I told you so…

ZeroHedge.com posts on the investment track record of Jim Cramer’s recommendations, and guess what they found?

Cramer currently has an F grade on PunditTracker.com. Let’s walk through how we arrive at that score.

First, here are the parameters by which we evaluate Cramer’s stock recommendations:

  • We started tracking his picks on January 1, 2011.
  • We score only his “Featured” picks on Mad Money and not those made in other segments such as the “Lightning Round.” Our reasoning is that the Featured picks are unsolicited recommendations for which Cramer has presumably done more research than for picks given as live responses to viewer questions.
  • We measure the performance of his picks relative to that of the S&P 500 index over the corresponding period.
  • We assume a three-month holding period, unless Cramer reverses his stance on a given name (e.g. says Buy XYZ and then says Sell XYZ within the three months), in which case we “close out” the original recommendation. This holding period is based on the idea that Cramer tends to revisit his picks each quarter. (Note: We also have calculated performance using a six-month holding period; we are happy to provide the data if there is interest).
  • The baseline stock price is the opening price two days after the recommendation is made, in order to account for any day-one “Cramer bump” effect.
  • The hit rate is the percentage of Cramer’s picks that outperform the index. We equate sell ratings to short recommendations (i.e. they are scored as correct if the stock underperforms the S&P).

That’s the setup.  And here’s the punchline:

With the parameters out of the way, let’s now delve into the details of Cramer’s performance.

 Given our assumed three-month holding period, we have now graded two years worth of Cramer’s picks: those made from January 2011 through December 2012.  That amounts to 552 calls overall, of which 254 outperformed the index (46% hit rate).

 On average, Cramer’s picks returned -0.08% versus the 1.35% S&P 500 return over the corresponding period.

 That amounts to 142 basis points of quarterly underperformance, or 568 basis points on an annualized basis, which amounts to an F grade in our grading system. (We award an A for 500+ basis points of annual equity outperformance and an F for 500+ basis points of underperformance).

I was onto Jim Cramer years ago.  In fact, I once had a good student drop my Principles of Microeconomics class after a discussion in which I told him the truth about Jim Cramer and his stock picks.  The fact is, Mr. Cramer is just another shill for Wall Street.

Remember this about Jim Cramer: he likes to buy stocks and then talk up these stocks on his shows.  Once the stock’s price goes up, he sells the stocks and makes his profits.

In a soon to be released tell-all tale, former Cramer & Company employee Nicholas Maier Nicholas Maier accuses TheStreet.com ‘s co-founder of using CNBC anchors and his own television appearances to promote stocks that he would promptly sell, making a quick gain on the upswing.

***

Maier goes on to explain that after the stocks were touted on television, Cramer would promptly dump the firm’s position: “No sooner would Maria be thanking us for the help than we’d be getting a payback–a quick hit thanks to our friends at CNBC.”

***

Cramer’s own television appearances also were used to intentionally sway the markets in his favor, Maier writes. For example, while Cramer was on CNBC promoting “a great investment for the long term,” Maier writes that Cramer’s firm was making quick gains: “Our real strategy, however, was all about taking profits now. Back at the office, we were supposed to dump stocks after a quick half-point gain. On TV, Jim would tout a stock we owned, but if it moved up, we would sell.”

“Jim would do the opposite of what he was saying on television,” Maier told Forbes. Cramer did this behind the scenes too, says Maier. “He would hear rumors, pass them on and then do the opposite,” adds the author…

Never trust anything you hear on TV.  Especially where your money is concerned.

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Categories: Bad News Everyone!, Financial shenanigans, Fraud, Liars, Propaganda

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