Evaluating Jim Cramer’s Stock Picks for CNBC

Today I want to talk to you about picking stocks. If you’ve watched my videos or followed my content you might know that I’m a little skeptical about picking stocks, picking cryptocurrencies, timing the market, things like that—you can click on this link to get my philosophy on investing for beginners.

Is Picking Stocks Worth It?

To me, picking stocks is a little like playing Powerball—yes somebody is going to win an incredible amount of money, but 99.9 percent of people who buy a ticket even every week will never win anything more than a small prize. You’d be better off to just put your money in an index fund rather than buying more tickets.

Now the odds aren’t quite as bad when it comes to buying stocks, but I think the same thinking applies. Everyone has heard stories about people who bought Apple stock, they bought Tesla stock, they bought Bitcoin and they made $500,000, but for every one of those stories there are a thousand other stories where someone invested in a growing company and it didn’t turn into anything. In the same way, for every stock you buy that goes up there will probably be one that goes down.

So overall you’re going to spend more time managing your portfolio and it’s a toss up whether that will actually lead to more money. But I’ve been satisfied with my returns on index funds and ETFs—this is just my philosophy, I’m not going to say that nobody can ever beat the market as a law of nature or something like that.

But it’s extremely difficult to do so in the long term, and with the time one spends trying to beat the market they could conceivably spend that time doing other things to increase their income in a greater capacity like starting a business or a side hustle.

Jim Cramer’s Advice

And I was curious about whether I was missing out, and especially whether my advice was causing you to miss out, so in this video I want to take a look at how we would have done following Jim Cramer’s stock picking advice versus putting the money in the S&P 500.

If you don’t know who Jim Cramer is, that’s fine. He hosts Mad Money on CNBC, he made some stock picks on April 15th, and here’s what he said: “For years, lots of very smart people…told us that index funds were really the best if not the only way to invest.

But sometimes trying to mirror the market is a bad strategy,” and why is it a bad strategy, he says because “you have to own so many have-nots along with the haves.” That sounds great, and he’s been hosting the show since 2005 so he’s clearly doing something right.

But of course that advice is only helpful if you can reliably predict which stocks will turn out to be haves and which ones will turn out to be have nots, and we’ll see if he managed to do that.

The S&P 500

First, let’s catch up with S&P 500 performance this year. Here’s the link to the data if you want to check it out. Obviously the market crashed around the time coronavirus started to affect the American economy.

If you’re new to investing, the S&P 500 is a market index made up of 500 very large companies in a variety of industries. So when you buy one share of the S&P 500 your money is being split across all of those businesses, which means that you aren’t too heavily invested in any individual asset.

Obviously your performance will still depend on the market, so there’s still risk involved, but a decline in one industry for example will be limited to a small percentage of your portfolio.

Now on the other hand, it could also mean that strong performance in a single industry will be balanced out by the rest of your investments. Basically investing in the S&P 500 is investing in the economy as a whole instead of picking individual companies or industries that you expect to do well.

The S&P 500 closed at $3,337.75 on February 21st and fell pretty quickly after that, for example on March 23rd it closed at $2,237.40, that’s a drop of 33 percent. And it’s been slowly coming back since then, on April 15th when Cramer released these picks it closed at $2,783.36, not all the way back up but a decent recovery.

And I’m cutting off after the week ending August 7th, the S&P 500 closed at $3,351.28, so it just caught back up to where it was before the crash. If you invested in the S&P 500 in February, you would have just about broken even over the last six months, which is pretty incredible considering what happened to the market and the country especially in February and March.

In terms of an overall return counting from April 15th that works out to a return of 20.4 percent, so that’s the number Cramer needs to beat if his picks are really going to be better than the S&P 500.

Now this is a pretty small sample size, and everyone who makes stock picks will be right sometimes and wrong sometimes, so I’m not saying Jim Cramer’s a hack or he’s a genius or something like that, and you must keep in mind that this is an extremely short-term comparison in one of the most volatile times in our nation’s history.

I’ll be revisiting Cramer’s picks periodically and comparing them to the S&P 500, maybe a few times a year, to see how you would have done if you would have just picked Cramer’s stocks on that day vs. simply buying an index fund.

Netflix

The first stock Cramer mentioned is Netflix, and this is an intuitive choice, they’re actually part of the S&P 500 so you would have a small percentage in Netflix if you invested in the index. You expect people to spend more time at home during quarantine, movie theaters are closed so consumers are watching movies online.

It’s not surprising that this would be his first pick, and to Cramer’s credit it has performed fairly well since April 15th. It closed at $426.75, and on August 7th it closed at $494.73. For those of you keeping score at home that works out to a gain of 15.9 percent, OK that’s a decent return, but it’s still 4.5 percent lower than the 20.4 percent that the S&P 500 would have given you over the same time. So just starting off that’s one point to the index.

Activision Blizzard

Next comes Activision Blizzard, this is a gaming company. I’m not much of a gamer but I guess they make games like Call of Duty, Overwatch, Hearthstone, World of Warcraft. This is probably the same logic with consumers looking for home entertainment.

And they closed at $65.71 on April 15th, on August 7th it was $82.47. That’s a return of 25.5 percent so this one goes to Jim Cramer, that’s one to each side so far.

Take Two Interactive

The third company is Take Two Interactive, another video game brand, and their performance has been pretty close to Activision Blizzard. They were barely affected by the initial drop, well not barely but a lot less than most other companies, and they closed at $123.50 on April 15th.

On August 7th they were at $174.96, that’s actually a gain of 41.7 percent, so clearly much better than the S&P 500 over the same time, that’s two for Jim Cramer.

Nvidia and AMD

After that he recommended Nvidia, this is a computer company that invented the GPU, or graphical processing unit, they sell graphics cards and some other tools. Here again it’s a tech brand, the kind of investment that is probably going to be more resilient to the effects of a pandemic and a lockdown, and it turns out he was right again with this one. Nvidia went from $280.84 on April 15th to $447.98 on August 7th.

This is an even better return at 59.5 percent, so if you invested $1,000 on April 15th you would have ended up with $1,595 on August 7th, so we’re up to three for Cramer now.

And along with Nvidia, he also brought up another graphics company called Advanced Micro Devices, or AMD. They’ve gone up from $54.99 to $84.85, that’s 54.3 which is pretty close to Nvidia, that makes it four for Cramer and one for the S&P 500.

Amazon

Up next is Amazon, another self-explanatory investment in April, and if you’ve seen the stories about Jeff Bezos you know they’ve been doing really well.

The figures are $2,307.68 as of April 15th and $3,167.46 on August 7th—that’s a big change, and Amazon actually set a new record high during the pandemic. It works out to an increase of 37.3 percent, that’s the fifth pick that has outperformed the index so far, so it’s not looking great for the S&P 500 at this point.

Domino’s

Seventh brand is Domino’s Pizza, you can see the trend here, but unfortunately for Jim Cramer Domino’s hasn’t quite lived up to the expectations you might have had in April.

They went from $354.62 to $389.12, and that’s respectable, it’s a return of around 9.7%, so a lot lower than the index I’m using, but that’s just the second time the index has done better than his picks.

Constellation Brands

After that Cramer turned to Constellation Brands, this is a big alcohol company, part of the Fortune 500 and S&P 500, they own names like Corona, Modelo, SVEDKA Vodka, High West Whiskey.

Now alcohol sales have been increasing during the pandemic, so it would make sense for Constellation to be doing well right now, but they’ve only increased from $162.36 to $172.27. That’s about 6.1 percent higher, so it’s not like you would have lost money, you’d actually be on pace for almost 25 percent in annual gains, but still it’s less than half of the 20.4 percent returned by the S&P 500 over the same period.

So after that it’s three for the index and five for Jim Cramer.

Dollar General, Walmart, and Costco

From there we have three essential retailers that generally stayed open during the pandemic, they’re also known for low prices which could increase sales during times like these.

These are Dollar General, Walmart, and Costco, so let me run through their results. Dollar General went from $176.11 to $195.29, Walmart went from $128.76 to $129.97, and Costco went from $310.27 to $340.91.

In terms of percentages that works out to 10.9, 0.9, and 9.9. So again no losses here, but still none of them match the index, making it six for the S&P 500 and five for Cramer.

Campbell Soup, Mondelez, PepsiCo, Conagra Brands, McCormick

Up next is a set of five food and beverage companies, Campbell Soup, Mondelez, PepsiCo, Conagra Brands, and McCormick.

Here are their results: Campbell decreased from $50.50 to $49.97, Mondelez increased from $53.71 to $55.60, PepsiCo increased from $135.03 to $136.74, Conagra Brands increased from $32.87 to $37.84, and McCormick increased from $152.56 to $201.55.

And again the percentages are -1.1, 3.5, 1.3, 15.1, and 32.1. So only one lost value, but also only one outperformed the index.

If you’re counting, that makes it ten wins for the S&P 500 and six for Jim Cramer with two more to go.

Zoom

The second to last brand is Zoom, I don’t think I need to explain this one, and their stock has shot up over the past six months or so.

It would have been great to invest in February or March, but even if you bought a share on April 15th it would have increased from $151.56 to $258.73.

This was one of his best picks at 70.7 percent, and it’s his seventh correct pick so far.

Roku

Finally he recommended Roku, this is a streaming service and they also sell some other products like streaming sticks, smart TVs, and speakers.

And Roku is another win for Cramer, going from $113 even to $156.39, that’s about 38.4 percent.

Conclusion

After going through all 18 picks we ended up with eight cases where you would have been better off going with Jim Cramer’s recommendation and ten where you should have stuck with the S&P 500. And I want to mention here that his picks, if you put an equal amount into each one, would have gained a total of 23.98 percent compared to 20.4 percent for the S&P 500.

So even though most of his picks were wrong, a few of them did well enough to offset those bad predictions.

Is this skill, just sheer dumb luck that he picked some stocks that did really well even though most of his picks underperformed the market? You be the judge.

Now as I said before this isn’t conclusive or anything like that—it’s just a snapshot of one particular instance where someone picked a set of stocks. If I tried this next week with a new set of picks or another expert, I could end up with a totally different result, and that’s just the nature of the market. So take this information however you want, I hope it gives you an idea of how volatile the market can be.