Why Jim Cramer hates [Corporate] America

For those of you who have seen the CNBC show, "Mad Money with Jim Cramer," this post will hit more strongly than those of you who haven't. For those that have been fortunate enough to evade that monstrosity, I'll just give you a hint of what you're missing: a bald, stocky man running around a studio stage, making all sorts of strange noises like an obnoxious disc jockey while waving his arms about as if he's escaping a collapsing building. Between the torrent of spit and the foam that's running down his chin like some rabid dog, he shouts out stock tips for trigger-happy investors. One of his central tenets is to buy stock when it's on a temporary loss and buy it when it's at a temporary high - and to do so quickly and without hesitation, living and dying on quarterly numbers.

If my words have failed to give you a disturbing enough image, take a look at this.

If my words have also failed to illustrate how irritating this man's voice is on the psyche, one of my roommates will often flip to him and leave him on for just long enough to get me ranting.

Why does this man draw my ire so? Why, what a perfect segue.

Long story short - Jim Cramer hates Corporate America.

Short story long - Jim Cramer's tactics promote bad business and investment decisions. Cramer's not the only guy out there, but he's endemic of the problem with short-term investors nowadays.

There are two ways to approach investing, perfectly illustrated by the Seattle Post-Intelligencer's David Horsey, who made a political cartoon two years ago or so depicting the dichotomy between what businessmen nowadays preach (sound investment, cautious decision-making, and so on) and how businessmen act (more or less like a frantic, crazed man rolling dice). The latter is, unfortunately, increasingly common, thanks to the popularity of people like Cramer, who preach that investors should get in while the going's good and yank out all their money when stocks are high.

On the surface, nothing sounds inherently wrong about this. After all, why shouldn't investors do what they please with their money? If you buy low and sell high, you've got a steal and made a tidy profit. Self-interest! That's what capitalism is all about, right?

Sort of, but not exactly. Since I don't want to bore anyone reading this with a discussion of Nash equilibria (yes, it's slightly more complicated than how Russell Crowe depicted it in A Beautiful Mind), I'll just move on, since that's not even my point. This type of buy-fast-sell-faster mentality can harm both the investor, by making them buy or sell at improper times and lose a large share of their capital, and firms, for reasons I'm about to expound upon.

In a firm full of small investors, the inflow and outflow of capital via stock buying and selling won't significantly influence a firm's bottom line; investors are "price takers" insofar as their purchase doesn't influence the total stock of stock, and consequentely the price thereof. But firms aren't always made up of small investors - just ask Carl Ichan, who's buying up AOL-Time Warner. Big-time investors thinking in what my AP English teacher called "short-term time" can wreak havoc with established companies, as even the hint of one of those investors cashing out can completely decimate a company's quarterly report...which, in turn, can cause more "short-term time" investors to cash out, egged on by their ranter-in-chief Jim Cramer...and the feedback cycle continues.

And now we get to the real meat of the argument. Companies, eager to keep investors of this rather repugnant (yet well-financed) ilk content to keep their cash in company stock (something which a healthy chunk of executive pay is tied to, another incentive to keep the big investors happy), favor policies to build short-term profit policies, which more often than not sacrifice long-term growth. Again, there's nothing inherently wrong with executives responding to investor demand - that's the "implicit bargain" made between investors (who invest their money) and executives (who get paid to run the company).

But when investor demand conflicts with the long-term health of the company and its employees...well, that's when I have qualms. Companies aren't just moving money around for investors; they hire people, too, who depend upon them for their livelihood. According to one a book that I'm fond of, Affluenza, the average American family can only sustain their standard of living without a job for the better part of a month or so. I'm not advocating that investors should keep their money sunk in a dying company for the sake of its employees; that's not sensicial in the least.

However, when the attitudes of investors who want to make a quick buck conflict with the long-term health of the company, economic growth, and the jobs of its employees (not necessarily in that order), then it's obvious which should be valued more highly.

With that in mind, I say a pox upon you, Jim Cramer.