Posts tagged ‘Barron’s’

Cramer Pulls Apple from Romney Tree

Republican Presidential primary candidate Mitt Romney has taken a lot of heat for his lack of conviction on various issues, whether they be on immigration, universal healthcare, or abortion. Jim Cramer, former hedge fund manager and host of TV show Mad Money, has also been known to do a bit of his own John Kerry-esque waffling. One of Cramer’s most recent high profile flip-flops is highflying Apple Inc. (AAPL). If Mitt Romney had his own stock show in his free time like Jim Cramer, there’s a high probability that Romney and Cramer could both agree that they were “for Apple, before they were against it, and now for it again.”

Some might think that picking on Jim Cramer is like clubbing a defenseless seal; wrestling a first grader; or stealing candy from a baby. Suffice it to say, I am not the first person to point out the dangers, inconsistencies, and irresponsible behavior associated with Jim Cramer’s recommendations. Here are some of the highest profile critiques of Jim Cramer in recent years past:

I. Daily Show Destruction

Vodpod videos no longer available.
Daily Show Skewering PART II                   Daily Show Skewering PART III

II. The Barron’s Bashing

This 2007 Barron’s article not only dissected all of Jim Cramer’s picks over a multi-year period and outlined how much money was lost relative to the major stock market indices, but also a subsequent Barron’s article highlighted research showing a strategy that could yield 25% per month by betting against Cramer’s picks.

III. New York Times  Expose

Last year, this article highlighted the good, bad, and ugly, but the sentiment noted by famed Yale University endowment fund manager David Swensen echoes the sentiment of many investment professionals:

“Cramer induces his viewers to do things that are bad for them. He’s smart enough to know what he’s doing. ‘Mad Money’ delivers a very dangerous message — that individual investors can beat the market with momentum-driven, high-octane trading strategies. There are individuals who do beat the market, but their number is vanishingly small. Cramer is a master manipulator. He has absolutely no accountability. This is serious business; people’s retirements are at stake.”

Spoiled Apple Turns Sweet Again

Apple stock has historically been a favorite of Jim Cramer. Because why? Well, like many short-term traders, it’s a stock that has been going up! A few short months ago, however, Apple’s stock stopped going up, and was actually going down. Jim Cramer’s long love affair with Apple was on the rocks – this is what he had to say about Apple on November 9th (AAPL price – $395.28):

“Times Have Changed for Apple. I’m hearing about weak tablet sales, about iPhone 4S sales not up to snuff, along with worries about holiday sales for iPods.” In the past Jim would brush these worries aside, but in the past, the visionary Steve Jobs was still breathing. “These days though, every nuance, every little bit of worry about Apple, as we heard today from a brokerage firm talking about lighter tablet sales seaps into my ears, and I actually listen, and I agonize over it – I don’t want to…But I can’t dismiss these minute Apple data points as irrelevant any more. These days it would just be too glib…Apple is no longer a given. We are not going to re-recommend endlessly right here. We are waiting. I think actually better prices are coming. No reason to pull the trigger [buy]. No reason until then [lower prices].”

 

Oh my, what a difference 90 days makes! Has Steve Jobs been resurrected from the dead? Last I checked, the answer is no. Anxiety of whether new CEO Tim Cook was about to drive Apple off a cliff to obsolescence, like Research in Motion Ltd. (RIMM), has apparently been put on hold. Previous deep-rooted concerns about iPad and iPhone 4S sales from Jim Cramer’s in-depth analysis turned out to be completely off base. As a matter of fact, two months after Cramer went on his anti-Apple rant, the company reported blowout quarterly results of record proportions. Not only did earnings results explode +116% from a year ago (+37% higher than Wall Street forecasts), but iPad unit sales grew by +111% (15.4 million iPads) and iPhone unit sales grew +128% (37.0 million iPhones). To make matters worse, during Cramer’s temporary Apple break-up, he told his followers to buy Google Inc. (GOOG) instead of Apple. Oops…since that short time ago, Apple has only outperformed Google by a massive +28% or so.

Well, no reason to fret now because any worries about a dead Steve jobs, collapsing iPad/iPhone sales, and a RIMM-like train wreck have been quickly forgotten by Cramer over the last few months. Apple gloom has turned to champagne cheers. Here’s what Jim has to say now:

“This stock (Apple) has gripped the imagination like no other I’ve seen in my career. A stock going to $500 in a straight line.”

 

When Wall Street analysts recently weren’t bullish enough for Cramer (despite 50 “Buy” ratings, 3 “Hold” ratings, 2 “Sell” ratings), he had this to say:

“I want to grab them by the throat and say, ‘Will you give me a break?’ Apple sells at 10 times earnings; the average stock sells at 15 times earnings; Apple is a lot better than the average stock. Don’t you understand this stock is galloping to where it has to go, simply to catch up with the rest of the market? Don’t you see that happening? Don’t you understand that apple has to go higher?!

 

If these whipsaw stock recommendation reversals are not fast enough for you, no need to worry. Apparently flip-flopping on the overall market only takes 24 hours. Last week, Cramer could hardly control his excitement during his show’s opening, given another up-day in the market. To bolster his bullish case, Cramer proceeded to chastise Wall Street analysts for being so negative. With one rotation of the Earth, the following day, Cramer turned negative and nervous once again as the Dow Jones Industrials index fell 0.69%. Who knows what Cramer’s ever-changing mood will be next, but I can give you a hint – if you look at the daily direction of the Dow, your mood guessing batting average will be higher than Ty Cobb’s career average.

Selective Consumption at the Investment Supermarket

Despite all the criticisms, one should not shed a tear for this multi-mega-millionaire, Harvard grad, and Goldman Sachs Group Inc. alum (GS). Mad Money is highly entertaining for short-term traders, and in upward trending momentum markets, Cramer followers might do OK. Unfortunately, the lucrative, straight-upward market that Cramer made his fortunes in during the 1990s hasn’t been in existence over the last 12 years. For the untrained, investing masses who are looking to preserve and grow their retirement nest eggs, the schizophrenic recommendations that Jim Cramer provides can prove extremely damaging. We have seen this destructive dynamic especially at key inflection points in the market, whether it was at the 2000 peak of the market when his 10-stock “Winners of the New World” portfolio that collapsed by over -90%, or in late 2008/early 2009, near the market bottom, when Cramer told all investors to sell stocks unless you can wait five years.

Jim Cramer is not an evil person and he his very entertaining and sharp individual. I fully admit that I occasionally watch Mad Money for a chuckle and to also gain perspective of the speculative sentiment in the market. Although I would like to see better programming on the network, CNBC is not to be fully blamed. CNBC is like a supermarket that sells both healthy and unhealthy goods. While long-time Investing Caffeine readers know, I have been known to take numerous cavalier economists and strategists to task, many of my investing philosophies and strategies have been built off of long-time, successful investors that CNBC has interviewed or profiled. CNCB guests whom I have written about include, Warren Buffett, Ron Baron, Bill Gross, Ken Heebner, Wilbur Ross, Joel Greenblatt, Laszlo Birinyi, Jimmy Rogers, and others.

While Jim Cramer can be consumed in small doses by professionals and short-term traders, average investors should tread lightly. Investors will be better served by reading the labels of television commentators’ advice, and instead listen to those advisors or managers that have a time horizon consistent with your long-term financial goals.

Jim Cramer has been picked apart by many, but his screaming “Booyahs!,” singing “hallelujah” choirs, and flying bulls, make for compelling television. Although Jim Cramer and I are on the same page as Apple currently (I’ve owned for a long time), I have yet to come to a definitive decision on the 2012 presidential elections. If Cramer changes his view on Apple again in the coming days and weeks, I hope he invites his friend Mitt Romney on as a guest. That way I can kill two birds with one stone, and if one flip-flopper is entertaining to watch, having two should certainly be twice as amusing.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, AAPL, and GOOG but at the time of publishing SCM had no direct position in RIMM, GS, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

February 12, 2012 at 5:53 pm 2 comments

Strategist Predictions and MacGyver Credo

MacGyver: Resourceful dude with sweet mullet (Source: Photobucket).

“Only a fool is sure of anything, a wise man keeps on guessing.” – MacGyver

We have gotten to the part of the year when strategists gather for the annual dart throwing ritual of 2011 price targets. S&P projections get chucked around with the hopes of sticking – like cooked spaghetti to the wall.  MacGyver appreciates the fine art of guessing, and so do Wall Street strategists.

How the Game’s Played

You don’t have to be a brain surgeon to figure out how the Wall Street astrology game works. When in doubt, just say the market will be up +10% next year. Hmmm, why +10%?

1)      Well, first of all, these strategists work for employers who are in the business of hawking financial products and services to the masses, so if you want to generate revenues, you better attempt to line up some believers with some rosy scenarios.

2)      History is on the strategists’ side. Equity markets move up about 70% of the time, so why not make an optimistic bet. Data from Crestmont Research and Roger Ibbotson support the average return over the last 100 years or so has averaged approximately +10% (with a lot of peaks and valleys). Obviously, that hasn’t been the case over the last decade. The PIMCO bond brothers of Bill Gross and Mohamed El-Erian blame the “New Normal” environment despite recently raising their 2011 GDP forecasts to a “Less Sluggish New Normal.” More likely, the decade of the 2000s is more like theOld Normal of boom-busts like we experienced in the 1930s and 1970s.

3)      The other cardinal rule to be followed religiously: Forecasts made by any Wall Street type need to be made in tight packs like a herd. There is comfort in numbers, and why in the world would someone risk embarrassment or career risk. Fat paychecks abound for these strategists and hugging consensus views is OK, as long as a logical story can be patched together in explaining it.

With all this discussion about +10% average stock market returns, guess what type of returns this year’s Barron’s strategist survey is forecasting? You guessed it…+10% – what a shocker! Let’s hope this guess is more accurate than Barron’s +10% strategist return forecast for 2008 (S&P 500 was actually down -38.5% in 2008). Strategists don’t always get it wrong – the sanguine +12% outlook for 2010 is basically spot on with a few days left in the year. The sanguine 2002 outlook of +13%, however, was about -35% too sanguine (S&P plummeted about -23% that year).

Although most strategists feign absolute knowledge and precision, history shows these projections rarely prove accurate. Like predicting weather, guessers may get the long-term climate forecast fairly close, but the short-term estimates are generally pure speculation. In my book, 12 months is very short-term. Famed investor and author Charles Ellis captures the challenge of market forecasts:

“Predicting the stock market roughly is not hard, but predicting it accurately is truly impossible.”

 

I ascribe to the Peter Lynch view that speculating about the direction of the market is futile:

“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”

 

Kass Gets Hall Pass

Even though I may relish in flogging strategists, I provide certain professionals a hall pass under the following conditions:

  • The educated guesser is putting real, hard-earned money behind their assertions.
  • The guesses do not hug a tightly-knit herd.
  • Guesses are made transparent and guessers make themselves accountable for bold statements.
  • Those making guesses freely admit to the fallibility of making non-consensus suppositions.

One man whom embodies these principles is famed hedge fund manager Doug Kass, whom I have written about on several occasions (read more). Not only are Kass’s 2011 predictions provocative, they are also entertaining. His self proclaimed 40% batting average in 2010 may be a little higher than reality, but I will let you be the judge of his 2010 calls on the dollar, gold, Fed actions, Iran, Goldman Sachs, utilities, Warren Buffett, mutual funds, short-selling, New York Yankees, and more (read full 2010 Kass list).

The herd of strategists may continue having trouble making accurate market forecasts in the future, but perhaps resourcefully adding some duct tape and a Swiss Army knife to their repertoire like MacGyver will help improve accuracy. If not, rest assured, the strategists will sleep well making their +10% forecasts while continuing to collect big fat paychecks.

Wade W. Slome, CFA, CFP® 

Plan. Invest. Prosper. 

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 29, 2010 at 1:56 am Leave a comment


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