Cramer Plugs Insana: Seems There's Also a Bull Market in Bull

I have been blogging about stocks and the economy since early 2007. During these past 2 1/2 years, the markets haven't been exactly conducive to marketing services to retail investors. Lately, though, after the rally of a life-time, I have been inundated with all sorts of offers to help me become a better stock picker. These claims are almost always shallow and baseless, but sometimes they border on criminal. I hereby vow to expose marketing claims that are disingenuous at best. If any readers feel like emailing me solicitations they receive, I am happy to share my thoughts publicly.

Today, I received one from TheStreet.com (TSCM) for the second or third time. Here is a link to what I received. I am not sure about copyright laws, so I won't post directly. Here, though, is my summary of the solicitation.

• Ron Insana runs the service
• His "portfolio is up 46.18% YTD"
• Jim Cramer's smiling face and "Booyah" signature endorse the product

Now, I have nothing against Mr. Insana or Mr. Cramer, but I do have something against misleading advertisements. If you read the "fine print", you learn that the service actually began March 13th.

To cite a "YTD" return is highly unethical given that the portfolio didn't start until after the market bottomed. The ad then cites a return of the S&P 500 of just 14.14% during that same time-frame. Of course, the market is up a lot more than 14% since mid-March. While I can't be sure of what they are trying to convey, my initial hypothesis was that their "average return" has "beaten the market", with a 46% average pick return and the market rising 14% over the exact same time-frame per pick.

This certainly isn't clear to me, but I couldn't imagine how else they are coming up with that number. Even trying to say what the average stock in the S&P 500 has done over the past 5 1/2 months would yield a higher answer than "14%". The S&P 500 has increased in price by 36% since 3/13, but the median stock return or the average return has been substantially higher. My second hypothesis, and the one that is likely correct, is that they cited the YTD return of the S&P 500 (despite the fact that the service began 3/13). The small footnote clearly stated:

For the period from the inception of the Market Movers portfolio on 3/13/09 through 8/28/09, the portfolio's total average return was 46.18%. For the same period, the S&P 500 had a 14.14% total average return.

The S&P 500 has a price return of 13.91% YTD through 8/28, but the market was down slightly on the 28th. Yep, through 8/27 (not 8/28), it had a price return of.... 14.14% (source: S&P). So, the geniuses in marketing apparently gave not only the wrong description (wrong date), but also the wrong type of number (they should have included dividends - total return). I can't be sure if this is how they came up with the "14.14%" - hard to believe, but my theory may be correct.

So, there are at least two very misleading aspects to this solicitation. First, Mr. Cramer portrays Mr. Insana's return as year-to-date when it is clearly over a shorter time-frame. Second, he calls this 46% return a "portfolio return" (which it may not actually be) that beat the market's return of 14% (which isn't correct unless my hypothesis described above regarding methodology is accurate). If the portfolio is actually up 46%, it is up more than the market during that same time-frame, but not 32% higher. If the average pick is up 46%, then they aren't being clear. If they really meant to compare the peformances despite it being apples (since inception) and oranges (YTD), that is illegal. It is extremely sloppy at best and devious if intentional.

So, my advice to investors is to save the $700 that they are asking you to spend until Mr. Insana can better describe not only his performance, but his investment philosophy as well. How would these strategies have worked in the prior six months? The ad states that he has gone to 100% cash. Is that what he is advising? If the market keeps rallying while he doesn't have any picks, will that be included in the way they describe the service? TheStreet.com (TSCM) has come back to life twice now. I don't believe that misleading potential clients is a strong foundation for the third resurrection, and I urge Mr. Insana and Mr. Cramer to review this marketing strategy. Neither of them needs to tarnish his own reputation by engaging in this type of hyperbole.

My advice to newsletter writers who advertise is to be honest. I don't mind playing the role of consumer advocate, and be warned that I am on the lookout for other examples of misleading investment performance claims, even if they are within the bounds of the law.

Disclosure: None

Comments

[Roger Knights:]

There ought to be some sort of registered play-money trading vehicle where persons who want to create a certified track record could do so. If handled properly, that service could become so prestigious that any claimant to a good trading record who couldn't cite that service's documentation of it would be scorned and ignored.

Aug 30 02:35 AM

[Paul Maulden:]

Thank you for the details and rigor of your observations. As
a new student of economics (in middle age), it is gratifying to
see the concern for ethics you express. Many years ago when
I learned to play bridge with a Life Master, he said "You can't
make a mistake", refering to my intellectual innocence on the
subject. Mr Cramer and Mr Insana have no such excuse. They
must be extremely careful with their words and claims, and would appear not to have been in this case.
Please continue your efforts, at least on behalf of those of us who are not experts in this field.

Aug 30 03:27 AM

[tmorris007:]

The "Hulbert Financial Digest" provides this type of service, however I doubt they can help with the subject newsletter as it has just recently initiated publication.


On Aug 30 02:35 AM Roger Knights wrote:

> There ought to be some sort of registered play-money trading vehicle
> where persons who want to create a certified track record could do
> so. If handled properly, that service could become so prestigious
> that any claimant to a good trading record who couldn't cite that
> service's documentation of it would be scorned and ignored.

Aug 30 04:13 AM

[Voice of co...:]

Anybody who listens to what the idiot kramer OR anyone connected to him deserves what they get.

If criminal laws were enforced, kramer would be in jail alongside madoff.

Aug 30 04:16 AM

[KFC007:]

Rise in the market has been insane. A major correction is definitely overdue.

Aug 30 07:16 AM

[Alex Filonov:]

Well, not long ago Cramer also endorsed "Nails" Dykstra, who claimed insane returns using deep in-money options. Now Dykstra declared bankruptcy, and Jim is suspiciously silent on the topic.
I wrote many times that listening to Cramer can make you money. He himself is a good picker. But his endorsements are sloppy, often wrong and sometimes border on criminal, like above mentioned.

Aug 30 04:16 PM

[YoYoMama:]

A retail investor does not need to shell out big bucks for any service for "help". All a retail investor need do is apply themselves diligently to self-education.

They need to read everything they can get their hands on - books from the public library, their local newspaper business section, WSJ, IBD, etc. They should read SA daily for a cross-section of market views and stock analysis.

There are great resources online, such as aaii.com, finviz.com, stockcharts.com, americanbulls.com. Their own brokerage accounts can provide news alerts and portfolio building tools. The public library can not only provide reading materials, but access to subscription only sites such as Morningstar.

The LAST thing a retail investor should do is listen to Cramer. Ever. On anything.

Aug 30 05:43 PM

[curious cat:]

alan, were you kind enough to ask cramer, insana and the street for comments on your article before you published or have they made comment since?

Aug 30 07:22 PM

[notsosmart:]

if you listen to the talking heads on tv & radio you get what you deserve.if you listen to the lyiing ceos you get what you deserve.if you believe what your elected officials tell you et.,etc.wake up sheeples or the fleecing will continue.

Aug 30 07:27 PM

[Alan Brochs...:]

I didn't and I am unaware of any response. I would expect them to edit the link at a very minimum. They ought to send out a corrected version and an apology.


On Aug 30 07:22 PM curious cat wrote:

> alan, were you kind enough to ask cramer, insana and the street for
> comments on your article before you published or have they made comment
> since?

Aug 30 07:54 PM

[Tom Armistead:]

Marketocracy provides the service you describe. I have a sample portfolio dating back to a contest called Strategy Lab open, I kept it going afterward even though I finished next to last in the contest. I make trades similar to those I write up here on Seeking Alpha and have continued to maintain the portfolio which is getting close to 2 years old.

I agree, those who boast of their performance should limit themselves to publicly verifiable data.


On Aug 30 02:35 AM Roger Knights wrote:

> There ought to be some sort of registered play-money trading vehicle
> where persons who want to create a certified track record could do
> so. If handled properly, that service could become so prestigious
> that any claimant to a good trading record who couldn't cite that
> service's documentation of it would be scorned and ignored.

Aug 30 08:17 PM

[Michael Clark:]

Insana-tea. Let's all have a cup. I hear Cramer's buying.

Aug 31 12:43 AM

[Michael Comeau:]

I wrote about this months ago:

www.longshorttrader.co...

Sep 08 08:38 PM

[Michael Comeau:]

There was also some wacky stuff going on in their marketing of Lenny Dykstra:

www.longshorttrader.co...

Sep 08 08:39 PM

[Alan Brochs...:]

I read your article. I am not sure that you are getting my point that they are comparing his performance since March to the S&P 500 performance since 1/1, but you raise another point. Is it true that the service didn't actually launch until June? There is no disclosure of that in the advertisement I received.


On Sep 08 08:38 PM Michael Comeau wrote:

> I wrote about this months ago:
>
> www.longshorttrader.co...

Sep 09 06:37 AM