With his confident, colorful, and often blunt assessments of Wall Street's players and performances, Jim Cramer has become one of the best known, most identifiable members of the New Financial Media. Cramer is one of the mainstays of CNBC-he cohosts, with former Reagan advisor Lawrence Kudlow, the daily Kudlow & Cramer program, serves as a CNBC markets commentator, and regularly appears on Squawk Box and other CNBC shows. He also has a radio program and writes columns for New York magazine and TheStreet.com, a multimedia provider of financial commentary, analysis, and news, of which he is cofounder. Among the experiences that helped him prepare for these positions was a 15-year stint as senior partner of Cramer Berkowitz, an enormously successful hedge fund that outperformed the Dow and S&P 500 throughout its existence. Here he tells Jungle what he's learned so far and what anyone interested in money can learn from him.
You've had an unorthodox career. At various times-and sometimes simultaneously-you've been a broker, a money manager, an entrepreneur, a television personality, and a writer and critic. You were also a journalist who went to law school. What were the advantages and disadvantages of not having a conventional business school background?
I don't think I missed much. It's difficult to put into words why I thought the law school thing was good-it'll sound crazy. But I had a professor [at Harvard], Robert Clark-he was my corporate finance professor, and he later went on to become the dean. I'd been doing trading on my own, and I told him, "I like this stuff! I like it more than the law.'' And he said to me, "That's great! You're in the best of all possible worlds. Take all the business law courses we offer, audit some courses at the business school, and take advantage of your time and freedom.'' I said to him, "Could I write to Goldman Sachs and EF Hutton, and would they take me seriously?" And he said, "Of course they will. You're from a good school. Go for it!'' That emboldened me to reorient myself midcourse. Still, law school wasn't a great background for this. I learned a lot after law school, when I went to work at Goldman Sachs. They put me through M&A, research, fixed income, and so on. They made me make sales calls. I had to cold-call 35 people a day. They had research that showed that 35 calls a day would yield four meetings, which would yield two second meetings, which would yield one account. That was the ratio-and they had figured this all out. It was sort of intimidating. I thought, Well, I can't beat this ratio, but at least I'm in it. Overall, though, the best background I got was when a wealthy person gave me a lot of money to run.
So what advice do you have for MBA students and young executives starting out in their careers?
Watch TV! Watch CNBC! When I was in school, I watched the precursor to CNBC, which was FNN, the Financial News Network. I saw what the anchors and the commentators and the guests were doing, and I thought, I can figure this stuff out. I could do that. I want to do that. Obviously, it's important to figure out what environment you want to be in. But if you watch what we do and you're turned on by what we talk about, then you know it's better than going to Kraft, or to Colgate, or even Intel. It's the greatest open door in the world. Another thing: Use the alumni network. Most people who've had a modicum of success who were not wealthy before want to help people. Go to the alumni office, see where the alumni work, and write to them. I was speaking at the business school at Cornell once-I used to do recruiting for Goldman there-and I said to the students, "Who wants to work at Goldman?'' Some raised their hands. I said, "Here's what you do. Write to this guy''-it was a colleague who had graduated from Cornell-"and tell him 'I'm going to be in town. Can I see you? I'm available any time-before work, after work, I'll ride home with you on the subway.' '' When I got back to the office, I said to the guy, "Gee, I'm sorry, I hope you don't mind, but I told this bunch of students to get in touch with you.'' And he said, "No problem, happy to help.'' And nobody got in touch with him! Not one! It still amazes me. People are happy to help.
For more than a decade, you ran a very successful hedge fund. You didn't invest in companies in the belief that they would grow; instead, you took positions in them expecting their stocks would rise or fall. You didn't care whether the companies did well, just that you predicted correctly. What's the difference between what you did and what a sophisticated bookie does?
I'm laughing because I just finished a chapter for a new book, and while I didn't use the term "sophisticated bookie," I did say that, like a bookie, I made the line-the line is the P/E ratio and the multiplier-and I was quite good at setting it. It's true that what you do in a hedge fund is like betting on a football game. If the Eagles are favored to beat the Giants by six, and you think the Giants will win, then you bet on the Giants. If a company is trading at eight times earnings and you think it's worth 10 times earnings, buy it! If you think it's worth six times earnings, sell! So basically, what I did is not different. The big difference, though, is that there is perfect information in the NFL, and the betting is very honest. You don't hear about the games being rigged. But we've just gone through a period on Wall Street where they rigged the game. The companies rigged the game! They made up the numbers! And the companies doing the rigging were not penny stocks. They were Enron and WorldCom and Lucent, and they just made up the numbers! I've become very sober about it. My friend [Professor] Jeremy Siegel at the Wharton School will tell you that if you look at the last hundred years, the market has been very honest, that these last incidents are an aberration in what overall is a pretty good process. I find that a little disingenuous, given that in these last few years so many people have entered the market. Thankfully, the betting is now almost as fair as in football. What changed? We started putting people in jail. There are a lot of bad career moves you can bounce back from, but I don't think you come back from jail. I know Mike Milken came back, but I think that was because he had $400 million waiting for him.
Some critics say hedge funds have a negative effect on corporate performance, encouraging companies to take short-term actions that will produce good quarterly results at the expense of long-term development. Do you agree?
Well, in Only the Paranoid Survive, Andy Grove said the quarter is really a reasonable time frame to see what an aggressive, determined manager will do, and he knows a lot more about being a CEO than I ever will. But yeah, hedge funds can affect the line in the very short term, and overall, yeah, the emphasis on short-term results is not a positive for the capitalist system. But it's a reality, and I'm not an ethicist, I'm a practitioner. I have a lot of personal restrictions on what I do, though, based on the influence I have when I talk or write about a stock. I disclose every time I discuss a stock I own, and if I talk about a stock, I have to hold on to it for a year. I have my rules. It certainly seems as though everyone has become more short-term oriented. Except me. Now I buy not to trade, but to try to hold. I have kind of an 18-month horizon. But a hedge-fund manager has only one master, and that's the client. In 1987, the clients wanted quarterly results. In 1993, they wanted them by the month. In 1997, it was weekly. And the last two years, they wanted to know how we were doing every day. That pressure makes it unbearable. My hedge fund had no down years. In 1998, I was down entering the fourth quarter. I told my clients, "I've been down, and I don't intend to go down now, but if anybody wants to withdraw their funds, please feel free." Some of these people had been with me 10 years, 16 years. I thought I would have earned a little patience, some faith. No. A lot of them pulled out. My $300 million fund went to $150 million. In my experience, you're only as good as your last trade. You want to stick it out for the long term. But they won't. And these were worldly and sophisticated people! But money management is a field like sports or Hollywood. Somebody is always hot. You can make people lots of money, but if you have one bad quarter, they'll turn on you. You can't change human nature. It was a sobering experience. It was six years ago, but I still think about it all the time. Of course, I had my revenge. We ended the year up, and everybody who stayed with me made money.
You talk about the pressure on you during that period. You don't have clients anymore, but you continue to give a lot of opinions. Do you still feel the pressure?
I don't have clients, but I get 700 or 800 e-mails a day from people who read my column or who watch or listen to my shows, and I feel a responsibility to them. I try to be the best all the time. Ted Williams batted .400, but that still means 60 percent of the time, he was off. I try to never be off.
Was the Internet boom a heyday for you?
No more than college was a heyday. I made some mistakes during that era. I presumed a level of homework and understanding and sophistication by my audience that often wasn't there. That was a misjudgment on my part. I made a lot of money, but the lesson I learned is don't be a pig. Don't be greedy. You can sell and still do well. I gave an infamous speech in February 2000. Everybody wanted to know what was in my portfolio. I told them, "You don't want to know what's in any money manager's portfolio. He might tell you he loves a stock and then dump it 10 minutes later." But no, people wanted to know what I was buying, so I threw up the portfolio and said, "Here it is." Four weeks later, the Nasdaq dropped from 5,000 to 4,000, insiders were dumping a lot of their stock, the metrics looked really bad-so I sold everything and bought bonds. A lot of people who were at the speech rode those stocks down. But that was an era when people didn't do homework. In retrospect I would say, "I'm not even going to tell you what I'm buying. I think you'll like it too much. And if you see Meg Whitman talking about eBay and it sounds good to you, start doing some homework." That's the caveat: Start doing some homework.
Have the post-Enron-WorldCom-Tyco reforms gone far enough?
We're going too far. The last couple of cases have gone overboard. The Dynegy prosecution-the guy got 25 years, longer than murderers get. I happened to read the transcript for [Tyco counsel] Mark Belnick's trial, because he used to be my lawyer. There was just no case against him. No case! He didn't get convicted, but it ruined his life. Things have gone too far.New York State attorney general Eliot Spitzer has been praised for using state law to force changes that the SEC had been slow to implement. But some have criticized him for settling too many cases out of court rather than initiating trials. It was smart that Eliot never litigated. Why litigate the issue if the defendants agreed that they did wrong? What's great about Eliot is that he's fomented real change. And if people were to go off the record with you, they'd tell you it was welcome, because they see that he's very sophisticated.
Is the age of the celebrity CEO over?
Oh yeah, big time. I'll tell you how bad it's gotten. I had Fred Poses on my show, the CEO of American Standard, one of the great CEOs in this country. He's Exhibit A in my pantheon of corporate governance-he has all outside directors [on his board]. And I asked him, "Were all the CEOs corrupt and doing bad things?" He said, "No-but half of them were." I used to say there were a few bad apples, but when a guy like Fred Poses says it's half-that's your orchard. If half the apples are bad, that's the orchard.
What would you do if you weren't doing all the things you're doing?
More youth work. I'm active in my town's Police Athletic League, I do D.A.R.E. work at the school, and I coached my daughter's soccer team for seven years. I loved it. I loved it! She's moved on to a travel team, but the younger one's interested, so we'll see if I can get back into it. I probably can. There's not enough dads who want to coach, except in football. There's a five-year waiting list to coach football.
Philanthropy is important to many of our readers. Why do you give?
Philanthropy's very noble, but I do it because it feels great. It's not guilt; it just feels great. Look-and this is as close as I'm going to come to class warfare: If you grew up rich, I don't think [philanthropy] clicks as much. I'm not saying it can't click, but if you've gotten breaks from people along the way, people who have given to you, it feels great to give people breaks. I give a lot of money to Harvard-I love Harvard-but I also give a lot of money to a great smaller school where you can't go if you make more than $15,000. I feel better about giving money to that school than I do giving money to Harvard.
