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Sound Advice: November 4, 2020

 “If I’d only followed CNBC’s advice, I’d have a million dollars today — provided I started with a hundred million dollars.”                                                                                  Jon Stewart

I do not have any interest in "The Stock of the Day" or why the latest news requires me to reposition my portfolio.  Yet, this is exactly what you will hear when you tune your TV to CNBC, which prides itself as being a prime source of investing information.

Sad to say, CNBC's scores highest on TMI, too much information that is unrelated to any worthwhile action that I or any investor should be taking. The station’s message is little more than ongoing prattle by a series of ostensibly intelligent talking heads who fill the hours of the business day with lots of words of questionable value.

Between the continuing shifts in camera angles and ongoing remote pickups, combined with background graphics that are ever on the move, there’s little doubt that CNBC is doing everything it can to whip up excitement and do its best to convince viewers that every single thing that’s happening means they should be responding in some way.  Add that to the occasional shots of the options traders doing their versions of St. Vitus’ dance and at least 15 different monitors showing all kinds of tables and charts and you have to wonder how any of this can be helpful to the individual investor.

                    

The presentation is superb at creating confusion, greatly lacking in delivering worthwhile guidance.  The station is too much.  Over the course of the day, there are clocks counting down to the open, key economic reports being released, bells ringing to signal the start and close of daily trading, and a host of other less-than-urgent stimuli being rushed to the screen to raise the tension even further.  (Does CNBC really need to have a clock counting down the seconds until David Faber will be on ?) 

Quiet, Please!  A Pundit Is About To Speak

Then there are the pundits who belly up to the microphone to give their considered views on where the market will be going today, tomorrow, and perhaps the day after.  Their responses are always the same.  “It could go up.” “It could go down.” or “We’re in a trading range.”  Given the fact that no one can predict what will take place during the next day or two or three, much less the next few minutes, these pious platitudes are little more than ego trips for the interviewees since they are, in truth, meaningless.

CNBC’s guests run the gamut from screaming traders whose actions can best be described as pre-asylum antics to acknowledged gurus such as Bill Gross, Mohamed El-Erian, and Warren Buffett.  The latter three are relatively soft-spoken and their words are always measured.  Their comments are often interesting and occasionally their thoughts can be parsed into useful guidance. They are, however, the exceptions to CNBC’s typical spate of verbalized static. The hosts and their regular crew of remote commentators are largely of the same ilk.

From those at the helm during the early morning hours to the folks who run the anchor leg with the end-of-day wrapup, the roster is well stocked with flapjaws. Broadcasts tend to be peppered with phrases such as “. . . goin’ up”, “. . . seein’ big changes . . .” and “. . . gettin’ new information . . .”  Maybe it’s a wave of the future, but it seems more like an overdone effort to speak the language of the streets.  Their mistake is that the subject is Wall Street, a street that should engender a far high degree of seriousness than these folks appear to acknowledge.

The more extreme examples are Rick Santelli and Jim Cramer, smart guys whose credibility would probably be a lot greater if they toned down their showmanship and calisthenics.  Santelli seems to specialize in the whip-’em-up approach.  He’s a Midwestern guy who excels at ranting and arm waving in the midst of a group of traders doing the same thing.  Cramer, by contrast, holds sway with a solo performance in a studio replete with a variety of noisemakers strategically placed to bellow forth and underscore the gentleman’s pronouncements.  Great showmanship, meaningless mutterings.

Quick?  Give Me A Hot Tip

One recent morning, the early show anchor was interviewing a trader as the start of Wall Street’s day was moments away.  Her request: “We have only five seconds to go.  What stock should we be watching today?”  Another: “Final word.  What would you buy now?”  Even better: “We’re gonna show you the smart way to play the market.”  Play the market?  Sounds like great fun if it were a game.  It, however, is not.

The young lady seems to have been caught up in the thought that the only decision to make is on the buy side.  This is a prime example of one of Wall Street’s glaring flaws: what to buy, not what to sell.

          One can only wonder why broadcasters with the wherewithal to present a balanced, thoughtful eye on Wall Street feel compelled to talk about the weather, not about the climate.  The former is exciting; the latter tends to be boring.  That seems to be the difference between CNBC’s business model and a model that might offer a stronger link between the ongoing flow of business information and a productive plan for investing.  But I guess this kind of showmanship is what gets high ratings.  Even so, this should not be confused with worthwhile investment advice.

Is anybody at CNBC worth listening to?  The answer is a qualified yes. Aside from occasional notables among the guests, commentators such as Steve Liesman and David Faber tend to shy away from hysteria and focus instead on well-reasoned analysis of basic information.  No flag-weaving or hysterics, just plain telling like it is and why it’s important.  Steve is CNBC’s Senior Economics Reporter and although talk about economics can often become arcane, he skillfully digests critical concepts and presents them in an easily palatable form.  If anything, David Faber, a regular CNBC contributor, is even calmer than Steve as he ponders the fare of the day.

However one views CNBC, the station stands numerous notches above mainstream broadcast media, which tend to present business news in a fashion that is often disappointing, if not misleading.  Without having hard evidence, it’s difficult to point a finger at the culprit.  That said, it seems likely that the station’s writers are more concerned with building excitement than veracity.

Hyperbole . . .  and Then Some

Equally disconcerting is the media’s tendency to overstate the magnitude of price movements on any given day.  With the Dow up near 28,000 (give or take a few thousand points), a move of 200 points may sound like a big deal, but it amounts to a change of less than 1%.  Yet newscasters seem to relish the chance to overstate the case and use phrases like “way up” or “way down”.

The latter is appropriate when you get a really big move, but really big would be on the order of 5% or so.  One can hardly imagine what adjectives these folks would have used to describe the crash of 1987, when the Dow dropped more than 22% in a single day.  Though few of them were likely to have been in the broadcast industry at the time, the probability is that shock would have overwhelmed their efforts to make any sense of what was going on.             

Even more fascinating is the media’s tendency to provide reasons for daily price action.  When stocks are rising, it’s common to read that the reason was optimism about rising corporate earnings and interest rate hopes.  Yet, if stocks fall the next day, the Daily Blab will usually talk of concerns about corporate earnings and rate fears.

The reality is that changes in investor psychology are the masters of daily price action.  Numerous factors impinge upon that psychology and efforts to define them with any degree of specificity are just plain foolish and off the mark.

Is there a happy medium?  Most likely there is and it would seem to make sense to recommend that they report the numbers and leave the adjectives aside.  A glance at either The Wall Street Journal or The New York Times provides guidance on this.  Both report the business news of the day in a matter-of-fact fashion, largely sidestepping the temptation to blow things out of proportion.

In an ideal world, the information flow would center on hard data and limit commentary to the probable impact on ongoing economic and market trends. Speculation and frenzy from the trading pits must be excised from the roster of daily events. These need not be offered with an air of gravity or doled out from the arcane recesses of the Merriam-Webster dictionary.

Plain English will do just fine, thank you.  Even so, it should be presented exclusively by folks with relevant education and experience, not by writers obsessed with the impact of hyperbole or talking heads who articulate with little or no understanding of the underlying significance.  The findings would be reported by calmer heads who do not feel compelled to make pronouncements of biblical magnitude.  Whether we will ever see anything approaching that sort of Utopian sensibility is another story.

Psst!

For a media outlet that boasts of being the world’s leading source of business information, CNBC ends up coming off as an analog of People Magazine, rather than an esteemed source of data and analysis.  When its hosts can make comments such as “We’ll tell you about four stocks that will give your portfolio a kick” or “There are several asset classes that will continue in a upward trend,” one can only assume that those making these pronouncements either have a view of the future or lack an appreciation of the seriousness of investing.  Pity those who are sufficiently naïve to ascribe any degree of credibility to these messages.  They are, at best, unhelpful.                              


With rare exception, the broadcast and print media go out of their way to convince the public that every single minute is filled with information that can change your life.  The financial publications, including some that are viewed as upper crust, have little hesitation splashing hot new ideas across their covers or including advertising for totally useless services within.  For years, we have lived in a world of “10 Stocks to Buy Now” or “How to Bring Your Portfolio Back to Life”.  It gets even worse when you read a lengthy story in a major business publication that intones the thought that stock X, which is selling at 14 today, might hit 17 in 12 to 18 months. I suppose that is a possibility, but so is the likelihood that palm trees and coconuts will be growing at the North Pole.

The world of investing is generally not one of absolutes.  It’s one in which there are numerous alternatives, some of which are more favorable than others.  Yet, the public continues to be infatuated with the prospect of immediate gratification.  What happens in the short term, however, is often the result of caprice, not a reflection of ongoing developments or prospective progress.  So it is that any talk of price action to look forward to in the immediate future can be dismissed as what the British refer to as rubbish. Changes in price that take place in days or weeks are largely the result of caprice, swings in psychology that typically have little relation to longer-lasting trends in underlying fundamentals.  This, of course, is unacceptable to the media, which is fueled by advertising dollars that are only interested in short-term cause and effect.  It is, indeed, a paradox, one that is not likely to be resolved.  Still, it can and should be ignored by calmer heads.

Take a Deep Breath

In my early days at Value Line, I recall a number of times when I was called by reporters at The Wall Street Journal or The New York Times.  Despite the recognized stature of these publications, the reporters tended to fall prey to the "What’s hot now" approach and peppered me with questions accordingly. Coming from Value Line’s oasis of calm, I and my colleagues often found it challenging to respond in a measured fashion.

The media wants nothing less than excitement.  The typical investor wants anything but, except when it comes to cocktail party conversation.  It may be entertaining to talk about hot stocks and big killings.  When things are hot, it can be great fun.  But when the gravy train finally comes to a halt, however, most are usually still on board.  Few knew when to get off. Once again, blame the media.  Their message is always about what to buy now, never what or when to sell.  Things have not changed.

That’s not to say there are no bright spots here and there, but they tend to be few and far between.  Of the upper echelon publications, Forbes usually offers worthwhile commentary, especially in its investing section. Among periodicals aimed at the mainstream, Kiplinger’s Personal Finance is the standout.  No hyperventilating about what’s hot now, just well-considered suggestions of strategies that may be useful for real folks in varying situations. As far as market letters are concerned, they would have greater value if printed on absorbent paper.  Hardly any have records that have stood the test of time.

That’s not surprising since one of Wall Street’s Holy Grails seems to be the task of coming up with a system for stock selection that works over extended periods.  Among our analysts at Value Line, we always had one or two who spent their free time developing and reworking their own statistical models. There were also people outside the organization doing the same thing.  Every now and then, some would visit us to reveal their findings.  A few of these approaches appeared to be of interest, but none were able to demonstrate long-term substantiation for the efficacy of their theories. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883 

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

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