Dunking on and doing the opposite of Jim Cramer has become quite the cherished pastime on Fintwit, and not without good reason. There is now even a Twitter account and related website/newsletter dedicated to documenting his picks, presumably so that people can pull a George Costanza and do the exact opposite.
I was a relatively early subscriber to Realmoney back in the 1990's and have followed Jim's career for a long time. He made it pretty clear in his first book how his hedge fund track record had been built: first by being mainly in cash for the 1987 crash out of luck (not a strategic decision), and then by learning the magic of 'commish.'
Commish was basically hyper-trading with the big investment banks to gain access to sell-side analysts and then 'front running' their reports after influencing and also having a temperature reading for their views. Such activity would subsequently become a regulatory no-no. If I recall correctly, his first wife was also purportedly an excellent short-term technical trader. Most of his hedge fund tenure also took place during a raging bull market, including 5 consecutive years of compounding 20%+ years from 1995-1999.
Note none of that has anything to do with being a good fundamental stock picker/analyst. Despite all this, his media personality has been crafted as that of a stock picker, but that has been 'kayfabe,' in my opinion. He was never a macro-focused manager either, so expecting to source that expertise from him would be equally as silly.
With that being said, as referenced once again this week on Twitter, the Fog of Cycles potentially sets up a lot of people for cognitive dissonance and confirmation bias. I see the 'Dunk on Cramer' phenomenon as just one potential example.
Many of his 'calls' have been pretty tragic, but I have not seen the one from October 6th, 2008, referenced recently. It came in the midst of the post-TARP vote panic and as the cascade into the initial October 10th low unfolded.
Here is part of what Jim said to Ann Curry on the Today Show that morning:
Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.
What a panicking wuss…..right? The S&P 500 closed that day at 1056.89, would initially bottom four days later at 839.80, make a new low on November 20th at 747.78, and then the final cycle low on March 6, 2009, at 666.79.
In fact, the S&P 500 index was as low as 1074.77 on October 4, 2011, during what was a mid-cycle economic slowdown and accompanying stock market correction. Here is a weekly chart from the period, where I added a red arrow to designate around that October 6th appearance:
This is not in any way my attempt to defend Cramer or his ‘calls.’ Rather, I am pointing out that the complexity and noise during cyclical turns are usually extreme and potentially very confusing. Getting whipsawed, being shrouded in self-doubt, second-guessing, and bouts of manic decision-making can be the norm.
Over the past 9 months, I have laid out my analysis of the current cycle dynamics, and believe they are very different compared with 2008. However, cycles are cycles and the human limbic system is unlikely to have evolved dramatically over the past 15 years.
Sometimes the theatre is actually on fire and those who panic just before the mob does can appear to have made a ‘smart’ decision retrospectively. It just so happens that Cramer’s October 6, 2008, ‘call’ was probably a pretty good one in isolation and within the context of that cycle, as the S&P 500 would end up declining another 36%+ from the October 6th close.
So by all means, keep the goof going and I have no doubt the mockery is likely to continue to be well earned - just be careful not to get confused into thinking it is a real strategy or use it to confirm a bias if Jim and/or the markets go against you.