Saturday, February 18, 2006


Trading Cramer?

My portfolio declined 0.1 percent yesterday to finish the week up $3,612 (0.5 percent) to $663,406. However, all the major indices posted superior returns, with the NASDAQ rising 0.9 percent, the S&P 500 gaining 1.6 percent, and the Russell 2000 picking up 1.9 percent. A noteworthy milestone was reached this week: after deducting the $25,000 cash deposit I made last year, my portfolio is up $300,000 since my very first entry on this blog back on December 3rd, 2004.

I must admit I have a bit of a love-hate relationships with Cramer. I love the way he thinks but typically hate the stocks he picks because many of them are already up huge by the time he recommends them. As the good folks at Booyahboy Audit have thoroughly documented, a diversified portfolio of Cramer's picks on Mad Money has only outperformed the NASDAQ and the S&P 500 by about 3 percent since July 2005 and has probably broken about even against the Russell 2000. Furthermore, since almost all stocks pop up at least several percentage points after Cramer recommends them, it's usually difficult to buy the stock at the price at which it was trading on the day that Cramer mentioned it. This further decreases returns.

However, I still think there may be some profitable trading strategies based on Cramer's picks. Perhaps it makes sense to buy his picks and hold them a few days or a few weeks? I really don't know. For those of you who watch the show regularly and have some insights, please leave a comment and let us know.

I don't watch the show regularly, but listen every now and then on my way home from work (CNBC on Sirius satellite). I cringe every time I hear a stock mentioned on his show because I know there will be a 5% movement the next day that has absolutely nothing to do with the intrinsic value of the stock.

Of course, that's because it has only been stocks I'm interested in buying. If I were interested in selling, I'm sure I would feel differently.
I'm not really sure what to make of Cramer. For sure his show is entertaining, but I'm always a bit weary of following such a large crowd.

By the way, love your blog!

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