. I think you are jealous that there is a guy who knows more than you and is balder than you and he is famous for the same thing you do and you are not. I gotta go cuz Mad Money is on in five minutes. Peace out.

[Roger]

Yeah, Howard, you got me. I'm jealous. I believe in a world where people with lots of money are, by definition, value creators and appropriate for educating the masses. Howard, do me a favor. If you know anything about anything why don't you spend 5 minutes reading my blog, reading my background and divining something about my passions before saying such patently stupid things. If you have something of substance to say that is even remotely grounded in reality, I'd love to hear it. Otherwise, bababooey to you and have a nice night.

[Howard Knapp]

Yes, Random Roger, you are an idiot. Cramer has retired with over $100M net worth and is running an entertainment and education service. You are just jealous that you have to web-post trashings of "Jimbo" instead of being able to compete with him on TV.

[CRS]

I'm just wondering why Cramer never lets people that have lost 40-50% on his picks call into the show...thats bias all the way.

[Scott Harrison]

I enjoy watching Jim's show now that I have been following the market lately. He is very entertaining and informative to the layman, which is 99% of the public. He is likable and sincere and this comes through over TV to the public. He has made the market accessible to the masses and it will never be quite the same.

[Yaser Anwar]

Dan- I'm not sure exactly which points in my first post you disagree with, so I'm going to assume you disagree with the fact that I said "investing is simple".

Investing is simple (unless you're talking about structured products/derivatives- but that's not the topic at hand). Like you state in your post achieving marketing beating returns is tough- I agree. I never said achieving them was easy- it never is. As I mentioned in the first post "just hard work, extremely hard work"- that's what investing to me is about. Doing the hard work aka due diligence to form your conclusions.

I strongly believe investing can be simplified down to a few points (not going to go over them as they are evident in my first post).

"I mean no disrespect but in this context, blithely saying that investors should read 2 8K's and 2 10Q's and think rationally and they'll be fine is stupid."

I don't think you understood the point I was trying to make. It was 'Do Your Homework' period. The points I illustrated in the 4th last paragraph were a quick summary of what one can do- as I didn't want to dvele in details, since this blog's readers are well versed with how to invest. Also- What I said in the 4th last paragraph was not supposed to be taken in the context you mentioned, hence your point that it is stupid- is irrelevant (if that's what you were referring to).

I was merely stating a few "to-dos" when one is researching a stock- that's all.

Hope I was clear enough- Y.

[Dan]

I couldn't refrain from commenting on Yaser's first post. I hope you're kidding. Achieving the market return is simple-- there are ETF's which allow you to do this extremely cheaply. But beating the market? Every single dollar I make above the market return is at the expense of another market participant, and we are hard wired to behave irrationally. Success in the market is probabilistically self-defeating. Market makers scrape momos each time the momos enter and exit. Momos base their investment decisions off of an information set professional investors had well beforehand, with extra layers of depth. Prop desks can work off smaller spreads.

“Those who can’t, teach and those who can, do” has profound meaning in the investing world because we play a demeaned zero sum game. Every word I utter that puts insightful thoughts into the minds of others is the probabilistic equivalent to robbing myself. Or charity. The goal of investing is capital appreciation. It is inherently contradictory, then, to instruct others unless we accrue residual benefits. For some, these benefits include the probability of raising more capital or sourcing novel ideas. For others, it is sating personal hubris. Whatever the case may be, it is completely contradictory to teach for charity.

I mean no disrespect but in this context, blithely saying that investors should read 2 8K's and 2 10Q's and think rationally and they'll be fine is stupid. 'Power to the people' is a noble notion, but each time you say it, you are probabilistically putting dollars in my pocket, and for that I thank you. I will find every way that others are wrong and I will exploit those ways quietly while directly or indirectly encouraging them to invest more. Generating market beating returns is tough. I won't speak for the many other individuals out there who invest professionally for a living rather than write about it, but I would imagine there are many who do similar things to varying degrees.

[Kris Tuttle]

As I said nothing we say here will make any difference. The media is about entertainment, not expertise.

Cramer's popularity to me is a symptom for the lack of provacative discussion and argument that investors want to have on a more regular basis. In a word most sell-side investment research is just plain BORING.

At least Cramer flings things around, maybe spurring some discussion and interest in company fundamentals.

What I have always loved about the market is the way it eventually settles arguments. For those who can use Cramer to help them make money by doing their own research and risk management...great. For those that don't...lick your wounds and try watching the Daily show instead. ;-)

[Yaser Anwar]

Kris- there is a disclaimer when the show is starting.

It won't be appropriate to have a note like the one you mentioned- "following recommendations from this program without an active risk management program would have led to a 58% loss on invested capital in the trailing 12 months."

Why? Due to the fact that you cant just come up with a random number of loss/draw down because everyone's portfolio size is different, it just doesn't work that way.

Like you said- it is harsh.

At the end of the day Cramer has good ideas and is influential when he gets behind a stock- investors, professional and retail have to decide how best to utilize JC for their own benefit- whether you want to short his picks or go long is entirely up to what you're comfortable with because our portfolios goals are only known to us.

[Bill a.k.a. NO DooDahs]

Cramer is entertaining, hence, popular. Critiquing his stock-picking ability is entirely beside the point.

[Kris Tuttle]

To me Cramer is simply entertainment. No different than movies, strip clubs, online poker, video games, porn or anything else.

Many of these entertainments can be disruptive or lead to undesirable outcomes - but people are people.

Generally I'm for a free society and free markets. However I wonder if some of the measures taken in other areas to protect investors should apply to Cramer. For example should there be a warning shown along the lines of "following recommendations from this program without an active risk management program would have led to a 58% loss on invested capital in the trailing 12 months."

That may seem harsh but analyst ratings are now shown next to historical stock charts in their research reports.

There is a regulatory precedent for measures that help ensure that investment professionals meet certain qualifications and that risks are clearly promoted.

In the end nothing we are saying will make any difference. People smoke cigarettes and squander their money, energy and precious time on all kinds of stupid things.

[themarketspeculator-Paul]

How about some *personal responsibility* here. Jim Cramer has not put a gun to anybody's head and told anybody to buy a stock. In fact, Cramer himself tells people *over and over again to do there own homework.* Let me repeat, the so-called huckster repeatedly tells his viewers to do their own homework. From my rudimentary understanding, that's a no-no in the How to be a Huckster Guidebook.

I find the analysis of Cramer's picks utterly useless and ridiculous. What time frames are they using? Do they take into account whether Cramer is talking short or long term? Do they take into account where a stop would have been placed? Is he scalping at the first pop, or letting it ride? We don't know. He supplies IDEAS, and it's up to the viewer to use his or her brain and work ethic to research those ideas. The fact that many people don't do that reflects on the the viewer, not Cramer.

If we are going to get into pop psychology, I'm much more interested in analyzing the Cramer bashers.

[Yaser Anwar]

Rob- Nice quotes.

You're right about Wall St's history of stock promoters but somehow I think JC is different from the Henry Blodgets and Jack Grubmans of the 90s.

JC is definitely making the most out of his popularity. His new book is just hubris- I summarized all you have to do for his show in my first comment!

240 pages of Watch TV & Get Rich, God...CNBC is trying too hard to catch up to Fox's news network which has a 1.2 mil viewership.

His first book was amazing though, Confessions of a Street Addict.

[robpas]

Yaser, You can disagree all you like -- it's what makes life fun ;-)
My mom always said to me "games are fun but they change the minute money gets involved" Cramer is no Mother Teresa. Wall Street has a long History of stock promoters and what happened in a previous era is bound to repeat itself again. So take a piece of advice from Ben Graham himself, "Wall Street people learn nothing and forget everything". If you want to be loved in this business get a dog or pay your people fat bonuses. Telling everyone who watches a TV show they can make Mad Money in a zero sum game is just plain crazy.

[Yaser Anwar]

"...the point is that the Cramerian investor is acting irrationally, has little chance of success and simply can't help him/herself."

Why do we assume they are acting irrationally? Just because they are retail investors doesn't mean they are acting irrationally. At the end of they day their financial stake is on the line and I believe they will proceed cautiously.

"..has little chance of success."

Not sure about that because I've never seen any stats justifying that point.

I just don't think we can take a sample group and make rationalizations. Why? Due to the fact that what a certain investor may buy/sell depends on various factors besides thrill-seeking or a high.

With regards to investors not being able to help themselves- again I think if someone is investing for "thrill seeking" or "addiction" they will feel the pain soon.

[Yaser Anwar]

Rob- I'm sorry but I have respectfully disagree with your comments as to why he does it.

Have we as a society become to cynical of people that if someone does/try to do good for others on a grand scale we view it as negative?

I agree we all have motives but then again everything has a pro and con.

You mentioned insider secrets- As someone who watches MM twice a week, I've never ever seen JC dispel any secret/talk that would not be already known.

You mentioned prop'in up of stock and his personality- yes I agree with you. Its awesome advertising for TheStreet.com which pays him 1 mil in salary instead of spending 10s of millions in advertising but if you analyze the ratings they have gone up over time. From 300K in 1st year to around 500ish in its 2nd year.

If you watch the show JC laments every now and then as to how you should do your own diligence and place stop-orders etc, if people don't want to listen its up to them. Another point- he mentions so many stocks- as I said before 2 to 3 a day, that the law of large numbers will get him. Hence the more recommendations the less the average return per stock.

George Soros once said- "it doesn't matter how many times you win or loose, what matters is how much you make when you win vs when you loose."

Roger mentioned some good points about human frailty, which I concur with.

In the long run I believe if what Jim does stops working out people will stop watching/subscribing etc. till then booyah!