Among active stock pickers, few can rival how far Jim Cramer's media star shines. The ex-hedge fund manager's "Mad Money" show, which debuted in 2005, is still a daily fixture on CNBC. At the same time, his buy and sell recommendations continue to generate headlines and spur debate by pundits at online financial news sites. 

But does such popularity with cable television and Internet viewers mean that investors should follow Cramer's advice on stocks?

An in-depth study published by the Journal of Retirement tackled just that question. It was written by a research assistant at the Wharton School of the University of Pennsylvania, Jonathan Hartley, and a graduate student in statistics at the school, Matthew Olson.

The authors built on several earlier studies of similar nature. In particular, they cited two research projects as being influential to their work — one looking at Cramer's portfolio before the so-called Great Recession (Bolster and Trahan in 2009), and another examining any possible market "impact" of his stock recommendations (Engelberg and Parsons in 2011).

Like others before them, these Wharton academics explored performance and risk metrics associated with Cramer's Action Alerts PLUS portfolio. What set this research apart, they suggested, was a more complete data set than previously studied. Hartley and Olson tracked the AAP portfolio from inception through 2017, a span that covered 17 years and five months. It still stands as one of the most comprehensive studies of Cramer's stock picks over an extended timeframe. 

As the study's authors observed, "Cramer, unlike many other TV finance personalities," during this 17-plus year period actually managed a stock portfolio that invested "in many of his stock recommendations made on Mad Money."

The AAP portfolio was created in August 2001 and sold online at TheStreet.com, an investing site originally co-founded by Cramer. Hartley and Olson noted that after Cramer's "Mad Money" show began on CNBC, the portfolio was converted into a charitable trust in 2005 with a stated mandate to donate any resulting dividends and distributions to nonprofit organizations.

The Journal of Retirement's publisher, Pageant Media, granted Index Fund Advisors a full review of the report after its publication in the summer of 2018. It also gave us permission to use data points collected in this research piece to create a graphic depicting Cramer's portfolio since inception through 2017. Besides reviewing Cramer's portfolio performance, the study also compared such results to the S&P 500 index. (See chart below.) 

Under such a microscope, Cramer's stock picks lost luster. The Wharton researchers found that his AAP portfolio produced an annualized 4.08% return in the 17-plus years reviewed. At the same time, the S&P 500 gained 7.07%. 

When applying an efficient frontier analysis — where raw returns are judged relative to how much market risk is being injected into a portfolio — the study's results raised even more red flags during this period reviewed. To be specific, Cramer's AAP portfolio generated annualized standard deviation of 17.65 and a Sharpe ratio of 0.16.

In finance, the Sharpe ratio measures the performance of an investment compared to a risk-free asset, after adjusting for its risk. Meanwhile, standard deviation is a statistical metric that can be used to quantify portfolio volatility against a market index. 

The S&P 500 index in this timeframe had annualized standard deviation of 14.16 and a Sharpe Ratio of 0.41. Lower standard deviation translates into less exposure to market volatility while greater Sharpe numbers indicate better risk-reward characteristics. In other words, Cramer's AAP portfolio was not only providing its investors with significantly lower annualized returns, but also a bumpier ride in delivering such lagging performance. 

To be fair, the study's authors pointed out that as a charitable trust, the AAP portfolio can suffer as it gathers dividends and distributions to make future donations. During periods when stocks are rallying, Hartley and Olson found that such a cash drag has proved problematic to keeping up with market returns. (Note: IFA's portfolio management process stresses a "fully" invested strategy as part of implementing each client's holistic financial plan. To find out more about globally diversified and passively managed IFA Index Portfolios, see the graphic linked here.)

In studying Cramer's AAP portfolio over such a relatively lengthy timeframe, Hartley and Olson uncovered a management trend during this period of tilting to smaller market capitalization stocks and those considered as more growth-styled. They also found a propensity to bet on shares of companies with "low earnings quality." (It's worth noting that IFA's equity strategy favors small caps, value and funds that screen for profitability.)

"We also find that over the portfolio's entire history, Cramer's AAP portfolio exposures are primarily driven by underlevered exposure; i.e., low-beta with respect to market returns in every specification, which has heavily contributed to underperforming the S&P 500 in the post-financial crisis years," the study summarized.   

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For detailed information on the hypothetical back-tested performance data shown in the chart shown above in this article, including sources, updates and important disclosures, see ifabt.com. IFA Index Portfolios are labeled with numbers that refer to the percentage of stock indexes in the asset allocation, as opposed to the allocation of bond indexes. For example, an IFA Index Portfolio 90 is 90% IFA stock indexes and 10% IFA bond indexes. The construction of IFA Indexes data starts in 1928 and introduces live mutual fund data of funds that are similar to the preceding index upon the inception date of the funds and uses that monthly mutual fund data up to the current month and are defined in detail at indexdescriptions.com Hypothetical back-tested performance of IFA Index Portfolios assumes annual rebalancing of the asset allocation of the components comprising the IFA Index Portfolios. The hypothetical back-tested performance of the IFA Indexes and IFA Index Portfolios was achieved with the benefit of hindsight; it does not represent actual investment strategies for the entire period; and it does not reflect the impact that economic and market factors may have had on the advisor's decision making if the advisor were actually managing client money during the period shown. The performance of index portfolios does reflect the deduction of a 0.9% annual investment advisory fee, which is the maximum advisory fee charged by IFA, and mutual fund fees associated with the management of an actual portfolio over the entire period. Unless indicated otherwise, the performance of the IFA Indexes when shown individually, does reflect the deduction of mutual fund fees, include reinvestment of dividends and capital gains but does not include the deduction of IFA advisory fees, transaction costs or taxes, which if included, would lower performance. The IFA Indexes and IFA Index Portfolios were created by IFA in 2000.