If you had invested $100 million at the start of 2021 and followed the Inverse Cramer Strategy, you would have $132 million by the beginning of Q4 2022.
Jim Cramer is the host of CNBC’s Mad Money and is among one of the most famous stock pickers in the world. However, his fame doesn’t only arise from his impressive investment recommendations and accurate stock picking. Rather it stems from how bad it has been since 2020.
This article will discuss whether following the inverse Jim Cramer strategy is effective in the long run and whether you should follow this strategy or not. So, let’s get right into it!
What Is the Cramer Effect?
The Cramer effect refers to the phenomenon that whatever Jim Cramer predicts, the opposite happens. For example, if Cramer expects that the prices of a stock will go up, you can assume that the stock will fall and vice versa.
Jim Cramer has notoriously made some awful stock predictions. Some of Cramers worst predictions throughout the years have been:
Netflix (NASDAQ: NFLX)
In November 2012, Cramer banged the table and called out a sell notice for Netflix, predicting a steep fall in its value. Within the next six months, the value of Netflix rose 174.49% higher.
Hewlett Packard Enterprise Co (NYSE: HPE)
Cramer told his listeners to sell their HPE stock in 2012, stating that the company would struggle due to “broken corporate culture.” The stock of HPE rose by 110% in the six months following his sell notice.
Qorvo (NASDAQ: QRVO)
In April 2015, Cramer put out a buy notice for Qorvo stocks, predicting the stock would rise substantially. The stock’s trading value fell by 37.8% in the following six months.
Best Buy (NYSE: BBY)
Near the end of 2012, Cramer put out an exit notice for Best Buy and urged his viewers to sell any stocks they had. However, within six months of the call, the value of Best Buy had increased by 124.64%
Kohl’s Corp (NYSE: KSS)
Cramer issued a buy notice for Kohl’s Corp stock in April 2015. Within the next six months, the value of the shares fell by 41.11%.
According to an article by Babbl, If you followed Jim Cramer’s trading advice from August 2021 onwards and invested $1000 into the stock options he chose, you would suffer an 83% loss on your principal, leaving you with only $163. This shows how reliable the Cramer Effect actually is.
The Inverse Cramer Strategy
If Jim Cramer says go right, then go left; if Cramer says Buy, sell as fast as possible.
This is the basic principle of the Inverse Cramer Strategy. Investors now realize that if they do the exact opposite of what Jim Cramer recommends, they can make a lot of money in the short run. But it’s a risky strategy.
How Investment Platforms Use Inverse Cramer Strategy
The Inverse Cramer strategy is supported by several contributors on investment opinion sites, such as Seeking Alpha. This company has notably followed the Inverse Cramer Strategy for quite a while and tracked over 4000 stocks that Jim Cramer has mentioned in his show.
The platform was able to get a 20.13% return through the inverse Cramer strategy in 2021. Comparing this to the S&P 500, which had a negative return of 6.29%, we can clearly see that the inverse Cramer strategy ended up outperforming the broader market.
The Inverse Cramer strategy has become so famous that in October 2022, TUTTLE, an investing company, filed to create an ETF that would follow this strategy in its investments. The Inverse Cramer ETF, SJIM, is created to be an actively managed fund that essentially bets against Jim Cramer.
The concept behind SJIM is that whenever Cramer is bullish about a stock and recommends buying it, the fund will sell it short or enter into a derivatives transaction that negatively correlates it to that stock.
Essentially, the fund bets that since Cramer predicted the stock would go up, it will surely fall. Similarly, if Cramer is bearish on a stock and recommends selling it, the fund will go long and hold the stock.
The Inverse Cramer strategy is a bet against the calls of Jim Cramer. However, if Cramer makes enough bad calls in the long run, the strategy can end up making investors a lot of money.
So, Does the Inverse Cramer Strategy Actually Work?
All investments have associated risks, but very few allow for the satisfaction of betting against a famous financial expert.The Inverse Cramer Strategy has managed to outperform the broader market and indexes such as the S&P 500 time and time again. So even though an investment strategy based on going against everything a financial advisor may sound like an inaccurate decision, it works. In the end, whether you use this high-risk strategy is on you.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.