Jim Cramer Gets Burned in Lightening Round

I love Wall Street soap operas. I’ve written about Bill Gross’ departure from PIMCO two times (here and here) and, for me, it’s the gift that keeps on giving. There was another long exposé on Bloomberg yesterday but I decided not to write about it hoping that you aren’t afflicted by the schadenfreude that sometimes gets me.

Yesterday, it was reported that an activist investor is going after Jim Cramer, who is best known as the sweaty, loudmouth guy on CNBC’s Mad Money that shouts ‘boo-ya!’ when he likes a stock and ‘SELL SELL SELL’ when he doesn’t, not to mention other odd phrases like, ‘Are you ready, skee-daddy?’

I don’t like his show, but he is an interesting personality. After attending Harvard and working for Goldman Sachs, he ran a hedge fund that apparently earned 24 percent per year for the dozen years that it was in business, beating the S&P 500 by a wide margin.

Cramer also founded a company called TheStreet.com (ticker symbol: TST) that provides market news and analyses and also sells newsletters to the general public. During the technology bubble, TST was worth $1.7 billion, but today is essentially a penny stock, worth just $77 million.

On Wednesday, an activist investor hedge fund, Cannell Capital, announced that he bought nine percent of TST and is demanding changes: namely that TST should fire its founder, Jim Cramer, or force him to quit his CNBC gig to focus on TST.

Activist shareholder, who buy large stakes in companies and demand changes, often write over the top letters and this one was no different.

In the letter (found here on the SEC website), Cannell accuses Cramer of being a financial drain on TST. In addition to his cash and stock compensation, Cannell refers to other ‘considerable non-pecuniary compensation [to Cramer] such as perfumed sedan drivers and assorted assistants who spray ionized lavender water on [Cramer’s] barren cranium.’

Although I’ve only done a cursory assessment of TST since the news broke, I can see why Cannell is unhappy: TST hasn’t made a profit since 2009, when it only made $1 million. Since then, it has lost nearly $80 million over the years while revenue has been stagnant.

Cramer, who isn’t part of management but is on the board of directors, doesn’t appear to have earned a salary since 2010, when he took $104,150 in director’s fees. Cramer does have stock worth about $14 million, which is almost a fifth of the company. So he should have an interest in seeing TSTs price go higher.

Part of the reason that TST may be suffering is that Cramer’s stocks picks don’t appear to be very good. While researching this article, I found a lot of articles that reviewed his performance and it wasn’t very good, although the data was fairly stale.

One blog that I like, called Bogleheads after Vanguard’s founder Jack Bogle, said that Cramer reports his performance to subscribers. Since the inception in 2001 through the end of 2013, the blog reports Cramer says that his picks have gained 68.88 percent while the S&P 500 is up 93.83 percent.

According to the blog, Cramer is reporting his own underperformance, which they find admirable. The data also assumes no trading costs, which is crazy because, judging from watching his show, costs will likely be high and hurt performance.

These results don’t seem to hurt Cramer, though; he appears as prominently as ever on CNBC. It will be interesting to see whether this activist will force Cramer to pick between the internet company that he founded or the TV presence that he clearly loves.

It’s soap opera that I will keep following, not because I care much about Jim Cramer, but because I love my stories.