Posted on January 26, 2023
Previous articles have documented technical indicators, on price charts, that indicate we have ‘broken out’ of the previous trading pattern and that investors want gold and are going long. When generalist investors start talking about gold, it is a sign we are in a bull market. And we have a very popular generalist investor, Jim Cramer, talking lately about buying gold. From CNBC:
“The charts, as interpreted by Carley Garner, suggest you need to ignore the crypto cheerleaders now that bitcoin’s bouncing. And if you seriously want a real hedge against inflation or economic chaos, she says you should stick with gold. And I agree,” Cramer said.
Why is Cramer so bullish on gold? I honestly believe, from listening to Cramer on his radio days years ago, that he is still a contrarian investor. I believe he does understand the role of gold from the perspective of a safe haven asset. Since he follows stocks, bonds, and the dollar, I believe he knows that we are in a selloff and that gold will do well in this environment. And he is making a call in a timely precious metals market that, so far, looks like it wants to get up and run again.
Cramer the Contrarian
Part of what is fun about following a market guru or analyst is checking out how well they have done. I am going to examine Cramer’s track record in a couple of different ways and tell you why I think Cramer’s gold call falls in line with this investment approach. This takes a bit of work, which is what we do next.
The data on Cramer’s investment picks is mixed, but essentially my analysis points to a contrarian model with good long-term buy signals and really good sell signals. Let’s examine it using several different analyses. The following two charts are from CXO Advisory group dating back to 2007, with comments below.
The first chart shows that Jim tends to do well against the S&P500 both immediately and in the longer term, but not in the short term from 10 to 60 days. In the second chart, we get to see both his buy and sell recommendations.
Long term, both his buy and sell recommendations are pretty good. And I think this plays into his ‘contrarian’ nature of picking against the market or simply being ‘early’ on investment ideas. If you are expecting a solid two-month return, then you may be out of luck. But what about more recently?
An independent user on Reddit tracked all of his calls for 2021, almost 700 of them, and came up with the following chart which shows Cramer is great on sell calls (contrarian), and pretty good on buy calls in the longer term (also contrarian).
These two charts show that Cramer does well on sells right away, and well on buys in the longer term. Again, this agrees with our general analysis of Cramer as a contrarian investor who is actually ahead of the curve. I will explain why that is very important in the conclusion of this article.
Lastly, I went to my old haunt, Seeking Alpha, to see what the market wizards had come up with over there with regard to Cramer’s calls. We can see here that they chose the ‘highest conviction’ picks by Cramer, essentially the ones he pounds the table on, and the returns are not great.
The inverse ETF, which cherry-picks certain stocks, returned 21.85% in the years 2021-2022. But those aren’t all of his picks and don’t reflect the longer-term strategy he has developed. In other words, this analysis falls short of measuring the longer-term value of Cramer’s recommendations.
In short, I believe Cramer is a contrarian stock analyst, much like he has been his whole career, that does well when measured over time. Immediate returns are not great because he is swimming against the prevailing tides of the markets, and that is because, by design, contrarians go against the grain and make their picks ahead of the rest of the market.
Per Investopedia, this is the definition of a market contrarian:
“Contrarian investing is an investment style in which investors purposefully go against prevailing market trends by selling when others are buying and buying when most investors are selling. Berkshire Hathaway Chair and Chief Executive Officer (CEO) Warren Buffett is a famous contrarian investor.”
I think this perfectly describes his investment strategy and his self-proclaimed view of himself as a contrarian investor. His picks make the news because, in the short run, the buys aren’t great. But he nails the buys on the longer term and nails his short picks more often than not, per the data.
Why does any of this matter? Well, it matters for two important reasons. First, gold and silver investors are pretty much by definition and results, contrarian investors. We tend to buy precious metals when everyone else is loading up on stocks, bonds, and real estate. That is one reason my best friend in high school called me the ‘burning bush’ in reference to those that make big predictions way before they come to fruition.
Being a contrarian is not a bad thing, it is just timing. Contrarians like me see further into the future, and we are often also ‘intuitive’ and ‘visionaries’, something my personality tests in my corporate career accurately measured me as. That is in fact why I buy precious metals; because they offset longer-dated risks that I just happen to see before most other people do. In other words, contrarians are often right, we are just right way before everyone else figures it out.
Secondly, Jim is what is known as a generalist investor, or someone who invests broadly across different markets and securities types. This isn’t a good or bad thing, but it means that generalists don’t typically buy a lot of gold and silver like us contrarian types. They aren’t ‘burning bushes’ or ‘intuitive visionaries’ that focus on longer-dated investment thesis. But Jim is exactly that, and it is why his bullish call on gold is so important.
Jim obviously sees what is likely to happen in 2023 with a formal recession announcement, and he knows gold will do well. To his credit, he called the gold bull market originally weeks before it took off this year into the 1900s. And he was right, much like he is on his longer-term track record with paper securities, as evidenced by the data above.
And when generalist investors pile into gold, especially ones with as much visibility and clout as Jim Cramer, then gold and silver tend to have bigger bull runs. As gold and silver investors, that is exactly what we want! It edifies our visionary tendencies.
So Jim, please keep being bullish on gold. It is confirmation that the generalists are starting to agree with us gold and silver bugs. And that means we all profit together. I can certainly think of worse things that could happen, don’t you?