How Is Jim Cramer So Consistently Wrong?

When you provide analysis that appeals to the crowd, you personify herd mentality - and the herd is usually wrong.

Is there more to Cramer than meets the eye - or less?

Forecasting markets is not an easy business. The inherent unpredictability of the markets makes it difficult at the best of times, and it's easy for judgment to become clouded by emotion—especially at times of fear or euphoria.

Successful traders are few and far between. There are many who try to carve out a niche as a market guru, and most fail abysmally. Most of the failures have the sense to quietly walk away, their reputations in tatters, blushing with shame at the money they have lost anyone who listened to them and invested based on their advice.

And then there's Jim Cramer.

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Jim Cramer is the host of Mad Money, a long-running CNBC show on which he gives commentary and advice on different investments.

Despite the popularity of Mad Money, Cramer has gained a reputation for being wrong. In fact, he has made a string of absolutely terrible calls. One of the best-known of these was Tesla's IPO back in 2010, at $17 per share. Cramer warned his audience off, suggesting it was overpriced and that Tesla didn't have a business plan. We know how that went.

Cramer's mistakes are so consistent that he has become popular as a contrarian signal. There is even an Inverse Cramer ETF, which takes short positions based on the opposite of his advice. He has also been a frequent critic of Bitcoin, arguing that it's about to crash on more than one occasion—after which it soared.

Jim's calls go far beyond being financially wrong. Several years ago, he interviewed Elizabeth Holmes, founder of Theranos, a medical company that appeared to offer incredible diagnostic advances. Theranos attracted $700 million in venture capital and traded at a valuation of $10 billion at one point. In the interview, Cramer compared Holmes to Steve Jobs. Not long after, her empire collapsed. Theranos was exposed as a massive fraud, and Holmes is now serving 11 years in prison.

How Is It Possible To Be So Wrong?

Cramer can be wrong at multiple points through the cycle of a stock, making a bad call not just once but many times. Nvidia is a great example.

Surely it's not statistically possible to be wrong so often? Or is Cramer just really unlucky, in the opposite of the way that some people win the lottery multiple times?

There's another explanation, though, which Matthew Tuttle—CEO of Tuttle Capital Management and creator of the Inverse Cramer ETF—explains.

"I’ve been trading and involved in the markets since the early '80s. I’ve loved markets since then. One of the things I’ve always noticed is the consensus tends to be wrong," he says. And Cramer, with his popular show designed to appeal to regular people, represents that consensus perfectly.

Then I came across Jim Cramer and noticed that he seems to be the consensus on steroids. The reason for that is he has no choice but to swing at every pitch. That’s his job on Mad Money, the show he’s hosted since 2005. If I call him up and say, "What do you think about whatever?" most of the time he hits buy buy buy, sell sell sell.

In other words, Cramer isn't really forecasting anything. His opinion is derived from the emotion embodied in the markets, which almost by definition is the opposite of what the smart money is doing. Cramer is "dumb money" personified. His calls are designed to appeal to the majority. Audience figures are more important than accuracy. It's herd mentality at its finest, and the herd is generally wrong.

Perhaps that's why his recent call that BTC was "topping out" was greeted with relief by the crypto community.

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