Why Jim Cramer Is An Idiot

We’re going into investment world for a minute, but hang with me, okay? First, if you don’t know who Jim Cramer is, he’s the bombastic shouting stock analyst on CNBC’s Mad Money who got absolutely ripped by Jon Stewart on the Daily Show a few months back.

A lot of otherwise decent people really like Cramer: he’s entertaining, he’s smart, and he’s bold. All characteristics that make for good TV. However, I’ve not met anyone in the investment industry who takes him seriously. Not that he lacks credentials…he’s managed a very successful hedge fund in the past and he’s made some people a lot of money. The problem is that today he’s an entertainer, not the investment guru that CNBC makes him out to be.

Case and point: on July 30, 2008 I printed off one of his bold predictions from the CNBC website because I felt like it was preposterous. We were in the beginning stages of the economic meltdown (although no one expected it to be nearly as disasterous as it became). All of us hoped the market would improve in the summer and it just wasn’t really happening. Yet along comes Cramer. “I am indeed sticking my neck out right here…declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15 [2008]….” To further clarify he declared, “Stop waiting and buy the next dip because I think it might be the last big one.” Finally, he concluded, “I think it’s a just a smart call that all the evidence points toward. Bye bye bear market. Say hello to the bull and don’t let the door hit you on the way out.” The Dow Jones was at 11,583.69 on that day. The S&P 500 closed at 1,284.26 that day. In the months that followed, the market went into a tailspin of epic proportions. Nearly 8 months after this bold prediction, the S&P closed at its low: 666.79, a loss of 48%.

So what, he swung and missed? Many brilliant investment managers did. That’s not the problem. The problem can be found in what he’s saying today. Tom Brennan (web editor of CNBC) wrote yesterday that “[Cramer] also urged investors to at least partially cash out when the Dow was near 11,000, and he did so again at 10,000. Those that listened spared themselves losses up to 40%.” Listen, for all I know he did say sell at 11,000 and 10,000. But for the people who listened to him on July 30, 2008, shortly before the market drove off a cliff, Jim Cramer said to buy at the “next dip” because we were headed straight up. Those that heeded that advice have lost one-third of their net worth in less than a year.

What does all that mean? First: if you make enough predictions, one is bound to come true. Just hope no one is around to call you out on all your swings and misses. Second: TV is the devil. Doctors, lawyers, and investment advisors who you see on national TV regularly are most likely very brilliant individuals; however don’t think for a moment that they are anything less than entertainers first. A viewer shouldn’t diagnose themselves with a disease after watching Dr. Gupta on CNN. They’d hopefully go see their own physician. Likewise, a viewer shouldn’t try to invest solely by listening to Cramer, they should call their own advisor.

Use a dose of common sense…and check out Jon Stewart thrashing Cramer on the Daily Show. It’s most entertaining…and awkward.