Pure Truthiness

Tracking Jim Cramer's Performance: January 2007 Stock Picks

Michael - I have the greatest respect for all the work you have done in tracking Cramer's calls, and I think everyone should appreciate the warning your work sounds. It is, therefore, with deep regret that I must point out that all your work is for naught.

Cramer constantly states on his show and in his books that his lightening round picks are not well-researched and are not necessarily his real selections. If your work shows that the lightening round calls performed well, Cramer will no doubt take even more credit than he deserves. The potential claim is, "If my off-the-top-of-my-head calls are that good, imagine how great I must be with some real analysis. Buy my action alerts plus." If his performance with his lightening round calls is poor, however, he will simply dismiss the results by saying, "I always tell you to be very careful with what I say based on 15-seconds of analysis in the Ligntening Round. In the latter statement he will be absolutely correct. What does his performance with a 15-second analysis mean?

To get true measure of Cramer's Mad Money performance you need to track the performance of his featured selections each day. That job, however, is a fool's mission. Cramer's greatest expertise lies in making it impossible to track him. He almost never makes a sell call on his show. He reiterates buys at varying prices. Do we track Cramer's results on Google from his call fot Google to go to $650 when it was at $550 and assume everyone sold at $650, or do we track his call from when he said with Google at $700 that it would go to $1000, or do we pretend there was a fictional one-year holding period and say he recommended it at $500 and it fell to $400?

If we create a fictional holding period of one year, do we measure his loss from the "buy" call at $500 or the "buy" call at $700, or both. Unlike responsible market gurus who make clear buy and sell calls, Cramer tells people to sell if the reason you bought the stock changes, but average down geometrically if the stock falls, and to "take some money off the table" at unspecified points as the stock rises.

Since he does not base sell signals on fundamentals, like the characters in the movie "Two For the Money," Cramer's has his earlier followers selling to those to whom he is now recommending a "buy." When you give out both sides of the game you are always winning for someone. Cramer has taken this old trick of the race and sports touts and perfected it for the world of the stock tout.

His Mad Money calls can never be tied down. If Google goes to to 1000 he will claim he recommended it at 500 and doubled everyone's money. If Google drops to 400 he will claim you should have taken your money off the table as Google rose to his initial target of 650. For those who bought when he recommended Google at $700 he will say they should have taken some off the table at $750 and that they should have "done their homework" and sold when the "reasons for buying changed." What were Cramer's reasons for recommending Google at $700? The only reason given by Cramer at that point was that the stock had momentum would go to 1000. That reason for buying could, after the fact, be said to have changed on the very first down tick, or even on the first low volume day with a gain.
If Google drops from $700 to $500 and rebounds, Cramer will cite the advice in his book and on his broadcasts that you buy on the way down in pyramid format.

So what are the results of his followers? When should buy on drops or sell on drops. Should they hold when Cramer re-recommends a buy, or should they sell on the way up no matter what he says. Who knows?

Every once in awhile Cramer will make the mistake of locking himself in. For example, Bear Stearns. He cannot claim that the reason for buying had changed because as late as three days before Bear's collapse he clearly stated, "Bear will be taken over." If his adherents were following his advice, they should have buying more and more Bear in pyramid fashion all the way down. There was no escape. Cramer's initial reaction was, incredibly, to misrepresent his recommendation with regard to Bear. Once again, shades of "Two for the Money."

In the case of NYX. however, Cramer was foolish enough to call it his "Stock of the Year." Yes, the analogy to sports touts continiues. Sports touts have a "Game of the Year" and Cramer has his "Stock of of the Year." He couldn't take that back or misrepresent it. NYX never had a sufficient upmove to claim you should have sold it. Cramer was finally forced in an unusual corner. He beat himself with a whip (literally), begged for forgiveness is Jim Baker fashion, and continues to use NYX as proof that he is honest and admits his mistakes.

You cannot validly track any stock selector to an arbitrary date. If you tracked Warren Buffets new buys for only one year he might or might not look any good, but your numbers could be validly criticized ojn the basis that Buffet holds most stocks for 5+ years. If you track him for 5 years and he sold one stock 3 years earlier your tracking could likewise be criticized as inaccurate.

The only way to legitimately and accurately track an investor's results is to track him from his actual purchase price to his actual sell price. The only way to do that with Cramer is to track his
purchases and sales in his Action Alerts Plus portfolio. Cramer keeps those results well hidden from the public eye. It may cost you a fee to get to the portfolio, but you would make that up in the saving of time required to track Cramer's daily Ligtening Round nonsense.

We can only surmise Cramer's Action Alert portfolio results from the fact that he never publicizes those results, and the suppostion that if they were good he would shouting the numbers from the rooftops. Shining the light of day on that portfolio would be a great service to the public.