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How blindly do you pick your stocks?

Posted Sep 28th 2006 11:12AM by Brian WhiteBrian White RSS Feed
Filed under: Analyst reports, Other issues, Rumors, Blogs, Marketing and advertising, Short stories

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Are you a Jim Cramer fan? The bullish and high-energy Cramer takes to the airwaves many an afternoon and night on CNBC to scream "boo-yah" to interested equity buyers and other stock-hungry pedestrians trying to get in on the "next big thing". But, I've witnessed a few times and from friends in the securities industry who have to respond daily to "Cramer-ites" who blindly follow Jim's advice without any research of their own -- trumpeting stocks on a day-to-day basis can actually create the market. In other words, Cramer may not have a "future vision" of some or all of the equities he lauds on his show. It's true that Jim's research (done by his staff) is sound, but are there ulterior motives here?

The sheer number of viewers he reaches -- many of which follow his buy or sell recommendations much of the time or even part of the time -- can make the market for a stock, even for the lowly individual investor. This is something I truly believe, although market-makers use many suitable daily vehicles to talk up and talk down stocks for all kinds of profit purposes. You're deluding yourself badly if you don't think this is happening every single day in the marketplace.

That "lowly" individual, when counted en masse, can have an effect on prices. If a few hundred thousands -- or millions -- of shares are sold or bought the day after Cramer makes his thoughts known, that market's irrational response based on a large television viewing audience proves, in this case, the "conformist" wisdom of crowds only. Get in line and punch your ticket without any independent thought or research. Big mistake if you ask me, but in an age where many millions of individual investors follow run-of-the-mill stock tips and do not put in the proper due diligence or research that can affect their financial lives, Cramer can save the day. And, by answering the phone to the moronic telltale sign of booyah. Great, just great.

The logical investor would question Cramer's track record. Cramer, which is a former hedge fund manager (go read what hedge funds are if you don't know), is probably like many of us -- shorting stocks and buying puts and calls all day long, with his own research team at beck and call. The guy's made many small fortunes hedging his bets (no pun intended), and he's brought a little lot of that charisma to television audiences who are always looking for a non-dull leader from which to take sage advice. So, does the EMH theory hold true when Cramer steps on stage? So, let short-timers unite here -- and what's your take? How have you done in the market in the last 12 months following pieces of Cramer's advice?

Tags: CNBC, Jim Cramer, JimCramer, Mad Money, MadMoney

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