Jim Cramer's Edge Over A Monkey

Contributed by mm | November 3, 2006 2:56 PM PST

You really cannot believe a person can do this kind of boring work consistently. Cramer Watch compares the stock picking capability of Jim Cramer, the man in the Mad Money, and Leonard, a monkey that throws the darts. The result: both stock-picking accuracy is 50/50, and ROI of the monkey's pick is even a bit higher than that of Mr. Cramer (0.24% vs 0.12%) over the last 12 months.

You can love Jim Cramer's passion and carry it to your daily job, but to watch Mad Money every night and follow his picks as a religion will only yield to average results and tons of wasted time. One may be better off tendering to his or her pets and train a cat or a dog that can pick stocks using pawns.

Nice job Jay Northco! This myth is busted.

From Cramer Watch:

About CramerWatch.org

Our aim is to see if Cramer is good for investors. With his flashing lights, gongs, bells, over-the-top body language and raging vocalizations he comes across less of an investment advisor than a hawker at an under-performing fairground attraction.

Still, this motormouth is popular to a whole army of viewers who tune into his radio and TV show and read his daily e-mail updates. He has his supporters who think he gets a bad rap. They say he is incredibly intelligent, an excellent stock picker, and he is devoted to his audience.

Yet, he is absolutely loathed by thousands.

Our Methodology

Our method of evaluating Jim Cramer's stock recommendations is simple. We record his Lightning Round recommendations as he makes them on TV, and then we have our monkey make recomendations at random on the same stocks. We then wait 30 days, and see who came out on top.

If the recommendation is buy and the stock outperforms the index over the 30 days following the recommendation, then it is counted as a good pick. Otherwise the result is counted as a bad pick. If the recommendation is sell, the results are reversed; the recommendation is good if the index beats the stock, and bad otherwise.

To calculate the average return on investment, we add all the returns for buy recommendations, then subtract the returns for sell recommendations, then divide by the number of recommendations.

This post has 5 comments. Read and share your opinions.

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Comments

>>> Nagel Commented on November 4, 2006

You should never immediately follow his picks anyway because you will be following "The Herd." If he can influence stocks in any way you will probably turn out the loser anyway.

I would recommend Cramer for investors who want to learn. While he is far from perfect he does explain concepts well and gives helpful hints.

>>> David Commented on November 4, 2006

Let's get that monkey a show on Animal Planet.

I have never watched the show, but the methodology only waits 30 days to measure results, which is way too short for stock selections.

>>> Matt Commented on November 12, 2006

Well, I came across thebuylist.com. The site allows you to see the stocks that mutual fund managers are buying, which can ultimately help you make a more educated decision with your stock purchases. This is a step you cannot miss when pondering which investments to make. So if you compare Cramer's picks with what the managers picked, and only go with strong buys, it actually beats the Monkey!

>>> Jack Doueck Commented on November 12, 2006

Dear PF Blog: I enjoy reading your personal finance musings –
I was also exploring other Web musings, and came across Benjamin Graham’s principles, and I think they apply to all aspects of investing, even in foreign stocks. Here are seven of his principles on buying stocks that I believe are worth hearing sharing:

1. The companies should be soundly managed.
2. The companies have demonstrated earning capacity with a likelihood that this will continue.
3. The companies should have consistently high returns.
4. The companies should have a prudent approach to debt.
5. The businesses of the companies should be simple and investors should have an understanding of the companies.
6. Assuming that all these thresholds are satisfied, the investment should only be made at a reasonable price, with a margin of safety.

These principles align with our ideals at Stillwater Capital of providing the potential for clients to preserve and grow their capital using a risk-controlled approach to investing.

Thanks for listening! -- Jack Doueck

Jack Doueck
Stillwater Asset Backed Strategies
Stillwater Capital

>>> Josh Commented on November 30, 2006

Who cares whether the monkey or Cramer wins for 30 days? Such a short time period is statistically insignificant.

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