Interesting piece on the famous and eccentric stock analyst Jim Cramer. How good is his performance? A new academic paper attempts to answer that question and concludes that the returns aint to great.

As Jennifer Booton of MarketWatch notes:

Cramer’s Action Alerts Plus portfolio has underperformed the S&P 500 indexSPX, -0.85%  in terms of total cumulative returns since its 2001 inception, according to a working paper released Friday by Jonathan Hartley and Matthew Olson, researchers from the Wharton School at the University of Pennsylvania. While the fund outperformed the 500-member index in the years leading up to the 2008 financial crisis—which Hartley said was partially a reflection of the fund’s previous inclusion of small-cap companies and growth stocks that were outperforming during the pre-recession bull run—things have gotten worse since 2011, with Action Alerts Plus falling 9.5% in that year, when the S&P 500 was unmoved. It rose just 1.3% in 2014, versus an 11.4% increase for the S&P, the study found.

The full piece from MarketWatch is here and readers can find the full study below.

Also see a curated list of top hedge fund letters

Jim Cramer –  ‘Mad Money’ Charitable Trust Performance and Factor Attribution

[drizzle]Jonathan S. Hartley1 The Wharton School, University of Pennsylvania

Matthew Olson2 The Wharton School, University of Pennsylvania

ABSTRACT This study analyzes the complete historical performance of Jim Cramer’s Action Alerts PLUS portfolio from 2001 to 2016 which includes many of the stock recommendations made on Cramer’s TV show “Mad Money”. Both since inception of the portfolio and since the start of “Mad Money” in 2005 (when it was converted into a charitable trust), Cramer’s portfolio has underperformed the S&P 500 total return index and a basket of S&P 500 stocks that does not reinvest dividends (both on an overall returns basis and in Sharpe ratio). These findings contrast with previous studies which analyzed Cramer’s outperformance in short windows before the 2008 financial crisis. Using factor analysis, we find that Cramer’s portfolio returns are primarily driven by underlevered exposure to market returns and in some specifications tilting toward small cap stocks, growth stocks and stocks with low quality of earnings. These results have broad implications for market efficiency, the usefulness of single name stock recommendations made on television, financial education, and the implementation of academic factors thematic in Cramer’s portfolio.

Jim Cramer
Jim Cramer

 

Full study in PDF below

HartleyOlson2016+James+Cramer+Charitable+Trust+Performance+and+Factor+Attribution

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