After announcing the idea of PunditTracker early in 2012, we solicited suggestions from our readers on which pundits to track. The most requested financial pundit, by far, was Jim Cramer. In fact, during our interview with NPR last March, host Bob Garfield ended the discussion with the not-so-subtle request: “Two words: Jim Cramer”.
We are making Cramer the first in our PT Focus series, in which we take an in-depth look at a pundit’s track record. For those who are unaware, Cramer is the host of the popular show Mad Money on CNBC, providing general financial advice as well as specific stock recommendations.
Cramer currently has an F grade on PunditTracker.com. Let’s walk through how we arrive at that score.
First, here are the parameters by which we evaluate Cramer’s stock recommendations:
- We started tracking his picks on January 1, 2011.
- We score only his “Featured” picks on Mad Money and not those made in other segments such as the “Lightning Round.” Our reasoning is that the Featured picks are unsolicited recommendations for which Cramer has presumably done more research than for picks given as live responses to viewer questions.
- We measure the performance of his picks relative to that of the S&P 500 index over the corresponding period.
- We assume a three-month holding period, unless Cramer reverses his stance on a given name (e.g. says Buy XYZ and then says Sell XYZ within the three months), in which case we “close out” the original recommendation. This holding period is based on the idea that Cramer tends to revisit his picks each quarter. (Note: We also have calculated performance using a six-month holding period; we are happy to provide the data if there is interest).
- The baseline stock price is the opening price two days after the recommendation is made, in order to account for any day-one “Cramer bump” effect.
- The hit rate is the percentage of Cramer’s picks that outperform the index. We equate sell ratings to short recommendations (i.e. they are scored as correct if the stock underperforms the S&P).
With the parameters out of the way, let’s now delve into the details of Cramer’s performance.
Given our assumed three-month holding period, we have now graded two years worth of Cramer’s picks: those made from January 2011 through December 2012. That amounts to 552 calls overall, of which 254 outperformed the index (46% hit rate).
On average, Cramer’s picks returned -0.08% versus the 1.35% S&P 500 return over the corresponding period. That amounts to 142 basis points of quarterly underperformance, or 568 basis points on an annualized basis, which amounts to an F grade in our grading system. (We award an A for 500+ basis points of annual equity outperformance and an F for 500+ basis points of underperformance).
Let’s now break down his results by year and by quarter:
|Cramer's Picks (three-month holding period)||-1.6%||1.1%||-0.1%|
|Relative performance (basis points)||-207||-89||-142|
|Hit Rate (% that outperformed)||48%||44%||46%|
Here were Cramer’s ten best and worst picks during the two years:
10 Best Picks
10 Worst Picks
Cramer underperformed the index on both his Buy and Sell recommendations, although his sells did even worse, with the stocks rising 4.9% on average versus 3.2% for the S&P.
Buy Sell (Short)
# of Picks 494 122
Cramer 1.1% -4.9%
S&P 2.4% -3.2%
Relative -135 -173
We will provide quarterly updates on Cramer’s performance going forward.
Can you pick stocks better than Jim Cramer? For those new to PunditTracker, we allow users to compete with pundits. Click here to visit our Finance page and start making predictions on various financial events, including Apple’s quarterly performance tomorrow (using the “Vote Now” buttons).
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