Some tidbits about Jim Cramer: Admission of market manipulation[edit]
In a December 2006 interview, Cramer described activities used by hedge fund managers to manipulate stock prices—some of debatable legality and others illegal. He described how he could push stocks higher or lower with as little as $5 million in capital when he was running his hedge fund. Cramer said, "A lot of times when I was short at my hedge fund ... When I was positioned short—meaning I needed it down—I would create a level of activity beforehand that could drive the futures." He also encouraged hedge funds to engage in this type of activity because it is "a very quick way to make money."[33]
Cramer stated that everything he did was legal, but that illegal activity is common in the hedge fund industry as well. He also stated that some hedge fund managers spread false rumors to drive a stock down: "What's important when you are in that hedge-fund mode is to not do anything remotely truthful because the truth is so against your view, that it's important to create a new truth, to develop a fiction."[34] Cramer described a variety of tactics that hedge fund managers use to affect a stock's price. Cramer said that one strategy to keep a stock price down is to spread false rumors to reporters he described as "the Pisanis of the world," in reference to CNBC correspondent Bob Pisani, who Cramer insinuated was able to be manipulated, saying "You have to use these guys." He also discussed giving information to "the bozo reporter from The Wall Street Journal" to get an article published.[35][36] Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it."[37] During the interview Cramer referred to himself as a "banking-class hero."
Performance of Cramer's investments[edit]
As manager of his hedge fund, Cramer claimed to have realized a "rate of return of 24% after all fees for 15 years" until he retired from the hedge fund in 2001. He self-reported a 36% return in 2000, at the peak of the dot-com bubble.[39] However, this performance has not been independently verified.
In January 2000, close to the peak of the dot-com bubble, Cramer recommended investing in technology stocks and suggested a repeat of the stock performance of 1999.[40]
In February 2000, the year in which Cramer claimed to have produced a 36% return, Cramer claimed that there were only 10 stocks he wanted to own and he was buying them every day. These stocks were 724 Solutions, Ariba, Digital Island, Exodus Communications, InfoSpace, Inktomi, Mercury Interactive, Sonera, VeriSign, and Veritas Software. He also dismissed the investing strategy of Benjamin Graham and David Dodd and claimed that price–earnings ratios did not matter.[41] All 10 of these stock picks fell in value significantly during 2000 as the dot-com bubble burst, making the 36% reported return during that year questionable.[citation needed]
On October 6, 2008, on Today, when the S&P 500 Index was valued at 1,056, Cramer suggested to investors, "Whatever money you need for the next five years, please take it out of the stock market."[42][43] Five months later, the market bottomed at 666, a 36.9% decline.[44] Five years later, on October 6, 2013, the S&P 500 Index was valued at 1,678, an increase of 58.7%.
Cramer recommended investing in Bear Stearns, Merrill Lynch, Morgan Stanley, and Lehman Brothers before the stocks fell in value significantly.[45] On August 8, 2008, before the climax of the financial crisis of 2007-2008, Cramer recommended investing in bank stocks.[46]
An August 20, 2007 article in The Wall Street Journal stated that "his picks haven't beaten the market. Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%."[47]
A February 9, 2009 article in The Wall Street Journal noted that betting against Cramer's Buy recommendations using short term options could yield 25% in a month.