My title is a question. I’m convinced that the answer is yes. Although I would qualify that by saying that it could be useful on a contrarian basis. Every day I start with CNBC on in the background and by noon every day I have the volume turned off because it drives me nuts. You would think that I would learn.
The conclusion that I’ve reached is that most of the talking heads, both CNBC hosts and the “experts” who pop in for the various segments have a thin level of knowledge of many subjects, but a detailed level of knowledge on few. In other words they can carry on a reasonably intelligent conversation about many things, but really aren’t well versed in anything. I don’t doubt that they are all very intelligent, but when you spend most of your day talking instead of reading it is hard have an information advantage.
Let me get to an example. Last week Whitney Tilson was the guest host for 2 hours on Squawk Box. He went into a discussion on how JNJ could theoretically issue bonds at extremely low rates and buy back their very inexpensive stock (thereby significantly increasing value per share). In response to Tilson’s commentary a CNBC “expert” on the floor of the NYSE said that “It never makes sense for a company to repurchase stock because stocks are always efficiently priced”.
Always efficiently priced ? How do you explain American Express under $10 in March 2009 ? How do you explain the internet stocks that provided to have no value selling for billions in 1999 ? I suppose he might have been able to support an argument for the efficient market theory but I really don’t think that was what he was getting at. He was just disagreeing for the sake of disagreeing.
What else bothers me ? Here are a few things:
- The constant attempt to create drama where none exists. They put a countdown clock on the bottom of the screen so we know when every piece of economic data is coming out. When oil was $150 there was a constant red oil rig on the screen and “America’s oil crisis beneath it”. When the markets were plunging the stock prices of Citigroup, bank of America and AIG were always on the screen.
- Focusing on insignificant data points. My favorite is the weekly oil inventory number. How can you learn anything by one weekly inventory figure ? What if one extra tanker came in this week and unloaded ? That would distort the weekly inventory figure up significantly. I can understand how 3 months worth of inventory numbers are useful, but one week is not useful. Do you really think there are any significant changes from one week to the next in national oil demand ? And guess what. The inventory figure is for just the United States for which oil demand has been basically flat for several years. It is the developing world that accounts for the other 75% of oil consumption that we need to be watching.
- Jim Cramer. When you are willing to offer an opinion on companies that you admittedly are barely familiar with you are just dangerous to those following your advice.
- The financial professionals who they interview who are not only willing to give you a prediction for where the S&P will end the year, but are willing to give you a prediction on where it will end the day. Some advice for those folks, when asked a question that you can’t possibly answer say “I don’t know”. It amazes me that people who have been in the business for decades are still willing to answer such questions.
- The fall of 2008. CNBC made sure to have evening coverage of the meltdown for weeks on end so that they could make sure to spread the message of fear to everyone, not just those who can watch during the day. And you know that they were just loving it as the drama was the best thing to ever happen to their ratings. How much worse did they make the panic by constantly helping spread fear ?
- The Fast Money Guys. Honestly, please force them to keep a report card of their advice so that they have to be accountable for it. I’ve seen them go from a buy to a sell on the same stock in the course of one episode because they had forgotten what they said the first time. A lesson I learned long ago was that you can’t learn anything when your own mouth is open.
What frightens me is that the people who watch CNBC are likely the ones that don’t have the time to do their own due diligence. And if they are looking for investing ideas from this source I’m afraid that they are likely to be buying exactly when they should be selling, and selling exactly when they should be buying. So watch CNBC for entertainment value, not for investment advice. Most people would be far better spending their time looking for value investors with mutual funds they can invest in such as the Fairholme Fund where the managers have their own net worth invested right beside their fund holders.
I guarantee Mr. Berkowitz of Fairholme isn't watching CNBC for his investment ideas.
The conclusion that I’ve reached is that most of the talking heads, both CNBC hosts and the “experts” who pop in for the various segments have a thin level of knowledge of many subjects, but a detailed level of knowledge on few. In other words they can carry on a reasonably intelligent conversation about many things, but really aren’t well versed in anything. I don’t doubt that they are all very intelligent, but when you spend most of your day talking instead of reading it is hard have an information advantage.
Let me get to an example. Last week Whitney Tilson was the guest host for 2 hours on Squawk Box. He went into a discussion on how JNJ could theoretically issue bonds at extremely low rates and buy back their very inexpensive stock (thereby significantly increasing value per share). In response to Tilson’s commentary a CNBC “expert” on the floor of the NYSE said that “It never makes sense for a company to repurchase stock because stocks are always efficiently priced”.
Always efficiently priced ? How do you explain American Express under $10 in March 2009 ? How do you explain the internet stocks that provided to have no value selling for billions in 1999 ? I suppose he might have been able to support an argument for the efficient market theory but I really don’t think that was what he was getting at. He was just disagreeing for the sake of disagreeing.
What else bothers me ? Here are a few things:
- The constant attempt to create drama where none exists. They put a countdown clock on the bottom of the screen so we know when every piece of economic data is coming out. When oil was $150 there was a constant red oil rig on the screen and “America’s oil crisis beneath it”. When the markets were plunging the stock prices of Citigroup, bank of America and AIG were always on the screen.
- Focusing on insignificant data points. My favorite is the weekly oil inventory number. How can you learn anything by one weekly inventory figure ? What if one extra tanker came in this week and unloaded ? That would distort the weekly inventory figure up significantly. I can understand how 3 months worth of inventory numbers are useful, but one week is not useful. Do you really think there are any significant changes from one week to the next in national oil demand ? And guess what. The inventory figure is for just the United States for which oil demand has been basically flat for several years. It is the developing world that accounts for the other 75% of oil consumption that we need to be watching.
- Jim Cramer. When you are willing to offer an opinion on companies that you admittedly are barely familiar with you are just dangerous to those following your advice.
- The financial professionals who they interview who are not only willing to give you a prediction for where the S&P will end the year, but are willing to give you a prediction on where it will end the day. Some advice for those folks, when asked a question that you can’t possibly answer say “I don’t know”. It amazes me that people who have been in the business for decades are still willing to answer such questions.
- The fall of 2008. CNBC made sure to have evening coverage of the meltdown for weeks on end so that they could make sure to spread the message of fear to everyone, not just those who can watch during the day. And you know that they were just loving it as the drama was the best thing to ever happen to their ratings. How much worse did they make the panic by constantly helping spread fear ?
- The Fast Money Guys. Honestly, please force them to keep a report card of their advice so that they have to be accountable for it. I’ve seen them go from a buy to a sell on the same stock in the course of one episode because they had forgotten what they said the first time. A lesson I learned long ago was that you can’t learn anything when your own mouth is open.
What frightens me is that the people who watch CNBC are likely the ones that don’t have the time to do their own due diligence. And if they are looking for investing ideas from this source I’m afraid that they are likely to be buying exactly when they should be selling, and selling exactly when they should be buying. So watch CNBC for entertainment value, not for investment advice. Most people would be far better spending their time looking for value investors with mutual funds they can invest in such as the Fairholme Fund where the managers have their own net worth invested right beside their fund holders.
I guarantee Mr. Berkowitz of Fairholme isn't watching CNBC for his investment ideas.
