My thoughts on Analysts: Jim Cramer

Jim Cramer 

He’s the bad boy of the investing world, making trading look like a frat party. 
But I agree with Rick Aristotle Munarriz when he writes on the Motley Fool today that “I think that he is housing one of the most brilliant investing minds inside that noggin of his.”  Well, maybe not “most brilliant.”  I have a feeling the most brilliant investing minds out there are probably hiding from the limelight, not seeking it, like my hero Warren Buffett did before he got too bloody rich to hide from the limelight anymore.  I think there’s another generation of Buffetts out there, quietly raking in the cash for themselves and a few lucky or perspicacious investors.

            Case in point for “lucky investors:” my wife was on the Board of a nonprofit in Tucson, the Tucson Centers for Women and Children for a short time while we lived there.  Another one of the directors, and the biggest benefactor of the Centers, owed his fortune to the fact that he was Buffett’s neighbor in Omaha when Buffett was just starting out.  My guess is that Buffett was simply the savviest financial guy he knew, and so he gave Buffett some money to invest for him.  Now he buys buildings for nonprofits.

            Back to Cramer.  He may be brilliant, but it’s no longer possible to make money on his stock tips because too many people follow his advice.  His antics also make my life a lot harder.  I taught a workshop on investing in alternative energy stocks earlier this week, and tried to focus it more on the basics of investing, rather than stock tips.  I talked about paying off your debt, diversification, and started in on how to pick your own stocks, with the crowd getting more and more restless: They wanted to know which stocks and renewable industries I thought were a good deal right now.  In short, they wanted Cramer.

            I wanted to teach the attendees how to fish, but the instant gratification TV culture that Cramer is an iconic part of for the investing community has trained them to look for handouts of fish. 

I’m sad to say: I gave in.  At least, I did list stocks to look at in various industries, staying away from saying anything was a “buy” or a “sell” right now.  I save that for my clients.  And I did tell them which industries I like better: Energy Efficiency, Wind, Geothermal, some biomass.  (Note: I bet most of my readers, and that means you, got a lot more interested when you read that last sentence.  Case in point.)

Knowing what to buy now will never make anyone the sort of money they could make by knowing how to decide when to buy and when to sell.  When are they going to sell the stocks they are going to buy just because I mentioned them?  For most of them, at the wrong time. 

Superior investing performance is all about knowing yourself, and making rational, not emotional decisions, a skill we all think we are better at than we actually are.  And that was the skill I was trying to teach in my workshop.

In the end, we all get what we deserve.  I only regret that the attendees who really were open to the skills I was trying to teach could have learned a lot more if I hadn’t pandered to the instant gratification crowd.

 

Okay, that wasn’t really about Jim Cramer, and he’s not responsible for the instant gratification culture we live in, but he does pander to it.  I think he is brilliant, but intelligence and wisdom never were the same thing.  You’re not going to make real money following his advice.  If you want to make real money, you have to have the luck and insight to find the right advisor before he becomes too successful to want your account, or you have to learn to do it yourself.

Maybe I’ll call my next workshop “Making Money the Hard Way in EE/RE Investing.”  I’ll probably have an attendance of two, but at least they’ll know what they are getting into.

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3 Comments

  1. Great analysis. As much as I like his analysis it is difficult to make money out of his recommendations. Its kind of funny to watch stock prices jump 4-5% as soon as he mentions it on his show.

  2. [...] I’ve been reading Russell’s Dow Theory Letters since 1990.  When I spoke of Jim Cramer, I concluded that he represented the triumph of intelligence over wisdom.  Russell’s strength is his wisdom, his depth of experience, and his instincts.    [...]

  3. investmentscientist said

    It is possible to make money from Cramer’s stock picks, just do the opposite of his recommendation. I did a study of the one year returns of his picks last January. His bearish calls increased about 3% and his bullish calls dropped more than 3%.

    Track record of Cramer’s stock picks

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