I spent this Memorial Day weekend in Seattle, as beautiful, livable and "feel good" city as I've ever been to and during the breaks from walking everywhere (did not remove the car from the hotel parking once, other then to leave), I read Trading With the Enemy by Nicholas W. Maier. This is a book written by a young member of Jim Cramer's Hedge Fund, Cramer & Company, that Cramer pumps so often on his TV appearances. The fund's returns were about double the returns of the S&P during the nineties, a fact Cramer wears as his badge of credibility whenever he appears on TV.
This book, if it is to be believed, describes how this out performance was acheived:
(1) Scalping frational points on huge lots of shares of mostly high-cap stocks;
(2) Advance non-public information from highly rewarded brokers of their firm's upgrades and downgrades on stocks;
(3) Sweet allocations of hot IPO's in an insanely hot IPO market, again, as payback for huge commissions paid to brokerage companies.
If all this is true, we now have an explanation as to why on an equal playing field, Cramer can't trade his way out of a paper bag. Remember, his $400 a year Action Alerts service is barely keeping up with the S&P averages. And his manic TV show, Mad Money, is so scattered and bi-polar in it's advice, stocks are loved or hated on what appears to be whims of host rather then traditonal security analysis.
The book also paints Cramer as a foul-mouth Napoleonic tyrant, throwing computer equipment across the room at his employees and blaming anyone except himself for any mistakes that are made in the trading wars. And there were plenty of mistakes made under his commmand.
So you probably watch this guy on CNBC, or listen to his radio show or come across some of his written articles in periodicals. Know that his limited success in the nineties came from flipping stocks in a few minutes or hours, seldom for days.
His buy and hold stock picks now need to be accompanied by this disclaimer:
What have I done for you lately?