Meet Mr. Market: Jim Cramer

Includes: DIA, QQQ, SPY
by: Todd Kenyon, CFA

Yup, that mysterious stock market metaphor, Mr. Market, dreamed up by Ben Graham many many years ago is in fact a living, breathing (hyperventilating?) human being. This may come as a shock to other value junkies out there who know Mr. Market simply as the incarnation of the entire stock market's fear and greed. But I am here to tell you, Mr. Market lives. And he's been right here in front of us for years, in plain sight. Any guesses as to who he is?

Ben Graham, the father of value investing, wrote about Mr. Market more than 60 years ago in his seminal value investing tome "The Intelligent Investor" (Buffett's favorite investing book):

"Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him. and the value he proposes seems to you a little short of silly."

Many times Mr. Market has been described as manic depressive, or even schizophrenic. Have you figured out Mr. Market's identity yet?

Booyah! It's Jim Cramer of course! The walking, talking, screaming, ranting incarnation of fear and greed, high priest of the "Church of What's Working Now"!

The problem is, people listen to him. They watch him and follow his "investing" "advice" (both in quotes, each a euphemism) every day.

If we in fact agree that JC is actually Mr. M, perhaps his viewers should heed Buffet's advice:

"Once you think the market is telling you whether you're right or wrong, once you're looking to the market for guidance, you're in trouble"

Charles Ellis has this to say:

"If you can't control your emotions, being in the stock market is like walking into a heated area wearing a backpack full of explosives."

Nobody would accuse JC/Mr. M of controlling his emotions. One more from Ellis:

"If you go to the stock market because you want excitement, then sooner or later you will lose. Everyone who thinks the stock market is a game loses - everyone, to the last man, woman and child..."

JC/Mr. M is all about excitement! BUY BUY BUY! SELL SELL SELL! Unfortunately, no one, not even he, can predict short-term market moves with consistency. Don't believe me? Well check this out: he can't even predict his OWN short-term moves! The following video shows JC/Mr. M completely contradicting himself, flip-flopping 180 degrees, in one week's time:

Cramer Flip-Flop

The lessons are simple. Again, no one knows what the market will do in the short term. If someone does, they are not on TV telling you about it, they are sitting on an island somewhere counting their billions. I certainly have no idea - as a value investor I buy when things looks cheap, but I have no idea how long it will take for the value to be realized. I simply believe that it will, at some point, in a reasonable amount of time (i.e., it could take years).

Secondly, Cramer is not an investor and has no special knowledge of what the market will do. He is an entertainer, a speculator, a gambler, an emotional ball of contradictions, some would even say a snake-oil salesman. If you had listened to him on Friday the 13th, a week later he tells you to do the complete opposite, without even acknowledging his previous call. I sure hope that some of his viewers caught this and saw the light.

We are in a VERY tough market environment right now, with emotions running wild, and nothing but black (sticky?) clouds on the horizon. Many of the best value managers out there are getting their heads handed to them. Yet it is just these kinds of environments that produce ultimately rewarding investment results.

There are many many companies selling at 10 year (or longer) low valuations. The painful thing is that just when you think something can't get much cheaper, it does. Maybe a lot cheaper. For how long, no one knows. But if your time horizon is long (as it should be for any investor), and you hold quality companies at attractive valuations, you will ultimately benefit when the cycle turns. Stay the course, and don't pay attention to every tick or every headline. Remember that you own pieces of good companies that are diligently working to grow your shareholder value. Most of all, pay no heed to Mr. M's emotional rants, unless you plan on using them to your advantage.

(Thanks to "andybird" for his comment on YouTube that Cramer is "Mr. Market in flesh & bones", which gave me the idea for this post)