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Kass: Defending Cramer (Part Deux)

As I have defended Jim Cramer from attacks by the media in the past, I will do so again today, hopefully as an impartial and independent observer.

My basic point has been that, above any other media pundit, Jim provides a value-added educational experience for the average individual investor.

He does this in several ways:

  • He goes belly-to-belly with company managements on "Mad Money." He typically doesn't serve up the easy pitch but rather usually goes to the root of the valuation/fundamental controversy.
  • His lightning rounds give his quick and abridged impression of a stock's outlook.
  • He develops investment themes and strategies that are easily understood and developed reasonably well on "Mad Money" and in his books.
  • Most important, on "Mad Money" he provides an educational handbook on how to analyze a company/sector, with a focus on the development of the principal determinants of future stock market behavior.

Jim qualifies almost every investment recommendation with the caveat that investors should not take, prima facie, his word on a stock. He says that every investor has an obligation to do his own homework.

Jim qualifies almost every investment recommendation with another caveat: Don't buy on the spike or strength following his mention. Wait until things calm down, he says.

As to potential leaks, that is an occupational hazard if one is going to carefully research an idea and cover multiple sources. A more comprehensive research approach by "Mad Money" staff is far more preferable than superficial preparation. The same phenomenon occurs in Barron's, the source of this weekend's criticism, as trading desks often "hear" about rumors of Barron's cover stories. Most are specious, but now and again, they are accurate.

The Barron's article analyzes "650-odd" Cramer recommendations and concludes that "his bullish picks underperformed the S&P by about 3.5 percentage points over the 45 trading days after each show."

To that, my response is, So what? Not only is the statistical error broad vis-à-vis the underperformance and the degree of underperformance modest within the context of the volume of recommendations but this analysis presumes a buy/hold strategy, which, particularly in today's volatile times, is plain silly and not the intention that Jim necessarily recommends.
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