Kass: Defending Cramer (Part Deux)

This blog post originally appeared on RealMoney Silver on Feb. 9 at 7:55 a.m. EST.

In the past, I have come to the defense of Jim Cramer against a host of media attacks. I do this not because I write for TheStreet.com -- I view myself as an independent person who speaks his mind regardless of the consequences -- rather I have defended Jim because I strongly believe that he provides a value-added contribution to the individual investor in navigating an increasingly difficult investment terrain.

Jim does this not only on CNBC's "Mad Money" but, importantly, in the publication of his books, Jim Cramer's Mad Money: Watch TV, Get Rich, Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer) and Jim Cramer's Real Money: Sane Investing in an Insane World, which provide more pensive analytical tools and recommendations in approaching one's investment portfolio.

Bullish media and Wall Street analyst hype are legendary and, to some degree, represent the proximate cause for many investment miscues on the part of individual investors whom have historically behaved in a Pavlovian fashion in their reaction to perma-bullish Pablum, so, when someone like Jim Cramer provides a more thorough and objective educational outline to navigating the market, it should be welcomed by the media, not criticized.

Over the weekend, Barron's published the story, "Cramer's Star Outshines His Stock Picks."

The thrust of the article is that "Jim Cramer's celebrity is bigger than ever" but the "stock picks featured on 'Mad Money' don't live up to the host's hype." The Barron's article is critical of his opinions on an enormous number of stocks and suggests that "in the days leading up to their mention on 'Mad Money,' stocks start to move in the direction of his recommendation. Post-mention, they revert to their previous trend, short-changing investors." The piece goes on to suggest that Jim's staff is "heavy-footed in their research" and the subject matter of many shows appear to be leaked because of that process.

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.

Finally, many of Jim's investment recommendations are indeed nuanced and qualified. Treating every investment recommendation as the same and compiling an investment performance is, to some degree, comparing apples to oranges.

In my final analysis, individual investors are better served listening to Jim Cramer, both with regard to his recommendations and his methodology, than any other business commentator extant. His body of investment knowledge is remarkably broad and lacks the superficiality of most of his brethren.

Jim is an investment populist who, unlike many in my hedge fund cabal, has forsaken that financial rainbow for a greater cause -- namely, helping out the individual investor.

Jim is an easy target, but from my perch, he should not be vilified; he should be admired.

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Doug Kass writes daily for RealMoney Silver , a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

Know What You Own: Doug Kass mentions Jim Cramer's stock picks, and some of the top-performing stocks in Cramer's Action Alerts PLUS portfolio include Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT), Gilead Sciences (GILD), BP (BP), iShares FTSE/Xinhua China 25 Index (FXI), ConocoPhillips (COP) and Johnson & Johnson (JNJ). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Long/Short LP.

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