Should You Trust Jim Cramer’s Stock Market Advice?

A2A: Should you trust Jim Cramer? For what, to take care of your dog while you're on vacation, loan him money, or date your daughter? OK, I couldn’t help myself.

Never forget that the primary objective of his show is to draw an audience and is entertainment. He could easily be doing sports or politics, but stocks are his topic vehicle. So, would one trust his stock market advice?

Backtesting Jim Cramer's Strategies

Backtesting strategies is essential before following any financial advice. One example is Jim Cramer’s introduction of the Covid19 Index in April 2020, comprising approximately 100 stocks. This index was introduced during a critical time when the global financial markets were highly volatile.

Over the almost past two years, let us compare the Covid19 Index (green curve), the Nasdaq100 (red curve), and the SP500 (purple curve). As shown in the graph, until the end of last year, Cramer’s Covid19 Index seemed to outperform the Nasdaq100, which in turn performed better than the SP500. However, with the new reality of a war in Europe, the landscape has changed, and it’s uncertain which index will perform better in the upcoming months.

Who to Trust?

Is there anyone you should trust for financial advice beyond yourself? The simple answer is: Of course not!

If you follow any financial advice, including Jim Cramer’s, and then find yourself facing financial losses, who is to blame? Jim Cramer or you? The consequences of a financially disastrous decision fall on you. The wise person is self-sufficient and draws knowledge and wisdom from within themselves, not from external sources like Jim Cramer.

Indexes vs. Active Investing

If you cannot confidently make your own financial decisions, or if the stock market seems too daunting, consider investing in index funds. These funds are a safer bet as they track a specific index and are managed passively, which means they are less prone to human error or market timing mistakes.

Here’s the analogy: If your brain is a small child not skilled at swimming, you wouldn’t throw it into a deep pool without teaching it how to swim first. Similarly, don’t engage in financial markets where your skills are lacking.

Conclusion

Making financial decisions with your money is a serious matter. Trusting Jim Cramer’s advice or any other financial expert without proper due diligence can lead to losses. Instead, take personal responsibility for your financial well-being. If you cannot navigate the financial waters, invest in index funds and move on with your life.

Remember, you are begging for losses by making these kinds of impulsive decisions with your hard-earned money. Be wise, be patient, and do what is best for your financial future.