Tuttle Capital made waves last week by bringing out an ETF called SJIM that would let you short the stock picks of TV personality Jim Cramer.  Cramer, the longtime host of “Mad Money” on CNBC, has a prolific history of making bad calls from “Bear Sterns is Fine” to “sell Netflix in 2012” and even “Buy Netflix in 2022.” So it’s entirely unsurprising that “just do the opposite of Cramer” would gain traction as a valid investment strategy.  What’s interesting is that this strategy runs counter to the semi-strong version of the Efficient Market Hypothesis (EMF) in a way that some might not expect.  I’ve at times seen people attack Cramer based on the EMF, pointing out that even the best stock pickers rarely perform better than random chance and that therefore Cramer is by definition a waste of time.  Yet many of those same people wouldn’t realize that if Cramer himself is a waste of time, then shorting him is a waste of money.

It comes down to what I sometimes call “the paradox of stock picking”: if you believe it’s impossible to predict the winners in the market, you must also agree it’s impossible to predict the losers.  Many people agree that you can’t know with certainty which company in the stock market will do well in the future, past performance is no guarantee of future success and all that.  What is the best electric vehicle company to invest in today?  Tesla is synonymous with EVs, but then Microsoft was synonymous with tech in 2001, and if you put all your money into Microsoft in 2001 you would have missed out on the massive gains made by Apple, Google, and others.  It’s hard to be certain that Telsa will continue to be the EV leader or even that it’s current growth trajectory is sustainable, and in either of those cases there could be some other company that would make a much better EV investment.  So then let’s flip this question on it’s head: what is the worst EV company to invest in?  Rivian is trading at around 600 times revenue for example (revenue 55 million, market cap 33 billion), can you guarantee that it is a bad investment?  What about Nikola?  They faked an electric truck by rolling one down a hill, are beset by scandal, and are still trading at about 80 times revenue, are they a bad investment?  The EMF states that you cannot beat the market with fundamental analysis, so the investment opportunity of scandal-plagued Nikola and profit-less Rivian are already priced in by the market just as the growth opportunities of Tesla are already priced in.  If you thought you could with 100% certainty pick which EV company was the worst investment, or even just a below average investment, then you could make an EFT made up of every EV company except the definitely-bad one. Then your EFT would beat the EV market as a whole because it would include all the market winners while eliminating one of the market losers.  This would run directly counter to the EMF which says you cannot beat the market.

So getting back to Cramer, is shorting him via an ETF a waste of money?  If you believe the semi-strong or strong versions of the EMF then Cramer’s chance of success as a stock picker is perfectly random, no more no less.  In order for shorting him to be a good investment, then you must believe: 

• The market is not efficient and it is possible to pick winners and losers
• Cramer’s analysis is not just so bad that his chances of success are random, but rather he is so bad that chances of success are worse than random.  
• Cramer’s chances of success are so much worse than random that the gains from shorting him outweigh the expense ratio of the ETF

It’s important to note here that shorting Jim Cramer puts you on the hook for his successful calls as well as his failures.  Failed predictions often generate more buzz than successes since the schadenfreude of seeing some idiot on the TV be proven wrong is a powerful emotional tool for getting people talking.  But if SJIM had come about 15 years ago and you had held it, then you shorted Jim Cramer on his “Bear Sterns is Fine” call but also shorted him on “Buy Apple” in 2010.  Adjusting for stock splits Apple’s price has gone from around 5$ to around 150$ in that time period, is that the kind of short position you want to take?  Only time will tell if SJIM is a good investment I guess.