View Full Version : Stock guru raises share prices and some concerns

03-21-2006, 07:32 PM
Friday March 3, 2:58 pm ET
By Michael Flaherty

NEW YORK (Reuters) - He rants, raves, throws chairs, tosses pencils, slurps water -- and the wild host of the U.S. television hit "Mad Money" moves stock prices, too.
Jim Cramer's show, which airs three times a night during the week on the CNBC network, has drawn a loyal following since it began nearly a year ago, with viewers lured by the broker-turned-commentator's pledge to make them rich with his stock picks.

His manic enthusiasm entertains viewers, and his recommendations spark frenzies that have moved so many stocks that "the Cramer effect" is a phrase now widely used on Wall Street. In one case, buyers piled into shares of NMT Medical Inc. (NasdaqNM:NMTI - News), which shot up 30 percent after a Cramer tip.

But buyers beware.

Jumping into stocks on the blessing of a market guru is dangerous for the individual investor, experts warn. Thinly traded small-capitalization stocks, which Cramer has routinely sent flying, are especially perilous.

While these picks may be tempting, they can just as easily send someone into poverty as into a higher income bracket, market veterans say.

In fact, the power of the Cramer effect has surprised even the disheveled host himself. In a comparatively subdued interview with Reuters, the former Goldman Sachs (NYSE:GS - News) broker and self-described "Street addict" said he has become more careful with his recommendations.

"What I think I had to realize when I first saw it was I better caveat things," said Cramer, 51, founder of TheStreet.com (NasdaqNM:TSCM - News), a business news Web site where he writes market commentaries. He is also a columnist for New York magazine.

Cramer warns his audience about the risks of investing, but people still can't resist a stock tip.

Indeed, his fan base is growing. To date, in the first quarter beginning December 26, the "Mad Money" audience hit 463,000 a day, up 16 percent from the previous three months, according to CNBC, and far above viewership achieved by the show's predecessor.


When Cramer speaks, his viewers react, which concerns some experts.

"People making investment decisions based on nothing more than his say-so probably shouldn't be in the market," said Steven Thel, former general counsel for the U.S. Securities and Exchange Commission and a law professor at Fordham University.

"There are real doubts about whether the small (investor) ought to be making his money by making his investments in certain stocks," Thel added.

Greg Goldstein, president of Long Island-based broker-dealer Marquee Investment Capital, agreed.

"All of sudden, if they don't sell fast enough, once the buying stops, they're dead," Goldstein said. "People have to be careful. If you can afford to lose money, there's nothing wrong with it. But a lot of people don't want to do their homework."

Cramer implores listeners to do just that, and makes a point to say that it's not him, but people reacting to his tips who push stocks higher. Nevertheless, the Cramer effect is immediate.

On Thursday, shares of Rite Aid Corp. (NYSE:RAD - News), the No. 3 U.S. drugstore chain, rose more than 5 percent after Cramer recommended the stock.

His blessing also has prompted jumps of 30 percent for medical technology company NMT, 10 percent each for biotechnology company ZymoGenetics Inc. (NasdaqNM:ZGEN - News) and footwear designer Deckers Outdoor Corp. (NasdaqNM:DECK - News), and 23 percent for semiconductor maker Conexant Systems Inc. (NasdaqNM:CNXT - News). The list goes on.

The share-price pops are a testament to Cramer's reputation, but they also pose a potential problem, since some of these hot stocks have dropped as quickly as they rose.

Shares of Canadian drug company OccuLogix Inc. (NasdaqNM:RHEO - News) have fallen nearly 60 percent since his backing. Dick's Sporting Goods (NYSE:DKS - News) steadily dropped after his support, and XM Satellite Radio Holdings Inc. (NasdaqNM:XMSR - News) is down 26 percent.


Cramer said the reaction to his picks has caused some introspection and some changes.

The moment of realization came shortly after the show launched, when he recommended technology firm CMGI (NasdaqNM:CMGI - News), seeing it as a short-term bet.

"The trade was overwhelmed very quickly so what I realized was, I'd better do more than short-term trades," he said.

Cramer says he owns up to his bad picks. And so far, the gems he's chosen appear to have outpaced the dogs.

His pick-of-the week stocks are up on average 18.6 percent from last April through the end of January, according to TheStreet.com.

Day traders, or individual investors who quickly move in and out of stocks, are big fans of Cramer's show.

"The stock moves right when he starts moving his mouth," said Charles Vaccaro, president of New York day trading firm HLV Capital Inc. "We're playing off what we know is going to be a reaction."

Day traders have the experience to get in and out of stocks quickly -- something the average investor lacks.

Cramer is aware that his effect comes with a level of responsibility to the mom-and-pops watching his show.

"You begin to recognize that it's an awesome power," he said, "and you better get it right and you better not abuse it."

03-22-2006, 03:11 PM
interesting stuff too research on