Does Cramer Influence The Market?

Financial news programs aren’t generally known for being lively – at least, not until Jim Cramer was named host of CNBC’s Mad Money in 2005. Cramer’s energy and enthusiasm quickly drew viewers in, and he was an instant hit. 

From day one, Cramer emphasized that he didn’t want to tell his viewers what to think when it came to their investment decisions. Instead, he was passionate about teaching viewers how to think like an investing professional, so they could make their own decisions. 

Of course, not everyone is a Jim Cramer fan. For some, his incessant yelling and animated gestures are too much. Nonetheless, love him or hate him, nearly everyone knows about Cramer and his stock picks. But are they any good?

Are Cramer’s picks successful based on their intrinsic characteristics, or does Cramer influence the market with his recommendations? 

What Is The Cramer Effect?

Jim Cramer started trading in the mid-1980s when he was a student at Harvard Law School. His success – and passion – persuaded others to take his investment advice, and he landed a position as a stockbroker with Goldman Sachs (GS) shortly after his graduation. 

Cramer was so confident in his mastery of the financial world that he launched a hedge fund, Cramer & Co., in 1987. By the time Cramer retired from Cramer & Co. in 2001, he had generated average annual returns of 24 percent. In all those years, his fund only had negative returns once. 

Along the way, Cramer co-founded an investing website, TheStreet.com, which had a market cap of $1.7 billion at its peak. The site had enormous influence on U.S. investors, which made him the natural choice for CNBC’s Mad Money. 

Cramer had a built-in audience when he made his television debut, and his recommendations seemed to be spot on again and again. As viewers saw their returns growing after taking Cramer’s advice, word spread, and the CNBC program became even more popular. 

Within a year, researchers and market experts began to notice an interesting phenomenon. Stocks recommended by Cramer saw significant increases in trading activity the day after being recommended on Mad Money, and Cramer’s picks generated what can only be called abnormal returns. 

A 2006 paper examined Cramer’s recommendations from July 8, 2005, through February 2, 2006 – a period when roughly 380,000 viewers tuned in to watch the program. Researchers noted that Cramer’s recommendations led to an average 643.79 percent increase in trading volume the day after the program, and average overnight abnormal stock returns were approximately 7.6 percent.

This phenomenon eventually came to be known as The Cramer Effect or The Cramer Bounce, and those who made investment decisions based on Cramer’s recommendations saw their portfolios grow. The researchers examined the medium and long-term success of Cramer’s picks during the same period, and they determined that his recommendations generally outperformed major indexes like the S&P 500. 

What Is The Cramer Bounce?

Fast forward 15 years, and The Cramer Effect or Cramer Bounce is still very much a market fact. However, some researchers and analysts have suggested that while The Cramer Bounce still boosts the stocks Cramer recommends on Mad Money, the increase is only temporary. Over the medium and long term, these stocks don’t beat the market. 

One researcher analyzed Cramer’s 2021 stock picks – all 725 of them. Of the 725 buy/sell recommendations, Cramer recommended buying 651 times and selling 74 times. Any references made to liking or disliking a stock were disregarded for the purposes of this analysis, as the researcher set out to measure Cramer’s actual buy and sell recommendations only. 

The results were analyzed at the one-day mark, the one-week mark, and the one-month mark. The bottom line? In 2021, Cramer’s recommendations did not beat the market once the effect of the Cramer Bounce wore off. 

In the four months analyzed, Cramer recommended that viewers buy 651 separate stocks. An investor who bought each one and then sold the following day would have achieved returns of 555 percent. Those who kept the stocks for a week would have achieved returns of just 42 percent, and at the one-month mark, the losses hit -223 percent. 

The 74 recommendations Cramer made to sell certain stocks were more successful over time, which is impressive considering the market as a whole was trending upward during the period studied. However, given the increase in sellers following Cramer’s recommendations, the question still needs to be asked…

Does Cramer Influence The Market?

From the end of 2016 to the end of 2019, Mad Money’s average number of viewers came in around 140,000. That figure rose sharply in the first quarter of 2020, peaking at 287,000 average viewers in the month of April. 

Perhaps viewers wanted Cramer’s take on the March 2020 market crash, or perhaps they were exploring new programming options during COVID-19-related lockdowns and quarantines. In either case, viewers began to decline in the months that followed, settling at roughly 176,000 by September 2021. 

With so many regular viewers prepared to take action on Cramer’s recommendations, it’s no wonder stocks see sudden increases in trading volume and price after Mad Money airs. Most industry experts agree that Cramer does influence the market, though there is still tremendous debate on whether this is an intentional manipulation or a natural by-product of financial news programs. 

What Stocks Does Cramer Own?

Jim Cramer’s net worth is estimated at $150 million, so he is clearly having success overall. When he makes recommendations on Mad Money, he typically adds the caveat that he doesn’t personally own or plan to buy those stocks, which begs the question: What stocks does Jim Cramer own? 

The best insight into Jim Cramer’s actual investments comes from his charitable trust portfolio. This is an active fund managed by Cramer that currently holds 34 stocks. Some of the trust’s most notable holdings include Amazon, Apple, Boeing, Costco, CVS Health, Goldman Sachs, Johnson & Johnson, Marvell Technology, Mastercard, Microsoft NortonLifeLock, Nvidia, Salesforce, and Walmart. 

What Is Cramer Recommending Now?

Jim Cramer examines stocks across a variety of industries, but he is particularly enthusiastic when it comes to technology companies.

He is a proponent of the biggest tech players, including Apple, Amazon, Google (Alphabet), Netflix, Facebook, and Microsoft.

Most recently, Cramer indicated that Microsoft is the most promising buy among big tech stocks. He also said that Facebook investors should proceed with caution. 

According to Cramer, Microsoft stock is a buy because it has increased prices for its subscription service – a lucrative revenue stream.

Facebook, on the other hand, appears to be recovering from several weeks of bad publicity. Unfortunately, it doesn’t look like Facebook-related controversy is over for good. That means share prices are likely to be volatile in the coming months. 

What Time Is Jim Cramer On CNBC?

Jim Cramer hosts Mad Money each weeknight from 6pm to 7pm (eastern time). 

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