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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One key to the hyperkinetic Cramer's character -- and to his appeal -- is the use of the word all. Small word, huge meaning. Consider two crucial passages from Jim Cramer's Real Money. In the book, Cramer correctly states that most financial-advice books seem unaware of readers' weaknesses. Then he writes: "All investing literature has one thing in common: It refuses to admit that great investing, long-term or short-term, has much in common, not with science or mathematics, but with gambling!" All? John Maynard Keynes wrote in 1936, "The game of professional investment is intolerably boring and overexacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll." Adam Smith quoted the sentiment approvingly in The Money Game 31 years later and then expanded upon it. So, in a single sentence, Cramer makes an interesting point but then torpedoes it with hyperbole.
He also writes: "I don't know a soul besides me who thinks that speculating can be a handy tool on the road to riches." (Really? No one? Not a single hedge-fund manager?) "Yet I know that all of my biggest gains, my largest wins, came from pure speculation, which I define as making a calculated bet with a limited amount of capital that turns into a monster home run." All? What about those huge long-term gains in Microsoft, Intel and Cisco that you wrote about in Confessions of a Street Addict?
In all likelihood, Cramer isn't really trying to misrepresent anything. He's simply a chronic exaggerator, an extreme personality who can't stand being wishy-washy -- or, heaven forbid, boring -- about anything.
How well Cramer's style serves viewers is an open question. "Most of what people need to know is boring and repetitive," says Barbara Roper, director of investor protection for the Consumer Federation of America. "Investors should start early, keep costs low, dollar-cost average and diversify. Repeating that constantly would not make for very stimulating TV." Booyah to that.
Note, however, that Roper says nothing about beating the market, which Cramer has done for most of his career. And that's important, especially in light of the ludicrously high failure rate of other market "gurus." For example, newsletter tracker Mark Hulbert has found that fewer than one in seven letter writers beat the market over time.
It's all but impossible to get a handle on the success of Cramer's Mad Money picks. CNBC claims that his recommendations did better than the S&P 500, but there are problems with its methodology. Based on the results of his Action Alerts PLUS service at RealMoney.com, Cramer's relative performance has slipped dramatically since he left his hedge fund. From inception at the beginning of 2002 through July, his Action Alert picks returned a cumulative 15%, according to TheStreet.com. Over the same period, the S&P 500 gained 20%. In the first seven months of 2006, Cramer was down 7%, while the S&P 500 gained 3%. In fairness, Cramer's performance has been hampered by what he calls "crippling" trading restrictions, including an inability to sell stocks short. "The hedge fund was able to short," says Cramer, "and I was very good at short-selling."
These factors may explain part of the gap. But a close reading of Confessions of a Street Addict suggests that it was partly the trading skill -- and, often, the day-trading skill -- of his hedge fund that led to those big gains, as well the ability of the fund's managers to game changes in analyst recommendations.
Best of Both Worlds
So is Jim Cramer happy? It's hard to say. There have been reports that he and his wife have separated. "No comment" is all he will say. But, professionally, he's a happy man. He's thrilled that his show is a hit and he loves doing it. It sure beats his previous CNBC gig as co-host of Kudlow & Cramer. "I didn't like the show," he says. "I had to be too deferential to politicians." And the show's low ratings annoyed him. But with Mad Money, he enjoys the best of both worlds. "It's like running a hedge fund without the angst, without worrying that clients could take the money away," he says.
Jim Cramer is a man on a mission. He sees himself as the financial world's version of Jack Bauer, the hero of the TV show 24. "Jack Bauer spends his life trying to help other people," says Cramer. "He's my idol."
Well, Jack Bauer survives no matter what his enemies do. And the same could be said of Jim Cramer.
Andrew Feinberg is a Kiplinger's Personal Finance columnist and money manager. He and Jim Cramer worked together at The American Lawyer magazine in the late 1970s.