Jim Cramer's energy is infectious. He uses every ounce of it to entertain and educate his audience so that they, like him, can make a lot of money. And Jim Cramer knows a thing or two about making money, having amassed a fortune estimated to be worth just over a hundred million dollars. Here's how he did it.
From Harvard to living out of his car
Anyone who has seen Cramer on CNBC's Mad Money knows that he's a smart guy. His head is filled with thousands of stock tickers, as well as enough information on each stock to have an opinion on its next move. However, what's truly incredible about Cramer's background is that he has no formal education in investing. He went to Harvard and studied government. He then spent his early working years as a journalist.
Like most journalists just starting out, Cramer didn't make a whole lot of money. The meager funds and possessions he did have at the time were stolen from his apartment. He was so broke at one point that he had no other choice but to live out of his car. Seeing that journalism just wasn't going to pay the bills, Cramer went back to school and earned a Juris Doctor degree from Harvard Law School. However, it was during law school that Cramer discovered his passion for the stock market, which is what put him on his pathway to riches.
How Cramer became a stock market genius
Cramer's growing love for stocks led him to devote hours studying them. He was so passionate about the market that he even started leaving stock tips on his answering machine. His tips were so compelling that one guy gave him a half-million dollars to invest. His success with that money eventually landed him a job at Goldman Sachs (NYSE:GS), and after three years at Goldman, Cramer started his own hedge fund.
Cramer spent countless hours researching stocks until he became an genius stock-picker who could beat the market. This is why from 1988 to 2000 he just had one negative year as a stock picker and ended his career with average annual returns of 24% over 14 years. To put those returns into perspective, Cramer was actually a bit better than Warren Buffet at picking stocks: From 1965 to the end of 2012, Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) enjoyed a compound annual rate of return of 19.7% and two down years. That being said, Buffett's success was over a longer period of time and turned him into a multibillionaire with a fortune totaling $67.8 billion, whereas Cramer's net worth would be nothing more than a rounding error for Buffett.
Still, Cramer parlayed his hedge fund success into big personal gains. He routinely took home more than $10 million each year in his prime. It has also brought him as much fame as it has fortune. And yet, as rich as Cramer is, he could have had a lot more.
Did Cramer get out of the game too soon?
Cramer might have been in the right game, and his returns might have been as good as Buffett's, but his net worth suggests he might have left the game too soon. For example, top hedge fund manager George Soros is worth $24 billion and is 17th on Forbes' list of wealthiest Americans, while fellow hedge fund managers Steve Cohen, David Tepper, James Simons, John Paulson, and Ray Dalio are all worth over $10 billion apiece. Meanwhile, investor Carl Ichan is richer than any of them at $25.8 billion in net worth. Each makes Cramer's net worth look like pocket change.
Even their annual earnings make Cramer's look a little light. Last year the top 25 highest-earning hedge fund managers and traders made an astounding $24.3 billion altogether. Soros tops this list, having pulled in $4 billion last year after his fund gained just 20%, while the lowest-earning hedge fund manager on that top 25 list pulled in $280 million last year. That's nearly three times Cramer's entire net worth!
These days Cramer is actually barred from trading stocks with his personal funds. As part of his agreement with CNBC, he can only own the stocks of TheStreet (NASDAQ:TST), General Electric (NYSE:GE), which used to own CNBC, and Comcast (NASDAQ:CMCSA), which currently owns CNBC. This really precludes Cramer from further boosting his net worth using the stock market, so must content himself with his meager $100 million dollar fortune. What this shows us is just how serious he is about making money for his audience instead of further enriching himself.
What we can learn from Cramer
Jim Cramer's story teaches us one important lesson: We don't have to have any formal training to make money in the stock market -- just a passion to learn. While we might never become as rich as Jim Cramer or a hedge fund manager, we can use the stock market as the vehicle to take us to a bright financial future.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Goldman Sachs. The Motley Fool owns shares of Berkshire Hathaway and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.