How You Can Beat Jim Cramer's Portfolio for Free

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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jma4nyc

One factor completely missed here, IMHO, is investor behavior. Cramer gets individuals engaged in their investment process and the market in general. And by taking greater interest in what you own, you are more likely to put more capital towards your portfolio, as opposed to a depreciating discretionary asset. THIS APPLIES TO THE SHOW ONLY. His Action Alerts Plus newsletter should be held to a more quantifiable standard. And there was also the recent debacle where the marketers for AA+ did not include dividends for the bnechmark, but included them for the AA+ portfolio. Whoops!

July 21 2011 at 11:02 AM Report abuse rate up rate down Reply
rcook0108

Cramer"s constant attempt at ego building himself up---is a clear sign of who you would never want as an advisor---check his audited track record for the past 5 or 10 years---HE HAS A NET, NET NEGATIVE RETURN ON STOCKS, INVESTMENT ADVICE, etc. He has a very limited duration of time on the tube, due to the fact he turns 70% of the audience off---soon the producers will wake up! Ralph

October 12 2010 at 1:20 PM Report abuse rate up rate down Reply
castcutters

Jim Cramer is to investors what the Ford Probe was to sports cars. For those who don't know any better Jim Cramer is an "advisor".

August 09 2010 at 10:41 AM Report abuse rate up rate down Reply
1 reply to castcutters's comment
doniu

You've obviously never driven a ford probe. I'm being serious.

August 31 2010 at 5:15 PM Report abuse rate up rate down Reply
actnhrd

Jealous man, spewing sour grapes. From me and my family, BOO_YAH Jim, you Rock!

August 09 2010 at 10:18 AM Report abuse -1 rate up rate down Reply
thegrrrr8est

So, the Raymonds lost money on a Cramer pick. So? I lost a quarter of a million dollars investing with the golden boy of mutual funds. Anybody who invests is taking a risk. Including Warren Buffet and all the Wall Street wunderkids. That's why they call it *risk*. You took a risk and it didn't pay off. If you can't stand the downside, put your money in a bank. Don't blame Cramer. He preaches diversity, diversity, diversity -- which doesn't protect you from loss, but sure does mitigate it when things go south in a hurry. For what it's worth, I think it's pretty lazy and disingenuous to claim that Cramer was wrong "80% of the time" without backing it up with some hard stats.

August 09 2010 at 10:09 AM Report abuse rate up rate down Reply
1 reply to thegrrrr8est's comment
Dan

For "hard stats", please see:

online.barrons.com/article/SB118681265755995100.html

August 09 2010 at 10:36 AM Report abuse rate up rate down Reply
dodie1990

No question that Cramer has made a lot of money. However he is wrong at least 50% of the time. Fun to watch. If you want to play with 10% of your cash that you can afford to lose go ahead. But those of us who do not have access to all that insider infromation, or couldn't understand it if we did are better to build a srtong portfolio that is well diversified.

August 09 2010 at 9:53 AM Report abuse rate up rate down Reply
The Raymonds

I was doing great until I stumbled on this moron Jim Crammer. He highly recommended a stock and said"do your home work" a few days later I bought it and that night he recommended selling it while jumping up and down like a chimp. After that I started tracking his recommendations and found he was wrong 80% of the time. Don't listen to this clown or you will loose money folks

August 09 2010 at 9:40 AM Report abuse +1 rate up rate down Reply
rgif102478

And just tell us what your pitch is all about? It would
appear you have an axk to grind, but why do it where everybody
can see, do it with Jim and Jim alone.

August 09 2010 at 9:31 AM Report abuse +1 rate up rate down Reply
amosesjr

Cramer is a great entertainer........and I'll add that he is highly intelligent, with tons of data in his "computer" crania. Only thing that keeps me from paying more attention to his--or other "analysts"--calls, is that they have portfolios of their own. One can learn a lot from Cramer about the market, but one can never completely trust individual "picks." (If it were so easy to make money in the market.....WHY would anyone work so hard to make money elsewhere?)

August 09 2010 at 9:30 AM Report abuse +1 rate up rate down Reply
johnincl

Ultimately, you have to make your own decisions. But Cramer has consistently helped me to make money and to understand the market in different environments.

August 09 2010 at 9:18 AM Report abuse +1 rate up rate down Reply