"Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now."
-- Jim Cramer, Oct. 6, 2008, S&P 500 at 1,056.89
Over one year ago and thanks in no small part to the statement above, I concluded that Jim Cramer was a menace to investors. It only took a few months for the rest of the nation to catch on. Jon Stewart finally jumped on the bandwagon last March, exposing the man for what I think he really is: an entertaining (if not, irritating) media personality, but certainly not the champion of the individual shareholder that he often claims to be. In fact, I consider him to be the closest thing to a walking, talking hazard for the individual investor there is. Now, Jon Stewart may have the jokes, but I have the real reasons why Cramer is precisely that -- and why you should take a pass on any investment advice he tries to give you.
I continue to fully applaud Cramer's stated goal -- help people make money by investing in the stock market. But Cramer's outburst last year was a mistake -- plain and simple. And, as Mr. Stewart so kindly illustrated, it wasn't his first time. You see, when someone issues panic-inducing market calls (as Cramer does from time to time) -- and urges investors to avoid long-term strategies to buy and hold good companies -- the average investor simply gets crushed. Cramer's Today show plea was grounded in a sound reality -- Fools should never have money they need during the next five years in the market. But by advising people to indiscriminately sell, he helps contribute to exactly the thing that he's trying to avoid: investors losing money. Chances are, when the market was taking a chainsaw to some of our more closely held assumptions about the U.S. financial system, most viewers were so petrified that even a very small push was likely to convince investors to join the terrified herds pulling their money out of the market. And pull they did.
Between October and the end of November 2008, investors pulled out a whopping $140 billion from U.S. equity funds. Based on what these funds were holding, they were indirectly pulling out of mutual fund mainstays like Pfizer (NYSE: PFE), Anheuser-Busch (NYSE: BUD), IBM (NYSE: IBM), Chesapeake Energy (NYSE: CHK), and U.S. Bank (NYSE: USB) -- many of which had already been hammered.
With the market now priced a bit above last year's "call," what the heck has he done for you? Perhaps he saved you money in the collapse that occurred in the ensuing months. But in order to complete the circle, he would have had to tell these people precisely when to get back in. Where the heck was he on March 6, when we reached the low? He was nowhere to be seen on national television. Those people who were convinced to run for the hills thus missed out on one of the biggest market rallies ever -- a rally no one saw coming. No matter how good Cramer's first call was, that's 50% he won't be able to give you back. And therefore, it was a huge mistake. Instead of holding onto the steady blue-chip stocks that have historically provided investors with some of the strongest long-term returns, many investors were just progressively selling at historic lows ... thereby ignoring the sound and sage advice from names like Buffett, Lynch, Graham, Munger, and Bogle.
(snip)
It's like Punxsutawney Phil. The furry little critter climbs out of his hole, and either he sees his shadow, or he doesn't. Whichever it is, the result has nothing to do with whether winter is over -- just like a stock market prediction has nothing to do with the market's movements. The scary part is that Cramer flip-flopped numerous times in 2008, trying to call the bottom at various points throughout the year. While CNBC may gloss over this fact, I've taken careful notice. Don't forget about his theory that 2008 would be the year of natural gas. Ouch. The talking heads on TV get paid to put on a song-and-dance show and attract viewers. It's entertainment, folks. Your education or your personal success, as Jon Stewart as kindly brought to light, is a secondary priority (or not a consideration at all). Following the advice of those that say they can predict the markets is likely to cost you thousands (if not more). In the real world, there are commission costs, taxes, and opportunity costs -- all of which have a tremendous impact on the returns that you're likely to experience.
(snip)
http://www.fool.com/investing/general/2009/11/16/why-you-shouldnt-listen-to-jim-cramer.aspx?source=ihpdspmra0000001
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