Cramer's Bad Call On Dendreon: Real World vs. Television

Includes: BCRX, DNDN
by: Derek Lowe

Some readers will remember a 2005 run-in that I had with stock pundit Jim Cramer over Biocryst Pharmaceuticals. I disagreed with his recommendation to buy the stock, since I didn't think much of their drug for avian influenza, and (rather to my surprise) he e-mailed me, saying that hey, the call was correct because it made money. The best response to this line of thought was the one I saw over at The Stalwart, namely: "Jim Cramer likes to say "There's always a bull-market somewhere" and in the short-term he's right; it's wherever he says it is." When you're the host of a hugely popular stock-picking show, it's a little precious to defend your picks because they went up after you picked them.

But what if they go up after you tell people to sell them? I wrote last week about the cancer vaccine companies. Well, as it happens, Cramer told people to bail out of Dendreon (NASDAQ:DNDN) the day before the FDA advisory panel gave them a good review. As you'd imagine, some of his listeners are rather peeved about that, looking at the stock move they missed out on.

But I actually have a bit more sympathy for Cramer this time. Predicting which way some of the FDA hearings will go is a fool's game, and you're as likely to be wrong as right. Picking against Dendreon made as much sense as coming out for them; it wasn't a stupid call, except in the sense that any call was a stupid one. The reaction of his audience leads to a larger conclusion, though, which is that picking stocks based on listening to Jim Cramer yell about them is a fool's game, too.

For example, if you'd bought Biocryst (NASDAQ:BCRX) right after Cramer told you to in October of 2005, you'd have gotten in at about 13 at the open. It went right up past 17, at which point he told his audience that the trade was over, and it was time to get out. Once his listeners did that, the stock went back to 11 and change in November - but by the next spring, it was over 20. You'd have done better buying right after Cramer told you to sell, in other words - but only if you knew when to sell, yourself, which is the fine-print clause that sinks most of these wonderful stock stories. BCRX is now below 9, by the way. I have no clue whether you should buy it or not.

All of its price changes were driven by all kinds of news - alliances with other companies, development news on both the bird-flu stuff and on completely unrelated drugs, the usual range of things. None of them had anything to do with some guy shouting on a TV show. They were all about things out in that other place - the real world, which (as has been demonstrated many times) isn't as well-scripted as television.