Let this be the death of risk on, risk off

This lazy nonstrategy might as well be called 'buy high, sell low.'

By Jim Cramer Jan 2, 2013 10:06AM

thestreet logoStock market report ULTRAF Digital Vision Getty ImagesYou know what didn't work in 2012? Risk on, risk off. As hard as I tried to stamp out this ridiculous bit of hedge-fund-ese, I was not able to. There are too many commentators out there, and too many traders who want to succumb to this kind of non-rigorous, intellectually lazy thinking, and it's impossible to shut them all down.

But let 2012 be a lesson to you: It was revealed that you would have underperformed these people if you'd followed them. Notice I say "underperformed," because one thing is for certain -- none of these blowhards will let you see their returns after what I bet was a fiasco year for what I can only call an "alleged" strategy.

Why did risk on, risk off lead you astray? Let's count the ways. First and foremost, the S&P 500 ($INX) gained 13.5% last year, or 16% if you include reinvested dividends. One thing we know for sure is that those who played this on/off switch game -- this binary nonsense -- didn't get to reinvest those dividends. Again, these payouts were a hugely important component of the year's performance. Some of these trading machines may not have much of any of these dividends to show for their efforts, let alone reinvested ones, even as companies continued to deliver increasingly higher payouts and even though the tax rate on them was absurdly low. (At this point, let's just call that tax rate "low," as the increase in the new law only takes it to about half of what we were warned it could be.)

Second, the shorthand "risk, no risk" let you down entirely as a daily allocation tactic. Let's take Europe. What was risky? Bonds? Stocks? Bonds were miraculous performers. But stocks were incredible, too. I guess if you flitted from risk-on to risk-off and back again, you sold low and bought high pretty regularly. After all, the biggest amounts of money were made from the riskiest moments -- theoretically what you were supposed to avoid if you were "playing" risk-off. The non-strategy might as well be called "buy high, sell low." Maybe if you do it enough times, it will work?

I don't think so.

Third, risk on, risk off totally backfired as a portfolio sector-management tool. The riskiest stocks were the least risky -- the utilities and the lower-yielding healthcare names. So you would have been hurt even by the term "risk" as a rubric. Secondarily, bonds as a risk-off strategy seems contradictory. Bond funds began to take it on the chin late in the year even as the environment got riskier and riskier, thanks to the fiscal cliff and its attendant spending slowdown by more cautious U.S. consumers.

So what's the conclusion of all of this? Simple. I ran money for 30 years before this risk-on, risk-off garbage came in to play. I am beginning to believe it is simply the refuge of those who refuse to do individual stock homework, or who can't think of anything to ask or say.

Let 2013 be the year when people who continue with this terminology get defrocked -- not that they were ever frocked to begin with. I know I will do my best to out them as short-term mental hooligans. Maybe this time, with the sterling performance of the risky S&P, it will become clear that the risk-on/risk-off nonsense is nothing but a travesty perpetrated by those seeking and offering sound bites that were nothing but costly diversions from true investing principles.


cramer's face



Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.  



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How many members of Congress played the fiscal cliff to their economic advantage, shorted the market until it quit dropping then bought when they knew a bill would be voted on???
Jan 2, 2013 6:39PM

If you`re making $400,000 you`ll just have to tighten your belt if you can afford

one.What to do?What to do?

Jan 2, 2013 6:25PM
You can only fool the fools among us... and 51% of the American Electorate is comprised of fools, and they all think they have the answers to an economy that has been crippled by the fools they elected to represent them finally figuring out how to rob the Peoples' Treasury blind in broad daylight.
Jan 2, 2013 5:31PM
Take all pundits and analyst'...With a grain of salt or maybe even a drink ?? Don't get too excited.
Jan 2, 2013 5:27PM




Jan 2, 2013 5:19PM
Jim Cramer is an idiot!  He will tell you one thing one day and then the complete opposite the next about the same stock.  Must be related to Romney!
Jan 2, 2013 4:36PM

If there were cuts in spending everyone would cry foul !!!!!   Look at the Agricultural farm program .... where does it gain priority to be looked at above all else ? I'm a farmer and quit honestly I could have done a much better job being diverse in my farming operation without any farm program or intervention by the government. Without a farm program there might be farmers go belly up. But I assure everyone there are many others out there who can and are willing to take their places in farming !!! What happened to supply and demand ?

Jan 2, 2013 3:15PM

Yes, 2012 was a crazy year for stocks.  I certainly expected it to be a year of huge losses given how badly our budget is being managed.

I have decided that 2013 is just too uncertain for me to keep too much money in stocks so i took today as a rare silver platter day.  Sell on news.  I liquidated most stocks out of my portfolio that do not pay a dividend.

I may be wrong of course, but it will be easier to sleep at night by either cutting losses or taking small profits.

Jan 2, 2013 3:01PM

In helicopter Ben we trust........ til when? And then what?

Happy New Alternative Reality Year.

Jan 2, 2013 2:55PM

It looks like Risk On is the way to go until the SPX is somewhere North of 1500, or until Jim Cramer convinces us that "Risk On / Off" is for losers.  



Jan 2, 2013 2:47PM

Did anyone catch Obama's statement last night at 11:20ish?  In it he kind of framed what the next battle will be about.  He mentioned that while cuts are necessary and will be made that he isn't willing to make big cuts to programs people need while deductions exist only for the rich that aren't available to regular people.  He also said he will not negotiate paying the bills on cost already approved by congress meaning he doesn't want raising the debt ceiling as part of a spending cuts bill. 

Here we go again...... another 14 th hour (2:00 am????) deal perhaps.

I still think there tax bill was actually pretty good and did settle the issue of rates the next battle (or series of battles) will be one heck of a war.  The question I have is will how much can Repubs and Dems get each other to move on health care cuts and military cuts as I see those 2 areas will be the biggest sticking points.

Jan 2, 2013 2:46PM

A hot cup of coffee sounds good then a nap....zzzz


The Market got sweet this morning and is just coasting along now waiting for someone to make a move; Sameo,sameo day in,day out..

zzzzzzzzzzzzzzzzzzzzz,snorkle slurp,zzzzzz slurp....zzzzz surkle,snorkle,zzzz























Jan 2, 2013 2:20PM

5 PM....They may still have hangovers from New Years....OR


Their Portfolios, 401s and IRAs have all went up, over the last couple trading days..


Maybe they are all Happy about the can-kick..."3 points isn't as good as 7, but anyway..."

Jan 2, 2013 2:19PM

Actually, there hasn't been any reaction to the Fiscal Cliff. This is the first real business day of the New Year and the major financial went to the Fed borrowing window and stuck it in the markets to see who would bite. At 1pm, it's literally still just sitting there.


Nothing else got solved and the retailers are drowning in returns. I'm guessing early terminations for the holiday temps too. If you aren't petitioning to remove your Norquist Pledger from Congress, you are exposing yourself to a lot bigger chasm than the Fiscal Cliff. When there is no current, the liquid starts to smell bad and get mucky. There is no current and Congress pooped in the liquid.  

Jan 2, 2013 2:15PM

Kinda think it's a "fools game" to hold "only 5 stocks", But you can run Charts,Scenarios and Historical situations; To find probably 5-10 that beat the S&P consistently over a 10-20 year period..??

And if they are in the 4-6% dividend range, you should be able to beat the S&P 500 every year.

Or you could just go with 5-8 well run,tenured Mutual Funds, that have those type of Records.

But I believe in being careful, when it comes to those choices...Do your Research..

Research, Re-evaluating, Re-adjusting or Re-allocations are all important in the investing biz.

If you do not feel comfortable with the tasks, select someone that is up to the job, that you trust.


I personally feel a mix of about 25-30 stocks/equities is a good mix and you can always build from that.

Many Funds have 50-80 in there mixes...Look at their "Top Ten" holdings..

Some say there about 8-10 Sectors, I believe it's more like 10-14, Commodities included.

By spreading yourself or investments over those ranges, it's more difficult for a couple to take you down...Or at least if there is Recovery you ride the waves back up also.

Like I've said, you have to have some kind of plan; And you have to be adaptable. 

And then there is always the other games you can play, options,shorts,inverses,etc,etc..

Jan 2, 2013 1:55PM
What happened to all the grumpy doom and gloomers?
Jan 2, 2013 1:48PM

Funny thing....Jim gets paid to do this...We don't.


And a lot of my picks and good standbys....Have went up 3-5% today....wooohoooo !

Now I have to wait for some dips and more divs to come in...?

Give me Money..

Jan 2, 2013 1:47PM

Jim said to buy the best of a sector, and short the rest.  I've never caught his show when he tells us what shorts he holds.  Recently, he said we only needed to hold five stocks.  Which one of use could have picked five stocks that would have beaten the SPX (pick a timeframe)?  Now he says that risk-on, risk-off is buying at the high and selling at the low.  Wasn't the last risk-on at spx around 1410?  I have to give him credit on his recent call to buy Aaple in the "low 500's".  My favorite Jim Cramer quote was "WHOAH, IT'S SCARY OUT THERE!"  - uttered at the bottom.  I don't watch Cramer very often (anymore).  I flip over from Bloomberg every now and then to hear his comments on the issue or stock of the day.  Most of the time, he's talking about something else - as if his program was scripted days or weeks before. 


Jan 2, 2013 1:45PM

why is it KOOLADE???

just posted this and it was posted as the last enrty on page 2


1 minute ago

Ok,help me understand something,this "cliff" deal only held off a N E W problem,it didn't S O L V E  any present problems.Sooooo,whats driving the market and oil up so much ???


allow me to explain....the market is manipulated by those who have money........they create the ILLUSION that things are going fine.....u, the dummy, invest and drive the prices they intend to sell into higher...



Jan 2, 2013 1:43PM
Lemmeee see, Now we have the "3 Ds" to battle over..Debt, Deficits and Defaults....Right ??
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