This Is Why I’ll Never Be a Fan of Jim Cramer

Photo credit: Flickr/Allison 

I'm not one of Jim Cramer's most adoring fans. Sure, he has some good advice every once in a while. However, his advice can lack depth and is almost entirely driven by short-term thinking. I'm just not a short-term thinking kind of guy.

Head-scratcher
Take his latest call for investors to swap out of LINN Energy (NASDAQ: LINE  ) and LinnCo (NASDAQ: LNCO  ) for energy peer Kinder Morgan (NYSE: KMI  ) or Kinder Morgan Partners (NYSE: KMP  ) . As far as I'm concerned such a move makes absolutely no sense whatsoever. LINN Energy isn't a trading vehicle. It's an income vehicle for the long term. I've owned LINN Energy since 2007 and LinnCo since 2012 for the income thrown off from owning mature oil and gas wells; that income has not only grown, but it has grown safer over time.

That's not to say that buying Kinder Morgan is a bad idea. I'm personally long Kinder Morgan for many of the reasons that Cramer recommending the stock. We agree that Kinder Morgan CEO Richard Kinder is a very "bankable" CEO. On top of that, the company has a great management team, which is very evident in a recent interview my Foolish college Taylor Muckerman had with President and COO Steve Kean.

However, I didn't swap out of LINN Energy or LinnCo just to invest in Kinder Morgan. Because I'm not overallocated to LINN Energy, or any other stock for that matter, and I have plenty of cash in my portfolio, I have the freedom to hold stocks for the long term and add new positions over time. I rarely, if ever, sell. The thesis would have to be completely broken for me to sell, and that's not the case at LINN Energy.

 

Photo credit: LINN Energy LLC

Why I'm holding LINN Energy or LinnCo
LINN Energy isn't a get rich quick kind of company. Its business model is actually quite boring. It buys up old oil and gas wells that no one else wants, hedges the production from those wells against commodity volatility, and pays out virtually all of its income to investors. Aside from that, the company will either drill or acquire new wells to keep production flowing and growing. It's a proven business model that has worked for years and one I expect will continue working for years to come.

On top of the basic business model, LINN Energy does have some appealing upside. Its assets are worth $40 or more. The company also has interesting upside as it explores strategic alternatives for its Midland Basin acreage. That said, I don't expect LINN Energy's units or LinnCo's stock to explode higher once the company decides to do with that hidden asset. Instead, I expect the company to reinvest whatever proceeds it receives into more mature oil and gas wells. That should enable LINN to continue slowly growing its income stream to investors over time.

Investor takeaway
LINN Energy shouldn't be thought of as a trading vehicle for quick profits, nor should Kinder Morgan for that matter. Instead, these are income vehicles that offer higher income than bonds, with the added benefit of growing income and a small dose of equity upside. The idea here is to buy to hold and that's exactly what I plan on doing with LINN Energy, LinnCo, and Kinder Morgan.

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Read/Post Comments (35) | Recommend This Article (28)

Comments from our Foolish Readers

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  • Report this Comment On March 13, 2014, at 10:37 AM, Suradit wrote:

    "As far as I'm concerned such a move makes absolutely no sense whatsoever. "

    Aside from it not making sense, if you try to follow Jim's advice you could get a nasty case of whip-lash with the frequent sudden 180 degree turns,

  • Report this Comment On March 13, 2014, at 10:43 AM, Gonzhouse wrote:

    Agree. Carnival Barkers who can't see past their nose are not places to get investment advice.

  • Report this Comment On March 13, 2014, at 10:47 AM, MrReeS1 wrote:

    They overpaid for Berry.

  • Report this Comment On March 13, 2014, at 11:17 AM, ndlsal wrote:

    This last comment by Cramer is very fishy too say the least. I am being very kind calling it fishy.

    Two days prior he had Linn on a hold and then two days later he dumps his position..

    He is either bought and paid for or stupid.

    I don't think he is stupid.

    Following this guy will get you in a heap of trouble.

  • Report this Comment On March 13, 2014, at 11:29 AM, Frederick wrote:

    Thanks Matt for this great article and your opinion.

    I don't think they overpaid for Berry. They didn't get a deal but they didn't get taken either. They are vastly larger with this acquisition. They can make all this work for their best interest. Depending on how you read it you can make anything look good or bad. If I thought LINN just did a drive by purchase of Berry I wouldn't be interested in them. Their management team I really like. They know what they are doing. Plus, there is little mention about the terrible weather currently hitting their fields. This literally slows things down and it should be obvious and rarely mentioned. Definitely long with this one. Might even pick up more at this new low price. End of year would be surprised if it is 40.

  • Report this Comment On March 13, 2014, at 11:42 AM, Niessenwr wrote:

    I fully agree. I have been reaping the income benefits of LINE for several years and see this foolish pull-back as a time to increase my holdings.

    The basic business concept of the firm is sound and, though Berry cost too much (occasioned by the slashing of LINE/LNCO value from the SEC, Barron's and other meritless attacks), the future is bright. Meanwhile, 10% distributions are not bad!

  • Report this Comment On March 13, 2014, at 12:15 PM, LindaHertz wrote:

    Thank you for this thoughtful article. I too own a balanced segment of LNCO in a tax protected account. I find it does make sense to cut one's losses on occasion, especially if it does not pay a dividend to provide a floor to the stock and/or their business model is diminishing (like PALM, remember them?).

    That said, I use to follow Cramer and I bought his Action Alerts long ago and lost money; I followed him religiously in the beginning and would follow his frantic directional sells on things he just purchased because of a bad company event. I then would watch over time the dividend paying stocks would often come back over time and even exceed my initial price (think of Cramer's early Buy BA and now Sell BA: also the same with PBI). I started to go back to thinking long term as you suggest; IF I felt the company could pull out of it over the long run, while I collected the dividend that was still safely being paid out, then I would hang on. I also learned how to balance and keep money on the sidelines.

    Thank goodness I came up with that approach before I experienced the down draft on another MLP: ETP that I purchased at $52 in January, 2011 and then watched it fall to $40 by October, 2011: ouch! I came to the conclusion you did and hung on collecting the dividends and just recently trimmed it $55.40 to right size the holding.

    I hope LNCO get's it right in the long term and I will collect the great monthly dividends watching carefully. As you so rightly put; I purchased it for income and in an appropriate amount to my total diversified portfolio. I will wait, watch and continue to hold at this point.

  • Report this Comment On March 13, 2014, at 12:39 PM, KarlDH wrote:

    Like the author, I too hold positions in both KMP and LNCO. Wednesday, in response to Cramer's comments but more in response to both stocks being a bargain, I increased my position in LNCO by 20% at 28.51 (and am considering increasing it even more today if the price dips again into the low 27s) and doubled down on my position in KMP at 74.76.

    I consider both useful plays. LNCO is, for the time being, is a pure income play and is not going to appreciate. It's revenue coverage of the dividend is just too tight for them to raise it. KMP, on the other hand, has been a serial dividend raiser, and I am betting they will continue to be so. Of course dividend boosts have a tendency to be reflected in the share price.

    But who knows -- the price of crude could take a hit in the coming months resulting in share prices of both stocks getting creamed.

    You pay your money, you take your chances.

  • Report this Comment On March 13, 2014, at 1:15 PM, Maximizese wrote:

    I've been holding both and have scaled in whenever there has been a drop. I listen to Cramer's advice, but I only act on it 10% of the time. There's definitely a Cramer effect and it can accelerate a stock's price/volume on the long or short side. To limit my risk, I use both fundamentals and technicals, and wait for overall market conditions to show an upswing before I buy.

    I see his show as infotainment and to not take his statements at face value. His demeanor on the show is very different from when he's not on Mad Money so one should be careful.

  • Report this Comment On March 13, 2014, at 1:28 PM, sklarb wrote:

    Cramer changes his calls on stocks like the wind. I have no faith in his honesty- his only real job is to pump and dump stocks so his hedge fund buddies can get rich of the stupidity of retail investors who take his market timing advice.

  • Report this Comment On March 13, 2014, at 1:49 PM, Dinodon00 wrote:

    I bought LINE many years ago when Cramer recommended it and It has been a great income stock. The shorts constantly hammer the stock but someday they will become bored with it and move on to another target. It has not even been a year since the attack began so I was very puzzled by Cramer's remarks.I have added to my position because I believe that once the weakling investors, the frustrated investors (short term as they are) and the short sellers exit, it will revert to a true value; which is much higher than what it is traded at today. Meanwhile I will bank the nearly 10% return.

  • Report this Comment On March 13, 2014, at 2:31 PM, pilotlucas wrote:

    Cramer gives great insight, but, as maximizese correctly refers to a cramer effect, be careful how you trade on it. I never heard him say buy one & sell the other, but he's been positive of both kmp & line of late. My pet peeve is when he talks up a stock until it falls at which point he trashes it, which doesn't help those that he set up for a bad trade.

  • Report this Comment On March 13, 2014, at 2:33 PM, skat5 wrote:

    You probably have to look at Cramer's "Homegamer" advice in the context of advising his audience to hold five to ten stocks with no more than one in any particular 'sector'. Hence by this formula you could not hold both LINE and KMP. Is Cramer fickle? He repeatedly declares he does not adhere to a "buy and hold" strategy, so certainly from that viewpoint he is more of a trader. I am not sure why so many take him so seriously that they become upset with his advice; his show is good comic relief from the more typical pontificator, just a guy clowning around, and one gets to see a lot of CEOs there, from sharp ones to dumbos to con men. Just don't take his advice; although like anyone else's, it has its hits (sure, buy google) and misses (some real loo-loo-loosers, like KSU). Strictly from a trgger-pulling buy point of view, KMP is at its year low (all the way back to July, actually) and LINE is not, both are likely not done going down, but one may have further to fall than the other, Hard to say which payout is safer, depends what numbers you believe in.

  • Report this Comment On March 13, 2014, at 3:21 PM, dsandman999 wrote:

    Good article Matt :)

    I posted on an SA article that none of the reasons to sell in Cramers latest book were met for me. I can see his own switch as him actually implementing his own writing by switching to his definition of best in breed in a sector and to someone in his bankable 21 list. LINE is neither even by my own metrics, but it has other metrics in its favor. I obviously am not concentrating the the "carefully" part of his book.

    What do you think the chances are that LINE is going to do another asset buy or even another C corp purchase with LNCO stock now that they have successfully set a precident?

  • Report this Comment On March 13, 2014, at 4:03 PM, LarryA1302 wrote:

    Similar to above comments. You are talking about buy and hold. Almost daily he says if you want buy and hold, buy an index fund. Every stock is a trade at some time, but not all the time. Yes I have lost money listening to him, I have also made a lot listening to him. When I see writers like you I have to ask, what is your track record for the last 20 years versus his? If you have made more millions than he has, I will start following you. What are your numbers?

  • Report this Comment On March 13, 2014, at 4:28 PM, dsandman999 wrote:

    @Larry -

    "what is your track record for the last 20 years versus his?"

    This is a non-sense appeal to authority and a base attempt to disqualify someone offering the dubious distinction of You being willing to follow someone if they somehow have a better record than Crammer. There are thousands in the industry that have better records than his, going all the way back to when Crammer started. He has made some really dumb mistakes, losts tons of money, and led others down the garden path as well. How much money has he made in LINE since the first time he had them on the show? Not much, because he never committed funds to LINE until the BRY announcement. His bad. While he is self depriciating enough and writes about his failures as well as his successes, he is very inconsistant in applying his own dicipline. I have made and lost much more following him. Now I take his comments and recommendations with a grain of salt. His christmas stocking stuffers near the end of next year is almost completely underwater as of today. The same goes back to his other themes. Go back to his european stocks theme where 3 of 7 no longer exist and only one has actually propsered and only recently. The list of his failures is much much longer than his successes. So go follow the Messiah Cramer. I am sick of hearing about him.

  • Report this Comment On March 13, 2014, at 4:38 PM, gabby1945 wrote:

    I don't believe Jim Kramer stated sell LINE or LNCO and buy KMI or KMP. I believe he stated he would not add to LINE or LNCO but buy KMI or KMP.

    There are certain rules that he manages his charitable trust that can't be violated, accounting issues, SEC letters, or missing estimates badly. These are red flags for his trust and he errors on the side of caution, which may be interpreted as a willy-nilly trader. When the dynamics of a trade change he pulls the plug and that is what a prudent investor does.

    The amount of money he has to buy and sell equities in that trust far exceeds what I'm working with, thus the one equity per sector with a limit of 10 equities in different sectors. With the size of his trust he could go 3 equities per sector since there is a full time staff doing the homework besides himself.

    I'm not a blind fan of Jim Kramer, but I watch and listen to his show and importantly what some CEOs have to say. His definition of cheap based on PE doesn't relate to my limited capital for buying $100- $1000 stocks. I need leverage, meaning more shares for my maximum 20% stake in a sector. Two shares of Google will not help me 20 years from now, but 100 or 200 shares of a Kinder (Linn) equity may, especially if treated as a drip and buying shares at their yearly lows with the paid distributions. That's called compounding a return.

  • Report this Comment On March 13, 2014, at 4:41 PM, Mathman6577 wrote:

    Good article and good advice. Cramer isn't the person to listen to.

  • Report this Comment On March 13, 2014, at 4:51 PM, chaspy wrote:

    I feel that Cramer, just like the fast money guys on CNBC are not for the average investor like me, they have a short term horizon, no regard of tax consequences since that is their occupation, and, like their love of the Telsa, a car certainly not for the average american, all their comments and "advice" should be taken with a huge grain of salt. I have owned Linn since 2007, Lnco since it came out, and KMP since 2007. I love the income, I am almost 82, and do not worry about market ups and downs, as long as I regard the business as sound. SDRL falls in the same category. Where else can you get such outstanding cash returns each month or quarter? Nothing has changed except the perception that the distributions will not grow this year. Wow, this is worth knocking down the stock this much? Think about it, fully hedged this year, you will get your distribution, without paying any current taxes. There are a lot of innocent fools out there, who will follow short term trader advice to their own detriment.

  • Report this Comment On March 13, 2014, at 5:27 PM, LarryA1302 wrote:

    I now see there are some very sensitive people reading and writing here, I shall try not to offend any sensitive persons next time. Cramer or no Cramer, I read a lot and follow my own judgement. All writers and economist have one thing in common, they are all wrong at some point in time. This includes all of you.

  • Report this Comment On March 14, 2014, at 5:04 AM, ellaerdos wrote:

    Good Article!

    Here's my 2 cents.

    You can follow Cramer or not, or do as I do and just listen. But I also believe that Cramer does a pretty decent job of bringing Wall Street into the average American home. Cramer is Television, and as such has to produce daily, I'm pretty sure that ain't easy.

    I am long on LNCO and also await the days short sellers all drop dead or get VD. As for the rest well.....

    :)

  • Report this Comment On March 14, 2014, at 10:00 AM, TMFmd19 wrote:

    Thanks to everyone that read and commented. Great discussions!

    I do want to answer a direct question from dsandman999 - "What do you think the chances are that LINE is going to do another asset buy or even another C corp purchase with LNCO stock now that they have successfully set a precident?"

    -I think its highly likely that LINE keeps buying and picks up another c-corp. However, it might not be until after LINE makes up its mind on its Permian Basin asset. However, the LNCO/BRY deal does set a president in my opinion.

    Also wanted to address "what is your track record for the last 20 years versus his? If you have made more millions than he has, I will start following you. What are your numbers?"

    -I'm only 34 so I don't yet have a 20 year track record. However, my public track record is kept with Motley Fool's CAPS rating system: http://caps.fool.com/MyPlayer.aspx?source=imysittph0000002

    Here is our attempt at using CAPS to track Cramer as well: http://caps.fool.com/player/trackjimcramer.aspx

    Last comment. I think taking the long-term view on LINE is the best way to go for those looking for income. Buy and hold still works and its one of the things you can do that wall street cant: http://www.fool.com/investing/general/2014/03/05/things-you-...

    Matt

  • Report this Comment On March 14, 2014, at 11:07 AM, leonardo98 wrote:

    When, if ever will Cramer speak sensibility and understandably and I also recall when Rick Santelli used to deliver his messages like a human too.

    What has happened to sensible broadcasting ?

  • Report this Comment On March 14, 2014, at 9:53 PM, mystery19 wrote:

    i agree.. Cramer very shrewdly changes opinion. For e.g. if anyone has invested in solar stocks and is familiar with technology.. will know sunpower is the best and that first solar is dead.. its conversion cost is higher than cost of Chinese modules which are 17% efficient..still cramer for last two years keep on recommending first solar over sunpower. however as first solar stock has kept going down or stagnated at best and sunpower has steadily gone up.. if you watch his lighting round words..he opinion is shrewdly becoming positive. two days ago his comment was " i still like first solar in this sector, however sunpower is not as speculative as others in this sector"

  • Report this Comment On March 15, 2014, at 8:00 AM, ellaerdos wrote:

    Sensible broadcasting went out the window with FDR. Today its talking heads. Talk for the sake of talk - if they can't convince you then they confuse you.

    By the way, just received a big fat dividend check from LNCO, the only feedback/proof/deposition etc., that counts.

    :)

  • Report this Comment On March 15, 2014, at 8:31 AM, ellaerdos wrote:

    Oops! I get so excited about dividends I lose my train of thought. I am 70 and have had a brokerage account since the days of Peter Lynch. After the near death of the market in 2008 I took over my Ira's and proved I could do better. For me the history of the market now only goes back that far, everything prior is ancient history - it doesn't count. It's a new world of investing, a new world of finance, KMP/KMI and LINE/LNCO are establishing new ways to do things. New industries are popping up all the time. Their is no 20 year record and only ancient old rule that still works is buy and hold.

    :)

  • Report this Comment On March 17, 2014, at 12:00 PM, Haise wrote:

    Cramer may be a hyperactive talking head, but the Fool is hoping we'll bite on that ad titled "R.I.P. Internet -- 1969-2014" and subscribe to Stock Advisor. Hmmm.

    He's obviously just an easy target. No matter how many times he tells people to do their homework, people out for a quick profit can't resist blindly following a couple of his picks, then blame him when they don't work out. (I've done it too, and learned it's on me, not something else I can't control).

    Problem with TrackJimCramer on CAPS is he makes so many different kinds of calls. Most on the show are trades, but some are long-term. How does CAPS distinguish them? Is "don't buy" interpreted as a hold or sell? How about "wait for a pullback?" How does it handle what he labels as speculative picks? In a real portfolio, the spec would not be nearly equal to a core holding, but in CAPS they're all equal.

    Bottom line: Think for yourself. Blind running with get you hurt, whether you're moving against Cramer or with him.

  • Report this Comment On March 18, 2014, at 4:57 PM, ComponuttDuckin2 wrote:

    Owned LINN since 2008 - sold some last year and the last today: Tax mess

    (no dividend but a return of capital) .

    Tax pack helps : but call them for help and you get none !

    Small investors beware: LINE is for big tax wise investors, but LNCO may work for you.

    Cramer is about the message not his weird style.

    made and lost money with his advice; but mainly I don't listen to him.

  • Report this Comment On March 19, 2014, at 4:38 PM, oldman144 wrote:

    Jim Cramer gets you thinking and if you follow his advise or not is never the point. After his reccommedation I bought VOD at about 24 bucks. I also bought some other stuff after doing my own research and thinking that did not work out.

    Line is a long term play and so is Kinder. I own both Without Jim and the Fool advise I would never even hear of most companies other than the massive blue chips or dogs of the Dow that are always in the news.

    I appreciate any mental stimulation I can get.

  • Report this Comment On August 12, 2014, at 11:34 PM, kankemike wrote:

    Whoops! Bet you wish you had some of Richard Kinder's Co. now? Doh!

  • Report this Comment On August 13, 2014, at 12:19 AM, notyouagain wrote:

    Look, Cramer is good for me. He's probably good for you, too. You know why?

    Think. If millions of people (a BIG chunk of "the market") are following his erratic advice, well then, that makes him one of the factors that make it so easy for a sensible dividend investor looking for great companies to hold for years while their dividends double, triple, and quadruple to BEAT..." the market".

    Millions of people watch him. If he tells everyone to switch out of good long-term investments, and many do, this creates opportunities for those of us smart enough to ignore him.

    I used to watch him once in a while, even though his trader approach bugged the hell out of me.

    I couldn't take it anymore, and I quit watching. However, I'm glad so many people do.

    Their loss is my gain.

    Bookworms win. People too lazy to read and expect to learn from watching TV? They lose.

  • Report this Comment On August 14, 2014, at 9:58 AM, SuntanIronMan wrote:

    @notyouagain

    CNBC's ratings are abysmal. No show on CNBC is measured in units of millions. Shows on CNBC can just barely be measured in units of 100k.

  • Report this Comment On September 08, 2014, at 8:55 PM, twilburt wrote:

    Guess Cramer was on to something here, huh?

    I watch Cramer, but do not invest based off his calls. However, he does give good information at times on the overall psychology of the market, and provides ideas that lead to further research at times.

    I have been long in KMI for a long time, and am excited about the upcoming consolidation and the future of the company.

  • Report this Comment On September 26, 2014, at 9:45 AM, malibuversace wrote:

    He churns a lot of bad advice and fools listen.

    He is so hyper that he can't speak as fast as he is thinking. I could puke after listening to him kissing the butts of every CEO. Wherever this guy came from he needs to go back to. His advice is bad and too many people think they are going to beat the market using Cramer's advice.

  • Report this Comment On October 24, 2014, at 3:40 PM, adayatatime wrote:

    LINE on Mar 12 - 29.05, now 25.1

    KMI on Mar 12 - 31.29, now 38.78

    On an investment basis, that is over a 37.5% swing, I would take KMI any day. Keep your "income play" LINE an give me an almost 24% increase in stock price, PLUS the 4.6 dividend. You can rag on Cramer all you want, but he got this one right.

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