Some Cramer Fans Now Beating Market

Over at Mad Money Machine, Paul Boyer (an erstwhile Jim Cramer devotee) is running a trading game in which 25 people try to use the famous speculator's insights to beat a passive index portfolio managed by Index Funds Advisors.  Earlier this year, the contestants were accomplishing a wildly improbable feat, in that every single one of them was lagging the index.  In recent weeks, however, the contestants have rallied, and now 6 out of 25 are beating the index.

The contest is just a game: None of the contestants are playing with real money, which might encourage them to take more risk than they would in the real world.  One could also quibble with the low transaction costs charged to the contestants, as well as the zero-value placed on the time they must spend watching the show and placing the trades.  (The index's performance, on the other hand, includes not only transaction costs but a double-layer of advisory fees).  Lastly, since it was primarily last week's market crash that thrust a handful of contestants into the relative black, it might have been cash reserves, not stock picks, that boosted the relative performance (actively managed funds often do well in down markets, because their cash reserves don't depreciate). 

This said, the current breakdown between the game's leaders (25%) and laggards (75%) is closer to what one would expect to see under normal circumstances.  In most markets, about half of stocks beat the market average and half lag, so dart-throwers have about a 50% chance of beating the market in any given period. The earlier performance, meanwhile, in which ALL of the Mad Money Machine contestants were lagging, was a spectacularly unlikely outcome--one that suggested that Cramer's picks were significantly worse than the market average.

Comments

[John Singer]

It must be hard to beat the market when you follow the advice of guy with a track record like this: http://www.stocktagger.com/2007/07/jim-cramer-track-record-on-nyse.html

[LeolaPatton]

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