Action Alerts Plus Review – Is Jim Cramer’s Alert Service Worth It?

About Action Alerts Plus

Action Alerts PLUS is an investing newsletter run by Jim Cramer of CNBC’s Mad Money, and his staff at TheStreet.com. The newsletter follows a conservative investment philosophy mainly targeted at retirement investors. All of the buy/sell recommendations issued by Cramer are executed in his Action Alerts PLUS charitable trust, ensuring the interests of Cramer and newsletter readers are aligned. Action Alerts Plus is similar to service provided by Motley Fool and Investor’s Business Daily. Read the review to see how they stack up.

Who is Jim Cramer?

Jim Cramer is perhaps the most well-known personality on Wall Street. His start in the markets was rather nontraditional. He was investing in stocks during in law school and promoted his stock picks on his answering machine. This lead to the owner of The New Republic giving him $500,000 to invest, on which Cramer returned 30% in two years. Shortly after this, he became a stockbroker with Goldman Sachs, then went on to form his own hedge fund, Cramer, Berkowitz & Co. The fund had a 24% CAGR during Cramer’s time at the fund between 1988 and 2000.

Nowadays, Cramer is known for his CNBC show, Mad Money.

Action Alerts Plus Pricing Options

An annual membership to Action Alerts PLUS will cost you $300 per year.

Portfolio Performance

The performance of the newsletter’s performance was in the spotlight in 2016 after a Warton paper showed that the Action Alerts PLUS charitable trust has trailed the S&P 500’s performance. This lead to many pundits lambasting the value of the service (especially when services like Stock Advisor and Motley Fool Rule Breakers consistently beat the market). I think it’s important to remember that the demographic Cramer is targeting aren’t hedge fund investors looking for alpha, rather, they are retirement investors looking for good, low risk, companies for the long run. I’m not excusing the underperformance, but using the S&P 500 as your only benchmark can be a bit of a fallacy sometimes, considering many are skeptical of index investing.

With that said, let’s look at Action Alerts PLUS’ performance.

As you can see, the Action Alerts PLUS portfolio has consistently lagged the market over a 15 year period. And to add to that, the Wharton paper claims that Cramer’s portfolio returns are mostly due to market returns, and not to single stock picks.

Trade Analysis

For each trade made in the trust’s portfolio, AAP writes an article explaining their reasoning for making each trade. Their analysis isn’t groundbreaking, and is quite similar to many articles you’ll read at TheStreet.com and InvestorPlace. They cite recent news items and secular trends as reasons for buying and selling stock. For example, AAP recently bought more shares in Nvidia and upgraded their rating on the stock because it recently dropped ~10%. They cite that they’re bullish on NVDA in the long term because of their presence in growing industries like gaming, data centers, and autonomous vehicles.

Here’s a few recent actions taken in the portfolio.

It’s worth noting, that for a long term portfolio, AAP does a good deal of trading. They will sell portions of their positions into rallies and increase or establish positions based on pullbacks. These types of trades seem to contradict lots of long term investing principles hailed by investors like Warren Buffett and Charlie Munger (outside of buying more of good companies on pullbacks).

Weekly Roundups

AAP’s weekly roundup is a weekly look at the markets price movements, news, economic data, and new positions established by AAP. They are usually quite long compared to your average article, however, it is mostly reporting. Everything in the weekly roundups besides AAP’s new positions can be found on other market news websites like Bloomberg, CNBC, TheStreet, MarketWatch, and others. With that said, it’s quite convenient to have the entire market week summed up in one article, and you probably have to do some hunting to get this at other news sources without subscribing.

Investment Indices

AAP creates four portfolios based on the goals of different types of investors. Rather than following their large portfolio with a few dozen stocks, you can choose an investment goal and follow a more concentrated portfolio based on that goal.

• Value index
• Growth index
• Blend index
• Income index

This is my favorite feature included within AAP. Investors who learned from Buffett and Graham will be attracted to the value portfolio, while younger professionals with a higher risk tolerance will likely trend towards the growth portfolio, and the income index is created for retirement investors.

In the value portfolio, you’ll see stocks like Darden Restaurants and Kohls, while the growth portfolio has companies like Salesforce and Paypal. The blend portfolio has companies like JPMorgan and Apple, and the income index has companies like Pepsi and Nordstrom.

Qualitative Considerations

When following a stock-picking newsletter service, you have to wonder if the proprietors of that newsletter share similar investment philosophy to you. A deep value investor is unlikely to feel comfortable making investment decisions based on the recommendations of a Investor’s Business Daily style growth investor/trader, and vice versa. Luckily for potential customers of AAP, they lay out their qualitative considerations.

When looking at a company’s management, they’re looking for transparency, the ability to allocate capital in a rational matter, and consistent execution. It doesn’t stop there though, they also look at a company’s business model. They ask questions like, is there a unique value proposition? Is their competitive advantage (if any) sustainable? Do they have goodwill? Additionally, they worry about diversification of income and geographics.

Closing Thoughts on Jim Cramer’s Action Alerts Plus

I went into my subscription of Action Alerts PLUS with some skepticism. The cynic in me feared that the service might be a “cash-in” on Cramer’s Mad Money fame. I was pleasantly surprised to find that AAP offers plenty of value for the relatively inexpensive price of $300 per year, a price which has been reduced over the years.

You get a consistent stream of stock picks, but more importantly, investing ideas. Cramer has his finger on the pulse of the market and is the first to know about many emerging sectors. Even if his stock pick in a new sector isn’t your favorite, it gives you an idea to find that company’s competitors and make some sort of investment in that industry. That, to me, is the biggest value add. Coming up with a stream of quality investing ideas is difficult.

Additionally, you have a central investing hub where you can perform research through weekly roundups, market analysis, white papers, monthly member calls with Cramer, and asking questions though the members forum.

As with any purchase, there’s always caveats. AAP definitely isn’t for everyone. I don’t think professional or semi-professional investors will find a ton of value from it, as they likely already have a source of daily investing/trading ideas, research, market analysis, and the like. I think AAP is a great value to the straightforward investor who wants to make low risk, consistent return on their savings without spending too much time. It goes without saying that you should do independent research on any trade/investment idea you get, and not blindly trust anyone, even if they are named Jim Cramer.