I analyzed 20k recommendations made by Jim Cramer during the last 5 years
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That seems like a big caveat. Wouldn’t lack of stock price data be an indicator of delisting?
That's one reason. They may not have pricing due to licensing issues at the source, as well. Yahoo Finance is pretty good for a free resource, but it's not as comprehensive as paid sources.
But, even if it's due to delisting, delisting is not inherently a negative thing. It can happen due to mergers/acquisitions or a formerly public company going private, for instance.
It's also rather comical that he's right a little over 50% of the time when making a positive prediction and a little less than 50% of the time when making a negative. Or to put it another way, the stock market goes up -so when you predict it goes up, you're generally right.
The feedback loop on whether you've made a good decision can be a long time:
> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about.
> But, what about stock picking? How long would it take to determine if someone is a good stock picker?
> An hour? A week? A year?
> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.
* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
Are you willing to stake your financial future on beating the odds that you're better-than-the-average/market? Especially over the course of multiple decades saving up for (e.g.) retirement, and then keeping your portfolio during the (hopefully) decades of retirement. (Of course you can do good enough to meet your financial goals, even if you could have done better using (say) index funds.)
If I actually (by picking stocks) have a lower expected return than the S&P, shouldn't I be sending all the hedge funds my stock picks so that they can short them (while being long S&P) - therefore beating the benchmark ~75% of the time?
The only way the player, and everyone else, knows he has technique because it is obvious right away when the ball goes in the hoop. The point of the author's weblog post is that this instantaneous feedback generally does not occur with evaluating returns. One may have to wait weeks/months/years to see if a particular strategy works / will work out.
Yes! If you compare to the coin toss baseline, you need to weight it by how the average stock (whatever that means) moves. So the baseline of a 50-50 coin toss is misleading, and should probably be 50+epsilon, 50-epsilon instead, in order to be a fair comparison. However, the S&P 500 baseline is solid, imo.
edit: Stop downvoting me. I did not realize parent commenter was OP of the reddit post.
Only 20 trading opportunities a day, fairly limited alpha on each trade (1-3bps), limited liquidity since you're just trading against the small retail population watching Cramer at that time, the possibility of getting picked off by another institution who figures you out...
Currently Steven Seagal is getting raked over the coals on Reddit due to some of the extraordinary claims he's made about his martial arts abilities, they don't quite line up to our current understanding of what is effective (think, less Aikido and more Ju-Jitsu, at least in the ring).
I think what has happened to Steven Seagal (and here to Jim Cramer) is that we're now in the era where it's possible to (somewhat) easily fact check the claims that you make and prove that they're wrong.
In the 90s, I thought that was a purely good thing but now I’m wishing we had an in-between version where stuff just shy of time cube has millions of fans.
My point is that in 1995, my first thought was, "you know, we can instantly check this stuff now, as the words leave your lips." I don't know that politicians have been made more honest as a result, but it's an improvement anyway.
In the case of Cramer, who cares enough to trade on his recommendations? Doesn't matter, that isn't the point (but thank you, TFA author, for the effort). The point is that instead of vague memories of how it turned out, like we'd have to make do with 40 years ago, we have folks that can make sense of 20K records and tell you whether Cramer is full of shit, generally speaking.
You're absolutely right that the internet in general has made this much easier though. There's even an entire website that's been around for probably 20 years called bullshido that is a play on "Bushido" and "bulls**" that covers this topic in detail iirc.
Presumably there's a small team coming up with a list, just as there's a team of writers for a comedy show.
The program is pure entertainment and as far as I can tell unashamedly so. I can't really find fault with that any more than I can with people, say, watching sports on TV.
https://m.investing.com/analysis/6-stocks-responsible-for-ne...
Pretty big caveat there...
I can't see it's illegal, nor do I think it should be. I don't think it's wise for the punters, but I doubt that's terrible. If someone had sunk their life savings into one of these picks and lost their shirt, it would have been widely reported.
It’s not obvious what the right thing is. On one hand it’s important to remove conflicts of interest. On the other hand I wouldn’t run for congress* at all if it meant giving up my portfolio (not just giving up control for a while but actually, especially as I have a relatively high percentage in private companies that couldn’t meaningfully be put in trust).
* don’t worry, there are other reasons why this wouldn’t happen.
No offense, but I think that would be working as intended. You can't serve two masters. It's the very definition of a conflict of interest.
I think it’s important to recognize that there’s a dynamic tension in the system. Typically, people have expertise in a domain through their experience in it. People who worked in the oil industry know more about oil exploration than, say, I do. Rules I would make about the oil industry would be uninformed, and would likely be terrible. Yet you can’t have 100% self regulation or you end up with regulatory capture.
People are complicated and these are hard issues. In my experience few people show up intending to be completely selfish about their activities.
> People are complicated and these are hard issues. In my experience few people show up intending to be completely selfish about their activities.
Intentions don't matter as much as actions. The norm in Washington is self-serving, and the watchdogs and anti-corruption mechanisms have corroded and are breaking down. Corruption has taken over, and the system is rotting. The only thing that can fix it is going back to the rules, not the intentions. Consequences change behavior, and those require a functioning system that fights corruption and a dedication to keeping that system functioning. Instead, neither rules nor attitudes seem to matter these days.
The situation you described is as old as the republic, and probably for all of human history. The American revolution itself succeeded through bribery in Whitehall.
Jim Cramer’s employment contract almost certainly excludes him from purchasing individual equities, I’d be willing to bet a large sum of money on it.
That trend should be viewed in context.
The DJIA over the 5 years of the study went from 20,812 to 36,407, a rise of 75%.
Any pick of Cramer's (or anyone else) would have to rise by more than that rate to beat the market.
You would get eaten alive by transaction costs, the bid/ask spread, and, if trading in large quantities, the market's response to your buy & sell orders.
This almost reminds me of the typical /r/WSB stuff that "literally can't go tits-up"
So his picks do not beat the market on average.
He’s a very good entertainer.
On the other hand, if the basis for the buy is the price say, an hour after the show, and the sell is priced 24 hours later, then it would be a viable trading strategy for an individual investor.
As an aside, it also looks like there's a decimal error in the 1-day SPY Buy row, it's unlikely the SPY Buy return would be 10x the SPY Positive Mention return---the difference between them should be small, since for SPY it's largely a random 1-day sampling over the 5-year timeframe.
If these are stocks traded on major exchanges, you can place a market buy at open order, and get the opening price. You can then place a market sell at close order and get the closing price. Not that either of those are a particularly good idea, but they are available if that's what you want to do.
Would Cramer's advice be better if you could retroactively buy or sell before his show? Maybe, but that's not a realistic question.
Assuming that's true, would it be unethical/illegal if you knew what he was going to recommend and then buying that ahead of his announcement?
Further, would it be unethical/illegal for Cramer himself to buy all the stocks ahead of his own recommendations?
And further still, would it be unethical/illegal for Cramer to sell a service where you could give him money and he'd make the trades for you ahead of his own recommendations?
IANAL yadda yadda.
On the contrary, this is the least surprising thing in the world. Most professional fund managers cannot beat the market in the mid to long term, let alone a TV personality like Jim Cramer. I'd instead be very surprised if the results had shown him to be a competent stock picker.
From having tried this sort of stuff, no you can't! What happens is stock X has people say willing to buy at 90 or sell at 100. Before Cramer or whoever recommends it it's trading at 90, as soon as people start buying they end up buying at 100. Hence Cramer can look brilliant if you just glance at stock he tipped went from 90 to 100 but if you try trading you buy at 100 and if unluck sell at 90.
That’s my reading of the wall of text as someone with no real interest day trading, or really individual stock picking in general
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
Of course those top-percentage stocks also change over time, so even if you pick the top 2% today, you have to make sure they're still the top ones in the future.
You also have to have a strong stomach at times: AMZN dropped 90% after the Dotcom Bubble. Further, a good portion of stocks that do have such extreme declines do not recover:
> Risk of permanent impairment. Using a universe of Russell 3000 companies since 1980, roughly 40% of all stocks have suffered a permanent 70%+ decline from their peak value. For Technology, Biotech and Metals & Mining, the numbers were considerably higher.
* PDF: https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/glob...
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
Some of us have been through a couple of ups and downs.
The second study has used data going back to 1926, which would be a time period where interest rates were quite varied.
> b. One-Week
> c. One-Month
Yikes! I know it's fun, but you're never going to make money investing this way. Your daily/hourly buys and sells on scottrade will never beat the institutional investors.
Here's the obligatory mention of A Random Walk Down Wall Street [0] if you want to learn why.
TL;DR: Put your money in an index and keep it there _forever_. You'll make more money and retire sooner than your day-trader friends.
[0] https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...
I do these things all day at Quantbase. We tend to focus on longer term strategies with more “moat” so to speak, but have the shorter term plays like a Nancy Pelosi tracker you can throw some money in. A Jim Kramer tracker would fit right in there!