Time For CNBC To Drop The Cramer Charade


Barrons’ shredded Jim Cramer again over the weekend, putting forth the latest analysis showing that Cramer’s picks underperform the market.*  What was startling about the Barrons‘ article, though, was not this news, but CNBC’s response:

“You wrote a premeditated hatchet job to curry favour with your new bosses at News Corp.,” said CNBC’s [spokesman Brian] Steel on Friday. “[Cramer] doesn’t consider you a journalist.”

This is the same position CNBC (and Jim Cramer) have taken all along: Those who put forth data showing that Jim Cramer’s stock picks do worse than the market are just jealous competitors. And the attacks don’t stop at words:

[T]he last time Barron’s inquired about Cramer’s stock-picking, CNBC responded with cherry-picked success stories; lawyers; calls to Dow Jones executives; and an end to Barron’s regular presence on CNBC. Cramer shouted to his viewers that we were know-nothings and assured them that his Mad Money picks had “killed” the Standard & Poor’s 500 index…

In other words: shoot the messenger.

It’s time for CNBC to move past this.  Jim Cramer is a major cash cow now, but the network will outlive him. And it’s shortsighted for CNBC to rush to defend Cramer’s stockpicking–especially when it can keep its Mad Money ratings and advertising revenue without doing so.  CNBC’s viewers, many of whom don’t understand how hard it is to beat the market through active trading and stock-picking, deserve better.

Here’s what CNBC should say every time someone says that Jim Cramer’s stock picks underperform the market:

“Jim Cramer is the most-watched market commentator in the history of the world.  Viewers love his energy, insight, and experience, and we’re thrilled to have him on CNBC.”

What would that response do?  It would make articles like Barrons‘ irrelevant.  It would move the Cramer dialogue to where it belongs: To the observation that, regardless of how Cramer’s stock picks perform*, people like to watch him.

And rightly so.

Jim Cramer is smart. He’s entertaining. He’s provocative. He’s interesting. He’s a one-of-a-kind.  In short, he’s a brilliant market commentator.  And that’s all he has to be to be popular with viewers and a major asset to CNBC.

So it’s time the network stopped pretending that he’s also something else.

See Also:
CNBC vs. Barrons: The Complete Cramer Pissing Match
So Cramer Blew Bear Stearns Call. Whatever

* Do Cramer’s picks actually underperform? Probably. Most of the evidence I’ve seen makes a persuasive case that they do (including the Barrons’ article). Like all commentators, Cramer makes some great calls, some so-so calls, and some lousy calls. And he makes so many that the good ones and lousy ones tend to cancel each other out. 

If you followed Cramer’s calls religiously, you would probably beat the market some of the time and lag it some of the time, just the way you would if you bought a mutual fund, followed Wall Street advice, or threw darts. Over the long haul, however, you’d almost certainly get creamed–just like most active stock-pickers and market timers do. 

What almost no one factors in when analysing Cramer’s picks is the actual cost of implementing them.  Specifically:

  • research costs (the time you spend watching Cramer and doing your “buy and homework),
  • transaction costs (brokerage fees),
  • tax costs (huge for short-term traders), and
  • the cost of following “tips” that everyone else has (the idea that a recommendation made on a popular, nationally televised TV show could somehow help you outsmart other traders is preposterous). 

Factoring all that in, it is almost certain that Cramer’s advice will badly underperform low-cost, tax-efficient index funds.  Any other result would be a miracle.

If Cramer wants to argue that real-world investors will do better following and implementing his advice than they would in an intelligently maintained portfolio of index funds, I’d be glad to debate him.  I’ll even do it on his show!