Cramer

This article, “Cramer Google-Coaster (GOOG)” lists Cramer’s recent recommendations on Google stock:

January 3……….Buy…….$435.23 (going to $500)
January 4……….Buy…….$445.24 (going to $500)
January 13……..Buy…….$466.25 (going to $600)
January 23……..Buy…….$427.50
January 25……..Buy…….$433.00 (take profits)
February 2……..Buy…….$396.04
February 6……..Sell.. ….$385.10 (sell at $400)
February 14……Buy…….$343.32
February 27……Buy…….$390.38 (going to $500)
March 6………….Sell…….$368.10 (going down $15)
March 7………….Buy…….$364.45
March 13………..Sell…….$337.06
March 21………..Sell…….$339.92
March 23………..Buy…….$341.89
March 29………..Sell…….$394.98

I plugged them into Excel and set up some cash flows according to the following rules: purchase 100 shares of GOOG every time Cramer calls “Buy” and sell of half of the shares you own every time he calls “Sell.” I then used Excel’s XIRR function to determine the Internal Rate of Return, and got a -66% annualized return. Way to go Cramer. If you’d just bought 100 shares of Google on January 3rd and held it until March 29, you would have achieved a -34% annualized return. If you had of instead bought 100 shares of Google on all the dates above in order to dollar-cost average, you would have achieved an 8% annualized return by March 29th.

The analysts are always full of crap with their buy/sell recommendations and I am sure any reader of this blog is aware of that. What is sad is that Cramer’s show is insanely popular. What is even more sad is that a friend of mine’s dad is an investment advisor and he watches Cramer every day after work AND TAKES NOTES. To give him the benefit of the doubt, maybe he just watches the show and gambles 5% of his portfolio (his “mad money”) on some of Cramer’s picks. But still, I would not be happy if I suddenly found out my advisor watched Mad Money every day after work. I am extremely happy that I am not going to this person for financial advice/management. And I was very impressed when I first met my current advisor and he told me that he “does not pick stocks.” Nor does he sound like someone who would pay any attention to stock picks he heard on TV.

I only saw Cramer’s Mad Money once while in Hawaii (my only chance to watch the 24/7 American “news” stations). I think I watched for all of about 2 minutes until I dismissed it as crap and shut it off. Once in a while I hear about this Mad Money show. I remember Arrested Development poked fun at it and a little while back a stock recommendation on his show apparently caused Zarlink stock to increase 20% in one day.

Here are couple of comments on Cramer from “Ego Unleashed, or Everyman of the Market?“:

“What you are seeing when you watch that show is both a parlor game and real brilliance,” Mr. Bogle said. “But I think that when the final score is written, his return is very average, and below average when you factor in the costs of making the trades. We know that when you own the stock market and never trade, you will capture the market’s return. The more we trade, the greater the costs and the greater the loss. These are relentless truths that cannot be avoided.” [emphasis mine]

Another good article here: “Monitoring the ‘Mad Money’ Madness” by the Big Picture‘s Barry Ritholtz.