In the world of investing, just because something’s popular doesn’t mean it’s profitable, and in the world of investing advice, just because someone’s popular doesn’t mean they’re right – for instance, Jim Cramer, the popular host of “Mad Money with Jim Cramer” on CNBC.
This week, Cramer raised eyebrows when he declared that the collapse of First Republic Bank FRC could mark the end of the banking crisis. Janet Yellen doesn’t share Cramer’s sentiments. She recently declared that the government is prepared to take additional actions to protect smaller banks as the U.S. financial system confronts the worst crisis since 2008.
Cramer has a habit of putting his foot in his mouth. Just last year, he issued an on-air apology to his followers for recommending they buy shares of META (Meta Platforms, Inc. aka Facebook) – which tumbled to its lowest levels in six years last November – plunging 25% in a single trading session. This dive happened after Cramer recommended Meta stock in June when he told his CNBC viewers that they ought to buy META stock, touting CEO Mark Zuckerberg as “simply unstoppable.”
According to the Mad Money page on the CNBC website, the following is the Mad Money manifesto by Cramer:
For years I have been trying to help people like you, who own stocks and feel like they’re on the outside looking in, become better investors. That’s the mission statement, plain and simple. My job is not to tell you what to think but to teach you how to think about the market like a pro. This show is not about picking stocks. It’s not about giving tips to make you money overnight – tips are for waiters.
Cramer claims that his show is not about picking stocks, but he knows very well that his viewers will take the “education” provided on his show and take his advice as tips and invest accordingly. However, if you ignore all the hype and dive deep into the numbers, you’ll find that Cramer’s performance, based on his tips, has been average at best.
At least one analytics company has taken a deep dive into Cramer’s stock picks and has found his performance to be “lackluster.” Quiver Quantitative labels itself as an alternative data platform designed for retail investors. The company’s alternative data allows investors to access new and unique data sources to help them make decisions.
Last year, Quiver Quantitative decided to crunch the numbers on Cramer’s stock-picking performance. They found that despite being undoubtedly one of the most influential TV personalities in the history of finance TV, his stock-picking abilities have never been great and have even slowly deteriorated over the years.
When indexing his stock picks weighted by the frequency of his on-air buy recommendations, they seem to, on average, produce what is far from excellent year-to-date results, often underperforming the market. Quiver Quantitative created a trading strategy that went against Cramer’s recommendations and found that using this “Cramer Inverse” strategy would have outperformed Cramer and even the S&P 500. Quiver’s findings were published in an article last year on seekingalpha.com.
Popular talking heads like Cramer may be popular, but they are often wrong.
Ultra-high-net-worth individuals (UHNWIs), smart investors who have learned to ignore noise and hype, focus on a few simple things that have served them well when investing. Going against the grain seems to have suited them just fine. They have made their fortunes from being the inverse of Jim Cramer. Instead of going with the crowds, investing in what’s popular, and getting all the attention, smart investors focus on the data that matters.
Smart investors gravitate towards assets with a long history of performance and reliability – assets where the numbers, underlying fundamentals, and financial analysis matter – where if you do X, you can expect Y to happen. That’s why savvy investors are drawn to private investments that aren’t swayed by the public and the herds. Uncorrelated to the broader markets and market volatility, private assets can stand on their own merits and not rely on what the public thinks.
UHNWI investors are drawn to private alternatives with a track record of success and where research, numbers, analysis, and the prowess of the management team are the only things that matter and directly impact the likelihood of success of an investment opportunity and not whether the investing public thinks it’s popular or cool.
To win in investing, ignore talking heads like Jim Cramer. In fact, data shows that doing the exact opposite of what Cramer is doing will actually make you more money. UHNWIs have made a fortune going against the advice of talking heads and going against the grain to invest in reliable low-volatility assets with a track record of success.
Considered boring to most investors, these assets will make dreams come true instead of dashing them by following gurus who can’t even beat the market.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.
