Jim Cramer's "Call Of A Lifetime," Revisited

Jim Cramer's stock "call of a lifetime" came 53 weeks ago, on October 6, 2008.

That was the day he abandoned his usual niche-network platform to implore NBC's Today show viewers to dump their stocks because the market was going to plunge another 20%. (It was already down 30%+ from the peak.)

I lambasted this call at the time. Not because I thought Cramer was wrong about the market -- I actually agreed with him on that (see here). I hated the call because, like most of Cramer's advice, it was a market-timing call. And market timing is generally a terrible strategy, especially for individual investors.

A few weeks later, Cramer branded this the call of his life.

But was it really so wise?

The market did plunge after Cramer's Today show call. In fact, instead of the 20% decline he was worried about, it plummeted 35%.

So those who panicked when they heard Cramer's plea felt great for a while. And if they got back in in the spring, they're feeling great right now. For these folks, the call really was the call of a lifetime. (It would have been better if Jim had made it back in 2007, before the market plummeted 30%. And it would have been better if he hadn't called the bottom three months earlier, in July 2008, and told everyone that the bear market was over. But who's counting?).

Of course, 53 weeks later, the market is now back to the same level it was before Cramer made the call. So investors who did not get back in this spring are probably not so happy.

Investors who just ignored Cramer, meanwhile, are far better off than those who sold and did not buy back in. They did not incur any transaction or tax costs, and they collected (and, hopefully, reinvested) a year's worth of dividends at much lower prices. If they kept investing regularly or rebalancing as stocks fell, moreover -- important parts of a wise investment strategy -- they accumulated a lot more stock at lower prices, thus coming out considerably ahead.

Cramer was certainly right about the near-term direction of the market, and, for a while, he saved those who acted on his advice some money. A year later, however, with the market having recovered all of its losses, Cramer's call just looks like noise. And, in my opinion, it stands as yet another clear example of why most investors should avoid market-timing.

See Also: 15 Amazing Stock-Market Charts

 

 

Follow Henry Blodget on Twitter: www.twitter.com/hblodget

Comments

[nexxtep54]

An economist can take 100 random people and tell 50 to invest in Ford and 50 to invest in GM.
Half will think him a genius, half a fool.
Still, he gets 100% of his salary.

[senorlou]

You mean, people are still listening to this guy? He has zero credibility. He makes one bad pick after another, and here's one more example. Who is crazy enough to actually listen to Cramer and risk losing more money than they already have?

[ntmessage]

I am sure you mean Mr. B, not Cramer. Right? Teleco in the dot bomb era? Cramers macro calls during the worst market of our time got most people out and back in the market at the right times. If you stayed in you are down 40%. If you did Cramer's trade you would have almost a double. If those calls are losing money then these critics need to learn simple arithmetic.

[GG NV]

Cramer is very biased as a bull as he chairs his charitible trust for subscriptions. In a bear or down market he can't tell his suscribees to short a stock therefore as a result he looses his subricriptions or gives them away at a steep discount. Now in a bull market or long bear market rally Cramer will often direct his suscribers on where to invest and sell. That's when he ussually markets his suscriptions at a premium price.

That's why most of time Cramer is biased on the bullish side such that he can sell more of his subscriptions versus when the market is going down he has to give them away at a steep discount.

[andrew0823]

Mr. B with all due respect REALLY? You from the go go 90's should not be writing about anyone. Mr. Cramer has become an entertainer as much as a stck advisor watch if you will, but with caution. CNBC has become the finqancial arm of Fox news.....r­arely if ever do they have a D on to discuss the economy...­always former Bush or McCain folks as well as these random right wingnuts Senaotr K. Bond (Missouri) really? Come now.

[Bud777]

Well, I certainly think that something should be done about "experts" who use the media to manipulate stock prices. At a minimum they should be banned from the securities industry for life. Oh, wait, that was Henry wasn't it????

[grateful4thedead]

I think Cramer's most notable call was the buy on Bear Stearns.

by the way, he recommended buying CIT recently.

[qwazzymotto]

Its easy now to talk about things with hind site 20/20. But the truth is back then we had no idea where the market was going. For all we knew we could have gotten into another depression and the stocks could have gon to 6400 and stayed there for the next 10 years. It could have gone lower. We just didn't know. If that would have happened and today the market was still at 6500 or lower, would you be writing this article about cramer. The truth is who listened to him and got out and then back in at 6500, walked away with a big smill on their face.
I just finished reading his book Real Money. What I would like to know is how many people critisize home out there have read his book and followed his instructions to the T and still think his an idiot. I have read it and I think he give very realistic sensible advise on how to invest in stocks. I think people just watrch him on TV jump on the stocks he talks about and loose money and then they say he is an idiot. As far as I am concerened there is not in his book that idiotic stupid or ill advised.

[wietog]

Look people, the ONLY way to make money is to have money already and get involved way up at the top where no lowly average citizen can venture.

Or, work yourself to the bone and create your own business but be lucky enough to time it right and be in the correct industry/n­iche/locat­ion.

Of course, you can also work for AIG or Goldman Sachs.

[dannyo152]

For all those who call buy and hold too old-fashioned for today's market, well, don't market timing strategies rely on making trade after trade with persons who are as wrong as you are right?

[mikekc]

For the first 6 months of this year Cramer predicted the housing market would bottom on June 30th. The evidence so far is he was wrong on that one. I quit watching CNBC other then the snippets where it's forced in my face at the health club. The CNBC crew wants whatever will make the markets go up even if it means begging for government bailouts, yet they don't really care about the economy or jobs as long as the markets are doing well. They are me first, America second.

[ntmessage]

But Cramer DID tell you to buy back in at DOW 6500. Why would you sell when he said and not buy in when he said? Nonsense. In that case you would have close to DOUBLED your investments.

[Carl Caroli]

Buy and hold is an old strategy that's no longer valid in this quarter-to-quarter profit driven economy that's taken hold over the last 25 years. Many formerly solid, old buy and hold type companies like AT&T gamed the system and screwed their share holders royally by diluting shares (issuing more and more common stock and selling it to us shmucks), splitting off entities, and the like. The stock market is now one big casino with the banks and insiders playing the part of the house, which always wins. The rest of us little investors are the losers.

[LeonBNJ]

I have limited resepect for Cramer, to me he is just another Wall Street shill using bombastic behaviors like right wingnut political commentators pushing up stocks for his own gain and ego. Long before the initial crash in mid-2008 he should have been warning people that stocks and bonds will go down at some point, that they cannot go up forever.

[seawolf77]

A stock market tip : Don't listen to them. Don't give them. There is no such thing as an expert in the market. There's only people who got lucky in the limelight. What is it about talking heads in a little square box seem to give the impression they know what's going on and they are ALWAYS wrong and their faces nevertheless never change. Sometimes I want to write a book "Never Ever Listen to Any Expert about ANYTHING FINANCIAL Ever Again". With a subtitle "We'll cure you of what ails you" and a snickering goldigger for a cover.

[Viper]

I will never ever buy into again the buy and hold nonsense. First there are stocks that are cyclical. U.S. steel went from 32 to 170 down to 20 back to 44 or so...(same movements for FCX) It makes no sense to hold such stocks long term .. since as the economy changes... their value changes greatly. You may not get perfect timing... but when a stock goes up a couple of hundred percent ... you need to be taking profts as Crammer says.

He is far from perfect. But he is not bad. He is not a day trader, but he is also not a buy a stock and hold investor.

And by the way pls note if you were buy and hold... well when you factor in the devaluation of the dollar, you are worse off than ten years ago when the stock market was at 10K, but a dollar was worth twice as much.

So again we disagree! And your analysis is flawed because you ignore that buy and hold means the people who bought stocks in 1998 and after it went above 10K all the way upto 14K... are no where near back to whole unless they had sold out when the stocks started dropping from 14K for all but a very few stocks and that would not be buy and hold.

If everyone followed buy and hold... then stocks would never go down! But they do!
.

Regards