As CNBC 'celebrates' 10 years of Mad Money, we thought a look back at Jim Cramer's "Featured" Picks performance would help "home-players" in judging their investment advice going forward...
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).
Here were Cramer’s ten best and worst picks during the two years:
Can you (or your cat) pick stocks better than Jim Cramer?
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All of which helps explains:
Compared to March 2005 when he first launched, the show is down 11% in total viewers and down 35% in the A25-54 demo