TV's hottest financial-advice giver goes deep, fumbles and still scores. By Andrew Feinberg, Contributing Columnist August 31, 2006 Jim Cramer, who as the host of CNBC's Mad Money is the cable network's biggest star, is probably the first person in the history of television to wear a Little Orphan Annie wig and a football helmet simultaneously. Or to grill rubber bears and then eat them. Or to tell a caller who asked about a stock that Cramer had thought of buying, "You must be inside my head with another 20 people. I'm calling the fire marshal!"There is, seemingly, almost nothing Cramer won't do to get a laugh or hook his viewers. One of the show's running gags is a barking-dog sound effect. "Oh, it's Vonage the dog," says Cramer, referring to one of the year's most pitiful initial stock offerings. Cramer, a founder of TheStreet.com and a former hedge-fund manager, is famous for throwing chairs on the show. His explanation: "I hate chairs." RELATED STORIES Slide Show: The Faces of Cramer Cramer's Rules of Order Critics say the show is more like pro wrestling than Wall Street Week. (They note that Mad Money's producer used to oversee the Jerry Springer Show.) Others grouse that Cramer is "self-reverential" and "totally conceited." Jon Friedman, a columnist at MarketWatch, says that Cramer crossed the line into self-parody when he boiled up a box of Uncle Ben Bernanke's rice on the air. Jim Cramer? Self-parody? What a concept! But Cramer knows this and he plays off it, often brilliantly. It makes for edgy theater. "He's irresistible to watch," says Michael Wolff, Vanity Fair columnist, CNBC contributor and Cramer friend. "There's a kind of poetry when he talks about the market. And part of the fun is the possibility that you're watching a train wreck." Advertisement Whether you think Cramer is a blessing or a bane, a breath of fresh air or an endless stream of hot air, it's hard to call him uninteresting or to deny that his TV success says something important about the habits of individual investors in 2006. Jim Cramer was born on February 10, 1955, in Wyndmoor, Pa., a middle-class suburb north of Philadelphia. His father was a paper-goods wholesaler and his mother a sculptor. After graduating from Harvard in 1976, he spent four years as a journalist, including a stint at The American Lawyer magazine. Cramer, who began his love affair with stocks as a child, honed his investing skills while attending Harvard Law in the early 1980s. While in law school he got his first client, New Republic owner Martin Peretz. Cramer then became a broker at Goldman Sachs, and in 1987 he left to start a hedge fund, Cramer Levy Partners. The fund was 100% in cash at the time of the 1987 crash. Cramer co-founded TheStreet.com with Peretz in 1996. But with the frenetic life of money management taking a toll on his personality -- he admits he acted like a maniac at the office and often missed family vacations -- Cramer quit his hedge fund after a spectacular 2000 (it gained 36%, while Standard Poor's 500-stock index sank 9%). In 2001, Cramer decided to take the insights he gained at TheStreet.com to another medium. He started a syndicated radio show, Jim Cramer's RealMoney, the clear progenitor of Mad Money. He launched the TV show in March 2005, and the world of financial journalism -- to use the term loosely -- has not been the same since. Advertisement Cramer is on the set taping his show, which is done in segments, with five- to ten-minute breaks between each one. During the breaks he chats with a visitor. He seems happy, but also insecure, as if he were asking, "Did you really think it was good?" At that moment, he comes across much more as a TV or Hollywood type than a money guy, more George Clooney than George Soros. Much of this particular show will be about finding value in emerging markets. Cramer suggests holding up a globe, agrave; la Charlie Chaplin in The Great Dictator. His nephew Cliff, who works on the show, chimes in, "And then say, 'I am the 21st-century Chaplin.' " Cramer replies, "I love the hubris of that." And then he does just that on the show, with a smile that suggests his ego is just another one of his many props. During the show, he makes references to great battles of World War I (the Somme, Verdun and first through third Ypres), as well as the Maginot Line, the author Ceacute;line and Prince Hal -- or, more accurately, Prince HAL, as in Halliburton. What's with all the name-dropping? "Doing all this Western Civ stuff makes it fun for me," he says. "No one else has to get it. The show, selfishly, is about my having a good time." Besides, he says, a lot of his viewers are college students who do get many of the allusions. 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. Advertisement 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 pintilde;ata. 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." Advertisement 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. 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 SP 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 SP 500 gained 20%. In the first seven months of 2006, Cramer was down 7%, while the SP 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.