By now everybody has heard of Jim Cramer, even if you are not in involved with the stock market. His ubiquitous face and quirky personality have transcended American culture. He showed up on the Jon Stewart show and was interrogated to put it mildly. He is on television so much and gives out so many stock picks that I feel it is necessary to offer my opinion on how to act on them.
Let me start out by saying that I am a fan of Jim Cramer. I have been reading his stuff since 1998, before a lot of people knew who he was. I was attracted to his passion for the stock market and the fact that he was a successful hedge fund manager at the time. That gave him a lot of street credibility in my mind. I even went to go see him speak at a Philadelphia investors conference in 2000. I was a youngin at The University of Michigan at the time. The point is that I have been following him for a long time.
Mad Money
I think he really went mainstream when he started his “Mad Money” show on CNBC. He gives rapid-fire stock recommendations on the fly during the “Lightning Round” on that show, which shows his wide grasp on a variety of stocks. However, be careful on how you act on these recommendations. Some studies show that he seems to be right about 50% of the time on these picks, but there is more to the story than just that.
There is no doubt that he knows a lot of about a lot of stocks, but no man alive can possibly put in the time to research basically every stock and give a worthwhile recommendation. I would take his analyses seriously, but only use them as a starting point to do your own research. Obviously, this is not a nugget of advice that people follow carefully since you can see the stocks he talks about soar in front of your eyes on the CNBC ticker as he speaks. If you happen to be holding a stock that he speaks about and it spikes, I would ring the register and sell it at that point because they often fall right back to where they were. Buying during the speculative euphoria immediately after a recommendation is a mistake.
If a pick he makes tickles your fancy, do your own research and wait a week or two before buying. To be fair to Cramer, he suggested doing the same thing because he was aware of the impact he had on his own picks. I see a lot of wisdom in that because you don’t want to be one of the lemmings buying in a panic.
He’s Paid to Entertain
It is also very important to realize a lot of his show is for entertainment value. I have learned a lot of good investment advice and lessons from watching him, but a lot of what he does and says is for entertainment purposes only. I also find the segments of his shows that don’t talk about stocks picks the most informative. For example, his “Are You Diversified” segment teaches valuable lessons to all levels of investors.
If you are keen to act on his stock picks, make a list of his picks and track them for some time. If he gives a time frame, use that and see how the stock performs in that window. If you find a pattern or like his returns, then you will have a better idea on what stock ideas to act on. Patience is the key as always.
The bottom line is that I think Jim Cramer is an extremely smart guy with a lot of investment knowledge to offer. However, it can be dangerous to act on his recommendations hastily and many people have gotten burned while doing so and subsequently became Cramer haters, perhaps unfairly. One can’t seriously expect every single one of his thousands of picks to work. Do your own due diligence and use his recommendations as a starting point for your research. Also, don’t forget to laugh at his antics. Booyah!
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