Jim Cramer's Worst Stock Market Call Ever

publication date: Jun 9, 2009
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Before Jim Cramer got raked over the coals by Jon Stewart, Nouriel Roubini, and others in recent months, I wrote an updated report on Cramer's historic stock picking. (In earlier years, I covered Cramer in my syndicated newspaper column and best-selling books.) What was most surprising to me in the research that I did in late 2008 when the investment banking stocks were taking it on the chin was how truly awful Cramer's stock picking and buy/sell recommendations had been in that sector. After all, he worked at a major investment bank (Goldman) for years and repeatedly talked over the years about his numerous contacts at many investment banks.

It turns out that this wasn't the first time that Cramer was hugely wrong on a bloated sector at the peak of a bull market. Back on February 29, 2000, just days before the NASDAQ technology stock bubble was getting ready to burst, Cramer delivered an even more bone-headed set of stock picking recommendations in his keynote speech at "the 6th Annual Internet and Electronic Commerce Conference and Exposition" in New York.

After promising his audience to name names of his favorite stocks to buy, and naming 10 technology/internet companies (a list littered with companies now bankrupt or merged into others at a fraction of their 2000 valuation), Cramer said:

"We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over -- and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don't even have earnings per share, so we won't have to be constrained by that methodology for quarters to come."

If this one paragraph doesn't convince you to forever ignore Cramer's stock picking advice, I don't know what will! First, note that he said that the period of rising stock prices in the tech sector was "very far from ending." As you can see from the graph below, the tech heavy NASDAQ index peaked just above 5000 the very next month after Cramer's speech and then went on a sickening 80 percent plunge in just over two years.




Also note that after admitting that most of the tech companies lacked earnings, Cramer uses that fact to disregard traditional measures of valuation!

Cramer closed his infamous February 2000 speech by emphasizing how much he disliked other industry groups and how much he just loved technology:

"So, if you can't own the retailers, and you can't own transports, and you can't own banks and brokers and financials and you can't own commodity makers and you can't own the newspapers, and you can't own the machinery stocks, what can you own? A-ha, that just leaves us with tech. That's why we keep coming back to it. That's why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10. And my next 10 and my next 10 after. Only those companies are worth owning. The rest? You can have them."

Turns out that the best money managers in 2000 shunned the grossly overvalued technology stock sector and bought the undervalued stocks in other industry groups being ignored by tech crazed investors.





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Copyright Eric Tyson, 2008 - 2014 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.

 
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