This market maxim was well established years ago, first propounded by a true market guru, Joe Granville.
He pointed out that there’s “smart money” and there’s the public. Imagine a game of cards, there’s the pro card-sharper with the poker face, and there’s you and me, fresh to the table. He deals the cards, we pick them up and bet. And lose. And when we’re quite broke, he picks up the cards and your counters, and is ready to deal again to a fresh bunch.
And so the cycle is repeated. That’s the game, that’s how to think about it, don’t kid yourself.
Cramer, a professional, is self-confessedly (tho’ “mad”) smart money. He’s selling to you and me, the public. But to whom will WE sell to collect his magic numbers? The myth?
One might do well shorting his recommendations after a few days, which he or his professional friends may be quietly doing somehow, who knows, the S.E.C should look into this, but they don’t seem to care.
And he’d do well to take care of his voice.
1/17/2006 Update
I’ve been watching the lad, and I think that what he’s doing is, he’s CREATING A SECOND PUBLIC. In other words, as an extension to Granville’s principle (see above), and never before possible before the stock market of the showbiz on TV, he has subdivided the public into two parts, those that watch and follow him, and those that do not. A sort of link between the smart money and the dumb public. The “Booya” (Cramer) money crowd. They buy in, and sell to the unwise (or, perhaps, the shorters). Works well in a bull run.
I would like to see what happens when another ’87 hits us, all unawares which it always does by definition, and causes forced selling. Forced selling? That’s being forced to sell your precious holdings, perhaps your life savings, perhaps just your retirement account. In the 20’s it was margin calls, then the banks. In the 80’s it was the uncontrolled cashing out of mutual funds. This time it will be the cashing out of real estate refinanced mortgages, if it happens. Like a tsunami, it will be unstoppable. Has it started? Are we in free-fall as in ’87, or slower, hesitated by multiple “dead cat” bounces as in the seventies? Or a decade long deterioration, as in the thirties? Or not.
When it comes, as it must eventually, the public will be looking for a scapegoat, and it won’t be Martha. I think Mr. Booya, with perfect timing, will have run off into the hills by then, hoping to be quickly, and quietly, forgotten. No such luck, in today’s litigious world.
6/7/2006 Update
Well, I bought his book, and watch to see how he is dealing with this “correction”, or major downturn, maybe, that we’re going through right now. He’s into “education”, and ignores his obvous failures, and avoids comment on any speculative inquiries from callers, just presses buttons which give off noises, and keeps thrusting his book at the camera, then contemptuously tosses it away (a masterly stroke of book sales promotion), in between breaking up furniture and destroying equipment, like some deranged mental patient. Schtick? I wonder. This is “stock market meets showbiz” all right. Perhaps 95% of his investment advice.
I see his modus operandi.
First off, he does not subscribe to chart based market technical analysis. Second, he never advises to sell short. Nor to buy penny stocks or companies in trouble.
This is a “look ma, no hands!” approach.
After a good fifty years of playing this hobby of mine (and I have never handled money outside of my family), I can say this:
As William Goldman famously averred in his analysis of Hollywood in his book “Adventures in the Screen Trade”, NOBODY KNOWS ANYTHING!
The same can be said of the stock market, and is the best place to start.
1. Built within the price of a stock at any given moment is everything there is to be known, the pros (buy) and the cons (sell), the details being hidden from knowledge.
2. A study of the line squiggles on a vertical line bar chart (open/high/low/close/volume) on a daily/weekly/monthly basis will reveal that these are not aimless wanderings, but instead contain a roadmap of the stock, its history of course which marks its character, but which, like a human being, may also offer its possible future. Again, like a person, many are entirely unpredictable, but many more are susceptible to having their palms read, giving clues to their future.
3. There is always a time to buy, and a time to sell. And also a time to sell (somebody else’s) and a time to buy (cover). There is a time to buy losers, penny stocks, sell short blue chips, and so on, and Cramer knows this, but he’s not about to tell you.
4. Further, a study of the averages may give rise to a strong apprehension of a major turn in the bull/sideways/bear movement, and then one learns that almost all stocks will conform to that pattern.
5. Use a computer and the internet. If you cannot, or don’t want, to do this, stay away from trading.
6. So, on a computer, either study then play the market as a hobby using the many free indicator tool services for clues (e.g. short interest reports, insider buying/selling, message boards, commodity futures etc. etc.). And DON’T buy advice. You will find that none are trustworthy and have their own agenda. Just like the law.
Which leads me to saying, getting back to Cramer, that the day may come when a class action is filed against him and CNBC on the grounds that viewers were advised to sell, and so lost money, or bought and then lost money. And no amount of pleading that viewers were warned with disclaimer upon disclaimer will immunize them. To take an extreme metaphor, imagine being confronted by a polite footpad, who, tipping his hat, says “excuse me, but I am about to rob you, rape you, and then possibly kill you. So blame yourself for ignoring this disclaimer, it will be your fault, not mine.”
Finally, if you don’t have the time or the stomach for this (remember, I’m now forced into retirement and I’m old and have little to lose), then buy into the fundamental approach which is earnings and management based, (JNJ for safety and income comes to mind) and buy and hold and forget about it, except for taking a peek every now and again. But then of course, you don’t need Cramer, and he won’t any longer have a buy buy buy sell sell sell show. And he won’t be able to tell you that he already owns a stock in his “charitable trust” account, so buy it and help drive up the price.(BTW, want to open the books, Cramer? Let’s see the costs and salaries and other overhead expenses, fully categorized. Your book profits go in there too?).
There’s so much to investigate in the unregulated professional investment advice business, but isn’t, and one watched poor old ex-pro stock market enthusiast Martha Stewart being made a scape-goat, and go to prison basically because she took professional legal advice, which I go into elsewhere. Martha Stewart.
All of the foregoing is just my opinion, my humble opinion, of course. That’s my very own legal disclaimer.