Evaluating Mad Money with Jim Cramer

Maybe you’ve seen that crazy investing guru on CNBC. You know, the guy who doesn’t have a chair in the studio and is always pacing around yelling at the camera? Yeah, that’s the show Mad Money with Jim Cramer. As unorthodox as the show is, it is possible that this guy knows what he’s talking about. So I’ve decided to do a scientific investigation of how good his stock picks are.

My methodology is simple. I’ll be “buying” (using a virtual portfolio) $100,000 worth of every stock that he personally recommends in his two main segments at the start of the show. The Lightning Round segment in the middle of the show consists of people calling in and asking stock advice, and since Jim isn’t coming up with these himself, but rather, merely evaluating them, I’m going to be “buying” $50,000 each of every stock that he evaluates positively during the Lightning Round.

Then, I’m going to hold these stocks until he suggests that they should be sold (which could take awhile). At some point, I’ll just sit down and see what percentage growth Jim’s picks resulted in, and whether they beat the market. I’m not going to be playing games with trying to sell short stocks that he doesn’t like, as all of his recommendations are generally made against other stocks in the same sector, and I’ve never actually heard him recommending that anything be sold short.

Mad Money Recap is going to be very useful in this endeavor. It’s a fan site that faithfully transcribes each show and lists all of his stock picks. The basic plan is to buy the stocks after the close of market on the day that the transcript is published. For instance, I started by buying all of Jim’s recommendations from Tuesday last night.

8 Responses to “Evaluating Mad Money with Jim Cramer”

  1. Darmok Says:

    That’s a neat idea; it’ll be interesting to see how it turns out.

  2. Cyde Weys Says:

    So far I’m up 3% on Jim’s advice after just a day, but then again, the market did exceptionally well today, hitting an all-time high.

    It’ll be months before I get any rigorous data out of this.

  3. itchy Says:

    I believe I’ve seen some other longer-term studies of Cramer’s suggestions, and they’ve returned somewhere near the S&P, maybe a bit less. But I love the idea of tracking any rating system in any field. We have the power now to hold our gurus accountable.

    Another small point: Whether Cramer can or can’t beat the market, he’s entertaining to many viewers. I watch occasionally just to see him, not necessarily to follow his advice.

    Also … go Terps! (Class of ’90)

  4. Cyde Weys Says:

    Well darn, judging by how enthusiastic and confident Jim Cramer is, I thought he would definitely be doing better than S&P 500. Ah well. I have taken some of his stock advice before and it’s been a mixed bag. You’re right though, he is a lot of fun to watch.

    I think the problem is that his show is on every night of the week, so just by the law of large numbers, he ends up recommending a lot more stocks than there are actually stocks that do really well. If you focus on only his highest recommendations (like the ones he makes at the beginning of every year), I think he does better.

  5. djchuang Says:

    You might find http://www.booyahboyaudit.com and http://madmoney.thestreet.com/ to be very handy to check the recommendations and their respective audits.

  6. Cyde Weys Says:

    Thanks a lot for the links. These will be very useful.



  8. mlgreen8753 Says:

    I don’t listen to Cramer, I have heard only negative things about him. Instead I’d rather learn to analyze my own stock picks. I want to become more familiar with the stock market before investing in Mentor Capital (MNTR). I am confident the investment is solid, but I’d feel better with more general knowledge about investing in the stock market.