When I got my first job on the buy-side as an analyst for a hedge fund, the first homework assignment I received was to take home Jim Cramer’s Confessions of a Street Addict and read it cover to cover. I knew of Cramer as a personality/talking head of CNBC ilk. “So, do we do stuff like this?” I naively asked the portfolio manager and founder of the firm. I was told to read it, understand it, but never do anything Jim says.
I personally have watched Jim Cramer’s anti-Bernake rant over 15 times (see below).
Pot shots at Cramer
The venerable weekly, Barron’s slammed Cramer’s performance on Mad Money and his style of stock picking this past weekend (subscription reqd.).
By most measures, Jim Cramer did worse than the market, but CNBC and the TV journalist have taken few steps to clarify his exact performance for his show’s growing audience.
It’s not the first time Barron’s has targeted Cramer’s stock picking ability, either. Barron’s reported in 2007 (subscription reqd.) of a study that found investors would be better off shorting Cramer’s picks than actually investing in them.
Barron’s misses the mark but Henry Blodget gets it
Henry Blodget’s Clusterstock rings in on the sparring match currently underway between Cramer’s emplyer, CNBC, and Barron’s. He includes the entertaining transcript between the two parties. I recommend reading it here.
Blodget’s point is concise:
We think CNBC should just drop the charade that listening to Cramer’s advice will make you rich and start celebrating him for what he is: The most popular market commentator in history.
In fact, in CNBC’s response to Barron’s, the media firm pretty much says as much:
Jim goes into every show with the goal of both educating and entertaining viewers and with the hope that by showing viewers how he values stock and laying out ground rules on how to use that information, viewers will learn to be better evaluators and investors themselves.
The Future of Financial Advisory
You see, in spite (because of?) having a dubious performance record, Cramer is an entertainment icon, not a financial advisor. His hyperintensity has made tremendous inroads in educating the public about investing, trading and what moves Wall Street. In fact, as I think about it, that’s exactly why my portfolio manager wanted us to read Jim Cramer. He wanted us to tap an extremely smart and insightful perspective into the levers and mechanisms moving markets. That’s Cramer’s genius. And from that perspective, whether his picks pan out or not is irrelevant.
I think something bigger is afoot. I think Jim Cramer, who cut his teeth as a broker for Goldman Sachs, harbinges a new model of financial advisor. With shrinking asset bases, downward pressure on fees, consolidation in the wirehouses like Merrill Lynch and Smith Barney, the mainstream adoption of online trading, and an erosion of trust in the financial services sector, financial advisors are undergoing some soul searching. What’s happening, under the covers and behind the scenes, is that the entire profession is changing.
Personalities like Cramer are making money via media contracts. As financial entertainers, these stock brokers, financial planners and advisors are bringing home the bacon because they are captivating. Others have become big-time educators focusing their efforts and revenue efforts on educating clients via learning systems and seminars. Still others have become fee-only advisors and provide completely objective consulting services and don’t even touch investments. Beyond the talk of new investment platforms like Cake Financial and Covestor, successful financial advisors are finding new ways to monetize their businesses. Cramer is just the tip of the iceberg.
