Booyah! The Manic Universe of Jim Cramer
TV's hottest financial-advice giver goes deep, fumbles and still scores.
By Andrew Feinberg
From Kiplinger's Personal Finance magazine, September 2006
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For a change, Cramer's sleeves aren't rolled up to his elbows, as they are when he's on the air. And Cramer sounds so mellow while chatting with a journalist that it's almost jarring. He is having a good time educating investors.
But not all of his viewers are so content. To some, the frequent cultural references are a sign of an "I got into Harvard and you didn't" ego run amok. On the other hand, it is also true that Cramer is indeed smarter than the average bear and that this is the way his extraordinary mind works.
But let's face it: Bashing Cramer is something of a national sport. Something about him -- perhaps it's his over-the-top self-assurance or his ability to change his mind in a nanosecond -- inspires fanatical loathing. Newsletter writer Mark Skousen says that Cramer has "taken Wall Street down a drunken road" and that he's "surprised the government hasn't shut him down." In other words, no First Amendment protection for you, big mouth.
Cramer is routinely reviled on Yahoo's message boards as being a lousy investor. No one on the boards trashes Warren Buffett or George Soros for being incompetent. Only Cramer is a human piñata.
And yet his record establishes him as one of the all-time great investors. His hedge fund, according to Cramer, returned an annualized 24%, after fees, over 14 years, although Wikipedia, the online encyclopedia, uses the word purportedly to describe the results. "That's a pile of [bullfeathers]," says Cramer, using a word not fit for this magazine. "I made my record public. There's a tremendous amount of lying about me."
He's right. There is. Perhaps because of his self-aggrandizing theatrics, people have trouble taking him seriously. His most egregious flaw, from an advice taker's perspective, is that he changes his mind a lot. You can get whiplash from paying close attention to what he says. His matter-of-fact explanation: "Business changes rather rapidly."
No shades of gray
A Cramer characteristic, which is also a key to his TV success, is that he is a passionate "extremist." He is a man who can't help but speak or write hyperbolically, a person who seems to use all caps ALL THE TIME. He abhors shades of gray, which can sometimes be a disservice to those attempting to profit from his knowledge.
A case in point: On October 8, 1998 -- which turned out to be the day the market bottomed that year -- Cramer told his readers at TheStreet.com to "get out" of stocks. As recounted in his book Confessions of a Street Addict, his wife and then business partner, Karen, chastised him for leaving out the other side of the story in his head-for-the-hills message -- that the market could rally furiously if the Federal Reserve announced a surprise rate cut, which it soon did. "Where are the caveats?" she asked. The answer, Cramer wrote in his book: "I hadn't wanted to seem wishy-washy."
At any rate, Cramer's detractors have trouble acknowledging his fabulous long-term record, as if being too much of a clown prohibits him from being really good. "His advice might be fine for your mad money," says Lance Young, an assistant professor of finance at the University of Washington, "but it would be very, very bad for your whole portfolio. He encourages people to trade a lot, and as studies have shown, trading a lot can be hazardous to your wealth." Cramer would disagree. He says to study the stocks you own but don't marry them.
Young and others say that the advice on Cramer's show makes investing look too easy. New York attorney Jacob Zamansky, who represents individual investors, says that Cramer's advice is dangerous for those who can't afford to lose money. "Cramer has almost a cult following and there should be clearer disclosure that the show is not intended for the average guy," he says.
That's an interesting assertion, given that the show -- which attracts an average of 434,000 viewers per day -- obviously is directed at the average Joe. Intriguingly, a high percentage of callers identify themselves as new investors. The people saluting Cramer with booyahs clearly haven't been running their own money for 20 years. Is that a good thing? Is Cramer in fact helping to bring a new generation of investors into the market? The advice he gives is almost always astute, but are people really listening?
The answer is complicated. Cramer, whose program airs after the market closes, warns his viewers not to trade on his recommendations in the after-hours market. But many ignore that prohibition (stocks often soar 5% to 10% moments after he recommends them). He urges viewers to spend one full hour a week researching every stock they own. But what percentage actually do that? Five? Ten? Twenty? He relentlessly tells viewers to take some profits when they have them, but many callers confess that they haven't done so.
Cramer is walking a fine line. In creating a show "with all the excitement of sports," as he put it in his first book -- and all the hyperbole of a shopping channel -- he has made thousands of investors hot to trot for stocks. Perhaps too hot.