He Tried Shorting Jim Cramer’s Stock Picks. It Cost Him More Than Money

Bestselling author Joseph Moore spent so much time watching Jim Cramer’s Mad Money that he missed his daughter’s first steps. And lost money.

Moore shared that anecdote during a recent episode of The Long View, where he also talked about the spectacular mishaps he had as a landlord and the relationship between marriage and financial success.

His book, How to Get Rich in American History: 300 Years of Financial Advice That Worked (& Didn’t), chronicles the things Americans have tried to do to get ahead. He gets bonus points for trying many of the strategies himself.

In the excerpt below, Moore talks about investing in a startup and trying to beat the market.

Takeaways From Investing in a Startup

Amy Arnott: You once invested in a West Coast startup that developed technology to help ALS patients communicate, but you ended up losing your entire investment. What lesson did you take away from that experience?

Joseph Moore: Well, from that one in particular, and I just have so much admiration for the young people who started that business, but what I took away was it’s really hard to have a successful business. A successful business is hard. Anyone listening to this who’s run a business understands that.

I was joking with somebody recently. They said, “What turns you from a lefty humanities professor to a kind of moderate-conservative kind of procapitalism guy?” And I said, “Making payroll.” If you’ve ever had to make payroll, if you’ve ever actually had to sell enough of a product of any kind or provide a service of any kind that you are paid for, knowing that you have to put that in the bank because other people are going to pay their bills, the people who work for you are going to pay their bills from that, you get real aware of how hard it is to run a business.

Those young people did an incredible thing, made an incredible product. But as it turns out, making an incredible product is not enough. You actually have to make an incredible product that the market will reward and do it on a sustained basis, and that’s much more difficult.

Now, I did a lot of self-experimentation for the book. The whole idea that I had about maybe five years in, four years in was, OK, I realized I was kind of making a recipe book of all the things Americans had whipped up to try to get ahead, not just become middle class, but go from where they were to where they dreamed of being. And so, all right, well, if it’s going to be a recipe book, I need to eat the cooking.

Everything I could find in the past that people did, I would try in the present. The only line that was drawn was my wife saying, “under no circumstances.” But everything below that line, I tried.

One of them was angel investing because that was obviously a big part of how we imagine the ’90s and 2000s, kind of these angel investors finding these startups, investing in them before anyone else could, and making tons of money. As it turns out, picking the angels is harder than it looks.

Can You Beat the Market?

Christine Benz: You also tried shorting stocks recommended by Jim Cramer. Can you talk about that experiment and whether it was educational, profitable, or just kind of good for laughs?

Moore: It was all three. There’s an economics paper, and I can’t remember exactly what year it came out, that showed that Jim Cramer’s show Mad Money, under a very strict set of criteria—I need to emphasize that point because I don’t want anybody to hear this and just go shorting everything Jim Cramer says—but under a very strict set of criteria, when Jim Cramer, on his show Mad Money, would recommend a buy on a stock, you could short that stock because it would bounce for 50 to 55 days and come back to earth. In those 50 to 55 days, you could short it.

Well, because I was trying everything else I was finding, I decided to try that. For three months of my life, I sat glued to a television waiting for all of those factors to align, which it occasionally did. And then I would rush over to the computer and try to short the stock.

Believe it or not, I actually beat the market. Now, net of fees, because you got to remember, I had a history professor salary. I don’t know if anybody’s ever told you this, but we don’t make a lot of money. History professors get paid in prestige, or all professors really. I’m taking my small professor salary money, and actually it was some of my daughter’s college money, and putting it on this gamble.

What I learned from that is I actually did beat the market; net of fees, I lost. But while Cramer was yelling at me like I was a child and setting off alarm sirens that were bothering my wife and family, I heard my wife holler from downstairs, “Come quick. She’s doing it.” I missed my daughter’s first steps.

So, I beat the market. Was it worth it? And the point that I tried to make in the book, but it being educational, is actually there’s all this rhetoric around you can’t beat the market, so don’t try. I actually find that literature to be pretty paper-thin. I know there are a lot of those studies. What they’re actually measuring is professional money managers’ ability to beat the market, which is a very different thing than saying you can’t, because professional money managers are operating in a very constrained environment. Bluntly, if you couldn’t beat the market, then Warren Buffett doesn’t exist. There’s another study that shows that certain money managers, especially managing $600 million or more, do tend to beat the market by about one-half of 1%, which, if you multiply that by $600 million, is a ton of money.

But if you take the average 401(k) balance and you tried to do what that money manager does—which, by the way, you can’t, but let’s just imagine—which is you got to go to Yale for four years and pay tuition, you’ve got to work a grueling internship, and then you need to work 70- to 80-hour work weeks, you would eke out an additional $500 a year for the average American’s 401(k) balance. Not the gains that you make; the extra $500 is what you get for all the 80-hour work weeks. Well, that’s one night in a hotel in Miami in hurricane season. It’s not worth it.

I try to tell people, can you beat the market? Sure. Do you want to? Probably not. You probably want to use the market to beat your own personal goals, and that’s good enough for most people.

Listen to the Full Episode

That’s just an excerpt from our recent episode of The Long View, but you can listen to the full conversation below (or read the transcript at this link).