CRAMER 2% S&P 27%: He may be easy reading but so is Dr. Seuss.
For those Crameraholics perhaps the following article will "sober" you up.
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For a Triple Threat, a Less-Than-Stellar Season
By JOSEPH KAHN
EW 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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