I’ll admit that Jim Cramer is a very colorful character. He has an opinion on the relative merits of thousands of companies’ stocks, and he seems to personally know the CEOs of each and every one of them. And he talks way faster than most people can listen.
While I do use CNBC’s web site, I hardly ever watch their TV channel. I always recommend that investors shy away from Mad Money, and in fact all TV shows of that ilk. You know the kind that “shares” “opportunities” for you or makes predictions on interest rates, stock prices, commodities, etc. etc. etc.
But my advice is to avoid Jim Cramer, in particular, because he convinces people that the right way to invest is to pick individual stocks, to time the market and to trade. For most people, this is a formula for losing money. By trying to “beat” the market, they are more likely to underperform. This isn’t just my opinion; it is supported by actual studies of how well individual investors do.
I have chosen to write about Jim Cramer now, because the last few days have been so dramatic. I think events indicate that he pretends to, but really doesn’t know, what the future brings.
If case you weren’t paying attention to the day-to-day swings in the stock market (and good for you if you weren’t), here’s what happened.
On Tuesday, May 31st, the stock markets had a tremendous rally, i.e. stock prices went up worldwide. That very night on his TV show, Cramer was beside himself with glee, ranting that this trend was very likely to continue. As he put it, “We haven’t seen this kind of global move for ages!”
You can watch the May 31st show:
Well, in the immortal words of Gomer Pyle (I know I’m dating myself), “surprise, surprise, surprise.” Since that prediction, just a week ago, the stock market fell over the next four consecutive trading days, on Wednesday, Thursday, Friday and Monday.
So what did Cramer have to say about the four days worth of declines on Monday night’s show? Sometimes “it’s right to be grim about what’s happened.”
You can view Monday’s show:
After the stock market had a large rise, Cramer was terribly optimistic. After the stock market declined, Cramer has a decidedly downbeat view. This change happened in one week. Should you take his views seriously? I would not, but you must decide for yourself. Do you want to be buffeted by changes in the day to day stock market? Or would you be better served by having a sensible long-term plan that takes into account your needs, your goals, and your willingness and ability to take risk?
What will happen next week or next month? I haven’t a clue. And that’s the point. No one can know the future; surely, you’ve heard me say that once or twice. In my opinion, you don’t have to be a good forecaster to be a good investor. You need to have a plan, and you need to stick to it.
Where to find a good planner? I would start with NAPFA, if you want someone to manage your investments and the Garrett Planning Network, if you are a confirmed do-it-yourself investor. You will still have to do your own due diligence. (Disclosure: I am a member of both groups.)
Friends don’t let friends watch Jim Cramer.