PUTS ON JIM CRAMER
Taking a look at Cramer... and his mostly poor track record
It’s no secret in the investing community that Jim Cramer has not had any edge in the market for a long time. Jim Cramer has practically become the epitome of what it means to “inverse a position.”
Entire Twitter accounts and websites are dedicated to doing the exact opposite of his stock picks. Even r/wallstreetbets is in on it.
On top of that, a new ETF has just had a prospectus filed for you guessed it, shorting Jim Cramer.
While not currently active, it is expected to go live on December 19th, just in time for an early Christmas present. Before we dive much deeper into that though, let’s take a look at what Jim Cramer’s stock picking performance has actually been over time.
According to u/nobjos’s thread on r/wallstreetbets (author of Market Sentiment) the buy and sell recommendations have only slightly better odds than a coin toss for picking stocks.
Aside from that, the one day buy/sell recommendations look promising, but its likely this is due to the pump and dump effect of a talking head spitting out stock tickers on live television. The same effect happens with smaller public figures on Twitter when they call out specific low volume stocks.
This is not really a compliment to their due diligence but rather their direct influence over the markets.
It’s quite well known that Cramer’s performance is poor over long periods of time with the exception of a few winners here and there. Given that, why is this?
Part of my guess is that traders that go based on his recommendations must get over the initial drop in value from buying the pump. It’s been observed that there is a noticeable pump on stocks that Cramer makes buy recommendations on during his show Mad Money. However, after everyone is done buying there are no buyers left to support the inflated price level. This in turn causes the price to collapse again.
The inverse strategy works to benefit off of this principle by shorting the eventual decline in artificial buying volume.
Now, returning to the inverse Cramer ETF, I have a few predictions for how this will eventually play out.
There won’t be enough people in the ETF to kill the alpha generated from Cramer’s picks and the ETF will outperform.
There will be more money in the inverse ETF than in Jim’s picks causing the inverse ETF to be a losing game.
There will be enough money on both sides of Cramer’s picks that it erodes any alpha that could be generated from either side.
In my opinion, the third option is the most likely because it will put more eyes and attention on the stock thereby increasing its overall market efficiency.
If the inverse Cramer strategy is alive and well now, I don’t suspect it will be for much longer.
While this market anomaly has been identified in the past, the January effect seems to have largely disappeared as its presence became known. - Investopedia
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