While Jim Cramer’s goal may be to make you money, his manically delivered advice is a danger to the individual investor. Cramer, host of CNBC’s Mad Money, is a trader. He’s not an investor, and his advice is that of a man who trades in and out of stocks in short order. You don’t build wealth by trading, unless of course you run a hedge fund and the money that you’re trading with isn’t yours. You build wealth by investing for the long-term in quality companies at fair prices.
The most famous of Cramer’s bad advice is his statement that “Bear Sterns is fine” literally days before the firm collapsed in 2008. It’s amazing that people still follow his advice after that episode. Recently Cramer suggested a pair trade involving The Procter & Gamble Company (NYSE:PG) and a similar packaged goods company, but before I get to that I want to ask a question:
Would you take investment advice from the founder of an unprofitable company?
Cramer founded TheStreet, Inc. (NASDAQ:TST) in 1996 and today the company consists of several websites which offer free and premium advice. In the years preceding the financial crisis the company earned a profit, but since 2009 revenue has been declining and earnings have been resoundingly negative.
If a man who gives advice for a living can’t run a profitable business which sells said advice, is it really wise to listen to him at all? Another thing – I don’t see historical performance for any of the subscription products on the website. If you’re selling stock picks but don’t disclose performance chances are your advice is not the best. The Motley Fool discloses the performance of all of its subscription products, good or bad, so investors can make an informed decision. Cramer, on the other hand, is apparently trying to fool you.
Living earnings call to earnings call
In January of this year Cramer declared that The Procter & Gamble Company (NYSE:PG) is “poised to be the best stock in the Dow” after what he called a fabulous conference call. P&G is a big company with a solid dividend, but it was obvious that this advice was “trading advice,” not investing advice. If a single conference call changes your opinion on a company like P&G then you’re far too fickle to be an investor.
About 5 months later, after The Procter & Gamble Company (NYSE:PG) stock had climbed by about the same percentage as the Dow Jones Industrial Average, Cramer suggested shorting P&G while going long in a similar company.