After taking on Jim Cramer for over a decade now – as he pontificated and prognosticated (in my opinion) to the detriment of his viewing investors, it seems I’m finally vindicated. Hopefully, at least, in the eyes of his many devoted acolytes who I’ve continually heard from over the years.
Jim it seems has “converted!” Yes, you read that right. At this point, I can’t help being just a tad snarky and self-congratulatory by just putting in a little dig. To wit: based upon his past prognostications and predictions, more than likely I should have probably converted and begun stock picking and market timing. (Ok, that a joke; don’t take it seriously!)
Anyone remember Jim’s idea of what diversification should be: “no less than five, no more than ten” (stocks)! Yeah right — ever hear of non-diiversifiable risk, asset class diversification or even Modern Portfolio Theory?
Not only has he converted (at least partially and maybe halfheartedly) but he is also advocating for investor education. ‘BOUT TIME!!!
We have been advocates for passive investing (using a variation on the index investing formulae) and education ever since I started in the business in 2004. Thus, this is nothing new to me and others who have been preaching this for what seems like forever!
However, while I have a specific philosophical underpinning to my investing strategies, where client needs dictate incorporating other investment tools, I am not dogmatic and where appropriate will incorporate them for a client’s benefit.
The below article will provide you with a glimpse into the confessional as Jim finally, sort of, comes clean!
By Murray Coleman – writer for Index Advisors
Jim Cramer rose to cable television fame as one of America’s biggest cheerleaders for actively trading in global stock markets. Lessons learned from such moves, he told millions of viewers on his CNBC “Mad Money” show, led him to build a career as a broker and hedge fund manager.
But after more than a decade on the air, Cramer took to the airwaves to explain that his thinking about investing has “evolved” over time.1 So has his broadcasting message. “I’m cognizant that the market is hard — you’ve got time burdens, you’ve got demands,” he said.
At the same time, he acknowledged that investors can easily become “bewildered” trying to pick individual stocks.
“That’s why I’ve emphasized that I’m not just okay with index funds, but I insist you use them,” Cramer said.
What’s behind such a seemingly dramatic change? To critics, it’s no coincidence that passive investing has finally broken into the mainstream and taken so much thunder (i.e., assets) from actively managed mutual funds. (See “Out of the Shadows: Passive Assets Catch Active.”)
Studies tracking Cramer’s Action Alerts PLUS portfolio, which he manages for others and incorporates many of his “Mad Money” picks, have also raised questions about his stock prognosticating prowess when compared over time to broad market benchmarks. (See “Jim Cramer vs. S&P 500: Chasing Mad Money.”)
The Great Recession has changed how investors look at stocks, Cramer asserted. “It changed me, it changed the show,” he said. As a result, his “Mad Money” manifesto has undergone a sort of metamorphism. “I would not own a single stock until I’d put away at least $10,000 into an index fund, either through your IRA or your 401(k),” he added.
Cramer went on to emphasize that his role has expanded “to educate, to entertain, to teach” investors because “it just isn’t enough to just give you stock ideas.”
Instead, Cramer wants investors to “understand the stock market enough for you to make a judgement whether you can do it yourself.” This means he wants to largely “leave behind” new and “hot” stock ideas in favor of presenting broader investment “themes” to viewers.
Cramer admitted in the past he didn’t try to discourage anyone from “refraining” to pick their own individual stocks. “Let me do so tonight — I would actually vastly prefer you to invest in index funds than stay in (active) mutual funds,” he said. “Mutual funds have not distinguished themselves enough to take the percentages (of investment assets) that they do.”
At times, some circumstances are likely to arise in which managers might seem to “acquit” themselves from the industry’s uninspiring track record, he added. But Cramer was quick to point out that turnover in active management is an issue, and in any case, past performance is no guarantee of future success.
“I am not a shill or a snake oil salesman for individual stocks,” he said. “I am a believer in the asset class of stocks as part of an overall way to save money for retirement, tuitions, vacations — anything your heart desires.”
Cramer urged investors of all stripes to expose their portfolios to stock markets. He also recommended that his viewers check out Warren Buffett’s so-called Golden Anniversary report.2 The letter to investors dates back to 2015 and marked Buffett’s 50th year at the helm of global conglomerate Berkshire Hathaway. In it, the fabled ‘Oracle of Omaha’ made a powerful argument for stock investing using index funds.
The letter is an “amazing read,” according to Cramer. It answers a fundamental question of stock investing, he observed: “Why do they (stocks) work? Because they represent the sum progress of business and the prospects for business going forward. They represent the wealth that companies create in aggregate, and the sharing of that wealth with shareholders.”
Cramer would like to see more people go “along for that ride,” but in what he terms a “responsible” way. And that means, in his view, “most definitely owning an index fund.” While partial to owning a fund tracking the S&P 500 index, he stressed that some sort of portfolio diversification should be an important end-goal.
“Once again for those who don’t get it, here’s my bottom line,” he summarized. “This show has changed over time from one where we pick stocks for you to one where we educate you about stocks so you can understand why an index fund of stocks might be worth investing in.”
In other words, “Welcome to our world, Jim!” The evidence proves that over time, no one can beat the market consistently and that owning the market in a broadly diversified portfolio is THE best opportunity to have a successful investing experience over the longest period of time.
Let us help you with a truly diversified portfolio! Call 443-718-6311 for an appointment.