Cramer vs. Cramer

Brandon Wendell
Instructor, CMT

To be a successful trader or investor, you need to hold yourself accountable for the positions that you take in the markets. Wherever you get your information, you must make your own independent analysis. That is the reason why people come to Online Trading Academy. They want to make educated choices when planning their financial future. After all, it is your money and no one cares about it more than you do.

That is why it pains me to see so many sheeple (people acting like sheep and following the herd), blindly following so-called market gurus.  Even when I put out Pro Picks or tweets, I expect traders or investors to evaluate the information themselves and make their own decision.  I put out information, not recommendations.

One popular guru that is on TV and the web is CNBC’s Jim Cramer.  Barron’s piqued my interest in the program after they published a study that a majority of his picks on the show were incorrect.  I decided to check for myself and randomly selected bullish and bearish picks from his show.  To be fair, I ignored the “Lightning Round,” and focused on stock that were discussed in detail or had the CEO interviewed on the show.

Most of the time, if you waited for two days from the shows airing and took the opposite trade from what Cramer recommended, you made money!

Cramer Discussed Apple as a buy on December 5th.  A trader who shorted AAPL on the 7th at the open of $553.40 made a tidy profit as price dropped to my price target of $501 that I had tweeted on October 24th!  My twitter handle is @traderbdub.

To be fair, Jim did get two picks correct, KSU, and SBUX did rise nicely.  But on that day he was right on two out of seven picks!  WRU did not go up.   His bearish recommendations: FCX, MMR, and PXP have all been rising since December 7th up to this writing. Booyah!

Maybe I picked an off day for Jim.  I know I wouldn’t want to be judged on one day’s appearance.  I have had one or two bad appearances on CNBC myself.  So let’s check another day.  I looked at November 19th.  This happened to be just after the S&P 500 hit demand and started the recent rise.  Cramer put out 17 prepared recommendations.  13 of them are currently trading better than the day of the show and four were losers.  This looks a lot better for him!  As of December 20th, he had a gain on CAR of 17%, a gain on BA of 5.8%, and a gain of 11% on BGG.  This is impressive, until you see his losses on AAPL -8%, HD -2%, SHW -3% and ZIP -23%.

Even the winners suffered large losses before they became profitable.  T dropped 2% before becoming a 1% winner.  LMT was down 2% before a 2% gain, HOG lost 5% before making a 2% profit.  How many investors or traders would have the mental fortitude to hold on during those draw downs?

I usually show this to my students in live classes that I teach and have noticed on average that 80% of Jim Cramer’s picks would have made you money IF you took the OPPOSITE trade than what he recommended.  Maybe it is time for a new show host?

This is not a trading strategy, just an observation and a warning as to why investors and traders need education and self reliance.  No one is perfect when making predictions on the financial markets.  But you definitely do not want to solicit help from someone who is worse than a coin flip.  This is even more critical in current times with the larger volatility in the markets likely to stay.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.