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Why Home Gamers Should Stop Playing

Are you a "Home Gamer"?

Jim Cramer says you are. That's how the ubiquitous CNBC Pied Piper refers to his viewers. And it's not an altogether faulty label - Cramer is indeed urging them to play a game.

Many of the Home Gamers probably don't recognize it as playtime, because they think they're getting astute investment advice. They're spellbound by this whirling dervish who rattles off sophisticated jargon so fast that they can't decipher what he's saying even if they do understand the jargon, which many of the Home Gamers surely don't. But that actually makes him even more impressive, because for that talent alone he is clearly a financial genius, and never mind the articulatory blur.

And since so many people at home don't know what to do with their money, and this captivating character is right there on TV every night, then of course it makes sense to just kick back in the recliner after dinner and do what he says. A free, daily financial adviser, all from the comfort of home.

Jim Cramer and CNBC have turned the time-honored concept of prudent investment advice on its head. Cramer, as he is simply known (like Cher or Madonna, and you might as well get your advice from them), expresses almost no regard for the tried and true tenets of personal investing. He's a former hedge fund manager, and he spews advice as if the Home Gamers are, too.

Proper counsel for individual investors commonly includes consideration for diversification, low transaction and carrying costs, and suitability as to age - all of which Cramer's guidance is bereft. His is irresponsible, agitated "McAdvice," and it's exactly the wrong way to advise individuals about investing their money.

Bill from Wisconsin, obviously an older man, calls in to Cramer's aptly titled "Mad Money" show and asks about Acco Brands. Mike in Utah, another older fellow, inquires about U.S. Silica Holdings. Debbie, a woman in Massachusetts, wants to know what he thinks about "Mako Surgicals." (sic) Each gets a breathless answer best measured in nanoseconds.

I'm a financial adviser, and although I don't claim to be familiar with every publicly-traded stock, I am aware of those that any competent professional would recommend to an individual client. But I must tell you, I've never heard of these three.

That Bill, Mike and Debbie are inquiring about such recondite names is unnerving enough, but let's ask a question of our own: Who are these three innocent folks? What are their respective situations in life? Are the two older gentlemen former blue-collar workers living on modest pensions? Is Debbie a middle-aged widow saving to put three kids through college?

Cramer doesn't ask. Doesn't care. No time for that. It's a three-ring circus, complete with clownishness, flashing colors and ear-splitting sound effects. Next caller! The madness must go on!

Let's turn down the volume for a minute and assume that Bill, Mike and Debbie are in precisely the circumstances we proffered. And let's say that they each own only five stocks. Why only five? Because Cramer apparently suggests that five are enough. You see, he asks Home Gamers to call in to ask if five of their stocks provide sufficient diversification.

Five stocks! Good Heavens, you can only be diversified with five stocks if one of them is a broad-based index fund constituting 84% of your portfolio. That's because no single stock should comprise more than 4% due to "specific-company risk." If Acco, U.S. Silica or Mako Surgicals were to suddenly experience a crisis or big lawsuit or an unexpectedly bad quarter, their stock prices might well tank and so would the life savings of these three trusting and vulnerable Home Gamers.

Matt from Chicago wants to know about Kohl's. Cramer raises his pant leg and blurts, "Kohl's, man, they raised the dividend, okay? They do have great socks. Look at these Kohl's socks, will ya? You tell me this isn't spiffy, okay? This is what it's about. That said (he pushes "Sell! Sell! Sell!" sound-effect button). "Sorry, don't have any mojo there."

No reason given. Just thumbs down. It took about 11 seconds, and it was all lame tripe. The lesson to Home Gamers is that the way to invest is frivolously, and investing in Kohl's has something to do with Cramer's socks. Investing is chaotic, serendipitous, thoughtless.

He's featured in a morning segment on CNBC called "Cramer's Mad Dash." Everything about Cramer is madness. He's shouting things like, "You need to get into the game!" And everyone's crying out meaningless "Booyahs!" to each other.

Jacklyn from North Carolina asks about Sandridge.

"SDT!" Cramer howls. He pitches a stuffed animal across the studio for no apparent reason. "You know, that's got a 10% yield and I like it a whole lot. I'm a buyer right here and right now!" End of guidance.

He then settles into a short monologue in which the Home Gamers are chided for not having the prescience to buy the initial public offering of Annie's, Inc. They would have made 90%, he admonishes. But how on earth would they have known that this particular IPO was going to be successful? Do they even know what an IPO is? Still, after this scolding, rest assured that Bill, Mike, Debbie and all the rest won't miss the next IPO that comes to market, because it will make them 90%.

"A big orange BOOYAH from the Volunteer State!" hollers Elaina.

"Sweeeet," Cramer replies.

Elaina is positively fawning. "I want to say thank you for sharing your knowledge with the Everyman."

And there it is. Now we know. The Home Gamers are the Everyman. They're the commoner. They're the financially unsophisticated. They're Joe Lunch Bucket. They're the widower. They're collectively the investing neophyte. And every weeknight they're being given the poorest of advice, on the premier financial channel of all places.

Instead of carelessly disgorging ill-suited McAdvice, a financial pundit of Cramer's stature should be telling people to simply invest in stock and bond no-load mutual and exchange-traded funds.

For example, an investor can typically be well diversified by just investing in the Vanguard Total Stock Market Fund (VTSMX). That "portfolio" will never underperform the market, because it is the market. And for a little variety, a 10%-30% position in a good value fund like the Weitz Partners III Opportunity Fund (WPOPX) or the Yacktman Fund (YACKX) can be added.

Someone seeking a little more income can add the PIMCO Total Return ETF (BOND) to the above names. Five funds are all anyone really needs. In fact, a 50/50 mix of VTSMX and BOND is a perfectly reasonable passive strategy.

No-load funds and ETFs are the better way for individuals to invest. They get professional management, diversification, and low transaction and holding costs. But such wisdom apparently doesn't work on a nightly TV show hungry for ratings, so the Cramer madness never stops.

"Mad Money - You can't afford to miss it!" he shouts. "Stick with Cramer!"

And finally, there's this gem: "What really gets under my skin is how everyone claims to be helping you!"


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.