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Blog : Penny Stocks, Jim Cramer and Jon Stewart
by John Whitefoot on March 13th, 2009
Some weeks are certainly more entertaining than others. For example, Bernard Madoff was jailed Thursday after admitting he masterminded the largest Ponzi scheme in history. A swindle that puts all others to shame, Madoff’s take may eventually reach a staggering $65 billion; making him the eternal poster boy of investor distrust.
Then there was the stock market’s bounce on Tuesday. Yes, a one day bounce is news now. Sadly, a short-term bounce is just a simple reminder of how bad things are right now.
The Dow Jones industrial is down 25% year to date, by far the worst start to any year dating back to 1900. Even with Tuesday’s surge, the Dow is off more than 50% since it peaked in October 2007.
But fear not, said one analyst, “We see a huge bear market rally coming.” On the other hand, he noted that the expected rebound would provide a chance for investors who haven't yet liquidated their portfolio - to do so.
But the most entertaining/peculiar story of the week has to be the ongoing feud between Jon Stewart (of The Daily Show) and Jim Cramer, (of the sound effect laden Mad Money on CNBC). The two have been feuding over just how bullish Cramer was about Bear Stearns, right before it collapsed last year.
Cramer said in an online column that Stewart seized on an “urban legend” by saying he recommended a Bear Stearns stock buy a week before the collapse.
Stewart apologized the following Monday for calling Cramer’s assertion that “Bear Stearns is not in trouble” a stock-buy recommendation by Cramer, then showed a clip proving that an actual and apparently emotional buy recommendation came just days before Bear Stearns lost 90% of its value.
Now, my issue, as a penny stock investor, is not to slag Jim Cramer, though he does seem ripe for the plucking. Nor is it to champion Jon Stewart for cherry picking delicious snippets of Jim Cramer bloopers.
What I think is most tragic is that whether investors listened to so-called financial geniuses such as Bernard Madoff, or on-air personalities like Jim Cramer (or any other CNBC pundit) - we take their ideas and advice to heart. After all, they have experience we all wish we had.
Unfortunately, opinion isn’t truth. And pundits waxing off-the-cuff eloquence on stocks they may, or may not be intimate with can be detrimental to seasoned and unseasoned investors who actually think Cramer et al know what they’re talking about.
Telling someone not to sell a stock, can in turn be deciphered to those without said stock, as a recommendation to “buy”.
Jon Stewart, is simply the latest to join in the chorus of outsiders attempting to hold Jim Cramer and CNBC (and others) accountable for their financial journalism. Or rather, in lieu of being called journalists, we could simply call them Wall Street stenographers.
Whether the markets are up, down, or running sideways, penny stock investors (and there are a lot more of them out there right now than ever before) need to do their due diligence. Financial stenographers need to remember that, while entertaining, they are also dealing with people's nest eggs.
But instead of giving viewers the attention and investing advice they deserve, the financial Cramers of the world delve to the level of a Financial Jerry Springer – giving scant attention to stocks and screaming at the cameras, throwing things, and making whacky sound effects.
That shouldn’t be your litmus test for sound financial advice. While that may sound obvious...I’m going to guess that the increased volume on Cramer touted stocks says otherwise.
Due diligence may not sound exciting; homework rarely is. But in good times and bad, it’s all that really matters when it comes to buying penny stocks. Especially when the global economy is in a recession and stocks continue to trend lower.
It’s also more imperative than ever to pay close attention to the penny stock on your radar. While the penny stock in question may, like the markets at large, trend lower, if you are in the market for buying, know your target.
Only a sliver of all penny stocks are worth taking a second look at. Though they’ll all be peddling themselves as tomorrow’s next Berkshire Hathaway. I’m pretty sure none of them will be.
If you belong to a penny stock newsletter, make sure the service isn’t biased and doesn’t have a vested interest in any of the penny stocks it profiles. Make sure the penny stocks have strong fundamentals, a good cash position, and a foothold in their target market. And make sure you double check everything you read.
You may not be prepared to get back into the markets just yet…but having a tested penny stock wish-list in hand is better than two Cramers (or an infinite number of Madoff's) in the bush.