“If I had only followed CNBC’s advice, I’d have a million dollars today — provided I started out with $100 million dollars.”
When I went through my period in life where I dreamed of being a day trader, part of my daily ritual was to get up early, make a pot of coffee, and turn on CNBC. There, for glorious hours, I was greeted with a bastion of information about every company under the sun and an endless, mind-numbing scroll of all the trades which were occurring. I was convinced to buy Rocky Mountain Chocolate Factory (RMCF) because Joe Kernen reported on a rumor that Whitman’s Candy was going to buy it. The stock popped a quarter, and then Whitman’s denied the rumor, and my paper profit vanished, and in a panic – I didn’t know the first thing about the company, after all – I sold. Had I held on for another 5 years, I could have had a ten-bagger.
Since then, I’ve actually seen a Rocky Mountain Chocolate Factory. I’ve seen two of them, in fact: one in Denver International Airport, and one in Vancouver. Whenever I go by one, I shake my mental fist at Joe Kernen for reporting that rumor. I’ve never bought a chocolate there. It’s primarily because I rarely eat chocolate – to the surprise and consternation of my wife – but I imagine that there’s a piece of me which is getting sweet revenge. The pun is intended.
I shouldn’t be shaking my mental fist at Joe Kernen, though. It’s not his fault. He was actually my favorite morning person on CNBC. I should be shaking my mental fist at myself. I fell victim to the same alluring siren song that I’m sure many, many people do when they think that they can beat the markets based on information they get from CNBC.
Here’s why watching CNBC might give you some bad habits.
- It makes you think you have an informational advantage. It doesn’t. If you’re an individual trader, then chances are that the people who are in the market know a lot more about you. Remember, there are institutional investors who are hired to thoroughly research companies before making decisions about investing in them. Furthermore, it’s not like nobody watches CNBC. The only people you have an informational advantage over are the ones who are completely ignorant about the market. Those people are like me – they’re probably investing in mutual funds (preferably index funds).
- Seeing the numbers continue to fly across your screen makes you start to see patterns. There’s actually a psychological term for this. It’s called apophenia. It’s also the same thing that causes you to see religious figures in oil stains. Carl Hiassen is glad that aphophenia exists; it was the subject of one of his books!
- It makes you think that you can make more money investing in stocks. All CNBC shows all day is people who are successful and rich. At least, they appear to be successful and rich. They’re revered. They make interpretations of why the S&P 500 moved 3 points lower today and try to interpret tea leaves. They reinforce the apophenia.
What are some things you can do to protect yourself?
- IF you’re going to watch it, then watch it for entertainment. Sometimes, at the gym, CNBC is on, and usually when I work out, that means that “Mad Money with Jim Cramer” will be on. Jim Cramer is utterly, exceptionally brilliant, and he is very successful. He also has an encyclopedic knowledge of most all of the publicly traded stocks out there. He’s been doing it a long time. It’s fun to watch him perform; I really like seeing the callers try to play “stump the chump” to see if he gets flustered about a stock. I’ve seen it happen once. I nearly marked the day in my calendar.
- Better yet, turn off CNBC. Cut the cable while you’re at it.
- Don’t turn in to some other news media instead. Most of the news media, which is where I categorize CNBC, is in the business of keeping you engaged. They want your eyes glued to the television set so that they can show you ads. To do this, they have to give you a reason to be engaged. The headline “Plane Crashes in Indonesia, Which is Sad, But Probably Won’t Affect You” doesn’t get you mesmerized like “Frantic Search on for Survivors in Indonesian Plane Crash.” Chances are that no given headline, or, for that matter, no news item that will appear on television in the next month will a) affect your life, b) cause you to have to change what you do, or c) cause you to go broke. Furthermore, there are few, if any things which you can do to directly impact what’s happening out there, so focus on the things you can control.
- Stick to basic investing – index funds, asset allocation, and value cost averaging—unless you really DO have a significant informational advantage. Chances are that you’re not Nicholas Naseem Taleb.
- Focus instead of what you can do to increase income and increase your savings. The more money you can put away for retirement, whenever that might come, the less you have to worry about the returns that the money gets. Focus on making the shovel bigger rather than trying to build the lever to move the world.
If you constantly expose yourself to the litany of information which comes out in the media, CNBC or otherwise, eventually you convince yourself to do something. Usually, that something is the wrong action, since you’ll have an overinflated view of your own abilities. Stick to what you can impact and focus all of your energies on the things you can change. After all, it’s almost impossible for all of us to be above average at something, unless we live in Lake Woebegone.