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Jim Cramer
Advice or Entertainment?

Jim Cramer. He's one of the most polarizing figures in the investment world. Personally, I enjoy hearing his views and watch his show daily for a market download each evening while on the treadmill. And there's always those sound-effects (BUY BUY BUY, SELL SELL SELL, MERGER)!

Love him or hate him, I'll say this about the man; he's passionate about finance and investing.

Who is Jim Cramer?

He's a former hedge fund manager and author who hosts "Mad Money" on CNBC. The show has evolved over the years, moving from industry insider to education and coaching. It's now geared towards the individual or retail investor, with Jim's take on current events.

He's also a co-anchor on CNBC's Squawk on the Street program.

Did you know?

Cramer is not allowed to own any of the stock picks he makes on air (except for those related to CNBC/Comcast).

Instead, he runs a charitable trust, and publishes those stock selections via a members-only investing club called Action Alerts Plus (use a search engine, you'll find it).

But even within the trust, he can’t trade a stock he mentions on the air for at least 5 business days. And anything he does buy for the charitable trust must be held by the trust for at least 30 days!

Why does he matter?

In a word, he makes successful investing seem like something within anyone's grasp. As much as he may be derided as an entertainer, it's what you have to do these days to get anyone's attention.

Honestly, he's a large part of the reason people seek out financial information on the web. People "in the know" credit Cramer with being the godfather of web-based financial news. So I owe him a big thank you, along with every other personal finance blog. Jim, on behalf of me and my visitors, thank you!

On the downside, many people blindly listen to Jim because he's a smart guy and has an excellent track record from his hedge fund days (in terms of making money).

Why is this bad? Two reasons:

1) We don't run hedge funds or charitable trusts. Individual investors have a hard time using the same techniques as hedge funds because we don't have access to the same investments or the same amount of money (i.e. portfolio size). They make trades that move market prices, while we can not (which is actually one of our advantages).

2) Blindly following advice, no matter how well intentioned, is never a good idea. Take a look.

Ouch. That is one hell of a mistake.

Carl Richards published an article entitled "Ignore Generic Financial Advice (Except This Post)". Mr. Richards is a C.F.P. and the founder of Prasada Capital. The article dovetails really well with one of my blog posts about free investment advice, and reminds me of the reasons I started this site.

Mr. Richards kicks things off with the following:

    "It is dangerous to mix investing with entertainment. The classic example is thinking that Jim Cramer is your investment adviser rather than some sort of circus clown."

Most financial professionals (such as Carl Richards) do not watch the show, because they feel that Cramer's advice isn't well placed. Keep in mind that these folks are concerned about the dynamics of running funds, not picking individual stocks for a retirement portfolio.

Richards makes the case, correctly, that dealing with financial matters is a personal activity. Collecting and reviewing information is very useful; it helps grow your knowledge base. However, you MUST apply it based on your specific circumstances.

I like hearing his views, but his views are just one data point and not a substitute for additional research (even Cramer acknowledges this).

To that end, I think Jim is both an advisor and an entertainer. Investing isn't supposed to be entertaining. But learning about investing? I think he's found a way to reach people, and that is always a plus. And that's why everything he says needs to be taken with a grain of salt. He definitely provides insights that help you understand investing. But it's up to you to craft your own personal investment process.

Sources:

Here's the thing you need to understand about Cramer
Barry Ritholtz
http://www.ritholtz.com/blog/2011/05/heres-the-thing-about-cramer/

Jim Cramer Hits an All Time High
The New York Times
http://www.nytimes.com/2011/05/15/magazine/jim-cramer-hits-an-all-time-high.html

The Cramer Abides | The Big Picture
Barry Ritholtz
http://www.ritholtz.com/blog/2011/03/smackdown-vigna-vs-cramer/

Ignore Generic Financial Advice (Except This Post)
Carl Richards – NY Times – July 7, 2010
http://bucks.blogs.nytimes.com/2010/07/07/ignore-generic-financial-advice-except-this-post/