This is the right way to make sense of the stock tips you hear on TV

The latest study of Jim Cramer's stock-picking prowess was released around the same time as the movie "Money Monster," in which George Clooney plays a character clearly based on CNBC's "Mad Money" front man.

Done by two researchers from the Wharton School of Business at the University of Pennsylvania, the study shows Cramer's stock picks have lagged the market dramatically ^[1] over the last 15 years.

That's a better performance for buyers of Cramer's Action Alerts PLUS Portfolio than for the outraged viewer in the movie who was wiped out following a catastrophic stock recommendation ^[2], but it's not surprising.

Somewhere between the fantasy of the movie and the reality of Cramer's track record ^[3] is the place where investors go when they follow stock touts and search for stock tips.

While fans of the movie — and critics of Cramer — will point to the bad track record of talking heads, the question is whether the real problem is the guy selling the stock picks or the person buying them and putting them into a portfolio.

It's an issue I think about nearly every day because I host a weekday radio show and podcast, MoneyLife with Chuck Jaffe ^[4], that includes a lot of chatter with money managers about what they are buying and selling.

I was recently asked by an audience member who had just seen "Money Monster" if I knew whether the picks given by my guests turned out well. Truthfully, I don't track picks to see if guests are giving good or bad advice, because I don't see what they're doing as "advice" at all.

It's not personal. It's not one-size-fits-all. It's how they feel about an investment.

I worry much more about the investor who hears a brief answer summed up with a sentence like "I like that stock" or "I've got that closed-end fund in the portfolio" or "The newsletter gives that fund a good grade" and distills it into "That guy just said I should buy it."

I'm a journalist, so I try to expose people to savvy money managers, hoping that hearing a range of approaches and opinions helps them decide for themselves where they stand. (Cramer doesn't expose his audience to other voices, generally, but always advocates for doing your homework.)

We've had plenty of occasions when a stock is a buy in the eyes of one investor, but a guest the next day or week is selling it. We also have times where different managers agree on a stock, but for very different reasons. No one ever makes a recommendation on the show without discussing their methods for divining the market.

The odds for any stock jockey having a great record tossing out picks or even managing a portfolio or giving great newsletter advice are long.

When I talk to Cramer fans — and he has plenty of them — my biggest concern is that they know what he likes or dislikes but seldom know why. They can't even explain if Cramer is a growth or value investor, a growth-at-a-reasonable-price guy or identify his basic "buy-sell-hold" as coming from any specific, consistent reasoning.

In other words, they're only listening for the buy or the sell.

If that's all you want out of a show, expect poor results no matter what head is doing the talking.

For starters, consistently picking market direction is pretty much impossible, and only fools try regularly, at least if they know they will be graded on how often they're right or wrong.

But the odds for any stock jockey having a great record tossing out picks or even managing a portfolio or giving great newsletter advice are long. The average active manager in mutual funds typically lags the benchmark ^[5]. It's a safe bet that the money manager with the newsletter or touting picks on television or radio, or the financial planner promising to manage a portfolio of stocks and funds do no better.

In Cramer's case, according to the research from Jonathan Hartley and Matthew Olson, Action PLUS gained a cumulative 64.5% from Aug. 1, 2001 through March 31, 2016, compared with a total return of 126.1% for the S&P 500 index SPX, -0.21%^[6] .

Yet, as the professors note as they launch their analysis, "[t]he usefulness of the financial advice from [Cramer] and other television financial personalities has historically been one of controversy."

Actually, there's no real controversy for the audience. When the picks you follow pan out, the advice-giver is a genius; when they don't, he's an idiot.

As a result, a talk-show host like Cramer doesn't even need to be as good as a mutual-fund manager; they can retain at least half of the audience by having roughly as many winners as losers, or by being right on the hottest, biggest issues. That's different from running a portfolio or managing a fund; those managers typically must have about 6 in 10 picks go their way, while limiting losses, to be competitive.

When a fund manager appears on a show like mine, you'd be better off judging their track record using the fund than the few issues they talk about on air. If you like what you hear, the safer bet would be the fund, rather than the individual names discussed.

Anyone making decisions based on what they heard or read somewhere needs to think of the expert as an oddsmaker and the investment as a wager, because they're speculating on both.

That's almost always a bad bet.

There's no surprise in Cramer's record, or in that of most talking heads; the surprise is that people turn the pundits into monsters by treating predictions and forecasts like hot tips.