Voice of Cramerica

Cramer Picks Outperform S&P, Russell Indexes: Study


Practically since before Mad Money began to air, critics in the media, along with what seems like half the Internet, have endlessly accused Jim Cramer, and by extension his television show, of giving bad advice. Mainly the focus of these not-so-constructive critics has been on Jim's stock picking, on his allegedly poor performance on the show and how harmful they think it is for regular investors.

Now I have explained, over and over, how difficult it is to measure the performance of someone like Jim, who gives advice on his TV show, rather than someone who runs a portfolio. I have yet to see a methodology that adequately reflects Jim's stated opinions and advice on air, and I've spent a good deal of time debunking attempts to measure the show's "performance" in a manner guaranteed to produce negative results. 

I've explained that our primary focus is teaching people how to be better investors, something that has become increasingly true over time. In fact, I never imagined the show could be as educationally oriented as it is now even a year or two ago. We've been through all of this so many times it's started to drive me a little bit insane. Friday's Game Plan was all about homework, listening to the quarterly conference calls of Lowe's and Home Depot to find important clues about the direction of the economy. On Monday, we showed you how to go use the Lowe's call like a professional and find actionable takeaways, like buying Sherwin-Williams and Scotts Miracle-Gro . We used the recommendation of Waste Management mostly to explain the mechanics of dividends and why we think high yields are important. There's no way to measure this kind of education with a number.

Now, I'm not going to be a hypocrite. There are a number of flaws in the methodology the authors use, and the whole exercise is still pointless. Nevertheless, it feels pretty darned good to cite this passage from the study describing Jim's "performance" between July 28, 2005, and December 31, 2007, (the study was written in October 2008, and probably finished well before then, which is, I would imagine, why the data stops at the end of 2007; still that's nearly two and a half years to go on):

“The cumulative return for this portfolio for the entire period is 31.75%, or an annualized return of 12.09%...The S&P 500 earned 18.72%, or 7.35% annualized over the same period. The Russell 1000 Growth and Value indexes earned 24.54% (9.51% annualized) and 24.77% (9.59% annualized), respectively. The Russell 2000 Growth and Value indexes earned 22.51% (8.76% annualized) and 9.39% (3.78% annualized), respectively. Thus, the Cramer portfolio outperformed all of these benchmarks." (Emphasis is mine.)

As per everything I've ever written about previous studies like this one, it really doesn't mean anything. Although the methodology the two authors of this paper adopted was considerably more, let's say, even-handed than some of what I've seen in the past, it's not measuring the most important aspects of the show. All the normal caveats apply. 

Still, I feel vindicated.

Cramer's charitable trust owns Home Depot.

Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like. 

Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.

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