Larry Swedroe:Don’t Go “Mad Money”

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Random Walker
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Larry Swedroe:Don’t Go “Mad Money”

Post by Random Walker » Sat Aug 11, 2018 8:57 am

https://www.etf.com/sections/index-inve ... nopaging=1

In this article Larry reviews the performance of Jim Cramer’s recommendations. He reviews several studies comparing results to the common factors; results are predictable to us Bogleheads. Apparently there is a lot of momentum involved in Cramer’s picks. My own take is that Cramer seems like a pretty good guy. He doesn’t take himself too seriously and his Action Alerts Portfolio is set up as a charitable trust, all dividends and other cash distributions go to charity.

Dave

Shallowpockets
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by Shallowpockets » Sat Aug 11, 2018 2:29 pm

Cramer has knowledge and resources. Way more than I have and also he knows how to look at a company. Plus, entertaining. His suggestions bear listening to if you may be into short term trading.
For me to find the things he talks about would be a huge time and search commitment. You do have to seperate the wheat from the chaff on Mad Money. Still, a lot of the work is already done. If you want to do some short term trading or use a covered call during earnings season to add a little to your gains, there are worst places to get your information.

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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by AlphaLess » Sat Aug 11, 2018 2:43 pm

From Swedroe's post:
The AAP portfolio underperformed the S&P 500 Index’s total return both since inception and since the debut of “Mad Money.” From inception, the AAP portfolio provided a total return of 97% (4.1% on annualized basis), underperforming the S&P 500 Index’s return of 204% (6.8% on annualized basis).
Over the full period, the AAP portfolio produced a Sharpe ratio of 0.16, half the size of the S&P 500 Index’s Sharpe ratio of 0.32.
Relative to the CAPM, over its full history, the AAP portfolio produced an alpha of -2.92%, which was statistically significant at the 5% level.
Sounds like a real winner!
"You can get more with a kind word and a gun than with just a kind word." George Washington

jalbert
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by jalbert » Sat Aug 11, 2018 2:45 pm

It also took alot more risk than holding the S&P500 from being less diversified.
Risk is not a guarantor of return.

gips
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by gips » Sat Aug 11, 2018 3:43 pm

He's smart, knows markets and completely realizes there's no value in the advice he provides. At best it's immoral, at worst, he's a con man. I don't see how he sleeps at night.

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nedsaid
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by nedsaid » Sat Aug 11, 2018 7:04 pm


Larry Swedroe said:

While demand for Cramer’s stock picks increases, short-selling volume (bets that the stock will fall) also increases. In the opening minutes of the day following a recommendation, short sales increase to almost seven times their normal levels, and they remain elevated for three days.

Who are these short-sellers? Likely candidates are hedge funds, who are exploiting the naivete of individual investors. Through their actions, short-sellers are helping keep the market efficient.
I just love it, hedge funds shorting Cramer's stock picks. Fitting, seeing that Cramer was a Hedge Fund manager himself. I always wondered why Cramer was such a great contrary indicator, it is the shorts that are doing it!
A fool and his money are good for business.

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Carlos Danger
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by Carlos Danger » Sat Aug 11, 2018 7:14 pm

CNBC is my background noise all day. It's fine to criticize his stock picking ability, but in fairness to him comparing his stock picks to the S&P as a measure of his ability/advice to viewers would be unfair since he frequently repeats that people should be heavily invested in index funds like an S&P fund and only pick and choose individual stocks with a tiny slice of their portfolio that he calls "Mad Money" hence the name of his show.

I'd never buy anything based on his show (and in fact I only hold 2 individual companies and 11 shares of stock total between them across all accounts), but anyone who did invest based on Jim Cramer's advice would be absolutely fine since they'd be mostly in an S&P index fund or something similar like a total stock market fund.

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arcticpineapplecorp.
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by arcticpineapplecorp. » Sat Aug 11, 2018 10:14 pm

Thanks Larry for another great article. The best parts:
In addition, 98% of the returns to the portfolio of Cramer’s stock picks were explained by those factors. In other words, there is no evidence of any stock-picking skill—his picks are neither good nor bad. In the end, it’s just entertainment.
Personally, I don't find being yelled at for 1/2 an hour entertaining at all. But to each his/her own.
Remember as well that strategies based on forecasts have no costs, but implementing them does.

The research shows that whether it involves predicting economic growth, interest rates, currencies or the stock market, or even picking individual stocks, gurus’ only value is to make weather forecasters look good. Keep this in mind the next time you find yourself paying attention to some guru’s latest forecast. You’re best served by ignoring it.
This was a lesson explained in Larry's book Rational Investing in Irrational Times. Some things never change.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by Dottie57 » Sat Aug 11, 2018 10:21 pm

arcticpineapplecorp. wrote:
Sat Aug 11, 2018 10:14 pm
Thanks Larry for another great article. The best parts:
In addition, 98% of the returns to the portfolio of Cramer’s stock picks were explained by those factors. In other words, there is no evidence of any stock-picking skill—his picks are neither good nor bad. In the end, it’s just entertainment.
Personally, I don't find being yelled at for 1/2 an hour entertaining at all. But to each his/her own.
Remember as well that strategies based on forecasts have no costs, but implementing them does.

The research shows that whether it involves predicting economic growth, interest rates, currencies or the stock market, or even picking individual stocks, gurus’ only value is to make weather forecasters look good. Keep this in mind the next time you find yourself paying attention to some guru’s latest forecast. You’re best served by ignoring it.
This was a lesson explained in Larry's book Rational Investing in Irrational Times. Some things never change.
I hate Cramer’s yelling and antics too. He reminds me of the Three Stooges.

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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by danaht » Sun Aug 12, 2018 8:02 am

If people invested in the "FAANG" stocks the day Cramer created the acronym - they probably would have done much better than the S&P 500 index - since technology has been the #1 sector the last couple of years. Having said that - he also gets picks wrong too. So - stay the course and invest in mostly broad index funds.

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TomatoTomahto
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by TomatoTomahto » Sun Aug 12, 2018 8:08 am

nedsaid wrote:
Sat Aug 11, 2018 7:04 pm

Larry Swedroe said:

While demand for Cramer’s stock picks increases, short-selling volume (bets that the stock will fall) also increases. In the opening minutes of the day following a recommendation, short sales increase to almost seven times their normal levels, and they remain elevated for three days.

Who are these short-sellers? Likely candidates are hedge funds, who are exploiting the naivete of individual investors. Through their actions, short-sellers are helping keep the market efficient.
I just love it, hedge funds shorting Cramer's stock picks. Fitting, seeing that Cramer was a Hedge Fund manager himself. I always wondered why Cramer was such a great contrary indicator, it is the shorts that are doing it!
Shhhh! It won’t work any more if the secret gets out.
Zero Net Carbon by 2019.

aqan
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by aqan » Sun Aug 12, 2018 8:33 am

lol.. my conclusion after following him for a year was that Cramer is a good entertainer and can get people excited about investing in stocks/markets. I followed AAP for one year not 100% tho, just the ones I liked. I made good money but that was a good year for stocks overall anyway.. didn't compare to S&P, i was pretty new to investing, so don't exactly know how I did.
If you're new to investing, he'll keep you interested in the show with his craziness and you'll learn a thing or two watching his show but the AAP service is a total waste at any level.

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arcticpineapplecorp.
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by arcticpineapplecorp. » Sun Aug 12, 2018 10:35 am

Dottie57 wrote:
Sat Aug 11, 2018 10:21 pm
arcticpineapplecorp. wrote:
Sat Aug 11, 2018 10:14 pm
Thanks Larry for another great article. The best parts:
In addition, 98% of the returns to the portfolio of Cramer’s stock picks were explained by those factors. In other words, there is no evidence of any stock-picking skill—his picks are neither good nor bad. In the end, it’s just entertainment.
Personally, I don't find being yelled at for 1/2 an hour entertaining at all. But to each his/her own.
Remember as well that strategies based on forecasts have no costs, but implementing them does.

The research shows that whether it involves predicting economic growth, interest rates, currencies or the stock market, or even picking individual stocks, gurus’ only value is to make weather forecasters look good. Keep this in mind the next time you find yourself paying attention to some guru’s latest forecast. You’re best served by ignoring it.
This was a lesson explained in Larry's book Rational Investing in Irrational Times. Some things never change.
I hate Cramer’s yelling and antics too. He reminds me of the Three Stooges.
the Three Stooges were funnier. And provided way more value in my opinion.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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nedsaid
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by nedsaid » Sun Aug 12, 2018 10:38 am

TomatoTomahto wrote:
Sun Aug 12, 2018 8:08 am
nedsaid wrote:
Sat Aug 11, 2018 7:04 pm

Larry Swedroe said:

While demand for Cramer’s stock picks increases, short-selling volume (bets that the stock will fall) also increases. In the opening minutes of the day following a recommendation, short sales increase to almost seven times their normal levels, and they remain elevated for three days.

Who are these short-sellers? Likely candidates are hedge funds, who are exploiting the naivete of individual investors. Through their actions, short-sellers are helping keep the market efficient.
I just love it, hedge funds shorting Cramer's stock picks. Fitting, seeing that Cramer was a Hedge Fund manager himself. I always wondered why Cramer was such a great contrary indicator, it is the shorts that are doing it!
Shhhh! It won’t work any more if the secret gets out.
Yep, the Nedsaid "Stocks are in Freefall" thread contrary indicator stopped working too. I joked about it too. Don't think hedge funds are playing a thread on Bogleheads, even the mighty Bogleheads don't have the muscle to move markets.
A fool and his money are good for business.

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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by hicabob » Sun Aug 12, 2018 10:44 am

I installed some stuff in the Cramer/Kudlow studio many years back. Jim was loved by the staff and a nice guy. Other one not so much.

I love this quote from Larry's article....Cramer himself provides a fitting conclusion: In a 2007 issue of New York magazine, he stated: “God knows why, but there seems to be a market for this kind of idiocy.”

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whodidntante
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by whodidntante » Sun Aug 12, 2018 11:24 am

He is a talented entertainer. There are not many people who can make the stock market exciting to the masses.

Does anyone have insight on what his old hedge fund actually did, and how it performed? This article (ok, more of a blurb) doesn't exactly paint him as a genius stock picker. https://www.businessinsider.com/2008/12 ... dy-as-well

Turbo29
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by Turbo29 » Sun Aug 12, 2018 11:34 am

Bought Ratheon 4 or 5 years ago when I heard Cramer mention it, price in the 80's. Sold at ~210 last April and put into VTI. So I can't complain.

Just checked and its at 196 right now so I guess I bailed at the right time.

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nedsaid
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by nedsaid » Sun Aug 12, 2018 11:43 am

hicabob wrote:
Sun Aug 12, 2018 10:44 am
I installed some stuff in the Cramer/Kudlow studio many years back. Jim was loved by the staff and a nice guy. Other one not so much.

I love this quote from Larry's article....Cramer himself provides a fitting conclusion: In a 2007 issue of New York magazine, he stated: “God knows why, but there seems to be a market for this kind of idiocy.”
That is what I have read too, that Jim Cramer is a very nice person. Buys donuts for the staff and stuff like that. Also liked to hear him talk about his dad. Beneath all the bluster, a genuinely nice fellow.
A fool and his money are good for business.

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Taylor Larimore
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The advice of Jim Cramer vs. Jack Bogle

Post by Taylor Larimore » Sun Aug 12, 2018 12:07 pm

Bogleheads:

This is a post written ten years ago:
Jack Bogle and Jim Cramer
Post by Taylor Larimore » Mon Oct 20, 2008 4:21 pm

Hi Bogleheads:

I met Mr. Cramer one time. It was during Diehards I in Miami in March 2000--at the peak of a long bull market. Jack Bogle and Jim Cramer were Keynote speakers. Mr. Bogle warned against the bubble in the market--particularly tech stocks.

Mel and I were standing in the back of the auditorium when Mr. Cramer spoke. He told the audience to get paper and pencil and write down his list of 10 (tech) stocks to invest in.

I subsequently read that Mr. Cramer's recommended 10-stocks had an average decline of more than 85% in the bear market that followed.

It is important to be careful who we listen to. Fortunately, Bogleheads follow the selfless wisdom of Jack Bogle.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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cinghiale
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by cinghiale » Sun Aug 12, 2018 12:22 pm

hicabob quoted,
Cramer himself provides a fitting conclusion: In a 2007 issue of New York magazine, he stated: “God knows why, but there seems to be a market for this kind of idiocy.”
Oh, this is perfect. This is splendidly candid and revealing.
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

rgs92
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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by rgs92 » Sun Aug 12, 2018 12:55 pm

All I know it that when I turn on CNBC, when a stock has a sudden rise, the commentator tells me why it's a great stock and that he was positive on it in the past. If it goes down a lot suddenly, he tells me why I should be cautious about it and that they sold some or all of it recently.

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Re: The advice of Jim Cramer vs. Jack Bogle

Post by abuss368 » Tue Aug 14, 2018 8:30 pm

Taylor Larimore wrote:
Sun Aug 12, 2018 12:07 pm
Bogleheads:

This is a post written ten years ago:
Jack Bogle and Jim Cramer
Post by Taylor Larimore » Mon Oct 20, 2008 4:21 pm

Hi Bogleheads:

I met Mr. Cramer one time. It was during Diehards I in Miami in March 2000--at the peak of a long bull market. Jack Bogle and Jim Cramer were Keynote speakers. Mr. Bogle warned against the bubble in the market--particularly tech stocks.

Mel and I were standing in the back of the auditorium when Mr. Cramer spoke. He told the audience to get paper and pencil and write down his list of 10 (tech) stocks to invest in.

I subsequently read that Mr. Cramer's recommended 10-stocks had an average decline of more than 85% in the bear market that followed.

It is important to be careful who we listen to. Fortunately, Bogleheads follow the selfless wisdom of Jack Bogle.
Best wishes.
Taylor
That is an incredible story. Thank goodness Mr. Bogle has fought the battle to help the little investor earn whatever returns the stock and bond markets provide.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Larry Swedroe:Don’t Go “Mad Money”

Post by abuss368 » Tue Aug 14, 2018 8:32 pm

Bogleheads -

I read an interview with David Swensen, Yale University CIO, that he was concerned that investors are betting their financial future and security on Jim Cramer's stock picks.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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