Cramer's Bad Call On Dendreon: Real World vs. Television

Some readers will remember a 2005 run-in that I had with stock pundit Jim Cramer over Biocryst Pharmaceuticals. I disagreed with his recommendation to buy the stock, since I didn't think much of their drug for avian influenza, and (rather to my surprise) he e-mailed me, saying that hey, the call was correct because it made money. The best response to this line of thought was the one I saw over at The Stalwart, namely: "Jim Cramer likes to say "There's always a bull-market somewhere" and in the short-term he's right; it's wherever he says it is." When you're the host of a hugely popular stock-picking show, it's a little precious to defend your picks because they went up after you picked them.

But what if they go up after you tell people to sell them? I wrote last week about the cancer vaccine companies. Well, as it happens, Cramer told people to bail out of Dendreon (DNDN) the day before the FDA advisory panel gave them a good review. As you'd imagine, some of his listeners are rather peeved about that, looking at the stock move they missed out on.

But I actually have a bit more sympathy for Cramer this time. Predicting which way some of the FDA hearings will go is a fool's game, and you're as likely to be wrong as right. Picking against Dendreon made as much sense as coming out for them; it wasn't a stupid call, except in the sense that any call was a stupid one. The reaction of his audience leads to a larger conclusion, though, which is that picking stocks based on listening to Jim Cramer yell about them is a fool's game, too.

For example, if you'd bought Biocryst (BCRX) right after Cramer told you to in October of 2005, you'd have gotten in at about 13 at the open. It went right up past 17, at which point he told his audience that the trade was over, and it was time to get out. Once his listeners did that, the stock went back to 11 and change in November - but by the next spring, it was over 20. You'd have done better buying right after Cramer told you to sell, in other words - but only if you knew when to sell, yourself, which is the fine-print clause that sinks most of these wonderful stock stories. BCRX is now below 9, by the way. I have no clue whether you should buy it or not.

All of its price changes were driven by all kinds of news - alliances with other companies, development news on both the bird-flu stuff and on completely unrelated drugs, the usual range of things. None of them had anything to do with some guy shouting on a TV show. They were all about things out in that other place - the real world, which (as has been demonstrated many times) isn't as well-scripted as television.

Comments

[bluebox]

Derek,
Your "Buy! Sell! Shout! Moan!" article, reproduced here as "Cramer's Bad Call...", is disingenuous at best. I've been watching his show for a year now, and once you get past the "entertainment factor", his approach makes more sense than anyone else's has in years. Many of his rules are not new, some are "controversial&qu... but his overall portfolio record bears his successes out.

Arguing against his thinking on DNDN, BCRX, BCTE, or whatever is fair game. Picking out one of his "bad" calls and leveling the attack of "picking stocks based on listening to Jim Cramer yell about them is a fool's game" is just wrong-headed. He's not always going to be right, but he's been right more than most, perhaps you, even. It's his methods that you need to listen to, not necessarily his picks. Anyone who buys a stock the day he mentions it instead of waiting for a good entry point (unless he says otherwise), and then doesn't do the homework to figure out why it's a trade or investment is just asking for trouble.

I've learned more useful things from Cramer in the past year (and have made more money) than from any other source in my 44 years of life. Yes, he <em>will</em&... get many calls wrong, but he will get many more right because of the way he approaches trades and investments. I have profits from following his advice to prove it, but I guess you'd dispute that as well.

[in4thelonghaul]

Derek...

While I wholeheartedly agree that basing one's stock picks upon Cramer's opinion is indeed a fool's game (if anyone wishes to sing his praises as a stock picker, I suggest you visit a site which tracks the performance of his picks), I must take strong exception to a particular statement you made in your article. You indicated sympathy with Cramer as regards his negative call on DNDN, seemingly absolving him with the statement:..."pic... against Dendreon made as much sense as coming out for them;..."

Not to offend, but your statement indicates your utter ignorance of the Dendreon case before the advisory panel, you apparently were as clueless as Cramer pretended to be....(you would have to know Cramer's history with DNDN to understand that he has an agenda when it comes to this call).

Explain to us if you will, what about a 3-fold increase in Overall Survival with virtually no side effects (transient fever and chills) you find hard to grasp. Were you even aware that the only FDA approved 'competition' to Dendreon's Provenge is Taxotere...a chemo agent with such limited efficacy, and side effects so severe and debillitating that approx. half of the potential recipients with end stage Prostate Cancer simply refuse to take it? It didn't take a brain surgeon or a rocket scientist to figure out, with high probability, which way the panel was going to vote. The cincher was when it was revealed that Provenge was to be reviewed by a division of CBER. The FDA had, prior to the Advisory Panel, conducted a joint symposium with NCI where they made their views regarding the emerging field of "active immunotherapeutic cancer vaccines" very clear. All it took was some time and effort to dig a bit, something you obviously failed to do. Next time do your homework instead of listening to the WallStreet/Hedge fund shills and you will not be left commiserating with the likes of Cramer.

Hint: Upcoming decision (anytime up to May 15th) from the FDA will be a resounding full approval, and the Provenge treatment, along with booster infusions and possibly some other following adjuvant therapy will go a long way towards making late stage Prostate Cancer a manageable disease instead of an eventual death sentence.

By the way, Dendreon's "cassette" technology is likely applicable to other cancers as well, they are by no means a "one trick pony", and with a ROW partner announcement to follow FDA approval, the sh/pr appreciation has only begun.

[Steven Mairs]

You missed a more recent Cramer ill-timed 'sell (on any strength)' recommendation he issued on NSC which promptly proceeded to pop. While I would have been burned had I sold before the rise, it's only fair to mention that I wouldn't have even looked at that company in the first place if it weren't for Cramer. It's easy to take pot shots at the king of the mountain.