An email was received here the other day from the President of a large trend following trading firm with well over $1B USD in assets under management. He said:
My mom just told me I should listen to Jim Cramer’s Mad Money. Unbelievable.
We have seen this with friends and family too. For many people, even if they know better, they simply can’t stop taking the “easy road.” They must try and get rich quick. And for some the easy road of “getting rich quick” involves watching Jim scream like a mad man on TV. What’s really bad about a show like Cramer’s? Some people get what they deserve as they are the get rich quickers and enjoy gambling. Unfortunately, some people just don’t know better and assume that if a major network is broadcasting a TV show it must be valid. There will always be an educational role for us as long as a show like Cramer’s is on the air!
Why Mad Money Is Dangerous for Retail Investors
The problem with Mad Money is not Jim Cramer personally. The problem is the structural premise of the show: that individual stock recommendations made on television, with entertainment production values and theatrical enthusiasm, constitute actionable investment advice. The show’s format rewards compelling television, not investment accuracy. A measured, probability-based discussion of position sizing and risk management does not make for engaging prime-time viewing. A screaming host slamming a “buy” button does.
The president of a $1B trend following firm getting a tip from his mother to watch Mad Money is not just funny. It illustrates the gap between how sophisticated institutional systematic traders think about markets and how financial entertainment media presents them. The institutional systematic trader is asking: what does the probability distribution of returns look like for this approach across hundreds of trades over multiple years? The television viewer is asking: what should I buy tomorrow? These are not variations on the same question. They are fundamentally different frameworks for thinking about markets.
Trading is zero-sum. When a retail investor buys a stock on a Mad Money recommendation, someone is selling it to them. The seller is often a professional with better information, faster execution, and no interest in the television recommendation as a guide to fair value. The retail buyer’s enthusiasm, generated by the show’s production values, is the seller’s liquidity. The show creates the buying pressure. The sophisticated seller provides the supply. The money flows in the direction it almost always flows in the zero-sum game: from the uninformed to the informed.
The final observation from the email is the most important: there will always be an educational role as long as a show like Cramer’s is on the air. The show will not go away because it serves a real human need: the desire for simple, confident answers about a complex, uncertain subject. Trend following’s educational mission exists in direct opposition to that simplification. The answer to “what should I buy?” is not a stock name. It is: build a system, test it, follow it, and manage your risk. That answer is less exciting to produce as television. It produces better trading outcomes.
Frequently Asked Questions
What is wrong with following Jim Cramer’s stock recommendations?
Television stock recommendations are optimized for entertainment rather than investment accuracy. The format rewards theatrical confidence over measured probability assessment. Retail investors who act on those recommendations are often buying from professional sellers who have no interest in the television narrative. The structural dynamic is one where the least-informed participant in the transaction, the television viewer, is providing liquidity to more-informed counterparties. Trading is zero-sum. The money flows accordingly.
Why do so many people watch financial entertainment despite poor results?
Because the show addresses a real psychological need: the desire for simple, confident answers about uncertain situations. Markets are complex, probabilistic, and inherently unpredictable in the short term. A confident television host providing specific stock recommendations with theatrical enthusiasm meets the emotional need for certainty even when no actual certainty exists. The alternative, building a systematic approach and accepting the uncertainty that comes with it, requires more work and offers less immediate emotional satisfaction.
What does the billion-dollar fund president’s story reveal about market education?
That financial entertainment media reaches deeply into social networks regardless of the sophistication of the people around the viewer. Even the families of institutional systematic traders with years of documented performance are influenced by television personalities who present stock picking as the primary activity of market participation. This creates a persistent educational gap that systematic trading education exists to address. As long as financial entertainment presents markets as a game of stock tips, the educational role for systematic approaches remains critical.
Trend Following Systems
Want to learn more and start trading trend following systems? Start here.
