In a lame effort to redeem himself from withering attacks by Jon Stewart, Jim Cramer made the talk show rounds, answering soft ball questions from his colleagues at NBC.
His primary lament was that he is not given credit for his call for investors to get out of the market which he made on October 6, 2008. Here's what Cramer said in an interview by Meredith Vieira on March 10, 2009:
"On October 6th, 2008, I came on this show and did something you're never supposed to do if you have a stock show. I said people should sell everything. That was thirty-five percent ago. Whatever he says about Bear Stearns, this or that, that was a call that should have wrecked my career, and it would have if the market had gone up."
Not exactly.
Here is what Cramer actually recommended on October 6, 2008:
"Whatever money you may need for the next five years, please take it out of the stock market right now, this week."
At the time, Cramer noted he "thought about this all week-end" and he did not want "...to say these things on TV".
Wow. Was this a dramatic and profound insight by someone who knew what was going to happen?
No.
There is a huge difference between telling all investors to abandon the markets and advising those with less than a 5 year time horizon to do so. The former is a prediction of the direction of the markets. The latter is Finance 101.
Any financial advisor worth his or her salt knows investors with less than a five year time horizon should never have any exposure to the stock market.
Jon Waggoner, the personal finance columnist for USA Today, wrote a column in September, 2002 in which he said "[If]you have less than five years, you should be entirely in money funds or short-term bonds."
This was not a prescient prediction. It was a statement that anyone who knows anything about intelligent investing would routinely make to all investors.
I'm sure Mr. Waggoner didn't have to agonize over this advice. He (unlike Cramer) made no claim that this view was a psychic prediction about the direction of the financial markets.
Either Cramer was lying in his most recent Today interview or he doesn't understand the difference. Both scenarios are equally bad.
It is precisely this kind dissembling or fundamental ignorance about the markets that makes the hyped-up promotion of Cramer as an "investment expert" by CNBC and NBC so irresponsible.
In a new book, How A Second Grader Beats Wall Street, Golden Rules Any Investor Can Learn, Allan S. Roth sums it up nicely. Roth's second grader son mentions he doesn't watch Cramer because he prefers Sponge Bob. Roth compares the two, noting:
"One's a cartoon character that never knows what's going on in the market, and the other is a human cartoon character who rants about buying and selling and encourages others to engage in foolishness. Kevin at least knows Sponge Bob characters aren't real, which is more than I can say for some of Cramer's followers betting their nest egg."
My advice is very simple: Buy a copy of Roth's book. Let Cramer and CNBC find greater fools to drink their Kool-Aid.
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