The Gasbag Effect

Listening to certain financial gasbags on television can seriously hurt your portfolio, as we learn from the case of Jim Cramer on CNBC ("The Cramer Effect," Barron's, sub. req'd.):

...a comprehensive and careful review of his stock picks by Barron's finds that his picks haven't beaten the market. Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%, according to a record of 1,300 of the CNBC star's Buy recommendations compiled by YourMoneyWatch.com, a Website run by a retired stock analyst and loyal Cramer-watcher.

We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com. It covers only the past six months, but includes an astounding 3,458 stocks -- Buys mainly, punctuated by some Sells. These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market.

While we're on the topic of being better off, think of all the time viewers would have saved by not watching a bug-eyed blowhard tell them in excruciating detail how to underperform the market.

In fact one of the few stocks that has done well since Cramer's Mad Money program started in March 2005 is TheStreet.com, the website that he relentlessly promotes. As Barron's relates, "Since the show started, TheStreet.com's share price has doubled to a recent $10, for a total market value of $297 million. Cramer, who now owns more that 12% of the company, has been selling all the way up."

CNBC maintains that the show is mainly educational, and not just about stock-picking. We maintain that the show is more about the $35 million Cramer has made from it, and not the interests of viewers.

Obviously the only things to be learned from Mad Money are that self-promotion is infinitely more profitable than actual financial education, and that CNBC is no place to go if you want to learn more about the stock market.