In Cramer We Trust?
By now you may well be familiar with the running battle that has developed over the past few weeks between John Stewart of Comedy Central’s “The Daily Show” and Jim Cramer of “Mad Money” fame on CNBC.
With the help of many video clips, Stewart has roundly criticized both CNBC and Cramer for what he perceived to be the repeated delivery of misleading or erroneous investment advice. The public spat has now been exhaustively catalogued on YouTube.com.
Though done comedically, Stewart shined a light on a key issue: the role of the financial media. While the function of media remains vital in our society, objective and insightful analysis is all too often drowned out by hyperbole.
Whether it is CNBC, popular money magazines or talk radio, the overriding priority is to develop content that will attract viewers, readers and listeners in an increasingly crowded media universe. This maximizes advertising rates which, in turn, keeps shareholders happy. Unfortunately, this also creates the pressure to say something new and exciting every day.
Sound investment advice rarely qualifies as “new and exciting.” Consequently, many media outlets make their living off of selling investors on the idea that they are delivering information which can lead to outsized investment returns. The truth is that the market is a zero sum game among its participants, and those who are least active typically capture more of the returns the market has to offer.
Despite all of the noise created by Cramer and others, a sound investment strategy boils down to a handful of (boring) principles: accepting that markets work, understanding that risk and return are related, diversifying, keeping costs low, and maintaining a long-term perspective. While speculation and gambling can provide entertainment, investing should not.