Analyzing Jim Cramer Recommendations – Short or Long

Do Jim Cramer’s stock market investment strategies on his TV program Mad Money translate into opportunities to make real money, or is the real product of his show purely “entertainment” (so to speak)? A person investing equal amounts into Jim Cramer’s buy recommendations for 2006 would currently have experienced a loss of -5.6% in their personal stock portfolio, according to the results listed at: thestreet.com. Even short-term stock trading (less than 20 days) of Cramer’s buy recommendations only generates returns in the +0.4% range. Maybe Cramer’s record is not too bad considering the S&P 500 Index ($SPX) is down about -1% since the first of the year and down about -6% from its high for the year. It’s possible following Cramer’s stock market strategies long-term will make for a successful investor, but what about in the short-term?

Since Jim Cramer’s influence is so broad and widely followed, we were curious to know if his stock market strategies had any short-term temporary effects on market prices. We theorized Cramer’s stock market strategies produced “artificial pops” in the price of equities, and therefore we have analyzed Jim Cramer’s buy recommendations for 2006 for shorting opportunities. For this analysis, we only analyzed the first buy recommendation for any particular company, subsequent buy recommendations were ignored, and we only considered shorting positions having immediate positive movement following a Jim Cramer buy recommendation. We analyzed 565 of Jim Cramer’s “first-time” buy investing strategies and found 67.8% of those stock trading tips resulted in a positive movement immediately following the stock tip.

We pushed the analysis even further and discovered a potential strategy for shorting Cramer’s buy stock trading tips:

  • Determine all positions having positive 1st day return after buy recommendation
  • Short positions retaining a positive return on the 10th market day after a buy rec.
  • Close positions 10 market days after going short (20 market days after initial buy rec.)

For each of Cramer’s positive first-time stock trading tips we analyzed the data based on the percent of movement for the 10th market day following the recommendation. The results of this analysis are shown below:

% movement on
10th market day
greater than
% of 565 Buy
recommendations
% success rate
of shorting
potential profit
(excluding fees)
0.00% 45.10% 53.70% 0.90%
2.00% 35.40% 56.00% 1.20%
4.00% 27.30% 57.10% 1.40%
6.00% 19.60% 60.40% 1.70%
8.00% 13.30% 61.30% 2.00%
10.00% 10.30% 63.80% 2.20%
12.00% 7.60% 62.80% 2.50%
14.00% 5.80% 60.60% 3.60%
16.00% 4.80% 59.30% 3.60%
18.00% 3.20% 55.60% 4.70%
20.00% 2.50% 50.00% 0.90%
22.00% 2.50% 50.00% 0.90%
24.00% 2.10% 58.30% 1.20%
26.00% 1.60% 66.70% 2.80%
28.00% 1.40% 62.50% 2.30%
30.00% 1.10% 66.70% 5.60%
32.00% 0.70% 75.00% 7.10%

For example, shorting 3.2% of Jim Cramer’s buy recommendations (18 positions) with a movement greater than 18% would have yielded a success rate of 55.6% and a net profit of 4.7%. A detailed analysis of this scenario is shown below:

Company Ticker Buy Rec.
Date (2006)
Short on
10th day
after buy rec.
Close on
20th day
after buy rec.
Potential
Return
Acadia Pharmaceuticals Inc ACAD 01/30 15.43 14.63 5.20%
ADA-ES Inc ADES 01/04 23.28 21.99 5.50%
Alkermes Inc ALKS 01/03 24.57 23.42 4.70%
AngioDynamics Inc ANGO 03/13 29.01 29.11 -0.30%
Avanex Corp AVNX 03/13 3.01 3.03 -0.70%
Broadwing Cor BWNG 03/02 12.33 14.69 -19.10%
Calgon Carbon Corp CCC 01/04 7.66 7.13 6.90%
Cynosure Inc CYNO 01/18 21.51 19.93 7.40%
Energy Conversion Devices Inc ENER 01/03 56.13 49.34 12.10%
National Beverage Corp FIZ 04/04 13.91 15.61 -12.20%
Corning Inc GLW 01/03 25.24 25.05 0.80%
Intermagnetics General Corp IMGC 01/03 25.6 26.76 -4.50%
International Securities Exchange Inc ISE 01/13 37.15 37.2 -0.10%
Level 3 Communications Inc LVLT 03/23 5.17 4.97 3.90%
REDIFF.COM INDIA ADS REDF 01/24 27.55 24.36 11.60%
OccuLogix Inc RHEO 01/12 11.87 3.38 71.50%
Sirenza Microdevices Inc SMDI 01/25 7.49 7.99 -6.70%
UNDER ARMOUR INC UARM 01/04 38.78 39.42 -1.70%
Average 4.70%

From this we see the lion’s share of the return is from a single position, OccuLogix, but even with the OccuLogix position removed, the average return is still +0.7%. For option investors seeking a stock option strategy for “going short”, there are several strategies available, bear call credit spreads and bear put spreads for example. PowerOptions provides a search engine for finding potential option income generating positions for various strategies for those option investors seeking to “go short”.

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One thought on “Analyzing Jim Cramer Recommendations – Short or Long

  1. I wonder if cramer still thinks that Blockbuster is still a better buy then netflix. Cramer is a joke, and if his show has any value, it is doing the exact opposite of what he says. So he wants us to sell EXEL, i am doubling my position.

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