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Be wary of popular investment advice

August 26, 2007 12:35 am

WITH MORE than 100,000 people watching his show every weeknight, Jim Cramer has in some respects become America's de facto investment adviser.

But according to an article in the Aug. 20 edition of Barron's, the host of CNBC's "Mad Money" has lagged the overall market returns over the past two years.

In "Shorting Cramer," Barron's writes that investors who took Cramer's "buy" recommendations over the past two years would be up 12 percent. The Dow Jones Industrial Average has risen 22 percent during that time, and the Standard & Poor's 500 is up 16 percent.

In other words, according to Barron's, people would do better investing in low-cost index funds than sticking with Cramer.

The Barron's analysis was based on a list of stocks compiled by YourMoneyWatch.com, a site managed by a loyal Cramer viewer.

CNBC didn't provide its own records of Cramer picks to Barron's. The network said the YourMoney Watch.com list unfairly contains stocks from the program's knee-jerk "Lightning Round," when Cramer takes calls about individual stocks and quickly recommends a buy or sell.

CNBC told Barron's that the show is supposed to be for educational purposes, and viewers are encouraged to wait a day before buying recommended stocks. That avoids buying into the short-term jump that occurs the day after Cramer's picks.

Barron's concludes the article by urging Cramer and CNBC to provide a public database of "Mad Money" stock picks. "Even cheerleaders need to be accountable," Barron's writes.

The article has been widely publicized. I read one response that said Cramer isn't trying to be your financial adviser any more than Dr. Phil is trying to be your psychologist. Yet Cramer has educated many Americans on the workings of the stock market and genuinely wants to make people money.

Mixed opinions

Two conflicting columns in the Sept. 3 issue of Forbes show why investors won't get far relying on the advice of financial publications.

The bullish perspective comes in an article titled "Get Off the Ledge." It notes that despite the troubles in the U.S. mortgage market, the stock market doesn't appear poised for a collapse.

The article reasons that strong gains in commercial construction have made up for weakness in housing starts. It says the overall stock market isn't expensive by historical standards, and that America's growing wealth and population should bring the housing market back in due time.

The bearish point of view is in a column called "Hangover."

The author writes that the five-year stock market rally is now over, doomed by tightening credit and the imploding mortgage market. Her advice is to sell all stocks and jump into six-month U.S. treasury bills yielding nearly 5 percent.

So what is an investor supposed to do given these mixed messages? The only solution, as always, is to think for yourself.