There’s a rather slim chance you’ve never heard of Jim Cramer. The former Goldman fund manager runs a show on CNBC now on which he makes stock recommendations. The show is actually quite entertaining, and the run-of-the-mill speculative analysis gives you some insight on how the better speculators out there work, and you would have to read a lot of pretty pedestrian stuff before you get this kind of exposure to speculative analysis.
Yesterday however, I found an article on Bloomberg detailing the market movers for the day. I quote from that article:
Apple Computer Inc. (AAPL US) rose $1.28, or 1.7 percent, to $78.95 and traded as high as $79.42. The maker of iPod digital media players and Macintosh computers was recommended by CNBC host Jim Cramer on his “Mad Money” show.
Gilead Sciences Inc. (GILD US) rose $1.18, or 2.1 percent, to $57.57 and traded as high as $57.91. The drugmaker was recommended by CNBC host Jim Cramer on his “Mad Money” show because of a study that showed a combination of two of Gilead’s drugs suppressed HIV better than a competing pill from GlaxoSmithKline Plc.
Oregon Steel Mills Inc. (OS US) rose $1.81, or 5 percent, to $37.82 and traded as high as $38.23. The steelmaker was recommended by CNBC host Jim Cramer on his “Mad Money” show on growing demand for steel and because the company is likely to be the takeover target of a larger rival.
Pearson Plc’s (PSO US) American depositary receipts, each representing one share, added 35 cents, or 2.8 percent, to $13.04 and traded as high as $13.25. The world’s largest educational publisher was recommended by CNBC host Jim Cramer on his “Mad Money” show.
Seagate Technology (STX US) added 68 cents, or 2.7 percent, to a high of $26.25. The world’s biggest maker of computer disk drives was recommended by CNBC host Jim Cramer on his “Mad Money” show.
As you can see, some of these aren’t particularly bad picks, but their broad adoption creates an adverse effect: a pretty significant correction the following day that kills the rally that took place upon the recommendation. At the time of this writing, AAPL was down 2.75%, GILD was down 1.36%, OS was up 1.76%, PSO was down 0.4%, and STX was down a chilling 3.3%. All but one of his reccomendations that is, lost or were on their way of losing their previous gains.
All this trading, both buying and selling, is completely unwarranted - it’s just noisy volatility. And don’t think there’s a pattern there to use in ‘timing techniques’, and don’t go short on his picks.
If you were curious to find out how these recommendations fare past the first week, Jim Cramer’s TheStreet.com tracks down Mr. Cramer’s track record. It is revealing that the site does not track how many bad calls and how many good calls he has had; only a top-twelve in each category. A quick glance on the two sites will give you the following statistic: his best-performing pick was up 23%, which is also the percentage his 12th worst performing pick went down. If you care to go back a little bit further in time, on February 2000, a month before the stock market begun to tumble, Jim Cramer proclaimed that dot-coms “are the only [stocks] worth owning right now.”
If you choose to blindly follow his word, you might be suffering from two conditions: The trader amnesia syndrome, and the survival bias syndrome.
