How You Can Beat Jim Cramer's Portfolio for Free

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How You Can Beat Jim Cramer's Portfolio for FreeIt's no secret that Jim Cramer and I have our differences. Our confrontation last year on CNBC's Power Lunch generated a lot of buzz. My basic gripe with him is that he makes it appear that he has some special insight into the markets which is of value of investors. However, I'm unable to find any evidence that's the case, and lots of data indicating it isn't.

So naturally, I was intrigued by this call to action on his web page, thestreet.com: "My charitable trust portfolio was up an amazing 31% in 2009, even when the market was on a wild roller coaster ride. In fact, for years, I've made money in good markets and bad."

This statement is part of a pitch to get subscribers to Cramer's "Action Alerts Plus," which gives you "24/7 access to [Cramer's] portfolio." As an added inducement, if you order "right now," you get a free "Booyah Bull." How tempting!

Curious, I checked to see just how "amazing" Cramer's 31% gain was in 2009. First, I looked at the returns of an all-indexed portfolio offered by our firm, Index Funds Advisors. The Index Portfolio 100 seemed like a fair choice for comparison purposes, because it consists 100% of passively managed stock mutual funds. No effort is made to "beat the markets" with this portfolio.

Buy and Hold Beats Booyah Bull


So, how did the Index Portfolio 100 do in 2009? It was up 39.63 %, net of adviser fees and expense ratios of the funds. (See the full disclosures relating to these returns).

Since access to this portfolio requires retaining an investment adviser, I ran the returns for the Vanguard index funds recommended in The Smartest Investment Book You'll Ever Read, which I wrote in 2006. In it, I advised investors to place 70% of the amount they allocated to stocks into Vanguard's Total Stock Market Index Fund (VTSMX), and the remaining 30% in its Total International Stock Index Fund (VGTSX). These are two low-cost index funds that simply track their respective indexes.

How did this "no brainer" portfolio do in 2009? It was up 31.1%.

With this portfolio, you simply bought and held. No need to watch the financial media or to follow the markets. No frenetic buying and selling. You slept well knowing you had a globally diversified portfolio of stocks (even though an asset allocation of 100% in stocks is far to risky for most investors).

Cramer often uses the S&P 500 index as the benchmark against which he compares his returns. It's the wrong benchmark, because Cramer recommends many small-cap and foreign stocks, which are riskier than the stocks in the S&P 500 index. In a bull market, riskier stocks will yield higher returns. However, anticipating his howls of protest, I will note that the S&P 500 index was up only 26.6% in 2009.

As for Cramer's assertion that he "makes money in good markets and bad", here's my offer: Show me verifiable returns for your charitable trust in 2008 -- by any definition, a bad market -- and I will publish them.

Still, Cramer does offer one thing you can't get with an all indexed portfolio: the Booyah Bull!

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