Saturday, August 18, 2007

I knew it!!! 
The way to make money off of Cramer is to short his picks.

Our analysis of Cramer's picks over the past two years, from YourMoneyWatch.com, showed that, on average, the stocks jumped 2% the day after he mentioned them. From there, they usually moved sideways or down for the following 30 trading days (see chart). This offered an opportunity to make money -- 5% to 30% a year -- by selling Cramer's selections short.

Cramer agrees that there is a shorting opportunity in the temporary effect he has on stocks -- a trade that he'd jump on if he still were at a hedge fund. "If you short the bump, you will do well," he said last week. "I've said it on the show many times."

There's no doubt that Cramer is trying diligently to make you money. His advice is generally smart, his knowledge of individual stocks amazingly detailed. But the credible evidence suggests that the telestockmeister's picks aren't beating the market. Did you really expect more from a call-in host who makes 7,000 stock picks a year?

Don't know why you would.

And after accounting for trading fees, commissions, short-term capital gain transactions, and undivulged bid-ask spreads, even that 5 to 30 percent shot in the arm will evaporate rapidly.

I never met anyone who could do better listening to someone like Cramer than from a reasonable selection of low-cost index funds, held for the long term.

Splash, out



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