16 May 2014

Jim Cramer Does NOT Know

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Jim Cramer’s stock tips pan out 47.6% of the time. Jim Cramer’s stock picks fail more than half the time. Jim Cramer is incorrect a majority of the time. Jim Cramer is usually wrong.

The above sentence can be restated and rearranged numerous different ways, but none of them refutes the simple fact that flipping a coin better predicts winning stocks than CNBC’s highly public “market guru.”

This blog is not intended to be a knock on Jim Cramer. The former Harvard Law grad, turned hedge fund manager is an extremely intelligent guy and by all accounts likeable (albeit a bit goofy). The purpose of the blog is to expose the danger of relying too heavily on predictions made by countless political pundits and market experts that have little or nothing to lose if their predictions are wrong. Jim Cramer and his show, Mad Money, will serve as the metaphor for the larger issue at play.

We live in a world full of predictions.

Flip on ESPN and you’ll usually find some MLB analyst predicting why the Twins will lose 90 games, again. Flip on CNN before Election Day and you’ll find countless political pundits predicting who will win New York, Florida, California, Arizona, and everything in between.

And then there’s Jim Cramer or more affectionately known as just “Cramer.”

Flip on CNBC at 5:00pm on most week nights and there he is making predictions on the “next great energy stock to buy” or the “best tech stock nobody has ever heard of!” The nightly show airing on CNBC is like an odd combination of Jim Carey meets Bill Nye the Science guy. It makes for entertaining TV, but far from great investment advice.

And there lies the problem. Entertainment disguised as investment advice with little to no accountability.

The epidemic of predictions coupled with a 24 hour hyperbole induced news cycle has made it all but impossible for today’s average investor to maintain a long-term perspective and to avoid the “noise” that is constantly spewing out of all forms of electronics.

So, how does one combat the dangers of the constant influx of “breaking news” and bold predictions claiming “the U.S. will become the next Japan,” “Europe is finished!,” “China’s economy is screeching to a halt!”

It’s certainly not easy, but here are four simple steps that can help combat the issue:

First, take the Carl Richard’s approach and ask yourself “when was the last time [I] read something in the newspaper [or heard on TV] that [I] then acted upon immediately and was glad [I] acted upon it afterwards?” Taking a step back can oftentimes help provide the perspective needed to not act on a hyperbole induced news story or great stock tip.

Second, keep these five words in mind: “Jim Cramer does not know!” Unfortunately for many, the fact that Cramer is incorrect more frequently than a coin flip is not disclosed anywhere during the show or on CNBC’s website. And always remember Cramers come in all different shapes and sizes.

Third, watch and listen to the Cramer’s of the world with the same level of healthy skepticism you would when listening to a fortune teller.  They aren’t that different and the former is no more correct than the latter.

Lastly, don’t hesitate to call! Humans are emotional beings and as such investing is oftentimes an emotional rollercoaster. We welcome the opportunity to discuss with you your concerns, whether they be big or small. Part of our job is to be your sounding board to help insulate you from the noise that can cause so much anxiety as an investor.

If you read or hear something that is alarming call us for an objective second opinion!

All the best,

The All Star Team

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About the Author
Matt Cosgriff


Paraplanner, Matt graduated from St. Olaf College with a degree in Economics and a concentration in Finance... Read Full Bio >

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