In Defense of Cramer and the Market

If you follow the stock market you have surely at least heard the name Jim Cramer. He is that guy on CNBC throwing chairs and toys and promoting his books at every chance he gets while giving a stock pick or two every night at 6 a clock ET(replayed at 11).

Typically, you hear about how the show is only for "dumbasses who are easily entertained", "people who can't do their own homework", "people who follow a washed-up hasband" and most commonly "fools". The "educated, sophisticated and professional" traders write article after article ripping on Jim Cramer and saying one would do better to even short(bet against his picks) his stock picks.

There was a website that use(it seems to have been disabled) that use to compare Jim Cramer's picks to what a monkey named George would pick on the same stocks, and over time Jim Cramer barely was able to beat out the monkey.

http://www.bloggingstocks.com/2006/12/04/best-and-worst-is-jim-cramer-crazy-like-a-fox-or-just-madly-obnox/

This blog talks about the results.

http://www.cxoadvisory.com/gurus/Cramer/

This was a study done that shows Cramer was right about 48% of the time which they call is about "average".

The famed writer(and supposed financial mind) Henry Blodget wrote how no one should ever follow Jim Cramer in this piece:

http://www.slate.com/id/2158497/fr/flyout


There are countless other studies and articles that have been written that all strike at this same point, that Jim Cramer is a bumbling idiot. But is that really the truth?

What does being right 48% tell us, how does one judge if that is "average" as his opponents claim it is? Trying to judge the ability of Jim Cramer off the stat that he is right 48% of the time is complete ignorance. How well does he do on the 48% of the time he is right? Does his average pick that is correct go up 20% and his average pick that is wrong go down 5% and therefore he averages a 15% on everyone of his picks? Without any further data it is impossible to criticize him for "only" being right 48% of the time. For in my own strategy, I attempt not to hit 90% of my pick but rather that I limit my losses from 0-3% and try to make the stocks I get right be up 10%+, but If I only hit 50% people would think I just come out even over time.

Then there is the Monkey George who almost out performs Jim Cramer. Let me begin by saying that if I had to predict, I would think that George the Monkey out performed 75% of the people in the stock market on a yearly basis when the studies were done. For all we know, Jim Cramer was up 40% and monkey was up 38%. But how can I be so confided that the monkey would do better than the average person? Jim Cramer on average almost always beats the market(wall street goes by the SP500 not the Dow Jones when comparing)on a year to year basis yet 80% of mutual funds which are all ran by "professional traders" lose to the stock market indexes on a year to year basis. Now the reasons Mutual funds have a hard time go far beyond the realm of all the "professional traders" being "incompetent idiots", but the point is that the pros usually lose to the market. I believe that the average person would have a better chance closing their eyes and picking stocks at random then they do by trying to do their homework and make picks. Why is this? Most people believe they are much smarter than they really are, they look around at people who are doing well and of course think, "I am much smarter, so I will make more money", and then when they fail they blame it on luck instead of their incompetence. Yet still, one might say well "you are yet to explain why Cramer can barely beat a fucking monkey". The reason this data is skewed is because it takes all of Jim Cramer's picks into consideration. This is a problem since any avid view of his would know that in the lighting round just because he gives a stock a SELL rating does not mean he think the stock will go down but could likely just mean that he likes a stock in the same sector more than that one. These results use these stocks as him selling them, but give no credit for the stock he picks in the lighting round as a better one. Numerous other studies have been done on just the picks he prepares for the show which overwhelmingly show his picks to gain over 30% in the next year on average.

Then finally, there is the piece about how Jim Cramer is nothing but a babbling idiot. Most professional traders and scholars seem to have a distaste fro Jim Cramer because they thin his audience is a bunch of ignorant morons who follow the advice of some guy how throws chairs and screams on TV as their financial guru. There are a myriad of articles written about how he has no idea what he is talking about and how he will lose you money, but one has to look no further than his resume to see that the critics have no idea what they are talking about. Cramer grew up as an underpriviliged child in Philidelphia, where he earned a scholarship to Harvard, he then become the editor of the Crimson Tide(the Harvard newspaper) which was no easy feat and then was accepted and graduated from Harvard Law school. He talked his way into a job at Goldman(only one without a business degree to have ever worked there), and he went on to become there top day trader in his five year span at Goldman. He left Goldman because they were mad that he "wasted" time in trying to get big clients and specifically were upset over some guy named Steve Ballmer who they thought wasn't worth the time due to his limited capital. Of course Steve Ballmer now runs Microsoft and is one of Goldman's top clients. Cramer then went onto start his own Hedge Fund which returned over 60% on a yearly basis which put him as the number 3 hedge fund in the 20 year span of 1985-2005.(That is out of 10,000 hedge funds). How many of his critics have ever had a job outside of being a financial analyst at a bank? How many ran a hedge fund, and how many ran a successful hedge fund? Somehow this dufus is able to get the Whales like Soros, Ichan and Buffet to come onto his circus show, how though? Because they know him and know how smart and talented he is. He doesn't need the approval of some guy who writes for Slate Magazine, the best in the game know what he is all about, making MAD MONEY.

Finally here is an important blog post from Marc Cuban.



The only problem I have with this entire piece is the title of it. As his first commenter says, it should be titled "The Stock market is for the informed", instead of for the suckers. I think this piece is a good read for anyone just starting in the market or thinking about getting in the market. I will save myself the time of going over his theories and giving my thoughts on them but to say I think he misses one important thing. There is no doubt that people on wall street have an advantage over the average joe, but the thing is, the average person can always follow the big money. Stock Picker has the portfolios of Buffet, Ichan, Soros, Lampert, ECT. The stock market also supplies ETF's, which lets a person just own say the Dow Jones Industrial(can anyone believe they got rid of Altria?), so they don't need to take a chance on owning individual stocks. The market is a tool to make money, if you can't beat it, just own it.

The Bull