THE WORLD ACCORDING TO CRAMER
May 11, 2006
Why do we mention Cramer on a satellite radio site? Well, he seems to mention Sirius quite often, and of late, he has not been very positive on the equity despite most analysts carrying an opinion to the contrary (Many analysts see Sirius and XM as oversold at this point). With all the stocks in the world to discuss, on his widely followed shows, he takes phone calls on a regular basis from callers asking about Sirius. Some feel strongly that at least a portion of the calls he accepts on his show are NOT spontaneous, but rather coordinated by his staff. Sirius has a lot of buzz, and the mere mention of the name on television, radio, or in print generates viewers, listeners, and web hits.
Jim Cramer has followers. There is no doubt about that. One only needs to look at after-hours trades to see that his mere mention of an equity can move the price of the stock…..BUT…..Is that quick move fundamentally sound? In many cases it is not.
That initial surge (either up or down) is based on the hype that he generates amongst his listeners and viewers rather than sound investor research. It is almost as if his fans are sitting at their computers with their brokerage account open and their mouse cursor hovering over the "enter stock symbol" section of the web page. As soon as they hear a symbol, they are already trading it!!!
What is humorous is that there are many people who make a good sum of money by simply taking the opposite stance after the initial wave of stock price movement. They hear Cramer recommend an equity, watch the after hours surge, and then take a short position because the magnitude of the price surge is often not warranted. Equities should not move that fast on the sole recommendation of a television show host. Perhaps it could be said that these people make money off of the irrational exuberance of Cramer's fans.
There is speculation that some of the hedge funds that follow Cramer around (initiate trades based on his recommendations, both short and long), are losing patience with him FAST. Confidential sources have expressed frustration at being on the short end of the stick with some Cramer picks, and that perhaps the "Cramer Factor" is too well known at this point.
Admittedly, Jim Cramer is entertaining to watch… conveying a wide range of universal emotions that traders and investors feel…wouldn't you feel like throwing a chair if you could? Unfortunately, most work environments are not conducive to chair-throwing behavior.
The big question people have is whether or not Jim Cramer is losing some of his luster as some picks move against his recommendations, and those losing picks become well publicized.
Jim Cramer seems to "exist" in a gray area. He is part entertainer and part Financial Analyst. He is part of the media yet part of the investment community. Unfortunately, it is often difficult for investors to know which "hat" (entertainer or analyst) he is wearing at any given moment. Perhaps Cramer himself sometimes is unsure.
Cramer has made people money. However, he has been the source of people losing money as well……and this is REAL money. Investors who followed his recommendations on United Healthcare (UNH), Bookham (BKHM), Vitesse Semiconductor (VTSS), and JDSU (JDSU) are currently on the wrong side of the fence by following his advice.
Cramer seems to have a general style that picks companies within sectors that he perceives to be beneficiaries of a trend. Investors never know what level of research he conducts, and whether or not his research has sufficient due diligence, or whether or not the risk level factor associated with the trade is something that fits their individual portfolio. Cramer claims that non-MBA's can do research in a matter of a couple of hours and anyone (almost) can be come an analyst! This may be true for some, but one has to question how his viewers are conducting analysis as the after-hours stock price is moving (within seconds) on Cramer's say so. Investors need to be aware and cautious of such irrational exuberance.
Take a look at the popular "Lightning Round". How much REAL research can happen in 7 seconds? Does Cramer have a fiduciary responsibility based on his broad market influence during this segment, or is this one of those times where he is in the "entertainer" mode? Some believe that he does not or can not possibly do a thorough review of SEC filings, historical conference calls, etc., on ALL of the equities he talks about, and thus is missing potential red flags.
SSG is not saying that Cramer is right or wrong, good or bad. We are saying that people should understand what they are watching, and not instantly follow what Cramer says on blind faith alone. Even Cramer recommends SOME LEVEL OF RESEARCH.
We will continue to keep you posted on this developing story…
5/11/2006 12:46:00 PM
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