Originally published November 6 2015
Only fools buy stocks recommended by financial talking heads like Jim Cramer
by J. D. Heyes
(NaturalNews) Picking "winning" stocks is not an easy endeavor for most people simply because markets are complex and it can take years of education, training and experience to choose effectively and profitably. However, when you make your living on TV as a financial guru stock picker, shouldn't you be pretty good at it?
A financial guru ought to know his or her way around the Stock Exchange. However, it appears that one of these people – CNBC host and best-selling author Jim Cramer – does not fit the bill.
As reported by MarketWatch, Cramer wrote a piece entitled "Jim Cramer's Picks – Here are 49 Stocks to Buy Right Now" that was published on TheStreet.com, a site that he founded, on April 6. He made a really strong case to buy those stocks.
"Every single one of these companies reported excellent last quarters, and with no exceptions their charts are pretty much perfectly made for this downturn," Cramer wrote. Should there be a downturn or correction, Cramer insisted those stocks would still do well.
Someone decided to take Cramer's advice. That someone was David O. England, a retired finance professor from Carbondale, Illinois. He took it upon himself to test the advice our guru was handing out.
No responseOn April 6, England bought $1,000 of each security on Cramer's list in a paper-trade account (not to include commissions) at the close of the following day. England placed a bet as well: he bet Cramer a dinner at the 17th Street BBQ restaurant in Murphysboro, Illinois, one of the nation's best rib eateries. If the picks proved to be unprofitable, Cramer would pay the tab.
Cramer, however, never responded to England's challenge despite repeated emails and phone call attempts. Click here for the original MarketWatch story describing what has been dubbed "The Cramer Challenge."
Nevertheless, England proceeded to test Cramer's advice. He began tracking the performance of his just-purchased portfolio, keeping weekly results for the last six months. In addition, he hired a third party to audit the results in order to lend credibility to his research and tracking.
Despite a recent 1,000-point Dow Jones Industrial Average rally, Cramer's picks overall earned a failing grade. Although he promised those stocks would survive any market downturn, "these stocks didn't survive during the market's brutal third quarter," MarketWatch reported.
The bottom line is, of course, that England won the bet. Once more, Cramer refused to respond to emailed requests for comment, which makes him (and CNBC) even more suspect.
As for England, he is staying classy. He notes that he isn't personally attacking Cramer, but he rightfully takes issue with the quality of the stock picks.
"It bothered me that so many experts publish buy lists, but you never hear about the list again. I wanted readers to know that buying stocks based on a list is often a recipe for disaster," he told MarketWatch.
Never buy based on mainstream listsEngland also made these five observations:
1. Be careful about buying stocks based on a list. It's better if you do your own homework.
2. In a downturn or bear market, even shares of "good" companies can go down, and by a lot. Look at Apple or Wal-Mart, for example.
3. Be cautious about following anyone, especially well-known gurus. It's okay to listen, but in the end you have to do your own research. But to blindly buy stocks based on a recommendation from a guru, a stockbroker, or a friend, usually leads to losses.
4. If you think about it, the list of 49 stocks are just 49 tips, and if there is anything you should know, never buy stocks based on tips. It's rare that a tip works out. And if you buy based on a tip, will that person tell you when to sell? For example, if you had bought those 49 stocks, when do you sell?
5. Instead of "buy" lists, market gurus should call these "watch" lists. It would save investors of lot of time and aggravation. After all, Cramer's 49 picks were supposed to protect you from a downturn. Unfortunately, these 49 stocks did no such thing.
For some of the latest financial news – especially bad financial news – make Collapse.news a daily read.
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