Does it worry you that you don’t talk any kind of sense?
- Hitchhiker’s Guide To The Galaxy
Far out in the uncharted backwaters of the unfashionable end of the western spiral arm of the Galaxy lies a small unregarded yellow sun. Orbiting that sun – although he believes the sun orbits around him – is a bald-headed man with a hyperactive personality and a sense of self-importance so radiant it has attracted the attention of life forms on a gas giant orbiting a binary sun a hundred light years beyond Betelgeuse who, even as you read this, are motoring through the galactic soup in their quest for a reliable way to beat the market.
When, in Douglas Adams’ enduring classic Hitchhiker’s Guide To The Galaxy, earthling Arthur Dent reads the entry in the Guide that describes his home planet as “Mostly Harmless”, he is devastated that his companion, Ford Prefect, could think of nothing more to say. It originally said only “harmless,” replies his friend. The word “mostly” was added after further research.
We wonder whether Jim Cramer is having a similar moment as he contemplates the latest academic study of stock picking performance: his stock picking.
Paul J. Bolster and Emery A. Trahan, professors of finance at the Northeastern University College of Business Administration in Boston, ran a hypothetical Cramer portfolio spanning the period from July 2005 to December 2007. As reported in a NPR spot (22 May, “Study Says Jim Cramer Beat The market – Sort Of”) Bolster and Trahan conclude that Cramer beat the market handily during their time frame. According to InvestmentNews (17 May, “Cramer’s ‘Harmless’... “During the course of the study, Mr. Cramer’s portfolio had a cumulative return of 31.75%, compared with 18.72% for the Standard and Poor’s 500 stock index.”
This looks a damn sight better than “harmless” to us. We have not read the study, but we have also seen references over the past year to “studies” that show that Cramer has created nothing but losses for those who followed his advice.
Finally, posted on yourmoneywatch.com is Cramer’s own analysis of his performance. As of the morning of 28 May it was as follows:
“Jim Cramer's ‘Mad Money’ Buy Recommendations: Performance Scoreboard – 7/28/05 to 05/27/09 -
TOTAL: 1638 WINNERS: 303 LOSERS: 1335 UNCH: 0
Total Portfolio Performance: +3.71%
DOW -22.47% &nb... S&P 500 -28.19% &nb... NASDAQ -21.26%
Bolster and Trahan caution that, in order to attain his returns, Cramer invests in rather more risky vehicles than the average investor would seek out. As the NPR story says, his returns “come with an asterisk”. They liken it with arriving earlier at one’s destination, because one has driven at 100 miles per hour.
We are aware, by the way, of studies showing that the average driving speed in the US has increased substantially in the course of the last ten years, and average distance between cars on the road has gone down dramatically. This lethal cocktail has been credited with a meaningful increase in traffic deaths, but the conclusion of these studies is that the increase in fatalities is societally acceptable risk. We think this makes taking outsized shots in the stock market a no-brainer. Call your broker on your hand-held cell phone to place that order for the double-down S&P etf while sipping your latte and taking a curve at 90 mph.
Cramer, of course, also cited Bolster and Trahan – though without the asterisk. In mentioning the report on his show, Cramer said “It shows that my performance from July 25, 2005, through Dec. 31 of 2007 was… well, excellent!” How many of Cramer’s viewers do you think will bother to read the study itself? Or even the press about the study?
“Know Your Customer”, indeed! Could it be the Crazy Eddie of Wall Street is onto something? If nothing else, he’s certainly got the Zeitgeist by the Proverbials.