have I mentioned that Creamer is a clown.... -g-
For a Triple Threat, a Less-Than-Stellar Season
By JOSEPH KAHN
NEW YORK -- As trading stocks becomes a national pastime, James J. Cramer, the tireless fund manager, market commentator and Internet entrepreneur, has scored a hat trick, earning renown as the Wall Street equivalent of player, coach and owner.
As a player, though, he's been in a slump.
For Cramer-Berkowitz & Co., Cramer's high-flying, fast-trading hedge fund, 1998 was the worst year in a decade. Though the fund produced a positive return of 2 percent after fees for investors, it fell short of the total return on the Standard & Poor's 500-stock index by about 27 percentage points. The bad year left Cramer trailing the benchmark index for the last five years, though he still beats it over 10 years.
Many other hedge funds did poorly in 1998 as well, including some, like Cramer-Berkowitz, that specialize in U.S. stocks. But Cramer is not just another hedge-fund manager.
Cramer-Berkowitz manages about $300 million on behalf of elite investors who generally put up at least $2.5 million to become partners in the all-star fund, known for its hybrid strategy of long-term stock-picking and hyperactive buying and selling.
Cramer is also one of the investment world's most prolific journalists, detailing his thoughts about the stock market online, on air, in print, often many times each day. TheStreet.com, a World Wide Web-based financial news and analysis service he started, just announced an initial public offering that aims to raise $75 million. The New York Times Co. is the third-largest shareholder in TheStreet.com.
Appearing regularly on CNBC's "Squawk Box" stock-talk show and writing for national magazines as well as on his own Internet service, Cramer espouses active trading -- he has described his own pace of buying and selling as manic -- as a way of beating the market in good times and bad.
He has become an icon in the fast-expanding world of Internet day-traders, a group many analysts see as driving the market these days.
His columns regularly contain exhortations like this one: "Moral: Never let a trade turn into an investment. But just because you are an investor, don't be afraid to trade. I am neither a trader nor an investor, I am an opportunist. You should be too."
But last year Cramer-Berkowitz, which Cramer runs with Jeff Berkowitz, stumbled with their stock picks, the partners said in a letter to investors obtained by The New York Times. It also suffered because many investors decided to withdraw money in October, when the fund's performance was deep in the red and world financial markets were shaky. The letter said that the fund had to sell some good stocks at a bad time to return that money.
One investor who made withdrawals was New York Attorney General Eliot Spitzer, who at the time was running for his post and was financing an expensive campaign. Two investors who asked not to be identified said Spitzer's need for campaign funds prompted the hedge fund to allow redemptions, which by law must be extended to all investors.
Spitzer declined to comment about his relationship with Cramer. A spokesman for Spitzer confirmed that he had made withdrawals from the fund.
In the letter to investors, Cramer and Berkowitz said that redemptions were one factor hurting the fund's performance.
"We were also hit, at the worst possible time -- the bottom of the 1998 market -- with requests for redemptions," they wrote. "Our October opening forced us to sell stocks at precisely the time we would have been buying."
Several big investors have stood by Cramer. "There were many superb hedge funds that did not have a good year last year," said Martin Peretz, publisher of The New Republic and a longtime Cramer partner. "Many have already recouped some of their losses in the first two months of this year."
Cramer declined to comment about the fund's performance. A lawyer for the hedge fund said that Securities and Exchange Commission regulations prohibit Cramer from commenting at this time.
As a result of last year's weak performance, Cramer-Berkowitz has strengthened its research department, the partners wrote. The hedge fund also sold many small company stocks in favor of big company stocks that make up the main stock market indices.
The partners said that they would not open the fund to redemptions as often as they had previously, but did not provide specifics. Unlike mutual funds, which allow redemptions at any time, hedge funds may require an investment for six months, a year or more.
In his column for TheStreet.com entitled "Wrong!," Cramer deals more with day-to-day or even minute-to-minute market action, than he does with long-term investment strategy. He also keeps management of Cramer-Berkowitz separate from TheStreet.com.
Some columns that he wrote in the fall, when his hedge fund faced the strongest head winds, reveal Cramer's gloominess about unfavorable markets. But his writing does not flag a change in investment strategy at Cramer-Berkowitz or give a reader a sense of how far his trading strategy put him behind the market indices.
He does complain, though, about how the near-collapse of Long-Term Capital Management, the hedge fund that was rescued by a consortium of Wall Street banks and brokerages houses in September, soured investor sentiment toward hedge funds in general. In one column he compared Long-Term Capital to the Three Mile Island nuclear-plant accident 20 years ago.
"The fallout in hedge fund land hurts those of us who run by hydro or natural gas or plain old No. 6 oil to generate solid returns," Cramer wrote in late September. "That's too bad, because what I do for a living has nothing to do with what the geniuses at Long Term -- and I use that term loosely -- claimed to be doing, or were actually doing with investors' dollars."
Cramer has described his investing as taking two forms -- classic value investing and shorter-term, trading-oriented transactions. While it's hard to track the results of Cramer's short-term trading, it's clear that big losses in several long-term stock holdings dragged down his performance last year.
According to documents filed with the SEC, Cramer's largest holding at the end of September was Bay View Capital, a San Francisco-based bank. But the 1.8 million Bay View shares the fund then owned, most of which were bought for more than $30 a share, would now be worth about $19 each.
Cramer's September filing with the SEC, the most recent available, also shows his second-largest position as being 2.2 million shares of the Fairchild Corp., an aerospace company. Those shares were bought at an average price of about $16 each, but would now be worth $12 apiece.
Wild market swings that have surprised even the most savvy traders have continued so far this year, as has Cramer's frustrated commentary.
"This market needs a double dose of Zyprexa with some lithium laced in," he wrote in a TheStreet.com column this month. "It has to stop the manic-depressive behavior before it drives us all crazy."
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