Dear Mr. Market:

Many investors have made fortunes off of you and others have of course lost their shirts. There is another tranche of folks that we want to bring to your attention and that is about the people who have made money regardless of how well they predicted your next move; let’s talk about the entertainers that you keep in business.

Anytime someone has made millions of dollars from investing we’re going to at least listen and try to learn what they’re all about. In the case of Jim Cramer, however, he’s made his money from entertaining investors more so than sharing phenomenal investment insight or actual portfolio management secrets.  Cramer himself acknowledges that his main goal is to entertain and educate his followers but what is alarming is how many people act on his “recommendations”.

In case you haven’t turned on your television in a while…good for you! For those that have you’ll undoubtedly know that Jim Cramer is a former hedge fund manager and current television personality for CNBC. He has also authored several books and is the co-founder and second largest shareholder of TheStreet.com. He is reported to be worth over $100 million. Speaking of “reporting”…that’s actually how Cramer got his start after graduating from Harvard. Before he ran his hedge fund he was an entry-level reporter and then became a stockbroker for Goldman Sachs in 1984.

During Cramer’s tenure of his hedge fund (1988 to 2000) he only had one year of negative returns and that was in 1998. Pretty impressive…right? We’ll touch more on performance later in this article but for your information the S&P 500 was up +28.58% that year.

What you see on television or the movies isn’t always reality. A popular example of this is learning that actors like Tom Cruise really aren’t as tall as they appear on the screen. Once you learn that Tom Cruise is only 5 feet 7 inches tall you hopefully understand this simple truth. Incidentally…Jim Cramer is 5 feet 6 inches tall. We could care less about Cramer’s physical stature but we would rather educate you on what he really is…an entertainer. Many perceive him as an intelligent source for investment information and somehow either tune out or enjoy the on-air antics of throwing objects in the studio with his sleeves rolled up, screaming “Booyah!!!”, slamming buttons for sound effects (toilet flushes, animal sounds) etc.

Let’s also be realistic about “expertise” as it’s perceived on television. If we asked you to read up on a company and memorize three to four solid facts and then report them with conviction…you too could come off like an expert! If you throw in a few slick charts or supporting props you really look like you know what you’re talking about. We’re not implying that TV personalities like Jim Cramer aren’t intelligent; he definitely is. The point we’re making is that most people watching the boob tube and in particular, shows like Mad Money, are typically inexperienced investors. The real genius behind Jim Cramer isn’t his stock picks but rather it’s his persona, delivery, and schtick.

A natural question comes up during many of the initial and complimentary Portfolio Analysis & Reviews that we provide investors. We often have to tactfully ask, “Why or how did you arrive at owning XYZ Inc.?” When a prospective client responds with a somewhat surprising tone of conviction such as, “oh…that’s a Jim Cramer pick”, we begin to see the power of not only the media but of all financial entertainment and its more than subtle influences. So many individual investors insinuate that Jim Cramer personally recommended buying a stock to them!?! The sad disconnect here is that not many are cognizant that Jim isn’t likely to call you when it’s time to sell or perhaps when he’s already done so in his own account.  Speaking of Jim Cramer’s investment picks…how have they actually done?

Throughout the course of an average year Jim Cramer literally makes thousands of  “buy and sell” recommendations with the implied mission of “telling it like it is” and that following these picks can make you money.  Save yourself some time from researching it too much online because like anything else numbers can be made to convince whomever they are trying to influence.  For those who have meaningfully tracked his actual recommendations the bottom line is that Jim Cramer underperforms the market on almost every level.  His “SELL” picks have actually done better than the market when it’s trending south but ironically enough if you were to short (or basically go opposite) all of Jim Cramer’s “BUY” recommendations you would make money! Read that again… If you went the opposite of what Jim Cramer recommended buying you would make money.

Cramer didn’t stumble onto the TV set by accident. He and those who have touted the past successes of his hedge fund should be aware of its actual performance. We’ve read that his hedge fund returned 24% over a 14 year time frame.  The problem with those numbers is that they’ve apparently never been audited or independently verified! Furthermore, according to CXO Advisory, Jim Cramer’s picks did better than the stock market average only 47% of the time! They monitored his stock picks from the year 2000 onward and found that they were not only worse than average but “worse than simply flipping a coin”.  Do you want your odds of a solid retirement to be based on that type of “success”?

To Jim Cramer’s credit he has said that his show is “not about picking stocks”. He amusingly was quoted as saying “tips are for waiters” and we actually couldn’t agree more with this. Supposedly his aim is to be educational and teach people about market events and how they move stocks. At face value that’s great but the reality is that people feed on emotion and entertainment and then confuse his charades with actionable investment advice.

For those who like to day trade just watch the ticker symbol of a company he is barking about during one of his shows. There is inevitably a “pop” upward and increased volume on the stock. If that doesn’t speak to how influential shows like his are…you’re not understanding the premise of this article. By the way, there likely isn’t much science or unique investment insight when it comes to most of the stocks Cramer touts. The majority of them have already been running up or have been showing strength in the weeks leading up to him highlighting them on his show. This tells us that what prompts him to discuss a company is simply momentum or perhaps that he and his research staff are no better equipped to select a stock than some young intern using any number of free online discount brokerage screening tools!

Thanks for reading another edition from Dear Mr. Market and we hope that the next time you tune into a financial television show like Mad Money you treat it like any other TV sitcom…pure entertainment.