Jim Cramer and Other “Investment Gurus” Fail To Beat the Market

Aug 30th, 2007 | Filed under: Industry

Being a good investor and consistently beating markets is difficult. For both individuals and professionals alike. (see previous posts on one my favorite subjects here and here) Achieving Great Investor status is even more rare; a pantheon reserved for such revered names as Graham, Buffet, Soros, Swensen, Bogle, and Lynch to name just a few.

Pop-media "investment gurus" like Jim Cramer need you to believe that you can also achieve Pantheon Status and outperform markets just like they claim to do simply by following their sage advice. Which happens to fit snuggly between 60 second commercials and/or pages of glossy advertisements hawking the latest erectile dysfunction pill that will help you thread a perfect spiral through a tire swing.

But guess what? Investment gurus like Jim Cramer FAIL to beat the market. In many instances they do WAY worse than even you my dear individual investor and rabid Cake member.

In the August 20th cover story in Barrons, the investment magazine does a comprehensive analysis of all of Jim Cramer’s picks on Mad Money since the show’s inception and finds that:

…his picks haven’t beaten the market. Over the past two
years, viewers holding Cramer’s stocks would be up 12% while the Dow
rose 22% and the S&P 500 16%, according to a record of 1,300 of the
CNBC star’s Buy recommendations…

We also looked at a database of Cramer’s Mad Money picks maintained by his Website, TheStreet.com.
It covers only the past six months, but includes an astounding 3,458
stocks — Buys mainly, punctuated by some Sells. These picks were flat
to down in relation to the market. Count commissions and you would have
been much better off in an index fund that simply tracks the market.

Another great analysis of all of 42 so-called "investment gurus", including Cramer, can be found here. It is updated frequently and shows that overall accuracy of the group based is 49%. A coin flip.

That said, the research does show that some gurus/people are better than others and are worth following. See, for example, the consistent track records of Ken Fisher (Forbes), David Nassar and Louis Navellier.

All of this is just further support for what we are doing at Cake. Allowing all of us to not just view specific people and rely exclusively on professionals, but to tap into the collective wisdom of all of our top individual investors. We believe there are gurus walking amongst us mere mortals.

And, I can still throw the football through the tire, thank you very much.