What did I tell you about Jim Cramer?

I told you that he was a fraud,

But then he goes off the rails on a crazy train:

Cramer believes currently too many Americans are putting too much of their savings into bonds, CDs and bank accounts that offer little to no return.

The opportunity cost, he says, is the much larger returns you could get from putting that money in the stock market.

Yeah buddy.  Higher returns from the stock market.  But why are returns higher in the stock market?

Of course, Cramer realizes the stock market presents more risk…

In other words, when you give Wall Street your money to play with invest in the stock market, you run a higher risk of losing your money than if you stick with ‘conservative’ investments like bonds, CDs, and bank accounts.

“I think stocks give you the best chance,” said Cramer


And if that money is sitting in a bond, CD or savings account, it’s safe but it’s not growing; therefore “you’re missing the opportunity to make much more money.”

That’s what Cramer means by opportunity cost, and as far as he’s concerned, it’s something that most Americans just can’t afford.

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.

and that you should never take his investment advice.

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).

And once again, I am proven right.  It seems a retired finance professor at Southern Illinois put ol’ Jim’s stock picks to the test:

On April 6, a retired Professor of Finance in Southern Illinois, David England, unveiled the “Cramer Challenge” when he bought $1,000 of each security on Cramer’s list (in a paper-trade account of course – because in this day and age, everyone “trades” virtually, plus who would actually risk real money listening to Cramer) at the close of the following day.

England further put his own money on the table with his Gentleman’s Challenge. His offer was that after six months (October 7, 2015), if more of Cramer’s stock picks were up than down, England would pay for Cramer to fly from New York to Marion IL, put him up in a local Holiday Inn, and treat him to dinner.  Cramer was to return the favor in New York, if more than half of his picks were down.

Cramer never responded to the wager offer.

Of course he didn’t, because he’s a fraud who is using his show to enrich himself at the expense of his listeners/followers:

England proceeded to tack the portfolio’s performance. England kept a weekly record of the results for the last six months. He also had the results audited by an independent third party.

Six months later, on October 7, England unveiled the results, and the performance of Cramer’s “Buy Right Now” stocks that were “marked as winners no matter what.”

His findings: only 14 of Cramer’s 49 stocks closed higher than their April trading price, 28% success rate. It also means that 35, or 72% of the total, closed lower than the day Cramer recommended said portfolio of stocks.

What was the total portfolio return? A 7.09% loss in just 6 months.

At least this professor was smart enough to only do this on paper.  He never actually bought stocks, he just wrote down when he “purchased’ them and tracked the results.

Yet another reminder that you need to take care of your own investments and not listen to the “experts”.



Categories: Bad News Everyone!, Fraud, Investing, Jim Cramer, Liars

Tags: , ,

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