Saturday, March 11, 2006

"Mad Money" --- The market's Crazy Eddie

Adult New Yorkers certainly remember Crazy Eddies, the chain of consumer electronics stores that had a television advertising campaign in the 70's and 80's led by a hyperactive pitchman shouting out the latest deals and ending by yelling "it's insane".

The equity market now has Jim Kramer and his CNBC "Mad Money" program as it's own Crazy Eddie. While, for me, it is incredibly irritating to watch, the program has a dedicated following and significant clout. A major buy call by Kramer will send retail buyers out in force the way a Morgan Stanley buy call sends out pension fund managers. Kramer is manically knowledgeable about seemingly any stock and always ready for an instant opinion. I watched occasionally in amusement until two months ago when I was watching and he completely pumped a stock, RIO, rang some bells, honked some horns, and I had a Pavlovian response, wrote the name down, and bought a small position the next morning, a dollar above the prior days close. A month later it happened again. The bell rang and the next morning I bought HXL, again a small position. This is disturbing, since I had never heard of these stocks before.

Some background is appropriate, not that it will mitigate what I have just described. RIO is a Brazilian company that apparently controls rights to the largest magnesium reserves in the world which are in Madagascar. Country risk, political risk, perhaps near a peak in commodity prices, who cares, a dominant position in a commodity sounded good to me if it was good for Kramer and that bell rang and horn sounded. HXL is a company that is one of two leading manufacturers of some(see how knowledgeable I am) lightweight material that will increasingly be used to build airplanes in order to save on fuel costs. On this one I did at least check the institutional ownership and see that the best hedge fund manager that I am aware of owns/or owned a top ten position. And at least in both cases I took a "toe in the water" position, meaning something small enough to not be so important but enough to make me follow the stock, learn more, and decide later whether to actually jump in or run back to the beach chair. At this point both stocks are down around 10% since my purchase date.

Why did I do this? If you have seen the program may see the Crazy Eddie analogy as apt. I have followed Kramer for maybe eight or nine years on his website "the". I once met him at a reception and in that kind of setting he was unassuming, softspoken, and somewhat ill at ease, believe it or not. In the late 90's I did act on some of his website picks and they often worked(what didn't then), and most of the time I had enough fear in me to at least take some and in a few cases all of the money off the table before 2000. Of course, I bit on a few dogs as well and learned that Kramer is actually a trader at heart, and what he says one day may be totally different a week later, and how was I to know. In the last few years I have avoided that kind of investing but did follow the advice of his website writers twice. One was ODP(Office Depot) which I was alerted to by in January 2003, did some brief research of my own, and it is up 145% since the purchase date. The other was PHO, the new water ETF, which I learned about there three months ago and bought immediately because I had wanted a way to invest in water and because I have done well with VMT(Valmont Industries), a company that has a global irrigation component. PHO is now up 13%. And finally, in May of last year when I saw Kramer's company, TSCM,( trading at a three year low at the same time that Kramer's currency as a financial celebrity was at a new high, I bought in and that position is now up 160% since purchase date.

Nevertheless, my actions with RIO and HXL could well be the sign of some sort of market top.


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