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Introduction
Jim Cramer was at the forefront of the Dot-Com Bubble when his financial news website, TheStreet.com, went public on May 11th, 1999. On its first day of trading, its stock price rose 216% (CNN Money). Years later after the internet bubble burst, Cramer went on to say that he was “done with the material stuff” and wanted to coach fifth-grade soccer (Lewis). Fast forward almost 21 years and he is CNBC’s top entertainment personality. He also has his own show called Mad Money, which has been airing on CNBC since 2005. On his show, he gives buy and sell recommendations on stocks and helps viewers navigate Wall Street.
So, what happened? Cramer went from wanting to do nothing with stocks to becoming one of the top personalities for CNBC. It seems evident that his aspirations to focus less on “material stuff” vanished relatively quickly. With his transition to hosting Mad Money, his recommendations carry a lot of influence since he currently garners around 250,000 viewers per episode (Cable Rankings). The show’s popularity proves that there are a lot of people actively seeking out investment advice. However, should anyone trust Cramer even with his long-documented history on Wall Street?
The Evidence
Let us flash back to days before the Great Recession in 2008. On March 11th, Jim Cramer famously stated that “Bear Stearns is fine” when discussing their soundness as a bank. By the end of that week, Bear Stearns’ share price fell to $2 and they were on the brink of bankruptcy. The timing of Cramer’s comments is almost comedic as he was completely blindsided by the collapse of the financial industry. This is not to discredit Cramer as many did not foresee the housing bubble running rampant across the financial markets. Although, the risks that Bear Stearns presented at the time were worrying. Cramer gets in hot water when he relies on intuition rather than focusing on quantitative and qualitative data. Investing with emotions is a dangerous game and Cramer falls victim to this more often than not.
Put simply, the financial world is a scary place when experts and academics do not know what is even going on. During an interview with Jim Cramer in 2009, Jon Stewart said that “CNBC sells itself as financial experts… and they didn’t catch any of this [collapse of house market]”. Especially when giving recommendations to buy certain stocks, Cramer’s optimistic personality can so easily convince Mad Money viewers to trust him. Little do these viewers know, they can so easily outperform Cramer through one simple strategy.
As it turns out, Cramer is not as good of an investor as everyone thinks. His stock picks from 2001 to 2017 underperformed when matched up against the S&P 500. This suggests that following the “hot stocks” on the market may not prove the best long-term investments. Even if Cramer has the best intentions in mind when giving stock recommendations, viewers can perform substantially better when merely investing in a stock index. The “buy-and-hold” strategy may seem trivial, but it has historically outperformed the “manic momentum” strategy. Anyone can be “an average investor with almost no effort” by simply engaging in passive investing rather than active investing (Silver). I leave you with some investment wisdom down below that I feel summarizes this whole fiasco.
Sources:
Cable Rankings: https://ctv.kwayisi.org/networks/cnbc/mad-money/
Comedy Central: https://www.cc.com/video/fttmoj/the-daily-show-with-jon-stewart-exclusive-jim-cramer-extended-interview-pt-1
Lewis, Michael: Panic: The Story of Modern Financial Insanity
Silver, Nate: The Signal and the Noise
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