Wednesday, November 3, 2010

The Amusement Park of Jim Cramer

Jim Cramer is the epitome of "financial pornography". Jim Cramer’s predictions sometimes swing dramatically from optimistic to pessimistic, and back again, over short periods. His army of viewers, a strong 600,000, watch to get their dreams filled with hot air or for just mere entertainment, who knows. One thing is for sure, he knows how to lure viewers in the same way a casino does. Moreover, the show exploits the innocence of investor psychology. In the same manner a casino prevents outside light entering the gambling floor in attempt to control a gambler's internal clock, Jim Cramer's show has fabricated the same fanatical experience.


From the color red to loud alarms Jim Cramer fascinates his viewers with psychological tricks. Who wouldn't be entertained by a circus act? The graphic above gives a list of triggers to look out for - in Mad Money and the investing world in general. Jim Cramer's effect on investors perfectly displays Nobel Laureate, Daniel Kahneman's findings on behavioral biases. A portion of Mr. Kahneman's research concluded that humans are not wired for long-term investment decisions because we tend to try and make create patterns out of random events. Furthermore, our perception flaws our judgment about decisions. Casinos, game shows, and now Jim Cramer play on the psychology of humans.

Mr. Cramer makes hundreds of buy-hold-sell recommendations on individual stocks each month via his show. What have his results been? According to CXO Advisory, his Accuracy Rating is 47%, meaning you would be better off flipping a coin in order to make a decision than listen to the entertainer. You'd be better off spending your time watching Sportscenter.

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