Cramer vs. Buffett: An ETF Perspective

It doesn't matter what type of information that you follow -- technicals, fundamentals, contrarian indicators. Yesterday, the markets seem content to flirt with the lows set in January.

Does this mean that stock markets will ultimately break down further? Conversely, is this the type of stage-setting precursor to a legitimate rally for equities?

Warren Buffett recently suggested that investors "wait it out." That fits with his philosophy of value hunting on long-term time horizons of 10+ years.

Buffett's company Berkshire (BRK.A) has been scooping up beaten down financial companies as well as transportation leaders. If you've got the stomach, then, you might acquire shares in the Insurance Index Fund (IAK) and/or the Trasportation Index Fund (IYT).

In contrast, media mega-stars like Jim Cramer argue that the wealthiest people often have the luxury to say, "...you don't have to do anything." Perhaps that explains Jim's ever-changing mood on whether to "buy, buy, buy" or "sell, sell, sell."

Cramer's guidance changes with extraordinary frequency, swinging rapidly from bearishness to bullishness, then back to bearishness, then back to bullishness. He moved from extreme optimism at the start of 2008 on tech bellwethers like Google (GOOG) and Apple (AAPL), to extreme pessimism on all technology. He called "the bottom" on financials on 1/10/08, but seems to have backed off this "call" in more recent weeks.

Cramer likes what's hot right now, including agriculture, natural gas and gold. And that goes well with his mantra, "There's always a bull market somewhere, and I promise to try and find it for you."

You can gain exposure to current Cramer faves with the PowerShares DB Agriculture Fund (DBA), United States Natural Gas Fund (UNG) and the Gold Miners Index (GDX).

So who's right... Manic Jim or Super-Serene Warren? Both/Neither!

In essence, the difference between both is as old as the origins of stock markets; that is, there's the "value" approach that seeks bargains that may not prove worthy until the tortoise crosses the finish line. Then there's crazy, mad momentum, where one buys something because it's going up faster than all comers.

Granted, Cramer frequently talks about fundamentals. But he is more likely to change his tune depending on which way the prevailing momentum winds are blowing.

I view both men with respect for their accomplishments as well as each man's unique contributions to society. Yet I respectfully disagree with the idea that "value" is best or that "growth/momentum" is more crucial. (Let's face it... different styles look good at different times.)

Still, Cramer is right when he expresses skepticism of holding-n-hoping for a decade. Ask those who purchased the brightest stars of 2000 (Microsoft (MSFT), Cisco (CSCO), GE (GE), Disney (DIS)) whether they are pleased with having lost money over 8 years. (And I didn't even mention the Enrons, Worldcoms, KMarts or Countrywides that many chose to hold.)

In truth, one is best served by seeking out long-term investments. As long as your "value" or "growth/momentum" choice is working -- 10 years, 10 months, 10 weeks, 10 days -- you would keep it. When it is not working, as defined by your tolerance for downside risk, your greatest success will come from the wisdom of avoiding the big loss.

Comments

[alexbakertech]

Enjoyable

[valueinvestor123]

Before my comment I must admit that I have been a Berkshire shareholder for many years. The difference between the two is that Buffett is a brilliant investor and Cramer is an entertainer who only cares about rating and book sales.

[AlphaRomeo]

Buffet style is to create shareholder value. Cramer is a trader. Buffet's approach makes logical sense while Cramer may be more in tune with the trading community and institutional investors. Buffet's style can be emulated by retail individuals. Cramer's approach is not sustainable for individuals with a day job.

[kickrocks]

Is it fair to say, a balance between the two "could" create the ultimate financial guru?

[valueteacher1]

kickrocks, I sure hope so. Cramer get the kids attention, but Buffett is the curriculum.

[Georealist]

It's an interesting contrast in investment approaches..but, please!! You respect Cramer for his "unique contributions to society?????" What might those be? He's a very loud investment shock artist who has a television/internet following and a nice little schtik that people will tire of in a couple years.

[rmgreenwald]

Nice article. You can certainly learn a thing or two from both Cramer and Buffett, and the way you apply the lessons in your personal investing/trading strategy is driven by your risk tolerance, time horizon, willingness to research, and your ability to filter out the daily 'noise' from the marketplace. It's OK to buy and hold, but it's not OK to buy, hold and forget.

[Afam]

The choice is not between buying and holding and momentum (the point of buying stocks is to have profits in a reasonable period of time - at least 5 to 10 years - that you can spend on real things - childrens education, new home, retirement, etc.)

Any individual investor who plans (on purchase day) to hold it for more than 10 years needs help.

The choice is between having a system of rating value and buying at prices below value and selling above value OR having a system that can predict the general behaviour of buyers and sellers and the associated price increases and buying when they are likely to continue bidding up the price and selling before they bid the price down to low.

Buy and hold is a strategy sold by mutual funds and means that the manager of the fund will design the system and do the buying and selling for you, whilst you buy and hold the fun (till you die is their hope) and then go and pray (or sleep) depending on your mental disposition.

Cramer sounds a lot like Mr Market, with wild mood swings. Buffet only holds because he can't find enough to buy with the money he has. He even admitted in one of his letters a couple of years ago that he should have sold much more during the bull market of 2000.

And Alpha Romeo is right, if you can do momentum you must have a lot of time on your hands.

[User 160739]

I almost threw up when you said you respected Cramer. I can't believe you'd even compare some loud mouth evangelist with a horrible track record to the most successful value investor the world has ever known. Ridiculous.

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[TonyC-SA]

I am a Berkshire holder. Buffet doesn't hold-and-hope. He buys solid profitable companies, and you will note he sells them when he no longer likes they way they are going. He makes a distinction between cyclical downturns and stock market pessimism and the fundamentals of the business, so he is only selling when there is something better to buy. There is need to "hope", we already know these businesses have a long track record of beating their competition and making money and we have a dozen solid reasons to believe that will continue. If the environment changes, technology changes, the market changes, the moat disappears or competition finds a way to kick our butt or demand permanently declines, it is time to get out, and Buffet does that. Note that he shut down the original textile business that was Berkshire Hathaway when it stopped making a profit.

Cramer is just a hyperactive amnesiac with a 50/50 record (and some decent insights, but still a good number of boneheaded recommendations) that does not admit his mistakes or spins the losses by claiming he was iffy. It is a rhetorical trick used by politicians, if you always put a qualifier and a condition or two into your recommendations so they sound thoughtfully expert, you can always spin it into an escape hatch later and claim victory.

[Max Rapaport]

I am amazed that the two could be mentioned in the same sentence. One (Cramer) offers shallow analysis that I regularly use as a contrarian indicator (i.e. when Cramer says "buy", it is time to stay out or sell), the other is a financial bellweather who is almost always correct, if not in the short term, then in the long term.

One very good post on Cramer is:

bxcapricorn.wordpress..../

Enough said.

[BxCap]

I actually prefer my post of the Five Stages of Cramer....

bxcapricorn.wordpress..../