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Wednesday, March 22, 2006

Cramer vs. A Coin Flip

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Jim Cramer has quite a following, but it looks like his stock picking ability is no threat to the theory of Efficient Markets. Mark Mahorney of Bloggin Wall Street has put together an analysis of Cramer's picks over the last three months, and it's not too flattering to Cramer. He writes:
TheStreet.com has put up a screener tool to screen against Cramer'’s Mad Money stock picks. There'’s a rolling 3-month database containing all of his calls… Surprisingly, if you give the screener no specific criteria you can get a list back of all 1885 calls in a table that will dump right into a spreadsheet perfectly…

There are 1077 buy calls and 477 sell calls for a total of 1554 buy or sell calls… The 1077 buy calls are up an average of 2.88%… The 477 sell calls are up an average of 3.52%! They'’re not only down, but they'’re up by more than the buy calls. Averaging the 1077 gains of 2.88% with 477 losses of 3.52% we get a whopping total gain of 0.5%

So, Cramer's sell recommendations have actually gone up by more than his buy ones - not exactly a stellar record. Plus, he can be kind of irritating. My take is that you're better off watching the show strictly for entertainment value and just putting your money in a couple of low-cost index funds.

HT: The Internet Stock Blog

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