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A closer look at the data reveals that Mad Money host Jim Cramer’s stock performance isn’t as bad as media coverage suggested.

Jason DeCrow/AP

It's easy to dislike Jim Cramer, the stock picker whose frenetic Mad Money took the dry world of stock-picking and transformed it into a cable-TV carnival. So there was quite a bit of schadenfreude when two Wharton School graduate students produced a comprehensive study of his investments and concluded Mr. Cramer trails the market as a whole. "Jim Cramer's Stock Picks Stink" was one of the headlines.

A closer look at the report, however, reveals that Mr. Cramer's performance isn't as bad as the media coverage suggested – and, contrary to what one might expect of the carnival barker, his main sin could be seen as conservatism.

Jonathan Hartley and Matthew Olson studied the performance of Mr. Cramer's Action Alerts PLUS portfolio from 2001 to 2016. Action Alerts, featured on investing website thestreet.com, include many, but not necessarily all, of the stock recommendations made on Mr. Cramer's CNBC show Mad Money. Since 2005, the real-life portfolio has been a charitable trust.

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The study, the first to look at Mr. Cramer's post-financial crisis performance, finds the Action Alerts PLUS portfolio returned 64.5 per cent from its August, 2001, inception to March 31 of this year. That greatly underperformed the S&P total return index, which gained 126.1 per cent over the same period.

"The lesson for investors is, perhaps, too obvious: When someone is screaming at you to buy anything, hold tight to your wallet," columnist Steven Goldberg wrote for Kiplinger's Personal Finance. "Good investing, alas, is usually pretty boring."

There is something worth noting about Mr. Cramer's charitable trust, however. It does not reinvest the dividends it receives, instead holding them in cash for future donations. Also, when it sells a winning position, it sets aside the profits for charity rather than reinvesting them.

This means the Action Alerts PLUS portfolio is cash-heavy (currently 14.4 per cent of the assets.) And the authors, after their bevy of statistical tests, have a surprising conclusion for those who would take the report as a damnation of Mr. Cramer's selection skills. They suggest Mr. Cramer's underperformance is largely due to his "cash drag" – underexposure to the market during the big market run-up from 2012 to 2014. "I would say that has been the largest contributor to his underperformance," Mr. Hartley says in an email interview.

Or, if you prefer the academic language: "Across almost all of our specifications, the results demonstrate that underleverage explains most of the portfolios relative underperformance given the S&P 500's positive absolute performance over the period. This is also confirmed by the portfolio holdings data which indicates that the AAP portfolio often holds a significant cash position, largely to make its annual cash distribution in March to make charitable contributions."

(A quick note: The original version of this column compared the Action Alerts PLUS portfolio's returns to the simple price appreciation of the S&P 500 Index, but incorrectly described it as the S&P 500 including dividends that were not reinvested. These references have been removed. What remains true is that Mr. Cramer's worst periods were 2011, 2014 and the first three months of 2016.)

We don't have access to the portfolio holdings at any given time in the past, so I can't say definitively what caused the 2011 and 2014 problems. The portfolio's trading records do show, through my research, that there were holdings in Alcoa Inc., Bank of America Corp., Juniper Networks Inc. and the PNC Financial Services Group Inc., all purchased between 2009 and early 2011, that lost between 20 per cent and 40 per cent of their value in short order.

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These are, one notes, established names. In addition, in a relatively startling aside in the paper, the authors find no statistical evidence that Mr. Cramer has outsized exposure to "momentum" stocks, which can otherwise be called "hot" stocks because they seem to keep going up. Mr. Hartley, evidencing the caution of an academic, says "while we don't find statistical significance for the momentum factor, it doesn't necessarily directly imply momentum trends couldn't possibly be present in Cramer's style; in other words, to borrow a quote from Stat 101, 'absence of evidence is not necessarily evidence of absence.'"

Fair enough. But after my examination, I declare an absence of evidence that Jim Cramer is a terrible stock-picker.

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