Question

In general, do you approve following Jim Cramer's stock recommendations? Why or Why not?"

  (Jim Cramer is the host of the popular show "Mad Money" on CNBC. His views are showed below.)

• "For years, lots of very smart people ... told us that index funds were really the best if not only way to invest," CNBC's Jim Cramer said.

• "But sometimes trying to mirror the market is a bad strategy" because "you have to own so many have-nots along with the haves," the "Mad Money" host said.

• "Rule No. 1 for the new abnormal is that you stick with the winners and you leave the raggedy rest to the others," he said

P.S. There's no other resources need, it's about opinion!

Answer 1

Yes, I do approve Jim Cramer’s stock recommendations.

This is because while investing in index funds is a relatively safer method of investing for people or investors who do not have the time or the funds to participate in active management of their stock investments it does come with its fair share of downsides.

First of all it should be noted that index funds are basically price-weighted index. Thus stocks with higher prices and higher market capitalization will have a larger impact on the movement of the index when compared to lower-priced stocks. This will pare the exposure to lower priced stocks or stocks of companies with low market capitalization. Another reason why I support Mr. Cramer’s opinion is that investing in index funds reduces the flexibility of investors. Investors will suffer a lot when market witnesses abnormal volatility. For example at the time of initial outbreak of Covid pandemic the stock markets nosedived across the globe and remained volatile for a considerable time thereafter. While active fund managers were able to ride through the volatility after some time passive fund managers of index funds had to experience the same volatility as the market.