Why take advice from a financial guru? Most of them were wrong about this financial crisis!
Would You Follow His Investment Advice?
Way back when, I wrote about Cramer’s Mad Money advice for stock pickers where I picked up a lot of great stock investing tips. Lately though, Jim Cramer has been in the limelight, but not in the best light. Maybe it’s his bombastic style or loud nature, but I can see how a lot of people can be put off by this financial media personality. Witness for instance, the scrutiny he’s been under and the much publicized exchange he’s gotten into recently:
Still despite some of his media goofs and public spectacles, there are quite a number of people who continue to listen and/or appreciate the opinions he’s provided. What do you think of his statements here? Some Jim Cramer quotes:
“Whatever money you may need for the next five years, please take it out of the stock market right now, this week.” He made this “dramatic statement” last October of 2008. In hindsight and as a market timing order, he appears to have made the right call. But I agree with the more general point he makes here, that the buy and hold strategy is fine if you’ve got a long term investment horizon, but if you need any money within the next five years (fairly short term), then that money needs to be some place relatively safer.
“The market was going up for a long time and our real sin, I think, was to think it could continue to go up a lot.” Well, he can say that again.
Financial Gurus, Their Predictions and The Recession
While Cramer has gotten a negative rap from the press lately, my guess is that if you’ve been a long time follower, you’ll probably stick to his defense, even as casual viewers tune out (Cramer’s viewership is down quite a bit since his recent media appearances). Unfortunately, this seems to have been the case for many investment gurus who dared stick their heads out, making a living by sharing their investment and stock market predictions over the last decade.
This recession and the predictive calls dedicated to it have resulted in “make or break” scenarios for many financial and investment gurus who put their reputations on the line. Unfortunately, very few called out this massive blowup in our markets even though it seemed obvious that it just had to happen eventually.
Maybe it’s because we all thought that even if we were to face a credit crisis, a subprime mortgage crisis or whatever else, we’d somehow have a soft landing like we’ve had with recessions past; or maybe it’s because we placed a little too much trust upon the geniuses of Wall Street and our administration to pull us out of any impending financial armageddon that came our way. We underestimated what would happen: we thought we would remain untouched and invincible, seeing how far up we’ve come riding the relentless bull. We expected our well-oiled economy to be solid enough to withstand big shocks, especially after decades of plenty and built up confidence in our financial systems. How wrong we’ve been.
We shouldn’t forget that financial gurus and advisors are human too. Nobody has a crystal ball that can predict the future for our economy or our personal finances. We’re on our own here when it comes to our own financial situation, so the best we can do is to learn, study, pick up tips and gain as much knowledge as we can about our money. It’s up to us to disseminate the information at hand and make decisions based on what we know. And if we screw up, we know whom to blame.
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{ 8 comments… read them below or add one }
I think the biggest problem is that people have blended the line between Entertainment and Advisement over the last 5-6 years. Nothing Jim Cramer does could really be considered great financial advise. His entire show is about timing the market, timing random trends, and keeping people busy.
There is nothing wrong with having a show like his, however people have to realize that it is an entertainment show… nothing more.
This reminds me of one of my favorite quotes, “Even turkeys can fly during a tornado!” Noone could pick wrong for the first 3 of the last 5 years. Whether you were in Real Estate, Single Stocks, or stood on a t.v. hitting random buttons which make weird sounds, you were on fire.
Let’s get back to respecting both Cramer and Stewart for what they really do. Perform mindless entertainment when we want to be vegetate and be distracted for an hour or two every day.
Baker,
I share your views. But there are people who follow Cramer and consider him a financial advisor/guru in his own right. Many will tell you how much they’ve benefited from his appearances and advice. I’ll feature some thoughts from one of Cramer’s listeners one day, and we can discuss the value of his specific advice at that point.
But yeah, I hear you. I have followed several radio personalities in the past and have respect for many of them for the thoughts and theories they share. And for a while, I may have followed their teachings blindly — and believed in their predictions. My point here is that I think there’s nothing wrong about being a follower, listener or fan, but ultimately, we’re responsible about making our own decisions. You can listen to advice, but we need to remember that nobody is infallible.
I think that, taking the current economic climate into consideration, one should be very aware that the agendas being pushed might not necessarily be to the benefit of you, the investor, but perhaps will help to feather the nest of the guru, before the whole scheme collapses.
Great article and you’re right to point out that all so-called gurus are human too and are not infallible. I like the comments from Baker and SVB. Show like Cramer’s that do offer some useful advice are also an entertainment program. SVB, you put it so well when you said that ultimately we are all responsible for our own financial decisions.
I don’t have a problem with Cramer or any other alleged Wall Street guru when they get it wrong or get lit up by others in the media or the general public. They provide a service that could best be described as, “We’ll provide you with a service and that service is to give you our best ideas with a certain amount of flare that is designed to protect our interests (making money) while serving the interests of our audience.” This is the quintessential contract that all gurus have with their audiences.
The problem comes when people–the public and/or media pundits–alter this basic contract to instead read, “These experts are the best in the business and their advice and opinions are beyond reproach. Therefore, I’ll follow their advice as gospel.” This alteration is the underlying issue when things go awry and gurus get sniped in the media.
Ultimately, everyone needs to remember that no matter the guru, they will get it wrong at some point. However, if the reason they made it to guru status is because they’ve been right more often than wrong, they become a valuable tool for investors. The value of that tool hinges upon the individual investor’s ability to translate gurus’ ideas in the context of their personal situation.
I NEVER listen to stock advice from anyone because I don’t trade stocks. I have these smart guys (mutual fund managers) that have extraordinarily transparent records of their trading intelligence and I know they’re a heckuvalot better than I am. My decisions become as simple as how much in stocks, bonds, and cash…just the way I like it.
A couple of stats for the Cramer et al reliant: 91% of millionaires surveyed held their investments for 1 year or more (source: The Millionaire Next Door). The average investor typically returns only 1/3 to 1/2 of the S&P 500 over 15 year periods (source: DALBAR).
As it stands, the best investment strategy for non-professional investors is buy and hold within a well constructed asset allocation strategy with a declining risk profile beginning as early as 25 years until retirement.
At the very least, the Cramer/Stewart exchange was highly entertaining:)
Cramer picks stocks daily so he’s going to be wrong frequently. Being wrong on Bear STearns is not a big deal that Stewart makes it out to be. Cramers show is not investigative journalism its just stock picks with entertainment value. Its too over the top to be taken too seriously.
There have been a ton of academic papers that have shown that you cannot time the market and that the typical investor is much better off buying an index fund and sitting on it for 30 or 40 years than listening to a Cramer or any other self styled financial guru.
I think that, taking the current economic climate into consideration, one should be very aware that the agendas being pushed might not necessarily be to the benefit of you, the investor, but perhaps will help to feather the nest of the guru, before the whole scheme collapses.