If you have tuned into the Financial TV shows, you have seen the flashing graphics and heard the blaring sounds which paint a certain image of an investor—a restless individual, eyes glued to the screen, trying to predict the market’s next move. This portrayal, often magnified by the media, presents investing as a thrilling game of prediction, where forecasting the future accurately holds the key to immense wealth. This type of media is known in industry circles as the “Cramer Effect”, named after notable commentator Jim Cramer, who is arguably one of the loudest of the group by yelling ‘Booyah!’ as his viewers call in. Central to this media strategy is the aim to captivate audiences rather than to educate—a purpose evident in the telling fact that Jim Cramer’s producer of ‘Mad Money’ had also worked for the sensationalist Jerry Springer show. But how accurate is the media depiction of an investor, and is there a more effective way to approach investing? Well, let’s contrast two different investment philosophies by comparing the “Cramer” Investor to a Reformed Investor.

The Cramer Effect encapsulates an investment strategy that believes in accurately forecasting the market’s future. Investors entrenched in this method are often characterized by:

  1. Belief in Predicting the Future: As mentioned, the foundational pillar for this philosophy is a belief that there exists a reliable way to predict the future when in fact there is evidence to the contrary. (see ‘Predicting the Future’)
  2. Short-Term Mindset: Quick gains and rapid reactions to market news. This pillar revolves around the idea of trading individual stocks which could lead to large concentrations in certain names despite the fact most stocks are losers. (see ‘Don’t Put All Your Eggs in One Basket’)
  3. Hope-Based Strategy: An optimistic belief that they’ve unraveled the market’s secrets, despite the inherent unpredictability. Typically, data or forecasts are processed with a confirmation or overconfidence bias, reinforcing the idea that choices are informed by solid intelligence, not mere hope. (see ‘Behavioral Finance’)
  4. Anxiety-Driven Decisions: Emotional decisions to sell to avoid losses can easily turn to fear of missing out. Sitting in cash while the market is going up can be just as anxiety inducing as watching it go down. According to Morningstar research, such tactical asset allocation portfolios underperform balanced strategies by a large margin. (see ‘Stay the Course’)

The Reformed Investor approaches the financial world differently:

  1. Plan-Based Strategy: Investments are chosen based on an individual’s specific needs, income, and risk tolerance. It’s not about chasing the hot tip; it’s about crafting a strategy that aligns with personal financial goals.
  2. Long-Term Horizon: While the Cramer Effect dwells on short-lived victories and losses, the Reformed Investor understands the value of patience, allowing investments to grow and weather the storm of the market’s inherent ups and downs. (see ‘Bear Markets’)
  3. Evidence Over Hope: Decisions are anchored in historical data, research, and trends rather than a pundit’s optimistic forecast. By relying on evidence, decisions are informed, grounded, and less prone to the whims of market sentiment. (see ‘Manager Outperformance’)
  4. A Calm Approach: Recognizing that only certain elements (like personal spending, saving rate, and investment choice) are within their control, the Reformed Investor reduces anxiety. By focusing on controllable factors and trusting the long-term nature of the market, they can navigate the investment journey with greater peace of mind. (see ‘Tune Out The Noise’)

This contrast is more than just about two investment strategies: it’s about the very essence of what investing means. While the Cramer Effect offers the thrilling roller-coaster of Wall Street, filled with its highs and lows, it also comes with its fair share of anxieties and uncertainties. On the other hand, the Reformed Investor seeks a journey characterized by steady growth, reduced anxiety, and decisions rooted in reality rather than in entertainment. The Reformed Investor philosophy is like your doctor telling you to eat right: by doing so, we know your odds of living a longer and more fulfilling life are increased even though there is no guarantee of it (just like with investing).

The seduction of rapid gains and the charisma of TV personalities like Jim Cramer can be tempting for many. Yet, history and evidence have continually shown the benefits of a calmer, more planned, and long-term approach to investing. In the end, each investor must ask: Do they want their investment strategies to be rooted in the drama of a TV show or the steady wisdom of evidence-based decisions? The choice could make all the difference.


*Past performance is not a guarantee of future results. Short term performance results should be considered in connection with longer term performance results.