Fading The Consensus by Taking the Opposite Side of Jim Cramer’s Picks

In our opinion, long time investors and traders know that the consensus is usually wrong, especially at major inflection points in the market. We often watch things like put/call ratios, implied volatility in options, or institutional and retail sentiment studies. We believe that when institutional and individual investors get extremely bullish that the market is likely due for a decline, and we believe when they get extremely bearish that it is likely near bottom. Knowing this, and profiting from this, are two different things. Investors could lighten up on longs when bullish optimism is extreme, and lighten up on shorts when bearishness is extreme. That’s probably prudent, but somewhat hard to implement effectively. Another option is to find an indicator that represents these extremes, Jim Cramer is one such indicator.

Jim Cramer used to be a money manager, now he is an entertainer. Some might naturally think he is on CNBC because of his stock picking ability, but remember, CNBC doesn’t make money if you make money off Jim’s stock picks. CNBC makes money from advertisers, and the more viewers you have the more advertisers will pay to be in front of those viewers. Jim is on CNBC because people watch him. They either enjoy his antics or they like to make fun of his antics, but they find him entertaining in an area, financial news, that is typically pretty dry. Jim’s role on CNBC is to tell you what he thinks about certain stocks, this is either stocks he wants to talk about, viewers call in about, or other anchors want to ask him about. Because of this role, he has to “swing at every pitch”. Every once in a while he can say that he doesn’t know enough about a stock to opine, or he can be vague about a stock, or just not give an opinion, but overall he has to stick his neck out. Historically, when he does, it has gotten chopped off a lot. There is no real way to come up with a performance number on his picks. He may tell you to buy something, but when do you sell it? Do you short the stocks he tells you to sell, or just don’t own them? He may sound to one viewer like he is positive on a stock, but another may find it ambiguous. When he has a CEO on Mad Money does that mean he likes the stock, even if he never says he does? There have been a number of people who have “tracked” his performance over the years, and the results have been poor to say the least. He has also made some epic bad calls. His Bear Stearns call in 2008 was probably his most famous, when he told people it was fine shortly before it went bankrupt. John Stewart took him to task for completely missing the entire 2008 bear market. There was calling Sam Bankman Fried the next JP Morgan shortly before he went to jail, and this year was the epic Silicon Valley Bank buy call a couple of months before it went bankrupt. There have been a number of other epic wrong calls throughout the years. Why is this, how can one person be so wrong, so often? First off it goes back to having to have an opinion on nearly every stock he is asked about. This is an impossible task for a seasoned money manager, so it is impossible for an entertainer who hasn’t been a money manager in a long time. It also comes down to recency bias. We have a tendency to believe that the most recent past will equal the future. If the stock market has gone down three days in a row you will probably feel bearish. If it goes up for three days in a row you will probably feel bullish. If I ask you what you think of a stock that has gone up a lot you will probably be bullish on it. Jim is no different. If you call in and ask about a stock that has had a major rally he is probably going to tell you to buy, buy, buy. If you ask him about a stock that has been tanking he is probably going to tell you to sell, sell, sell.

Enter SJIM

SJIM is designed to help you not only profit from the idea that Cramer is often wrong, and sometimes epically wrong. It is also designed to help you bet against the consensus, because we view Jim Cramer as the consensus on steroids. As the market is going up there are going to be more stocks Jim likes, and those are often going to be the stocks that have gone up the most. When it is going down there are going to be more stocks Jim doesn’t like, and they are often the stocks that have been the hardest hit in our opinion. SJIM is designed to go short Jim’s favorite stocks and go long some of his more high profile sell calls. As the market is going up we should be much more net short, as the market is going down we should be adding more and more long exposure. So pretty much exactly the opposite of what the consensus is doing, and probably what you are doing in the rest of your portfolio. Since inception on 3/2/23 SJIM has a negative .68 correlation with the S&P. This is pretty much exactly what you want to see, it is not completely inversely correlated, which is good because the market goes up more than it goes down. It does have enough negative correlation to be a hedge and to act differently than anything else you have in your portfolio. For example, investors often use bonds as a portfolio diversifier and hedge. Over the same period SJIM has a negative .05 correlation with the Barclays Aggregate Bond Index (AGG ETF). This means it has no correlation with bonds at all, making it even more effective as a portfolio hedge.

Bottom line is the consensus is usually wrong, especially at major inflection points. There are not a lot of good options for investors who want to add something to their portfolio that protects them from this, which is the main use case for SJIM.

Past performance is not guarantee of future results.

Prospectus Offering: Investors should carefully consider the investment objectives, risks, charges and expenses of the Short Cramer Tracker ETF. This and other important information about the Fund is contained in the prospectus, which can be obtained at crameretfs.com or by calling 888-723-2821. The prospectus should be read carefully before investing.

The Long Cramer Tracker ETF is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC Tuttle Capital Management is not

affiliated with Northern Lights Distributors, LLC.

Important Risk Disclosures

ETF’s are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few.

While the shares of ETFs are tradeable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. There is no guarantee that the Fund will achieve its objective. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.

Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC. While many managers work within their respective silo when it comes to investment strategy, we look at all methodologies and market dynamics, using forward-looking due diligence to combine methodologies and timeframes to achieve the best results. 

The views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal.