Dhinesh Financial
Investing in the 21st Century
Investing in the 21st Century
Mad Man on Wall Street
July 26, 2006
Jim Cramer is a hotly debated figure on Wall Street who exerts an uncanny influence on stocks through theatrical entertainment.
After learning the basics of investing at a young age, Cramer graduated from Harvard in 1977. After several journalism jobs, he returned to Harvard Law School and graduated in 1984. During this time, Cramer claims to have included stock tips on his answering machine message, a precursor to his future career. After putting in 3 years at Goldman Sachs, Cramer started a hedge fund called Cramer Berkowitz with Jeff Berkowitz in 1987.
Cramer led a highly triumphant operation at the helm of Cramer Berkowitz, steering the firm to an average annual return of 24% for 13 years brilliantly outmaneuvering the market until 2000, when Cramer quit with the tech bust. Cramer also co-founded the financial website TheStreet.com (TSCM) where he is currently a market commentator and advisor to the CEO. TheStreet.com is now a $300 million property, providing an array of useful services for investors.
Cramer’s most recent and highly publicized endeavor is as flippant host of Mad Money. The show first aired on March 14, 2005, and currently draws about 384,000 viewers per day. One of the most popular features of the show is the Lightning Round, which begins each night with the ritual throwing of a chair across the studio. In the segment, viewers call in with questions about stocks that Cramer answers as fast as he can. Additional jesting on the show includes Cramer pulling out a pillow when a caller rambles on, throwing various objects in all directions, and playing with unique sound effects.
Some skeptics employ a unique strategy against Cramer’s advice. When Cramer “pumps” a stock with positive analysis and buy recommendations, they decide it is time to sell, and avoid Cramer’s curse. Similarly, triple sell ratings by Cramer are regarded as a buy indicator.
The “Cramer effect” is often felt in after-hours trading when a stock is discussed on Mad Money. Stocks regularly shoot up or down on unusually high volume following a mention. Cramer himself agrees that it is foolish to simply buy on his recommendation without doing any additional research. This, however, doesn’t stop throngs of investors trying to rush in. His endorsements often incorporate the prevailing market sentiment; if his picks are doing well, bad picks never get mentioned again, while viewers are constantly reminded of correct calls.
One thing Cramer is successful in stimulating is investment interest and debate. As soon as his opinion on a stock is shared, there is buzz on message boards as viewers debate the picks. Many people who don’t trade find his presentation interesting, and are able to pick up some knowledge and get excited about investing.
Cramer no longer owns any stocks personally other than a stake in TheStreet.com, and for his charitable trust. Allegations of Cramer manipulating stocks and feeding rumors to editors have surfaced, but have all been denied. Cramer appears to just have a level of passion in the market that he can’t let go of. Several websites have emerged that track Cramer’s picks, and even compare them with random picks by a monkey. Leonard the monkey, featured on www.cramerwatch.org, has a return of 0.13%, slightly higher than Cramer’s 0.03%.
People should realize that there is a fine line between entertainment and investment advice; a line that Cramer constantly dances on both sides of. Cramer is indeed a distinguished investor, but his fanatical activities on Mad Money shouldn’t blindly be followed. It is foolish to faithfully follow a wild man who screams strange words and acts violently. Viewers should appreciate his zeal for the markets; expressed in a way Warren Buffett never could.
At the time of publication, Dhinesh Ganapathiappan did not own or control shares of any companies mentioned in this article.