How Jim Cramer Influences the Stock Market

As a matter of fact, Jim Cramer is an influential businessman and a distinguished American television personality as well as a best-selling author. Jim Cramer is probably the most famous advocate of individual stock investing in the United States. His career is quite a thorny path which led him from being a hedge fund manager to hosting the top-rated show on CNBC under the title Mad Money.

A present day markets commentator grew up in Philadelphia, graduated from Harvard College in 1977 and spent two years working as a general assignment reporter in Tallahassee Democrat and Los Angeles Herald Examiner. Two years later, Cramer began investing and entered Harvard Law. Having set priorities he decided to turn from law to business (Byrne, 2008). Cramer made progress in investment which called Martin Peretz’s attention, the owner of The New Republic who gave Jim Crame a sum of money to invest.

At the period the future “Mad Money” host learned plumbing of the stock market (Byrne, 2008). Crame also worked for Goldman and wrote short financial pieces. In 1986 under the guidance of Peretz, Jim Cramer broke his cooperation with Goldman and set up the hedge fund with Larry Levy. As he started his corner of Steinhardt’s office in the year 1987, Jim Cramer sustained losses. But due to Karen Backfish whom he later called “The Trading Goddess” showed him the ropes at Steinhardt’s, he was a success and in a year she joined Cramer and Company. Years later, Cramer made great progress in stock manipulation in ways that he claimed nobody else would admit, but which were quite illegal.

According to Patrick Byrne’s article on Cramer, he has spent his investing career manipulating stock prices up and down. Being a journalist he explains the way he does it. At times his public confessions turn out to be illegal acts (Byrne, 2008).

In 1994 Nicholas Maier wrote a book about Cramer entitled Trading with the Enemy: Seduction and Betrayal on Jim Cramer’s Wall Street where he described Cramer’s abusive style and questionable trading ethics, including his relations with analysts at brokerage firms. Maier pointed out that: “Jim didn’t care whether an analyst was ultimately right in his or her opinion. He just wanted to take advantage of the closest thing to a sure bet in the stock market today: the short-term effect any commentary might have” (Maier, 1994). In 1990 as Cramer still worked for his hedge fund, the Wall Street Journal proposed him to write about stocks and personal finance, as he was a real “live money” manager.

By the year 1995 Jim Cramer had already got two vocations which were a money manager and a journalist. Washington Post wrote that Cramer used his position at Smart Money to enrich himself, as had large positions in stocks about which he judged in 1995. Cramer refuted the charges and considered it to be a conspiracy against him. In contrast to what Cramer claimed, Maier supposed that he had power to move stocks through the press. Cramer build controversial relations with CNBC news anchors, Maier explained that what they announced on television influenced the stock. Jim Cramer knew what analysts would say before the announcement in public, then he told them what to say writing the news himself.

In 1996 Cramer co-founded TheStreet.com and envisioned an on-line newspaper that commented on the stocks in real time (Byrne, 2008). In 1997 the company eventually prospered.

With his how-to aspiring stock manipulation techniques Cramer has a considerable following and a few critics as well.

According to Jim Cramer’s Guide to Market Manipulation article, in the interview Cramer described that there were at least two strategies including a way of driving stock futures up and down and described illegal “fomenting” where a hedge fund manager created a false impression about a company in order to manipulate stock. Still, describing the strategy he diplomatically never mentioned he applied to it.

Cramer himself summed up his stock manipulation philosophy the following way: “What’s important when you are in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view, that it’s important to create a new truth, to develop a fiction” (Cramer, 2008).

Since Cramer started hosting Mad Money, there appeared a phenomenon called “the Cramer Effect” or “Crammer Bounce” which has generally influenced the stocks positively as they are mentioned on Cramer’s show.

The program has raised awareness and interest of common people in individual stock investing. They watch the show, learn about individual stock investing and get involved in it. Though the drawback is that during the Lighting Round Cramer gives various recommendations in a flash, while people buy and sell, according to them in real world. Cramer cannot often draw a precise conclusion within a second and people who are ill-qualified to invest may listen and lose money.

According to David F. Swensen, Cramer’s show motivates small investors to make trades on the one hand, and promotes a mindless short-term approach to markets by encouraging frenetic trading of individual stocks, on the other hand (Gomstyn, 2008). Different observers give rather controversial assessments of Cramer’s stock-picking prowess.

The way Cramer influences small investors and the stock market in general depends on the extent to which they follow his recommendations, somehow or other, reading Cramer’s books and doing homework in stock investing will never do bad, it should be critically judged and taken into consideration on educational purposes.