If you are a fan of late night television you will have no doubt seen the countless video replays of Jim Cramer (of Mad Money fame) pounding the table that “Bear Stearns is fine” just days before Bear Stearns collapsed. I don’t know the actual figures, but I’m sure there are just as many people who watch Cramer for stock picking advice as there are those who watch him for pure entertainment purposes.
Before I get to the controversy, I will point you to a post by Michael James On Money that discusses analyzing Jim Cramer’s picks as an investment strategy.
But now on to the controversy. You have probably heard that the U.S. investment bank Bear Stearns was acquired for a measly $2/share after recently trading in the $160/share range only 1 year prior. The collapse of this bank has made the headlines round the world in a very public way. What was also public was Jim Cramer’s answer to a question from a viewer about Bear Stearns days before this downfall occurred, which you can view here:
Of course, this is a bit embarrassing for Cramer, but apparently everyone misunderstood him. According to Cramer, he was addressing whether someone should take money out of their “accounts” at Bear Stearns, not whether they should sell their stock in Bear Stearns… Hmmm… Take a look at this clip:
Something doesn’t seem right here. A little more digging was done by Don Harrold which indicates that on the show’s website on March 11th, 2008 there was indeed a buy recommendation made by Cramer on that very day for Bear Stearns common stock:
The fact that he made a wrong call would be a drop in the bucket versus this type of back-peddling and attempt at cover-up if it is indeed true, but I will leave you to be your own judge. Have a wonderful Easter Weekend everyone!
Thanks for the link. I saw this clip of Cramer on the Daily Show. Funny stuff. Unfortunately, he wouldn’t have a show if he told the truth saying: "I have no idea what is going to happen."
Did Cramer later say that the viewers "misremembered" his quote? Haha.
Put me in the camp that watches Cramer for his entertainment value. That said, wish I would have bought Bear Stearns at $2 so I could have sold today at $12+. Frankly, I think the stock stinks like a rotten fish and many shareholders are still going to lose a lot of money on it.
If you are taking your advice from a TV personality who doesn’t know you from Adam, then you will get exactly what you paid for.
Even if he knew anything, he can’t be seen to be causing a run on the bank. Disclaimers at the beginning (and end?) of every show aside, his opinions can move markets. And if he says "pull your money out" just before BS collapses, the litigation potential would be unimagineable.
Mommy always used to say "if you can’t say anything nice, say nothing." While he’s never been known to pull punches, in this case he might have been better not to have mentioned Bear at all if he knew something was going down.
Cramer’s pretty good, especially when talking about the principles behind investing, and how to do your homework. And for the most part when his recommendations go wrong, he’s willing to admit the mistake and analyze where he went wrong.
However, he does have a blind spot when it comes to finance and banking industries, and can go off the rails defending losing companies or crying for government actions to help the industry claiming the entire economy is on the line. You just have to remember that these guys are ‘his people’, and his analysis is affected by that.
Which is why you should never act on an analysts word alone, which Cramer himself says quite often by encouraging investors to do their homework on their investment choices.
That fact means that current controversy shouldn’t be dwelled on too much, other than to note his flaws.
"Those who know don’t say and those who say don’t know".
Jim made mistake and doesn’t want to say "I was wrong". <sarcasm> WOW, it’s a new concern on Wall/Bay street, he is the first one to behave such way. </sarcasm>
The same problem happens with Garth Turner who was promoting Nortel heavily all the way down from $120 to under $1. When people called his mistakes on his own forum, what he did? He just shut the forum down. Nice way to deal with a problem.