The Cramer Effect
The term "Cramer Effect" is applied to any movement of stock at the recommendation of Jim Cramer, host of the CNBC program Mad Money. The program purports to teach the average investor to think like big investors. Cramer teaches stock terms, investment strategies and gives names of stocks to buy and sell.
Other People Are Reading
-
Biography
-
Jim Cramer was born in 1944 in Germantown, Pennsylvania. He attended Harvard where he was the editor-in-chief of The Daily Crimson. After graduation, Cramer became a reporter. Beginning in Tallahassee, Florida and finally moving to Los Angeles. By the mid eighties, Cramer had changed his profession and was senior partner of Cramer Berkowitz where he managed hedge funds. He retired from the firm in 2001 and moved to Goldman Sachs all the while writing about the stock market. This exposure allowed him to be interviewed on many investment programs. In 2005, Jim Cramer was given his own show: Mad Money.
Mad Money
-
Mad Money first aired on April 14, 2005. From the beginning, Cramer's antics separated him from many of his contemporaries. He was quick to admit when he gave wrong advice, donning a Post-it note with the company's symbol on his face. Mad Money purports to help ordinary people learn how to play the Wall Street "game" like the big boys.
-
The Cramer Effect
-
As early as 2005, economists started observing what they dubbed as the "Cramer Effect." When Jim Cramer announced a preferred pick, after-hours trading on that stock would flourish, causing the price of that stock to rise. Conversely, when he denounced a stock, thousands would follow his instructions and the price of the offending stock would plummet.
Stock Picks
-
Are these stock picks accurate, or are they completely dependant on the word of Jim Cramer? Before going back to journalism, Cramer's hedge fund performed exceedingly well. His 15-year average with Cramer Berkowitz was growth of 24 percent per year. In 2000, the year he retired, his hedge fund grew a whopping 36 percent. According to Smart Money, Cramer stock picks all jumped 2 percent within days of their pick. But over time, they tended to flatten back out or even fall.
Investments
-
So the Cramer Effect does exist, but doesn't give most investors long-term stability. However, it does give the opportunity for market watchers to short sell stocks that have risen on the word of the Cramer Effect.
-
References
- Photo Credit Stock Market image by Paul Heasman from Fotolia.com
