Individual Gurus

Do funds based on Jim Cramer’s stock/market recommendations generate attractive returns? To investigate, we compare performances for Northern Lights Fund Trust IV – Long Cramer Tracker ETF (LJIM) and Northern Lights Fund Trust IV – Inverse Cramer Tracker ETF (SJIM) to that for SPDR S&P 500 ETF Trust (SPY). The prospectus for LJIM and SJIM states:

LIJM: “The Fund’s adviser monitors Cramer’s stock selection and market recommendations throughout the trading day as publicly announced on Twitter or his television programs broadcast on CNBC and follows those recommendations to produce a direct correlation to those recommendations. The Fund goes long and short on stocks or ETFs at Cramer’s direction. The Fund sells securities when Cramer recommends selling the security or if, at the adviser’s discretion if Cramer takes no position on the security for over a week. The Fund’s portfolio is comprised generally of 20 to 50 equity securities of any market capitalization of domestic and foreign issuers through American Depositary Receipts, and/or ETFs. The adviser further has discretion to not transact in equity securities mentioned by Cramer or engage in related transactions if such securities or transactions are (i) not well suited for ETFs, (ii) have an excessive level of risk, (iii) illiquid, or (iv) negatively impacting the Fund’s ability to meet IRS and Investment Company Act of 1940 diversification requirements. In addition, the adviser has discretion to determine whether Cramer’s statement about a given equity securities is in fact an investment recommendation and thus eligible for inclusion in the Fund’s portfolio. A secondary strategy is an attempt by the Fund to seek positive returns based on the momentum generated in many securities mentioned by Cramer. Cramer’s remarks from time to time create volatility in the equity securities he mentions, which may create buying or selling opportunities during the periods of momentum. Under normal circumstances, the secondary strategy is limited to 20% of the Fund’s net assets. Due to the Fund’s investment strategy, it is expected that the Fund will have a high turnover rate.”

SJIM: “The Fund’s adviser monitors Cramer’s stock selection and overall market recommendations throughout the trading day as publicly announced on Twitter or his television programs broadcast on CNBC and sells Cramer’s stock recommendations short. The Fund goes short or long on stocks or ETFs, including Index ETFs and inverse Index ETFs, to take the opposite side of Cramer’s announced market or sector view. The Fund’s portfolio is comprised generally of 20 to 50 equity securities of any market capitalization of domestic and foreign issuers through American Depositary Receipts, and/or ETFs if Cramer makes market or sector recommendations. Should Cramer recommend buying any of the securities in the Fund’s portfolio, the Fund will dispose of those holdings. Should Cramer recommend selling any of the securities in the Fund’s portfolio, the Fund will keep those holdings. The adviser may also sell securities that have gone “stale”—i.e., have been held for several weeks with no further commentary by Cramer. If Cramer does not take any view on any of the securities in the Fund’s portfolio, including when he is absent from CNBC or Twitter for any reason, the adviser further retains discretion to sell positions if market conditions such as large swings in either direction necessitate a sale because profit or loss targets are met and replace them with securities that represent the opposite side of Cramer’s announced market or sector view. Under normal circumstances, the Fund will hold positions no longer than a 5-day trading week but could hold a position longer if Cramer continues to have a contrary opinion. The adviser has discretion to not transact in equity securities mentioned by Cramer or engage in related transactions if such securities or transactions are (i) not well suited for ETFs, (ii) have an excessive level of risk, (ii) illiquid, or (iv) negatively impacting the Fund’s ability to meet IRS and Investment Company Act of 1940 diversification requirements. In addition, the adviser has discretion to determine whether Cramer’s statements about any given equity security is in fact an investment recommendation and thus ineligible for inclusion in the Fund’s portfolio. Due to the Fund’s investment strategy, it is expected that the Fund will have a high turnover rate.”

Using daily dividend-adjusted prices for LJIM, SJIM and SPY during March 2, 2023 (LJIM and SJIM inception) as available through February 13, 2024, we find that: Keep Reading

Does finance professor David Kass, who presents annual lists of stock picks on Seeking Alpha, make good selections? To investigate, we consider his picks of:

• “10 Stocks for 2020”: APPL, BAC, BRK-A, WBD, JPM, MSFT, OXY, PH, SWK, STNE
• “16 Stocks For 2021”: GOOG, ABBV, AMZN, APPL, BAC, BRK-A, CABO, CHTR, LSXMK, META, MU, MSFT, PCG, PSTH, RBAC, RH
• “12 Stocks For 2022”: GOOG, AMZN, APPL, BAC, BRK-A, CVS, GPN, META, MSFT, NU, NVDA, TECK
• “10 Stocks For 2023”: ATVI, APPL, BRK-A, CVX, DHR, HSY, KHC, OXY, PEP, PGR

We compare the average return for stocks picks each year with that for SPDR S&P 500 ETF Trust (SPY) for the same year as a benchmark. Using dividend-adjusted returns from Yahoo!Finance for SPY and most stock picks and returns from Barchart.com and Investing.com for three picks during their selection years, we find that: Keep Reading

Does Warren Buffett consistently keep Berkshire Hathaway in market-beating form? If so, how does he do it? In his annual letters to stockholders, he includes company performance and benchmark data and describes in general terms how he goes about investing. He sometimes shares his thoughts on the current state of and prospects for the U.S. markets. Using annual performance data from his 2023 letter for 1965 through 2023 (59 years) and the investing approach/outlooks described in his letters of 1977 through 2023, we find that: Keep Reading

A reader asked: “I am wondering how come you have not rated Motley Fool guys. Any insight?” To augment the test of Motley Fool public stock picks in “‘Buy These Stocks for 2019’ Forward Test”, we look at three more lists of stock picks:

1. “10 Top Stocks That Will Make You Richer in 2021” published 1/5/2021: Alphabet (GOOG), Amazon (AMZN), Costco Wholesale (COST), Cresco Labs (CRLBF), Kirkland Lake Gold (KL), NextEra Energy (NEE), salesforce.com (CRM), Teladoc Health (TDOC), UnitedHealth Group (UNH) and Visa (V).
2. “7 Stocks That Could Make You Richer in 2022” published 1/5/2022: Devon Energy (DVN), Innovative Industrial Properties (IIPR), Mastercard (MA), PayPal (PYPL), Sea Limited (SE), Teladoc Health (TDOC) and Vertex Pharmaceuticals (VRTX).
3. “Got $1,000? 5 Sensational Stocks to Buy to Start 2023 With a Bang” published 12/26/22: AstraZeneca (AZN), Broadcom (AVGO), Innovative Industrial Properties (IIPR), NextEra Energy (NEE) and Novavax (NVAX).

We calculate total (dividend-reinvested) returns for the first list during 1/5/2021 through 12/31/2021, for the second list during 1/5/2022 through 12/30/2022 and for the third list during 12/30/22 through 12/29/23. We compare average returns of these lists to returns for SPDR S&P 500 ETF Trust (SPY) over matched sample periods. Using dividend-adjusted closing prices for SPY and each of the stocks in the three lists on the specified dates from Yahoo!Finance, except for Kirkland Lake Gold, for which prices are from Barchart.com, we find that:

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Are there clearly skilled and unskilled stock-picking influencers on social media platforms such as StockTwits? If so, do investor reactions to such influencers drive out the unskilled ones? In their March 2023 paper entitled “Finfluencers”, Ali Kakhbod, Seyed Kazempour. Dmitry Livdan and Norman Schuerhoff examine skillfulness, influence and survival of StockTwits tweeters who have followers. They apply four skill metrics to measure stock-picking skill levels of these influencers to identify those who are: (1) skilled (reliably good advice); (2) unskilled; and, (3) anti-skilled (reliably bad advice). They calculate future (1 to 20 days) abnormal returns for each influencer by comparing factor model-adjusted returns (alphas) of associated stock picks before and after recommendation dates. To assess skill persistence, they compare influencer skill levels in the first and second halves of the sample. Using tweet-level and follower data from StockTwits for 29,477 influencers, matched daily stock returns and daily equity factor returns during July 13, 2013 through January 1, 2017, they find that:

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Does coverage of stocks on Mad Money attract attention to them and affect their returns? In their August 2022 paper entitled “Does the Mad Money Show Cause Investors to Go Madly Attentive?”, Lawrence Kryzanowski and Ali Rouhghalandari examine reactions of investors to stocks related to Mad Money guest interviews and buy/sell recommendations. They measure impacts on investor attention to the stocks via associated SEC EDGAR activity (segmented into retail and institutional users based on IP address) and via number of relevant posts on Stocktwits. They measure abnormal returns based on cumulative 5-factor alphas (adjusting for market, size, book-to-market, profitability and investment effects) from 10 trading days before through 20 trading days after coverage relative to the interval from 230 trading days to 30 trading days before coverage. Using attention and return data for all stocks covered on Mad Money during June 2006 through December 2020, they find that:

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Is the Buffett Indicator, the ratio of total stock market capitalization to Gross Domestic Product (GDP), a useful indicator of future stock market performance internationally? In their March 2022 paper entitled “The Buffett Indicator: International Evidence”, Laurens Swinkels and Thomas Umlauft extend Buffett Indicator research from the U.S. to 14 international equity markets. Because the value of the indicator varies so much across countries at a given time (for example, 1.48 for the U.S. and 0.55 for Germany at the end of 2019), they first look at time-series predictability of returns by the Buffett Indicator within each country. They then compare predictive power of the Buffett Indicator to those of Shiller’s cyclically-adjusted price-to-earnings ratio (CAPE or P/E10) and mean-reversion in stock returns. Finally, they test a trading strategy that invests in the stock markets of those countries having low values of the Buffett Indicator relative to their respective (expanding window) histories. Using stock market valuation and earnings data and GDP series for 14 countries as available during 1973 through 2019, they find that:

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Do non-professional analysts who publish on Seeking Alpha offer valuable stock-picking advice? In their August 2020 paper entitled “The Cross-Section of Non-Professional Analyst Skill”, Michael Farrell, Russell Jame and Tian Qiu measure skill among such analysts as the hypothetical abnormal return an investor would earn by following reports/recommendations that focus on one common stock over 5-day or 63-day post-publication holding intervals. They classify recommendations as buy or sell using either: (1) disclosed author positions, or (2) sentiment of associated reports inferred from word usage. They measure abnormal return for each recommendation as its 6-factor alpha, adjusting for market, size, book-to-market, profitability, investment and momentum factors calculated from daily returns from 13 months to one month before the recommendation. They further test an implementable trading strategy that buys (sells) at the ask (bid) and subsequently sells (buys) at the bid (ask) price at the end of the holding period, with and without delays of 24 to 72 hours after publication. Using 123,120 Seeking Alpha research reports prepared by 1,879 non-professional analysts (each with at least 10 qualifying reports) and focused on single common stocks, along with contemporaneous stock and factor returns, during 2005 through 2017, they find that:

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What advice does Warren Buffett offer investors? In his December 2019 paper entitled “Introduction to the Essays of Warren Buffett: Lessons for Corporate America”, Lawrence Cunningham summarizes main themes of the 5th edition of the essay collection (letters to shareholders), including those related to investing. Based on the advice in these letters, he concludes that: Keep Reading

A reader asked about the usefulness of the S&P Short-range Oscillator as sometimes used by Jim Cramer to forecast U.S. stock market returns. The self-reported “Performance” of the oscillator, relying on in-sample visual inspection with snooped thresholds, is of small use. Since continuous historical values of the indicator are not publicly available, we conduct an out-of-sample test by:

1. Searching CNBC.com for “Oscillator” “Mad Money” and just “Oscillator” on October 3, 2019 and identifying articles with U.S. stock market forecasts from Jim Cramer based on the S&P Short-range Oscillator.
2. Extracting the date for each forecast and determining whether it is call to be “In” or “Out” of the market.
3. Calculating for each call a cumulative S&P 500 Index return starting at the next open after the article date (generally timestamped after the market close) for 21 trading days.
4. Computing average cumulative performances of “In” and “Out” calls.
5. Comparing these averages to that for all days spanning the search results.

Using the 15 qualifying articles and daily opening levels of the S&P 500 Index during June 16, 2008 through October 31, 2019, we find that: Keep Reading