In a not-so-shocking analysis of one of the most-watched TV investment advisers, author Eric Tyson argues that Jim Cramer's actual stock-picking performance doesn't match the strength of his bellowing.
Besides his show Mad Money, Cramer is all over CNBC dispensing investment advice left and right. He's got to be out-performing other investment advisers and especially the market, right? Not really.
Tyson points out that Cramer's past hedge fund results (the basis for his claim of investment success) have never been audited or independently verified. Then Tyson starts his assault on Cramer's more-trackable public stock recommendations with the following:
There is a web site, yourmoneywatch.com, which, unbelievably, tracks all of the stock recommendations on Cramer's television show. The web site is operated by Michael McGown who has been tracking Cramer's television show picks since July, 2005. Over that time period, Cramer's picks, after being held accountable for trading fees, have performed worse than the broad market averages. His overall average with simply picking stocks that go up is pretty dismal. The most recent tally shows that out of more than 1500 stock recommendations, more than half have gone down!
A second source delivers similar, though more damaging, findings:
CXO found that Cramer's stock market predictions (monitored from 2000 onward) were worse than average and even worse than simply flipping a coin. Cramer's prognostications fared better than the market averages only 47 percent of the time. Regarding Cramer's predictions, CXO comments that, "His predictions sometimes swing dramatically from optimistic to pessimistic, and back again, over short periods. It is difficult to infer his guiding valuation theory, if he has one. We wonder whether he tends to be swayed by the arguments of forceful advocates with whom he most recently interacted...He seems more a stream of uncalibrated opinion than a stock market maven."
Finally, Tyson includes a link to a video where Cramer, "boldly proclaimed that the stock market lows hit in mid-July marked the end of the stock market's downturn!" We all know what's happened to the market since then — July was certainly not anywhere near the low point.
As with any advice, Tyson says it's "buyer beware" when listening to financial advisers who claim to have superior knowledge but no real proof of success. Media outlets build up investment "experts" (or "personalities" if you prefer) to generate ratings, period. If the advisers can do that, they're a success for TV. But that in no way means their advice will prove success for the viewer that applies it. Think about it this way, do you really want to take investment advice from an actor?