Econ4u on how Much Money Cramer Might Have Lost You

by Deb Cupples |  Econ4U asks the question, "How much money would taking Jim Cramer's advice have cost you?"  The writer has an interesting answer:

"Imagine you owned 1,000 shares of Apple (AAPL) on December 22nd, 2006, the day Cramer talked about fomenting his short of the company. Based on his advice, you decided to sell your Apple shares, which on that day were worth $82,200. Your Apple stocks had risen from a low of about $50,000 earlier that summer, so you would have felt pretty good about the sale. However, if you ignored Cramer and held on to your Apple stock, you’d have about $95,000 today. Ouch....

"On March 11^th, 2008, Jim Cramer recommend buying Bear Stearns. If you took your Apple stock (worth $127k at that point) and put it in Bear Stearns, you would have had a very rough week watching your investment drop 96%, to $7,499. If you want to lose $120,000 in a week, you don’t need anyone’s help. I recommend Las Vegas, but I hear Macau is nice too." (Econ4U)

Why is it unwise for ordinary investors to pick stocks based on advice from TV personalities? 

First, we don't know what their agendas are.  Do they, personally, own certain stocks whose prices they'd like to see go higher or lower?  Does their employer -- or a sponsor -- want to see certain stocks go up or down?

Second, as Econ4U points out, there are laws against market manipulation, but federal regulators have done a poor job of enforcing them over the past eight years or so.  In other words, it's been a bit of a free-for-all.

What bothers me most is that our politicians and regulators began -- at least as far back as five  years ago -- seeing all the evidence they needed in order to grasp the dangers posed to ordinary investors by self-interested so-called "analysts."

 Jack Grubman, comes to mind, a man who was widely regarded as a superstar telecom-stock "analyst."  He was constantly in the media.  He devoted much of his star power to hyping WorldCom stocks to trusting investors, even as that company headed toward bankruptcy (which it filed in mid-2002). 

Did he dupe so many ordinary investors for the sadistic pleasure of it?  I doubt it.  It's more likely that his motives were fueled by dollar signs.

Mr. Grubman worked for Citigroup's trading arm.  His hyping of WorldCom stock reportedly helped Citigroup's investment-banking arm continue getting WorldCom's very lucrative business.

Other Buck Naked Politics Posts:

* Stewart v. Cramer: Jon Sums up Scams & CNBC, Jim Plays Meek

* Real Bonuses Based on Fake Profits

* AIG to Give Bonuses --  and the Resulting Political Theatre

* Amazing Feat: Execs Made Millions While Driving Companies into Ditch

* Report: How Lobbyists & Politicians Caused Financial Meltdown

* Politicians Still dancing for Banks: Citigroup's Repeated Rescues

* Taxes: Media Manipulate People To fight Their Own Interests

* ABC News: Treasury Official Helped Bank Commit Fraud?

* Media Fails to Cover Economists Who Want Bigger Stimulus Package

Comments

[Steve B]

I've been a fan of this site for almost a year now but as of late it seems like BuckNaked has shifted more from the realm of intelligent commentary to flat out finger pointing. Instead of bashing talking heads like Jim Cramer why not attack the real problem as opposed to chasing each and every little symptom of the sickness. I may still be an undergrad but even I know the REAL truth is that our whole monetary system is unstable by design. Why not do a story on how our banking system actually works? I'm sure the reader's would be glad to know they're tax money supports a government protected Ponzi Scheme. Instead of hammering analyst's for giving false hope how bout talking about how the FDIC is broke meaning they only give the illusion of any real insurance. I'm not saying that the corporate leeches who are screwing people over should get a free pass but when was the last time this site took a shot at the Federal Reserve? They're the real ones screwing America and our politicians/the media either seems to be too greedy or stupid to do anything about it. To make matter's worse at this time of crisis congress keeps rushing to make decisions about trillions of dollars with what seems like little knowledge of how financial markets work. Crisis or not the media and politicians alike need to SLOW DOWN and look at this monster as a whole instead of focusing on it's footprints. Who cares if Cramer's advice cost people a few thousand when in comparison The FED's inflationary practices suck value from everyone's dollar regardless of which way the market goes.

[Charles]

The example Econ4U gives is loaded, because it assumes you did not reinvest the money gained from the sale of Apple. Granted, you might have reinvested in Microsoft and converted your $82K into $40K. But if you had reinvested in Baidu, you'd have $110K or so. And if you'd just put it in a bond, you'd have about the $95K you'd have from staying in AAPL.

I watch programs like Mad Money to learn what stocks are out there. It gives insight into what retail investors are thinking. But I'm usually washing dishes or mopping the floor while doing it. It's entertainment.

[Charles]

Steve, the banking system is not "a Ponzi scheme." Ponzi schemes are characterized by money NOT being invested. Our banking system works by investing in business expansion, home ownership, and other productive investments. Our banking system is what's called a "fractional reserve system." It operates on the sensible assumption that not all businesses will go broke, nor all mortgages go bust, so one need not keep 100% of capital in reserve, just a fraction of it. When that fraction is 10 or 20%, the system works very well. When the fraction is 2 or 3%, as happened in the recent crisis, it is extremely likely to fail.

The FDIC has already given hundreds of BILLIONS of dollars of very real insurance to bank customers. Don't knock it.

[Balthar]

Go back to the EconF-U post and check out my comment. Everything the post says about Cramer recommending action in Apple and Bear Stearns is a lie. Completely unrelated to the objective truth of what Cramer said or did.

Cramer says a LOT of stupid things, but EconF-U really screws the truth pooch with their mendacious post.

[Steve B]

Charles, I totally understand how fractional reserve banking and fiat money system's work, I compared our system to Ponzi Scheme because banks consider any loan given as an asset. The more they loan the greater their asset position is thus a greater potential for profit but their loans DO NOT have to be tied to tangible assets.This means damn near all their money isn't actually an asset it's debt. Just like any Ponzi Scheme if a run on isolated banks occur (investors want their money back), the central bank will "bail it out". In isolated incidents yea it works fine but what happens when statistically unforeseen (EVERY FINANCIAL MODEL HAS IT'S LIMITS google Gaussian Copula Function) numbers of people want their money at the same time? Surprise, the banks can't pay them back! I call it a Ponzi Scheme because the banks must continually manufacture credit for new loans just to create enough money to service the old loans. You said and I quote they operate under the "assumption that not all businesses will go broke", hmm kinda sounds like the same ASSUMPTION many Wall Street firms were using that the majority of the housing market wouldn't go bust, it's called the black swan paradigm. Saving's banks should be kept completely separate from investment institutions.
As for the FDIC, dude do ur homework their own chairman Sheila Bai said that them running out of money is real possibility amid the number of banks speculated to fail in 2010. I knock it because they guarantee of up to $250K per account when they realistically don't even have the cash on hand to pay out 1/4 of that. So excuse me if I'm crazy enough to consider that a scam.

[Charles]

Steve says, "their (bank) loans DO NOT have to be tied to tangible assets."

This assertion is false. Genuine banks do tie loans to assets. The "shadow banks," as they are called, are a creation of the last decade, and should in no way be compared to real banks.

Steve says, "guarantee of up to $250K per account when they realistically don't even have the cash on hand to pay out 1/4 of that..."

It would be foolish of the FDIC to keep 25% reserves. In the Great Depression 6.6% of banks failed (see research.stlouisfed.org/publications/review/95/03/Regulation_Mar_Apr1995.pdf)

Steve, my friend, this is not the board to get puffed up and surly on. Some people actually do know their stuff and you'd do better to be polite and learn than to bluster and have your ignorance exposed.

[ugg outlet]

I had to refresh the page 2 times to view this page for some reason, however, the information here was worth the wait.