Guru Grades

Jim Cramer Deconstructed (Last Updated 6/13/09)

We evaluate here the New York Metro "Bottom Line" commentary of Jim Cramer regarding the stock market via his archived articles since May 2000. Jim Cramer is among the most visible and prolific members of the financial media. He is Director, Co-founder, Markets Commentator and Advisor to the CEO at TheStreet.com, where he offers his ActionAlertsPlus email service. He is also the host of Mad Money on CNBC and of RealMoney radio. He makes hundreds of buy-hold-sell recommendations on individual stocks each month via these channels. We use here his New York Metro commentary because of its lengthy archive and manageable pace. We selected from that commentary all articles which address the future direction of the overall stock market, using the subsequent behavior of the S&P 500 index to judge accuracy. The chart at the bottom of this entry extracts essential highlights from this commentary and shows the performance of the S&P 500 index over the 21, 63, 126 and 254 trading days after the publication date for each item. Red plus (minus) signs to the right of specific items indicate those subsequently proven right (wrong) by the market. We conclude that:

• Jim Cramer's predictions sometimes swing dramatically from optimistic to pessimistic, and back again, over short periods. It is difficult to infer his guiding valuation theory.
• Investor sentiment is sometimes an important contrarian indicator for him. When he sees most investors leaning one way, he advises to go the other way.
• He sometimes anchors on historical analogies (samples of one), such as: "it's '91 all over again" or "I'm placing my bets for 2004 strictly using 1994's tip sheet."
• He is prone more to headline hyperbole than equivocation. For example, from 1/21/01: "This is the lowest-risk, highest-reward environment possible." And from 3/24/03: "...the risks of owning stocks are as high as I have ever seen them, and the rewards the least certain."
• Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Jim Cramer is right about 46% of the time with his stock market predictions, a little below average. His forecast sample size is moderate, as is our confidence in this conclusion.

In summary, Jim Cramer's accuracy in forecasting overall stock market behavior is a little below average. Confidence in this conclusion is moderate.

Note that newyorkmetro.com post-dates their issues, meaning that Mr. Cramer must prepare columns at least one week before the publication date.

See also:

Jim Cramer's comments on our evaluations of his advice;

Our blog entry of 5/15/09 summarizing research on the short-term impact and intermediate-term performance of Mr. Cramer's buy and sell recommendations;

Our blog entry of 10/1/07 summarizing research on short-term and intermediate-term performance of Mr. Cramer's buy and sell recommendations;

Our blog entry of 8/15/06 summarizing research on the short-term market reaction to Mr. Cramer's buy recommendations (with CNBC's response in our blog entry of 8/17/06); and,

Our examination of the performance of 149 buy recommendations and 108 sell recommendations made by Jim Cramer on Mad Money's "Lightning Round".

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.