Following hedge fund gurus is silly

Don't buy or sell a stock by mimicking the moves of major fund managers without knowing the rationale behind their decisions.

By Jim Cramer May 18, 2011 9:15AM

jim cramerthe streetI don't know about you, but I am beginning to tire of the cottage industry that is seeing what funds own and what they are selling and buying, particularly if they are hedge funds. Let's see, Paulson still likes gold. Hmm, hold on to Novagold (NG). But wait a second, Soros sold his Novagold. In fact, he sold every gold. Maybe sell Novagold? Maybe short the SPDR Gold (GLD)?

 

Steve Cohen still likes cyclicals. But I see lots of mutual funds dumping cyclicals and buying health care. Meanwhile Buffett isn't doing much at all. Stay put with cyclicals, dump them? Who knows?

 

But there's one thing I know I don't know: the rationale behind the move. Will Steve Cohen be gone tomorrow? Is Paulson just a believer in gold no matter the price? Is Soros just taking profits?

There was a time when we didn't care about these holdings, except those of Warren Buffett. Now we scrutinize them all and try to divine moves from them. People actually sell stocks based on the changes they see in these filings, which often aren't even current and are definitely not current when someone is a high-frequency trader.

 

Oh, and by the way, did anyone make any money in the past decade following Buffett? Was that rewarding?

 

Here's my take. You want to own a stock? Do the work, get comfortable with it, know the fundamentals, decide whether you can deal with the sector and, most of all, decide whether you would still want to own it if your guru decided to sell it and you don't see the position in the next 13F filings.

Stocks and companies are fluid. Motivations are unclear. Reasonings are unstated. Frankly, I can't think of a stupider way to buy or sell a stock. In fact, I am relegating it to the dustbin of news stories that come under the category of "something to talk about."

 

And nothing more.

 

At the time of publication, Cramer was long Novagold.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

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1Comment
May 18, 2011 3:14PM
avatar
Notice how Cramer  isn't pushing gold stocks anymore after they sold off when he said they were a buy...  Who listens to this guy?     

As for Warren Buffett,  if there hadn't been a bail out of AIG by the taxpayer to whom Buffett was the underwriter for, Buffet wouldn't have a company left to even talk about.    Kind of like when Buffett bought airline stock and lost his a**.

Insider info is how you make money not by following the fund herd.
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