I’ve followed Jim Cramer and Mad Money for 15+ years. Jim is a staple on CNBC and when I worked for an investment bank, the office TV monitors were always tuned to CNBC and Jim was always on. Jim is no doubt a smart guy — Harvard educated with a long career as an investment and hedge fund manager. His net worth is north of $100 million. He’s quite an engaging character and fun to watch. He makes predictions almost daily – most notably the Lightning Round of the Mad Money show where Jim answers viewer’s stock questions at rapid speed. So, what is the actual long-term performance of the Jim Cramer Lightning Round?
Initial Anecdotal Observations
One of my friends who is a financial professional called into the Mad Money show during the Lightning Round and asked Jim his thoughts about Harley-Davison, the motorcycle manufacturer. My friend bought in at ~19 and Jim advised not to buy when the stock was at 21. A year later, on the anniversary of the telephone call, Harley-Davison (symbol: HOG) was trading at 51. Of course, my friend was so proud that he outsmarted the great Jim Cramer! What a feat.
As data driven engineer, I was tempted to collect all the predictions from the past year’s Jim Cramer Lightning Round recommendations but the data was not easy to capture. Instead, as I write this post, I went back to the Mad Money Lightning Round from January 22, 2021 and compared it to the results on January 21, 2022, 1 year later.
| BUY Recommendation: | 1/22/2021 | 1/21/2022 | % |
| Boeing (BA) | 205.84 | 205.44 | 0 |
| General Motors (GM) | 55.40 | 53.28 | -4% |
| Ford (F) | 11.52 | 20.65 | 79% |
| Tesla (TSLA) | 846.64 | 943.90 | 11% |
| S&P Global (SPGI) | 315.14 | 416.93 | 32% |
| Surface Oncology (SURF) | 13.31 | 3.72 | -72% |
| Benchmark Comparison: SPDR S&P 500 ETF (SPY) | 382.88 | 437.98 | 14% |
| Benchmark Comparison: Vanguard Total Stock Market Index (VTI) | 200.89 | 220.91 | 10% |
| SELL Recommendation: | 1/22/2021 | 1/21/2022 | % |
| United Airlines (UAL) | 42.14 | 41.65 | -1% |
| American Tower Corp (AMT) | 223.92 | 244.76 | 9% |
| Opko Health (OPK) | 4.41 | 4.24 | -4% |
As you can see, Jim Cramer was right ~50% on his stock recommendations. If you invested equally into the Buy recommendations, your average return would be 7.8%. Compare that to the Total Stock Market Index or S&P 500 which averaged 10 to 14%.
Another Look at Market Expert Performance
CXO Advisory Group conducted a similar analysis to see if equity market experts, like Jim Cramer, could reliably provide stock market timing guidance. Their study looked at 6,582 forecasts for the US stock market offered publicly by 68 experts from 2005 through 2012. On an aggregate scale, the accuracy was 46.9%. These are the most famous investment managers and their predictions were essentially 50-50, or a coin flip. On an individual basis, Jim Cramer’s forecast accuracy was 46.8% which closely mirrored the aggregate accuracy of all experts.
Another study that I found showed similar results. The Journal of Retirement conducted a study focused on Jim Cramer’s Mad Money Charitable Trust Performance where the authors, Jonathan Hartley and Matthew Olson, tracked Cramer’s Action Alerts PLUS (AAP) portfolio over a span of 17 years. The researchers found that Cramer’s AAP portfolio produced an annualized 4.08% return in the 17+ years while at the same time, the S&P gained 7.07%.
If Jim Cramer is So Wrong, Why Do You Still Watch Him?
Jim Cramer doesn’t have to be right. He’s getting paid millions of dollars a year regardless of the performance of his recommendations. Ultimately, he sells tv advertising and keeps viewers entertained. Jim is funny and energetic and fun to watch but his recommendations are the equivalent of throwing darts at a board and seeing what sticks.
I’m not so sure viewers would tune in if you had actual investment professionals on TV showcasing their excel models. Lots of analysis that goes into investment research is boring. American viewers have little interest in listening to earnings calls and hearing analysts update their assumptions to drive a recommendation.
Note there is a short term “Cramer Effect” where stock recommendations from his show might have a short-lived bump in the market. Some viewers do listen to Cramer’s financial advice and do act on it but the bump in stock price is temporary.
Most Financial Advisors Can’t Beat the Market
Jim is not alone. Most financial advisors cannot beat the market. Warren Buffet, one of, if not the world’s greatest investor, frequently argues that for most people, a simple index fund is a smarter investment strategy than trying to pick winning stocks.
In 2008, Warren Buffet challenged the hedge fund industry that a S&P 500 index fund would outperform a hedge fund portfolio over a 10-year period. Protégé Partners LLC accepted the million dollar bet. Before the 10 years was up, Protégé Partners LLC admitted defeat.
SPIVA (S&P Indices Versus Active) Scorecard tracks the performance of indexes vs active management. In the Mid-Year 2021 Report, SPIVA found that nearly 94% of all domestic active investment managers underperformed their respective S&P benchmarks in the past 20 years. Murray Coleman provides an insightful analysis of the SPIVA 2021 Mid-Year Active vs Passive Scorecard.
Key Takeaways
Tune out the noise and talking heads on TV. In this post, I singled out Jim Cramer and focused on the Jim Cramer Lightning Round stock picks but this advice is applicable to all investment managers. If you use a financial advisor, a good advisor will align to your financial goals. No matter how educated and successful your financial advisor is, the research shows that he or she is not likely to beat the index. If you don’t have a financial advisor, try using a robo-advisor such as Betterment or Wealthfront or create a simple portfolio of ETFs that track the market.
I’m not saying you shouldn’t watch Jim Cramer or Mad Money. The show is a great way to fill in time and listen to CEOs and get some broad market perspective. Just don’t take the show’s stock picks as financial advice.
