Wednesday, February 11, 2009

Monkey see, monkey day-trade?

Anyone else following this running feud between Barron's and Jim Cramer? Just to provide some background for those who aren't heavy into finance/the Market, Barron's is, well, Barron's, and Cramer is, well, Cramer. There...that clear things up for you?

In all seriousness, it's not so much a feud as a one-sided war of words being waged by the elite business magazine,
which carefully cultivates (and probably deserves) more of an "insider" rep than the like of Forbes or Fortune. And really, most of the sniping has come from a single Barron's staffer, senior editor Bill Alpert. In August 2007 Alpert did a cynical cover piece on the pop-culture stock guru and host of The Street, who's known for his voluble, animated nature andshall we sayhis sense of self. (If you haven't seen Cramer, he comes across as the Billy Mays of personal investing. Here he is in fine form, going off on Fed chairman Ben Bernanke.) Alpert argued that Cramer, for all his ranting and raving and presumed familiarity with even the darkest alleys along The Street, has lagged behind the Dow in his overall scorecard. The piece generated some buzz in finance circles, and though several people rallied to Cramer's defense (including his bosses at CNBC), the mouthy one himself had surprisingly little to say. Well, Alpert is back, this time to inform us that again in 2008, the year of the bear, Jim Cramerthe savant, the know-it-allstill ended up about 5 clicks short of the Dow. The implied question: How could someone as supposedly savvy as Cramer manage to finish behind the rest of Clueless America during a terrible year, the kind of year where even a modicum of specialized knowledge could make all the difference?

Without diving unnecessarily deep into the muck of Shamer vs. Cramer, I think there's an instructive lesson here. Actually there are two of them.

1. Looking at the stock market makes one mindful of the famous William Goldman quote about Hollywood: "Nobody knows anything." Meaning, the Bel Air Mafia walk around talking like they have their collective finger on the pulse of things, when in fact the reasons why a movie works or doesn't work, clicks or doesn't click, are a mystery to all. So too with stocks.

2. Because of (1), most people have no business screwing around in the Market, especially if they're doing it with funds they might need in order to avoid having to subsist on cat food and Social Security someday.
In further evidence of the point: One of the reasons I write for a non-living is named Andy Tobias, an erstwhile financial journalist* who more recently has devoted his time to little things like serving as treasurer of the Democratic National Committee. I met Andy when I was selling wall mirrors in Manhattanselling wall mirrors in Manhattan being one of those surprising lowbrow ways in which a person could pull in $50,000 a year back in 1980. Andy had called to get the foyer of his ultra-nice Central Park West co-op done. (He then lived right up the street from the Dakota, best known as the place where John Lennon lived and ultimately died. I was working just a dozen or so blocks north, on the lower fringe of Harlem, the night it happened.) When you first walked into Andy's place, he had a little display case tucked demurely off the corner where the foyer turned into his living room. Positioned with utmost care in that case were his best-sellers: The Funny Money Game, Fire and Ice, and The Only Investment Guide You'll Ever Need.** I hadn't known who Andy was before making that turn and encountering that display, but I was duly impressed, so I began peppering him with questions about the writing life; he was patient, expansive and helpful, and within six months I'd launched my own assault on the realm, kicked off by a piece for Harper's that recounted my selling exploits. Which, come to think of it, means I should look Andy up and ream him out for having the nerve to inspire me. Dammit, it took me a decade to climb back to the $50,000 I'd been earning in sales.

Anyway, in the last of those books, Only Investment Guide, Andy wrote at length about the folly of trying to beat the market or even explain its gyrations in any kind of cogent, orderly way. (He advised readers who wanted to secure their futures to pass up stocks and instead buy things like tuna fish and toilet tissue in bulk, on sale, and the cognoscenti gave him some grief for it.) In the book, Andy cited a famous experiment that pitted a group of seasoned investment types against a chimp with a dart board. The investors were asked to analyze the charts and provide their consensus picks for besting the broad market; the chimp was asked to throw the darts at the board, to which the NYSE charts had been affixed. It took a while to get the chimp to cooperate, but finally he made his picks. The two groups of stocks were then tracked for, I believe, six months and...do I really need to tell you whose portfolio outperformed whose?

(HINT: See photo, top right.... And you thought that was Cramer? Or Andy?)

* But an extraordinarily commonsensical one.
** And talk about your basic "evergreen"! Last time I spoke to Andy, maybe 10 years ago, he told me that the book, published originally in 1978, still sold "3000 to 5000 copies a month." There are well over 1 million copies in circ now. In fact, the original hardcover from Harcourt-Brace, though long out of print, remains Amazon's #60 best-selling personal-finance book by virtue of being traded back and forth on the "used book" market. And here's the final kicker: Even though it's the "only" investment guide you'll ever need, that didn't stop Andy from publishing a sequel, 
Still! The Only Investment Guide You'll Ever Need, in 1983. By that time he'd added a fourth best-seller, Invisible Bankers, on the insurance industry. Like all of Andy's work, it's a wonderful and hilariously pointed read that will change the way you look at insurance and the idea of risk in general.

7 comments:

Cal said...

Steve,

I'm curious as to your opinion. I haven't seen Andy Tobias on television during this whole financial crisis. I may have missed him cause it's impossible to watch every financial program, but I would think he would be more prominently out there. That is, not by promoting himself, but by the fact that "The Only Investment Guide.." has sold so well for so long. It would seem the networks would be asking him to be a guest.

I just think anyone who takes Cramer other than as a form of entertainment is a fool. He tries to give an opinion on every stock that he is asked about. No one can know a little, but less everything, about all publicly traded companies. But I have read where some people have said that this bear market won't end until Cramer's show goes off the air.

But it his performance does make me wonder how he was able to do so well with his hedge fund for so long. There was some controversy that he was using Maria Bartiromo of CNBC as a conduit during his hedge fund days to feed her information about companies. He would then, allegedly, trade the stocks when she reported his "info" (as a anonymous source) on the air. Cramer also indicated in an interview on TheStreet.com, which is a founder of, that he did some things like feed rumors into the market and then trade the stocks. He quickly back-tracked and said he was misunderstood.

But I think some people had it with him last year when he said Bear Stearns was sound just before they collapsed. He then said last October, AFTER the market started to crash, that people should take their money out of the market for five years. I just think his schtick adds unnecessary discourse that makes me people think they have to make a life-or-death decision with their money every day.

And if you listen to his rant that you linked, Cramer is concerned about his friends on Wall Street and how they will fair. Granted, his speech was from summer '07 --before the s**t really hit the fan, but even then I think it shows where his first concerns were.

Steve Salerno said...

Cal: Andy fell out of the consumer loop some time ago--at least as far as his aggressively marketing himself as an expert-on-call. For a while there he was the resident money guy on the Today Show, or GMA--I forget which--but once he got more heavily into the national political sphere, he stopped pushing his "retail" activities. He does have a fairly active online presence, and I'm told that the CD versions of Investment Guide hum merrily along, year after year selling about as well as any financial materials aimed at a mainstream audience. He'll get eclipsed by the flavor of the day at any given time, but when the dust clears Andy's always there.

roger o'keefe said...

I always saw Tobias's work as "investing for dummies" before it was actually called that. His advice is extremely pedestrian and defensive, your tuna fish example being the perfect illustration. I don't personally think that a bunker, survivalist mentality is the way go here.

I always felt that by listening to someone like that, you might guard yourself against catastrophe, but in the process you would also ensure that you never truly prospered. To stay ahead of inflation, you must invest. Long term, the market always rewards risk.

Street-Wise said...

The market is not for beginners, especially nowadays. In some respects this is a great time to buy in, but you still have to know what you're doing, unless you're just willing to buy and hold indefinitely.

Anonymous said...

Everyone knows the stock market is just a slot machine for MBA's. I think a lot of these "investors" should go to the same meetings as gamblers anonymous. They pretty much are in the same boat. Have you ever read some of these investment boards? They' re filled with people who work for the companies being speculated about. Sell high, sell short, hold, break-even, etc. No one knows what they are doing and if you watch them long enough, you can figure this out. My granny does better putting quarters in the slot machines in Atlantic City. At least she admits she is gambling.

Anonymous said...

I used to be a trader at one of the now failed investment banks and I heard a story about Cramer from back in his hedge fund days...he once called pre-market and ask for a market for one million QQQQ's, and sold to our market maker. A minute or two later, before the position was hedged, another investment bank released a new story downgrading MSFT and the futures market tanked, and we took a bath. And how did he know about the pending downgrade? Because his wife was a stock analyst at that investment bank. He is pretty shady, and obviously we wouldn't trade with him anymore after that.

Cal said...

Anon 11:42,

I know a former employee of his wrote a book about his tactics. It was called Trading With the Enemy (according to Wikipedia), but Cramer dismissed him as a disgruntled employee.

I know his program is heavily lawyered up, because CNBC knows they are kind of playing with fire. But I do wonder why his hedge fund days were never investigated. I think your story helped to show how his fund outperformed the market all those years.

I also remember CNBC suspended him for a time from guest-hosting the Squawk Box program in the late '90s (before he left his hedge fund and started Mad Money) for some stock-picking indiscretion.