Why I Hate Jim Cramer

So TheStreet.com issued a press release today saying that Jimmy Baby is going to spend less time on radio and more time in front of the camera. Hooray! Barf. Now I don’t particularly like being the 300th person to pile on ‘ol Jimmy, who has been taking some body blows as of late, but what I have to say has a somewhat different spin that most of what’s out there. My thesis: he is helping to perpetuate addictive, stupid, self-destructive behavior, and he has to be stopped. Except now he is only getting a larger platform. What does this say about our society? I’m not sure, but I don’t like it. Professional investors love this, so they can make money off of the sheep-like behavior of hopeful, drooling retail investors. Sorry, pros, to be “outing” you. You must be paying Jimmy on the side to keep him talking. What’s bad for retail is good for the pros, that’s for sure.

His Mad Money bs is really no different than Philip Morris selling cigarettes: they’re bad for you, they effect those around you, and you shouldn’t smoke them. Jim Cramer: he makes you think you know what you’re doing when you don’t, you tell your friends about it, when you really should be in some good equity index funds and high-grade bonds. But hey, call me a cynic, call me harsh. This is just one man’s view.

Eric Savitz of Barron’s published a post titled TheStreet.com Shares Jump: They’re Upping the Ration of Cramer in the wake of today’s release. This news was very bullish for the stock, which was up over 5% in mid-day trading. Did you know that Jimmy has a book coming out titled Jim Cramer’s Mad Money: Watch TV and Get Rich Now. You’ve got to be kidding me. Please don’t buy it.

There are a broad array of stories and websites discussing Jimbo’s approach and record (and, in general, how they suck). Some of these stories are as follows:

Guru Grades, Jim Cramer Deconstructed - CXO Advisory Group, 11/30/06

Site Update - YourMoneyWatch.com, 11/29/06

Sad Money? Cramer’s Stock-Picking Prowess In Question - New York Times DealBook, 3/24/06

Unreal Mad Money Trading After Hours! - TickerSense, 1/27/06

It’s Me, I’m The Idiot - Random Roger’s Big Picture, 6/3/05

As usual, some of the most interesting stuff is in the comments to the posts. You should see the game of comment tennis between Cramer and the guys at CXO. For anyone with a brain this match was 6-0 6-0 6-0, CXO. I won’t repost here but the volley was most enjoyable. Problem is, nobody in retail cares. Because it isn’t about making money. They think it is. But they’re wrong. IT’S ABOUT HAVING FUN, BEING PART OF SOMETHING AND GETTING A HIGH AKIN TO GAMBLING. Now let me be clear: I don’t have my PhD. in clinical psychology. But I think I know enough about investing, psychology and group dynamics to speak with some degree of credibility on the topic at hand. Some excerpts from the comments to the DealBook piece reflected this analysis as well.

The problem is that the average investor fails to realize that there is a gigantic gap between knowledge and practice. Meaning, you can know tons about all these stocks and sectors (e.g. being on a conference call, reading the filings, etc.), and still not be a successful trader. Viewers see Mr. Cramer - with this staggering amount of information and data on every possible angle (”here’s a Patriot Act play” e.g.) - and conclude that all this knowledge must lead to wealth creation. As if it were so easy. And who is going to print that? People just want names to play… Just yesterday a trader colleague of mine reminded me of some of Mr. Cramer’s recent stock picks, and I said, “Thank god for Jim Cramer, he makes my job just a little bit easier.” Let’s work towards teaching a process, rather than throwing chairs.

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Let’s face it. If someone REALLY knew how to make BIG money in the stock market, they would make it and not give away the “secret”. All these talking heads on TV are a joke because if they really knew they would not be working, they would have retired. The old expression: “Those who can’t, teach and those who can, do” is the point. As far as Cramer is concerned, he is nothing than a two-bit loud mouth carnival huckster (no disrespect to carnival hucksters) and in the end will cause vast numbers of “investors” much pain. Every person has their five minutes of fame and Cramer has overstated his 5 minutes. Shame on CNBC for airing this trash program for the sake of advertising revenues.

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If you blindly follow ANY stock-picker, you will get burned. Cramer’s value is in giving you some names as starting points for your own research, letting you know what the big money currently likes as far as sectors go, and telling you why markets really move the way they do. All the wild antics are simply because he thinks the markets are fun, and wants other people to think so too.

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The fact is that most people would do much better buying Index Mutual funds. Do the research. If we all ignored trying to pick the stocks and bought then whole market, we’d beat most of the mutual fund managers with absolutely no pain. When it all boils down, CNBC gives you worthless information just like the major liberal network news shows that pretend to be objective. Did you hear that Dan Rather?!

Reading what I’ve written on Cramer brings me back to a post I had written in August about a social network-for-stock-picking company called SocialPicks. I went completely ballistic on the concept. Why? For exactly the same reasons I think that Jimmy and Mad Money are akin to a WMD. Believe it or not, I even referenced Cramer in my post, and in a truly prescient way, if you ask me.

It is particularly interesting to read some of the comments to the TechCrunch article. The diversity of comments pretty much represents that of the investing public - most comments have no appreciation for history or empirical research, a few are so far off the reservation (citing “wisdom of crowds” as the reason why such sites make sense) as to hardly warrant comment while a few actually raise the fundamental issues of indexing, risk management and diversification. The feel one gets from looking at these sites is that investing is somehow supposed to be FUN. For those of you who have lived in the markets for a long time, we all know this to be the kiss of death.

Investing life should not about being the next Jim Cramer - or if it is, may the force be with you. Investing in equities for long term profits is HARD, and unless you are professional (and, I might add, one of the few rare professionals whose record is empirically proven to be due to something other than pure chance), then it is best to get out of the way and to focus on the one thing that really matters to building and preserving personal wealth - asset allocation.

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I spent over 17 years on Wall Street in M&A, Derivatives and Trading, and I personally don’t feel comfortable trading single stocks. Because I’m stupid and don’t understand the markets, valuation, and “the Game?” No. Because I am humble and aware of the barriers to success. If you want to play games and have fun on these sites, go ahead. But if you want to be an investor and increase your chances of building and protecting wealth, it is decidedly not fun and it’s serious business. No fooling.

Fun. Is that why we invest? Clearly some people do. Based upon Cramer’s sub-par record (at least from what I’ve read, which is pretty convincing), then this is what it must be about. Make a few good calls, print some cash, and believe you can do it all over again. Now this reminds me of another post, one about stock spam and why people actually act on these bogus tips.

My theory is that the mind-set of those who try and take advantage of “tips” imparted through stock spam is similar to those I described in my earlier post on social networks for stock picking - they are entertainment-seekers for whom deploying capital (now, I am specifically NOT using the term investing) is a game, not a vocation. As a result, the emotional state of those responding to stock spam is akin to that of a gambler - trying to make a quick score, trying to be smart, wanting bragging rights, wanting the “high” of a profitable trade. Mind you, this bears no relation the mind-set of a professional investor (or even the prudent amateur): a keen focus on strategy, controlling all the variables you can, long-term orientation, risk mitigation, taking a deep breath, thinking and then thinking again before entering a position.

I have always thought that gambling, in general, gives rise to externalities because it preys on the weakness of the human spirit and the desperation many people feel. That said, regardless of whether or not stock spam gives rise to a similar externality, until the returns are squeezed out and the “dumb money” stays away, it will be here to stay. My advice to those who think my perspective has redeeming value or for whom any of this or my previous post resonates: JUST SAY NO. The “rush” of a successful trade is a drug (and a highly addictive one at that) for many, and I entreat you to stop. Please.

This is the connection. Cramer and his TV show have the (worst) elements of both social networking (being part of the Mad Money “community”) and stock spamming (over time, you will lose). Quite simply, Jimmy is effective at making some people believe. If they are vulnerable. If they are thrill-seekers. If they are grasping. If they have an addictive personality. Please, be careful out there.