I have no reservations about my dislike of James J. Cramer and his antics on his financial show, "Mad Money."
Cramer has become the voice of the finance world, with "Mad Money" becoming the most popular show on financial news channel CNBC. This proposition is a pretty frightening concept when you consider his on-camera behavior - his high testosterone recommendations, his chair throwing and biting the heads off plastic bears - these are only a few of his antics.
The Lightning Round of the show, where Cramer has people call in and ask his personal opinions on stocks, is perhaps the most chaotic and ludicrous. With his multitude of sound effects, including a shotgun and a baby's cry, Cramer tells callers whether to buy, sell or hold stocks, usually making quick judgments off the top of his head.
It's preposterous to assume that even a seasoned stock veteran like Cramer can make proper determinations on stocks in such a short amount of time. And there's strong evidence that his lightning round performance is less than stellar.
On cramerwatch.org, a monkey named Leonard is given the Lightning Round stocks and makes random buy and sell recommendations. The Web site tracks the performance of Leonard and Cramer's buy and sell recommendations against an index to determine who is right about a stock in a 30-day period.
Right now Leonard is edging past Cramer. He is right in his recommendations on the Lightning Round stocks 49.75 percent of the time, with Cramer at 49.23 percent.
Even if you do discount the performance of Leonard - after all, he is the Wonder Monkey - Cramer is still wrong on his Lightning Round recommendations more than 50 percent of the time over the tracked 30-day period.
Cramer and Leonard were in a dead heat this week with 36.84 percent right recommendations and 63.16 percent wrong. I guess everyone has their off days, even Leonard.
In the 30-day period, Cramer beat Leonard 118-113. However, Leonard seems to have the better long-term track record. And again, he is darn good for a monkey.
It is examples like these that make me very skeptical of Cramer's short-term stock picking ability. I am afraid that many of you may be pulled in by Cramer and look to him as your sole investing advice.
Many people take Cramer's advice as if it were the only game in town. Personally, I am sick and tired of hearing recommendations of what Cramer said to buy and sell. I don't care!
There are actually people who sit on their computer with their brokerage account open, ready to execute a trade, as soon as Cramer recommends a stock during his opening segments on "Mad Money." The stocks Cramer recommend usually spike in after-hours trading. People like this are idiots and they deserve to lose their money.
I'll admit that I have been a "Mad Money" viewer. I am also somewhat shamed to report that I read his book, "Real Money: Sane Investing in an Insane World." However, I have developed a more sober view of Cramer and I certainly don't believe he is a stock market genius.
First, Cramer's eagerness and conviction to invest in stocks has also led to a lot of losses for investors who bought in. One recent example is Cramer's recommendation of Daktronics, a maker of scoreboards, on Dec. 11. It went down around 20 percent after the company forecasted fourth quarter results below expectations. The stock has since dropped even more, to $28.36, a far cry from the $36.91 when Cramer recommended it. This is a good lesson to do your own research on the stock market.
No one during the tech boom will forget Cramer's prediction about Internet stocks in a thestreet.com article from February 2000.
"These are the only ones worth owning right now . (These) winners of the new world are the only ones that are going higher consistently in good days and bad," Cramer wrote. According to the revised version of "The Intelligent Investor," $10,000 invested equally across all of Cramer's "Winner's of the New World" would have lost 94 percent and would have been worth $597.44 in 2005.
He couldn't have been more wrong. For anyone who followed his advice, his words turned from those of great foresight and vision to words of destruction and lunacy.
Don't get me wrong: I think Cramer is a smart guy. He graduated magna cum laude from Harvard University and also received a law degree there. He became a successful Goldman Sachs stockbroker during the '80s and founded and ran the hedge fund Cramer Berkowitz for more than a decade, claiming to have averaged 24 percent returns during his tenure.
Cramer's autobiography, "Confessions of a Street Addict," written in 2002 before his Mad Money success, tells the story of his rise to Wall Street fame. By the way, I never did finish the book.
Until he develops his show into a more conservative format, dismantles the Lightning Round and creates a purpose more about education than recommendation, he is going to be bad news. I think stock recommendations are okay, but he is going to have to recommend stocks solely on their long-term merits for them to be good for small investors.
Therefore, don't listen to Cramer. Listen to the education, the research, yourself and, most importantly, Leonard, the Wonder Monkey. Hopefully, Leonard will get his own CNBC show some day - I can dream, can't I?
Information from - "The Intelligent Investor" commentary by Jason Zweig, Collins, 2006.
