Brilliant Stockpicker--or Brazen Hustler?
By Gary Weiss
CONFESSIONS OF A STREET ADDICT
By James J. Cramer
Simon & Schuster -- 339pp -- $26
TRADING WITH THE ENEMY
By Nicholas W. Maier
HarperBusiness -- 192pp -- $22.95
It's hard to be James J. Cramer. For the journalist-turned-hedge-funds-manager/journalist-turned-high-decibel-television-pundit, life is a series of crises, all of them well- and self-publicized. It is a life of highs and lows, all of them severe. Life means no days off for years on end. Life is insecure. "You don't get tenure in the hedge-fund game, no matter how many times you beat the market," says Cramer. And he has beaten the market many times, as he does not tire of telling us in Confessions of a Street Addict, the entertaining tale of his rise to fame as a media and investment celebrity.
But for Cramer, success has been accompanied by a succession of misfortunes. He was investigated, and cleared, by the Securities & Exchange Commission for writing about stocks he owned. His otherwise excellent record was hurt by the market tumult of 1998. And now, just as his book hits the bookshops, an ex-employee named Nicholas W. Maier is trying to steal some of Confession's thunder in a tell-all account, Trading with the Enemy: Seduction and Betrayal on Jim Cramer's Wall Street.
The "enemy" in Maier's title is the way Cramer allegedly referred to everybody outside the offices of Cramer, Berkowitz & Co. That's the Cramer-run hedge fund where Maier toiled until Cramer fired him in 1998, either in a fit of irrational rage or for incompetence--one of the numerous points on which the Maier and Cramer stories disagree.
That there is even one account of these events, much less two, is something historians will ponder in future years. How could society reach a point where the actions of a moderately successful, middle-aged hedge-fund manager are considered so important? What, if anything, does this tell us about U.S. culture?
Perhaps it says that anything concerning the late, widely lamented bull market is fascinating. And, to be fair, so is Cramer--in a self-indulgent, hubris-filled way. In a sense, Confessions is a 339-page version of the column that Cramer churns out for TheStreet.com, his red-ink-plagued financial-news Web site. Cramer is a good storyteller, and the tale of his rise from penniless newspaper reporter to e-media mogul is, for the most part, a good read.
As an autobiographer, Cramer is not exactly mired in introspection. He skips quickly over the first two decades of his life, except to recount his childhood fascination with stocks. By page 3, he is already at Harvard University, where he is "unrelentingly competitive. Mindlessly competitive." (No kidding.) At the Los Angeles Herald-Examiner, where he toils as a poorly paid reporter, we meet an editor who treats him badly--a recurrent motif in this book. He moves swiftly through the training program at Goldman, Sachs & Co. before tackling the real meat--the tale of how he began to make money. That happened shortly after he left Goldman, where his career was ruined by an indiscreet interview he gave to a reporter (who, he insists, treated him badly).
Cramer began by managing money for Martin Peretz, publisher of The New Republic, to which Cramer had contributed. He then opened a hedge fund, Cramer Partners, where he developed a special approach to earning money. He describes this method with such candor that some readers may be taken aback. After all, controversy is now swirling around analysts. And they were at the core of Cramer's "formula for making money every single day, day in and day out." As developed in the early '90s, the system consisted of becoming "merchants of the buzz." Cramer writes: "We would work to get upgrades or downgrades because we knew, cynically, that Wall Street was simply a promotion machine."
Cramer would look for stocks likely to move quickly on good news. Then one of his staffers would begin calling the companies, looking "to find anything good we could say about them." When he discovered a stock that seemed ready to take off, or when his staff uncovered something favorable about the company that the analyst community didn't know, Cramer would load up on options and stock and then "give the good news to our favorite analysts who liked the stock so they could go do their promotion." That would get the buzz going, and "we would then be able to liquidate the position into the buzz for a handsome profit."
In other words, Cramer used his pals in the analyst community to engage in a kind of legal pump-and-dump scheme. Part of what makes his account compelling is that Cramer is so matter-of-fact, even proud. He sees absolutely nothing wrong or unfair about the practice. In fact, at one point he says that he sees himself as "the proverbial Boy Scout, never breaking any laws, never even getting a parking ticket," a man who had "nightmares about overdue library books. I was Little Miss Goody Two-shoes." Nope, introspection is not his strong point.
Admissions such as this, and the peculiar brand of ethics they reveal, create a surprising common ground between Cramer's book and the deeply flawed Trading with the Enemy, Maier's superficial account of life with Jim Cramer. It's easy to dismiss Maier's book as the revenge of a disgruntled former employee. But reading it in tandem with Confessions gives perspective to both books.
Maier certainly belongs on the long list of people who have treated Cramer badly. The ex-trader's book is essentially a hatchet job. And at just 192 large-type pages, it is thin. But Trading does contain some riveting anecdotes that are not unlike Cramer's own. In one, Cramer allegedly sends Maier to an analysts' meeting to ask nasty questions of a corporate executive. The questions supposedly drive down this company's share price--to the benefit of Cramer, who was shorting the stock. Cramer's lawyer categorically denies all of the unflattering tales in Maier's book, including this one. But the incident certainly sounds a heck of a lot like the analyst-influencing campaign of which Cramer boasts in his account. If anything, it's less repulsive.
Trading has generated quite a bit of pre-publication buzz, although not of the kind that most authors would enjoy. Shortly after the book was sent to the stores, the publisher sent out an errata notice, and the remaining inventory was pulped. The book was then reissued with one page removed. In the page now excised, Maier accused Cramer of engaging in trading on inside information from an executive of a company called Western Digital Corp.
That happened to be Maier's most serious accusation, and according to publisher HarperCollins, it was not true. But the publisher's retraction was not quite as sweeping as Cramer might have liked. HarperCollins says the only inaccuracy was the specific reference to Western Digital, which the new version of Maier's book doesn't mention. But the revised book does say that Cramer was the subject of an SEC inquiry, later dropped, concerning trading in options of an unspecified stock. "Our timing on this occasion may have been too perfect," Maier says in the post-pulping version. A call to Cramer was referred to his lawyer, who says both versions are inaccurate, and that there was no SEC inquiry at all.
In a statement, Cramer asserts that the book "quotes me as saying outrageous things I never said (and would never say), meeting with people I never met, and being the subject of investigations that never occurred. The book contains page after page after page of lies and innuendo." Another lie, according to his attorney, is the assertion that Cramer took a large position in a stock after getting a telephone call from CNBC's David Faber--implying that the journalist gave him some kind of advance information. CNBC says Faber has "the utmost integrity and any allegations otherwise are completely without merit."
HarperCollins says it stands by the current version of Maier's book. And although the book's reputation has been damaged, the fact that it hasn't lost all credibility is a comment on the two volumes' similarities. They seem to provide contrasting views of the tendency to push the envelope of Wall Street ethics.
One compelling contrast is the Maier-vs.-Cramer versions of a February, 1995, controversy about a column by Cramer in SmartMoney magazine describing "four little orphans we love and why we love them." Stocks of the four companies climbed after the column appeared. In his book, Maier writes: "The one thing Jim neglected to mention was that he not only liked these orphans, but had already adopted them. Cramer & Company owned huge slugs of each." At the time, according to Maier, Cramer was telling people at his hedge fund that he thought the stocks were "worthless losers" and "pieces of s--t."
In Cramer's version of this story, the orphans were "tiny stocks that I thought represented value because they weren't being promoted or sponsored." Maier says that Cramer told his partners that he would have sold the stocks after the runup had an article not appeared in The Washington Post disclosing his interest in them. Cramer contends in his book that he had no intention of selling.
An SEC investigation ensued, and Cramer was eventually cleared because, among other things, SmartMoney neglected to include a disclaimer saying that Cramer might own shares in stocks mentioned in his column. But Cramer reports bitterly that several prominent journalists castigated him for his behavior--thus joining the long list of people who didn't treat him right.
But that's O.K. Cramer has had the last word--unless, of course, yet another book appears on the life and times of James Cramer. Alas, we are helpless to stop that from happening. But we can always pray.
Weiss covers Wall Street.