Cramer - The "Value Investor"?

[brker_guy]

I could not help but laugh when I saw this posted on Yahoo! today:

 

http://www.cnbc.com/id/101343142?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=101343142|Jim%20Cramer%27s%20guide%20to%20val

 

Cramer is teaching America how to be a Value Investor now?  What a joke!

[DCG]

I saw that as well.

 

 

Most of his books actually are mostly grounded in value investing principles, but his crap on TV is nothing but short-term momentum trading.

[ourkid8]

I think we have wasted too much time already talking about Cramer.

 

Tks,

S

[BTShine]

I gave in and read the first bullet.  It's such a joke.  Unreal.

 

1. First things first: Build a worldview of the macro forces at work around the globe so you can access the growth rates that determine so much of what ultimately makes a stock go higher.

 

 

[Mephistopheles]

The last comment is the icing on the cake:

 

"Know the best of breed of each sector if you want to invest in it and don't you dare trade down; it's just too risky."

[investor-man]

I'll be devils advocate: his record is 24% after fees and taxes which is nothing to shake a stick at. While his style is not for me I don't necessarily think it's horrid.

[randomep]

I'll be devils advocate: his record is 24% after fees and taxes which is nothing to shake a stick at. While his style is not for me I don't necessarily think it's horrid.

 

WHO has 24%?

Over what timeframe?

Is it documented somewhere? audited?

[Orange]

Cramer's past returns are meaningless now. Any money Cramer once made in the markets was not made by following the advice he gives on his show or in the articles he writes.

[constructive]

I gave in and read the first bullet.  It's such a joke.  Unreal.

 

1. First things first: Build a worldview of the macro forces at work around the globe so you can access the growth rates that determine so much of what ultimately makes a stock go higher.

 

This is pretty funny.

 

I wonder how you would build a worldview of global macro forces? Would it involve getting a PhD in economics, or staring slack-jawed at his TV show 5 times a week?

[jouni1]

I gave in and read the first bullet.  It's such a joke.  Unreal.

 

1. First things first: Build a worldview of the macro forces at work around the globe so you can access the growth rates that determine so much of what ultimately makes a stock go higher.

 

This is pretty funny.

 

I wonder how you would build a worldview of global macro forces? Would it involve getting a PhD in economics, or staring slack-jawed at his TV show 5 times a week?

 

i think you were trying to be funny but i'll answer anyway.

 

i try to build this worldview by thinking where the world possibly is in 50 years, and then thinking what sort of businesses will play a increasing role in the world as we reach that goal.

 

the things that i see growing are transportation, automation, energy, infrastructure and data traffic.

 

for instance i think traditional print media and television will play a much smaller role in the future.

 

i do not have a phd so that might be why i don't see the humor here. just feel comfortable owning businesses i think will be needed 50 years down the line, even if i understand i may not see perfectly clear in to the future.

 

also the best of breed thing is a very smart thing to do in my opinion. if the industry does not grow like me and jim have fantasized, the best company in the industry tends to do ok anyway. it can be hard to determine the best company, but think like this: if you're 99% sure it's the best, it probably isn't the worst, which adds a bit of a margin of safety.

 

i don't like his show either but i think the article here highlights some of his better thoughts.

[jouni1]

I'll be devils advocate: his record is 24% after fees and taxes which is nothing to shake a stick at. While his style is not for me I don't necessarily think it's horrid.

 

WHO has 24%?

Over what timeframe?

Is it documented somewhere? audited?

 

http://www.businessweek.com/stories/2005-10-30/the-mad-man-of-wall-street

 

over 14 years. i think it's a good record.

[yadayada]

I gave in and read the first bullet.  It's such a joke.  Unreal.

 

1. First things first: Build a worldview of the macro forces at work around the globe so you can access the growth rates that determine so much of what ultimately makes a stock go higher.

 

This is pretty funny.

 

I wonder how you would build a worldview of global macro forces? Would it involve getting a PhD in economics, or staring slack-jawed at his TV show 5 times a week?

 

i think you were trying to be funny but i'll answer anyway.

 

i try to build this worldview by thinking where the world possibly is in 50 years, and then thinking what sort of businesses will play a increasing role in the world as we reach that goal.

 

the things that i see growing are transportation, automation, energy, infrastructure and data traffic.

 

for instance i think traditional print media and television will play a much smaller role in the future.

 

i do not have a phd so that might be why i don't see the humor here. just feel comfortable owning businesses i think will be needed 50 years down the line, even if i understand i may not see perfectly clear in to the future.

 

also the best of breed thing is a very smart thing to do in my opinion. if the industry does not grow like me and jim have fantasized, the best company in the industry tends to do ok anyway. it can be hard to determine the best company, but think like this: if you're 99% sure it's the best, it probably isn't the worst, which adds a bit of a margin of safety.

 

i don't like his show either but i think the article here highlights some of his better thoughts.

I got some problems with this kind of thinking. First price you pay is everything. Id buy a  newspaper that has slowly declining earnings at 2x FCF over some data company that is hard to understand trading at 40 times earnings any day. So if you think like this you will miss great opportunities in beaten down sectors.

 

And second, half the things you mention are difficult to pick. The industry will be around for sure, but unless you buy a basket, how do you know the company will be around kciking ass 50 years from now? It sounds nice in theory, but there are some problems executing it. And those hot industries often are bid up already.

[jouni1]

yes some possibly good investments are left outside the circle. i do not mind.

 

the point is that by choosing likely long-term winners, you will probably have at least a few in your portfolio. that's all you need.

 

i also do not mean you should be buying all the time. when the price is reasonable to you, you pull the trigger. for example i like visa and mastercard, but so does everybody else at the moment. that makes the price too high for me right now. companies i have invested in have usually gone through a multiple compression for what i view to be temporary reasons. i buy in and hope i never have to sell.

 

i find it a lot easier figuring out if the management is good and working in the interests of shareholders than trying to find out if a regional newspaper can keep it's cash flow steady.

 

might miss out on some great distressed companies but it really doesn't matter that much to me.

 

[jouni1]

double post

[jschembs]

I gave in and read the first bullet.  It's such a joke.  Unreal.

 

1. First things first: Build a worldview of the macro forces at work around the globe so you can access the growth rates that determine so much of what ultimately makes a stock go higher.

 

This is pretty funny.

 

I wonder how you would build a worldview of global macro forces? Would it involve getting a PhD in economics, or staring slack-jawed at his TV show 5 times a week?

 

i think you were trying to be funny but i'll answer anyway.

 

i try to build this worldview by thinking where the world possibly is in 50 years, and then thinking what sort of businesses will play a increasing role in the world as we reach that goal.

 

the things that i see growing are transportation, automation, energy, infrastructure and data traffic.

 

for instance i think traditional print media and television will play a much smaller role in the future.

 

i do not have a phd so that might be why i don't see the humor here. just feel comfortable owning businesses i think will be needed 50 years down the line, even if i understand i may not see perfectly clear in to the future.

 

also the best of breed thing is a very smart thing to do in my opinion. if the industry does not grow like me and jim have fantasized, the best company in the industry tends to do ok anyway. it can be hard to determine the best company, but think like this: if you're 99% sure it's the best, it probably isn't the worst, which adds a bit of a margin of safety.

 

i don't like his show either but i think the article here highlights some of his better thoughts.

 

This philosophy might work if you were a VC firm able to buy in close to the founders' capital, but in the public markets the likelihood you're able to buy a great business at a reasonable price is pretty small. Even VCs lose it all (roughly) 90% of the time, which I think helps to illustrate the difficulty of identifying long-term winners. It's damn near impossible to know what's going to happen in six months, let alone 50 years.

 

I do see increasing network effects in industries like social media, where winner-take-all economics may become more prevalent. However, these businesses are so nascent, and likely subject to disruptive ideas (see Facebook, easily the closest to winner-take-all in social media, constantly paranoid about losing their youngest rung of new members to the "cool" way to connect), that I think this type of investing becomes pretty similar to general market timing. You might make a lot of money, but also risk investments becoming nearly worthless in the blink of an eye. Asset-light businesses don't provide much of a margin of safety if the P&L dynamics change.

[jouni1]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

[Hielko]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

You don't know if you would have been able to identify a priori those "best of breed" companies with sustainable business models. Most business models are sustainable until they aren't...

[jschembs]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

 

Curious which names you would've chosen 20 years ago, and which you would choose today?

[Kraven]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

You don't know if you would have been able to identify a priori those "best of breed" companies with sustainable business models. Most business models are sustainable until they aren't...

 

Absolutely.  20 years?  What about 5 years?  Someone on this thread was talking about the companies that will do great for the next 50 years.  Impossible. 

[yadayada]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

You named mastercard, but even in armageddon 2008, it was trading at like 13-14x earnings, with not that much growth I think. Not saying it is a bad buy (probably slightly beat the market with it), but why buy this company, if you can buy decent non superstar companies with healthy balance sheets trading under net cash at insanely cheap valuations? Or trading at like 3-4x earnings? Doesn't seem optimal to put your money there at that point.

 

Same goes for bull markets, all those companies will trade at 20-30 times earnings. Better to look for special situations and in the corners of the market for dirt cheap stuff where you dont have to  be very right to make a nice gain.

[LC]

 

You named mastercard, but even in armageddon 2008, it was trading at like 13-14x earnings, with not that much growth I think. Not saying it is a bad buy (probably slightly beat the market with it), but why buy this company, if you can buy decent non superstar companies with healthy balance sheets trading under net cash at insanely cheap valuations? Or trading at like 3-4x earnings? Doesn't seem optimal to put your money there at that point.

 

Same goes for bull markets, all those companies will trade at 20-30 times earnings. Better to look for special situations and in the corners of the market for dirt cheap stuff where you dont have to  be very right to make a nice gain.

Because mastercard can go on earning healthy returns on capital for many, many years. The net-net is one puff and out. So why waste the opportunity in a fire sale to buy used cigar butts when you can buy nice box of cubans at a slightly higher price?

[Zorrofan]

so if i 20 years ago would have bought stock in 20 best of breed companies with sustainable business models earning high returns on investment i would have done badly? or just for the next 20 years?

You don't know if you would have been able to identify a priori those "best of breed" companies with sustainable business models. Most business models are sustainable until they aren't...

 

Absolutely.  20 years?  What about 5 years?  Someone on this thread was talking about the companies that will do great for the next 50 years.  Impossible.

 

Difficult to identify the type of companies that will be around that long maybe but impossible?  WEB stated during an interview on CNBC that he was confident that BRK would still own Heinz 100 years from now, but that he was less sure about IBM.  This was back when the Heinz deal was first announced and I found it interesting that he was less confident in IBM but invested anyways.

 

just my $0.02

 

cheers

Zorro

[SpecOps]

The thing about Cramer is that he's now an entertainer. So he doesn't earn money by being right (although it helps) he earns money by being entertaining.

 

I find his shows mildly amusing when I catch him and I can see why he's done well in the industry.

[PatientCheetah]

 

You named mastercard, but even in armageddon 2008, it was trading at like 13-14x earnings, with not that much growth I think. Not saying it is a bad buy (probably slightly beat the market with it), but why buy this company, if you can buy decent non superstar companies with healthy balance sheets trading under net cash at insanely cheap valuations? Or trading at like 3-4x earnings? Doesn't seem optimal to put your money there at that point.

 

Same goes for bull markets, all those companies will trade at 20-30 times earnings. Better to look for special situations and in the corners of the market for dirt cheap stuff where you dont have to  be very right to make a nice gain.

Because mastercard can go on earning healthy returns on capital for many, many years. The net-net is one puff and out. So why waste the opportunity in a fire sale to buy used cigar butts when you can buy nice box of cubans at a slightly higher price?

 

You forget to mention that great companies are so much easier to own - stable, low chance of major fuckups, you rarely have to do much additional work once you have bought it at a good price, the stock compounds itself at decent rate

[yadayada]

I read that he made alot of money with market manipulation?

http://www.deepcapture.com/jim-cramer-is-a-complicated-man/

 

That piece really picks him apart.