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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • “Nobody Ever Lost A Dollar By Underestimating The Taste Of The American Public.” ― P.T. Barnum 13 comments
    Jan 4, 2013 6:30 PM

    I have never watched Jim Cramer's Mad Money, so I will try to be careful to avoid judging it too harshly. However, a casual glance at its ads on CNBC appear to show someone who is hysterical, clownish, and somewhat drug-addled. In other words, it does not give a first impression of thoughtfulness. He makes it very clear that this is entertainment and not news or analysis. But the important question is, "can an investor make any money off of his recommendations?"

    Overnight returns following his stock picks are +3% on average and as much as +7% for smaller capitalization stocks. He moves the market capitalization by over $50 million with his picks. Typically, this show is taped an hour or so before it is aired. Historically, there has not been any price response during taping, but there is an observable spike in both volume and prices during the airing. Such spikes dissipate over time; after a few days the abnormal returns are gone.

    There is no evidence of any skill in security selection. In fact, a portfolio of his ideas purchased the day following the recommendations would underperform the market by over 1% a month. His underperformance is statistically significant enough that one could profitably short his long ideas.

    While I have not watched the show, in its earlier years I was a regular caller. One could simply call in to the show, disconnected when it was picked up, and redialed until one is placed on hold. Alternatively, one could call in on several lines simultaneously to guarantee getting put on hold at least once. And the hold music? It featured an only partially muted feed of the taping.

    One could listen for the ticker symbols and have one hour to purchase his recommendations in the after hours market before immediately placing sell orders on positions at prices from 3 to 8% above their cost basis. An hour later when the show aired, sell orders would mostly execute. Occasionally, one could clean up any residual positions on the next morning. If price spikes exceeded 7%, one could occasionally short the stocks that I had just sold.

    If you want to learn about someone whose investing style is antithetical to mine, consider reading Confessions of a Street Addict.

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

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

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Comments (13)
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  • Doyle3000
    , contributor
    Comments (1546) | Send Message
     
    When he was so bullish on CMG and it cratered he took no accountability at all. People lost $150 -$200 per share and he said "we were paying for a growth stock and now they slowed their growth. Buy back at $270"

     

    But CMG had stated that same store sales were going to be single digits. They didn't hype themselves at all! He hyped the living crap out of it and then it crashed.
    6 Jan 2013, 12:17 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5277) | Send Message
     
    Author’s reply » Stock promoters tend to have such characteristics, but it is a shame. CMG is a big faddish now, but for a while there was an attractive share class arbitrage opportunity.
    6 Jan 2013, 12:22 AM Reply Like
  • Applocrat
    , contributor
    Comments (1002) | Send Message
     
    Any data on his longer term picks? I have watched the show early on in my attempt to study the market. I found he advised sound principles study the company, study the balance sheet and the sector, trade on business prospects, not hype.

     

    But he consistently belies his own advice. He simply follows trends and dresses that trend following as fundamental analysis. Fundamentals is exactly what we are supposed to use to spot false trends, not reinforce what the price action is doing right now.
    9 Feb 2013, 12:17 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5277) | Send Message
     
    Author’s reply » Well said; I couldn't agree more.

     

    Here are two recent papers that might be worth reading on the topic:

     

    http://bit.ly/Yi06z0

     

    http://bit.ly/11xgP94
    9 Feb 2013, 01:15 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (4364) | Send Message
     
    Second link is now gone.
    11 Jul 2014, 12:05 PM Reply Like
  • TimeOnTarget
    , contributor
    Comments (2963) | Send Message
     
    Chris --

     

    What a great idea. You know, you add 3-7% up every day the show comes on for a year and you are doing pretty well.

     

    I haven't been able to tolerate but a couple of minutes of watching. I did, however, read an amazingly funny article about Cramer thinking that Lenny Dykstra was a good stock picker and giving him lots of publicity.

     

    Knowing that Cramer actually managed to develop a thought that was along the lines of "Dykstra is good at picking stocks" should be actionable information for shorting all his ideas. About the only person who could possibly be dumber than Dykstra is someone who actually thought Dykstra was smart. Hell, Dykstra was the dumb guy on a professional baseball team, not typically a great repository of intellect (e.g., Jose Canseco).
    19 Nov 2014, 07:29 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5277) | Send Message
     
    Author’s reply » TST investor voices opinion to Cramer in new SEC filing: http://bit.ly/1FPxxz2
    4 Dec 2014, 07:03 AM Reply Like
  • TimeOnTarget
    , contributor
    Comments (2963) | Send Message
     
    Now that's a letter!

     

    People actually pay for advice from Cramer and The Motley Fool. I know they do, but I just have a hard time believing it. In the case of Cramer, that requires both bad taste and stupidity.

     

    I'm digging way back, but wasn't Cramer a big Amazon fan from a long time ago? Wasn't that the same gig for the main Motley Fool guy?

     

    Don't get me wrong; I do wish I had invested in Amazon instead of looking at their financial information and saying "none for me, thanks." I missed that one for sure.

     

    But in my personal experience, Amazon investors tend to be kind of dumb overall, but because they happened to pick Amazon, they now regard themselves as stock market geniuses. Back in about 1997 Amazon struck me as internet company equivalent to McDonald's (McDonald's in the food quality sense--utterly mundane and completely mediocre at best, but all the dumb people go there -- and not the investment sense, a good bet that there are lots of dumb people who will go there).

     

    Admittedly, I have a limited sample, but it is truly amazing how homogenous that sample is: All of them are virtually dumb as posts but think they are really shrewd.

     

    Anyway, seeing all this stuff and thinking about Cramer made me think how he totally reminds me of the dumb Amazon investors whose success had more than a small bit of luck contributing, but who now think they are Jim Simons.
    4 Dec 2014, 11:49 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2929) | Send Message
     
    It was diabolical genius when Cramer gained acclaim from fanning the flames of the internet bubble at the peak ("Winners of the New World"), then profited from his book "You Got Screwed!" at the nadir of the crash--in which he blames the crash on a Wall Street stock promotion scheme.

     

    He should've gone into politics where his skills would be better suited and more beneficial to his constituents.
    4 Dec 2014, 05:15 PM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (734) | Send Message
     
    Completely agree, but sometimes we can learn something even from Jim Cramer:
    http://bit.ly/1w7TbgQ
    9 Dec 2014, 01:49 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5277) | Send Message
     
    Author’s reply » Mad Money Host Jim Cramer on Bear Stearns: http://bit.ly/1bA04Mp
    11 Mar, 10:58 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (5277) | Send Message
     
    Author’s reply » The Winners of the New World: http://bit.ly/1KWqCMi
    11 Mar, 10:59 AM Reply Like
  • Doyle3000
    , contributor
    Comments (1546) | Send Message
     
    Well he did accurately pick Priceline and Amazon so if you bought and held through the storm then bought more in 2002 you'd have done extremely well over the last 15 years.

     

    Then again you'd have lost almost 100% of your investment in his Top 10 stocks (except Ariba Networks I think)
    12 Mar, 08:27 AM Reply Like
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