OLD Media Moves

Cramer makes investing look too easy

September 27, 2006

An article in Kiplinger’s Personal Fianance about “Mad Money” show host Jim Cramer argues that the former hedge fund manager is making investing look too simplistic and easy to the average person.Andrew Feinberg wrote, “At any rate, Cramer’s detractors have trouble acknowledging his fabulous long-term record, as if being too much of a clown prohibits him from being really good. ‘His advice might be fine for your mad money,’ says Lance Young, an assistant professor of finance at the University of Washington, ‘but it would be very, very bad for your whole portfolio. He encourages people to trade a lot, and as studies have shown, trading a lot can be hazardous to your wealth.’ Cramer would disagree. He says to study the stocks you own but don’t marry them.

Jim Cramer“Young and others say that the advice on Cramer’s show makes investing look too easy. New York attorney Jacob Zamansky, who represents individual investors, says that Cramer’s advice is dangerous for those who can’t afford to lose money. ‘Cramer has almost a cult following and there should be clearer disclosure that the show is not intended for the average guy,’ he says.

“That’s an interesting assertion, given that the show — which attracts an average of 434,000 viewers per day — obviously is directed at the average Joe. Intriguingly, a high percentage of callers identify themselves as new investors. The people saluting Cramer with booyahs clearly haven’t been running their own money for 20 years. Is that a good thing? Is Cramer in fact helping to bring a new generation of investors into the market? The advice he gives is almost always astute, but are people really listening?

“The answer is complicated. Cramer, whose program airs after the market closes, warns his viewers not to trade on his recommendations in the after-hours market. But many ignore that prohibition (stocks often soar 5% to 10% moments after he recommends them). He urges viewers to spend one full hour a week researching every stock they own. But what percentage actually do that? Five? Ten? Twenty? He relentlessly tells viewers to take some profits when they have them, but many callers confess that they haven’t done so.

“Cramer is walking a fine line. In creating a show ‘with all the excitement of sports,’ as he put it in his first book — and all the hyperbole of a shopping channel — he has made thousands of investors hot to trot for stocks. Perhaps too hot.”

Read more here.

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