For those who aren’t familiar with Jim Cramer he is a former hedge fund manager who now has a show on CNBC where he offers investment opinions on hundreds of stocks each month. Cramer’s background is typical for the majority on Wall Street. Ivy League educated he began his career in sales at Goldman Sachs before starting his own fund which he ran in the 1990s until retiring soon after the bursting of the Dot Com Bubble. His fund was very successful and he discusses in detail his methodology (some would describe as questionable), which enabled him to earn handsome profits for himself and his investors for a decade.
I first became familiar with Cramer in 1998 when a friend who worked as a market maker at Madoff Securities told me about his website The Street.com. Cramer was one of the original financial bloggers writing sometimes dozens of entries each day about market and stock price action. He eventually started a subscription service for his Charitable Trust where he sent updates daily on position changes in the portfolio.
As a trader with less than two year’s experience it was great to have access to big shots like Cramer and other writers at The Street.com. My most vivid memory of Cramer came in the Fall of 1998 when he wrote that you should sell all your stocks and that the market was broken and the world was coming to an end. Those may have not been his exact words but that was certainly the sentiment. Looking back at his comments many years later having now traded and been involved in markets for almost two decades his comments were the sort of raw emotion that you see at market bottoms. The type of capitulation that is commonplace at epic bottoms and historic buying opportunities.
Cramer couldn’t have timed his panic any better in October 1998 than he had. It seemed as if minutes later the Fed announced a surprised 50 basis point cut in the Fed Funds rate and the market began an 18 month tear the likes of never which had been seen on Wall Street before. This episode of literally “bottom ticking” the market is in no way The Problem With Jim Cramer. All traders make mistakes hitting bottoms and paying tops. Cramer to his credit quickly realized his mistake and got back into the market and wrote about it on The Street.com
The Problem With Jim Cramer relates to his attempt to offer advice to his thousands of unsophisticated viewers on literally 100s of stocks each month. Cramer’s style is manic. He yells. He screams. He delivers his points with the sort of verve usually reserved for a preacher bringing The Word to his flock! It is impossible to follow more than a handful of publicly traded companies closely enough to be able to have a strong opinion on their long term prospects. Yet Cramer delivers a seemingly infinite amount of opinions on any company he is asked about on a daily basis. At least this was the case years ago when I watched his program a handful of times. Perhaps he has reformed his ways? I doubt it.
I was surprised when my partner, Mike Bellafiore, a few years ago that watching Cramer’s show on CNBC Mad Money would be education for our newer trainees. I gave him that funny sort of WTF face when he suggested this to me. He explained that Cramer would spend time during each episode education his audience on different aspects of the stock market. So I checked out his show to see what Bella was talking about. Bella was right Cramer did spend a few minutes between his ranting and raving educating his viewers. In the world of short video clips we now reside those lessons would provide a positive benefit to many. The rest of the program should be tossed in the garbage in an effort to help hundreds of his viewers avoid unnecessary losses on many of his lightly informed opinions.
Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 19 years. His email address is: [email protected]