Cramer Beats the S&P 500?

by Dual Income No Kids on May 22, 2009 · 0 comments

Hi All,

Since you read personal finance blogs you probably watch Jim Cramer’s Mad Money.

Well, a couple of finance professors at Northeastern University sat down and analyzed Cramer’s picks. They concluded that acting on Cramer’s recommendations yielded an over 12% return between 2005 and 2007. This beat the S&P 500’s annualized 7.35% and the Russel 2000’s growth and value index annualized returns of 8.76% and 9.39%, respectively.

The story is all over the media and will undoubtedly increase Cramer’s audience and influence.

However, I wouldn’t accept the Northeastern University analysis without a big grain of salt. In 2007 compared Cramer’s picks to a random coin flip algorithm, called “Leonard the Wonder Money”. They found that Cramer and the Monkey did about the same (1). Also, more damaging, Cramer was wrong about the disastrous bank decline last year. He is on record as having recommended both Wachovia and Bear Sterns before those institutions collapsed (1). In short, Cramer’s record has been spotty, despite what the latest analysis says. You might want to think twice about putting your faith in him when wealth building is your goal.

Click here for the Northeastern University paper.

Happy Friday.


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