March 26, 2008 -- He might be the most celebrated stock picker on TV, but many say Jim Cramer got it wrong and some have renewed an older criticism of the television host: Small investors who follow Cramer stand to lose big.
Cramer is the host of "Mad Money," a weekday program on CNBC on which the animated hedge fund millionaire darts around his set, shouting investment advice and punctuating market talk with many a jubilant "Boo-yah."
Since the shocking collapse of investment bank Bear Stearns, Cramer has taken serious heat for comments he made on his March 11 show.
He told viewers: "Don't move your money from Bear! That's just being silly! Don't be silly!"
Cramer and CNBC have defended his statements, arguing that Cramer's assertions on the bank were in reference to a viewer's question on Bear Stearns' liquidity, not its stock prices.
CNBC spokesman Brian Steel said that on the Friday before Bear's meltdown, Cramer presciently called the bank's stock worthless. Cramer could not be reached for direct comment.
"I think that anybody who has a fundamental understanding about capital markets knows the distinction between [a] question about stocks and liquidity," Steel said.
Whether Cramer's viewers understood that the host and former hedge fund manager was not talking about Bear Stearns' stocks is unclear. Meanwhile CNBC's defense of Cramer has not insulated its heavily promoted star.
Fake News, Real News Pile On
In recent days, finance and news blogs have blasted Cramer, and Comedy Central's news parody "The Daily Show" gave him a not-so-gentle ribbing: "I love the way Jim Cramer breaks down really complex financial issues into ones that are wrong," host Jon Stewart said.
Upping the snark factor was Fox Business News, which took out half-page ads Monday in The New York Times and The Wall Street Journal, comparing Cramer's words to some of the most infamous quotes of the last century, including Neville Chamberlain's famous statement after conceding Czechoslovakia to Adolf Hitler's Germany: "I believe it is peace for our time."
Snark aside, concerns raised by industry veterans and investment advisers take the long view of Cramer and his impact on small investors.
"He kind of puts himself forward as the champion of retail investors, but had they listened to him on the [Bear Stearns] call, they would have lost a lot of money," said Roger Ehrenberg, the managing partner of IA Capital Partners in New York. "He empowers people to feel confident about buying and selling individual stocks, when in fact most people are ill-qualified to invest in that manner."
Ehrenberg and others say that Cramer's show may encourage small investors to make frequent trades when it is really in their interest to invest in mutual funds and hold them for long periods of time.
"On 'Mad Money,' Cramer promotes a mindless short-term approach to markets by encouraging frenetic trading of individual stocks," David F. Swensen, who supervises the $20 billion endowment of Yale University, said in an e-mail to ABC News. "Such a high-cost, tax-inefficient strategy almost guarantees failure."
CNBC's Steel said Cramer sees success. He said that a charitable trust Cramer runs performed better than the S&P 500 Index last year.
"As a stock picker, Jim consistently outperforms the market," Steel said.
Last year, Canadian newspaper the National Post gave Cramer its own "booyah," reporting that Canadian stock picks Cramer made in April 2006 resulted in a 13.7 percent one-year return -- four percentage points higher than the Toronto Stock Exchange composite index.
Michael Zhuang, however, gives a lackluster assessment of Cramer's stock-picking prowess.
Zhuang, the president of MZ Capital, a Maryland-based investment advisory firm, analyzed stock picks Cramer made in January and February 2007.
On the financial Web site seekingalpha.com, Zhuang wrote that of Cramer's January picks, more than one-third -- 35.6 percent -- were accurate.
Zhuang arrived at his conclusion by taking stocks that Cramer said were bullish or bearish on and then comparing their one-year returns to that of the S&P 500.
Cramer's February '07 picks, Zhuang told ABC News, were considerably better, with 56 percent of Cramer's calls proving accurate.
Steel would not comment on Zhuang's findings, saying that he hadn't been provided access to either the criteria Zhuang used or information on the stocks he included in his analysis.
Zhuang is no fan of Cramer. Like Swensen and Ehrenberg, he argues against frequent trades and says Cramer may be influencing investors to overreact to financial news.
"The Jim Cramer show is really making a lot of people trigger-happy," he said.
But some have come to Cramer's defense.
Gail Liberman, the co-author of the book "Quick Steps to Financial Stability," conceded that while she's never acted on Cramer's advice, she believes his show has educational value.
"He has been very successful in stock trading, and it's interesting and I find it interesting to hear what he has to say," she said.
Viewers contemplating his advice, she said, should be doing it with an eye toward gambling -- not toward paying the bills.
"The bottom line is his show is called 'Mad Money,' and it's exactly that: It's money that you can afford to lose," Liberman said. "If viewers can take that under consideration, there are some very educational points that the show makes."