We Did A Buy And Hold On Cramer’s Mad Money Picks- How’d We Do?
I enjoy watching Cramer’s Mad Money show because he makes investment talk fun. He brings the excitement of the stock market right into your own living room and you can literally feel the energy especially with the lightening round! In case you don’t know, Cramer’s Mad Money is a TV show on CNBC (weekdays 6PM ET). Cramer talks about stocks and makes “buy and don’t buy” decisions during the show, and allows callers to ask him for his stock picks. I do not always agree with everything he says, but I think he generally wants to educate people about investing. Sometimes the kids watch this show with me, and it has been a great way to teach them about stocks, investing, and money!
During the course of the show he makes recommendations on stocks. His stock investment strategy is not a “buy and hold” one, but rather a “buy, hold for a little while, sell to get your profits, and move on to the next stock” strategy. He also makes a big disclaimer that you should do your own homework and make your own decisions. Just for fun, I hypothetically invested $5000 in a diversified portfolio of stocks that he said were good investments. Instead of his strategy though, I wanted to see what type of return I could get by purchasing and holding certain stocks for 18 months, and how that would compare to a comparable rate of interest I could get on our mutual fund investments.
On September 8, 2005 I decided to buy the stocks he recommended and here are the results of that hypothetical stock purchase:
ADM, Archers Daniel’s Midland - up 309.86 for a 61.12% return.
DUK, Duke Energy - down 151.46 for -29.87% return.
ECA, EnCana Corp. - up 36.82 for a 7.26% return.
FPL, FPL Group - up 181.87 for a 37.06% return.
HRS, Harris - up 116.46 for a 22.97% return.
JNJ, Johnson and Johnson - down 3.49 for a -0.69% return.
MOT, Motorola - down 114.74 for -22.63%
UNH, United Healthcare Group - up 0.34 for a .07% return.
VLO, Valero Energy - down 214.05 for a -42.22% return.
WB, Wachovia Corp - up 43.60 for a 8.60% return.
The ten stocks together were up 212 for a return of 4.17%. As you can see, we could have beaten this by investing our money in a money market fund earning 5.20%. That’s why I invest in index mutual funds. I am not a stock picker. To be fair to Cramer, he would have dumped the bad ones (I believe he recommended getting out of VLO before the fall because he said to take some profits). When picking stocks, you have to be on top of each stock all the time and you have to do your homework everyday to keep up with them. In that same time frame our mutual fund investments made 12% which beats 4.17%.
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I’m not sure you need to be up to date on each stock all of the time. I can think of a portfolio of some stocks that you could buy and hold for a long time and beat mutual funds. I still go with mutual funds because I’m Lazy, but it’s not a guarentee that the mutual fund will always win.
[...] We Did A “Buy And Hold” On Jim Cramer’s Mad Money Picks: How’d We Do? The results were less than stellar over a period of longer than a year, but that’s also because they did no research at all on their stocks, not even following Cramer’s later advice. If they had done that, they would have been much better off. (@ not made of money) [...]
Are you sure you are taking into account splits and other corp actions? VLO has been doing relitively well (about +30% since Oct 2005), and they had a split in Dec 2005. You might need to dig a bit more and adjust your cost basis
The monkey is beating Cramer:
http://cramerwatch.org/