Should You Turn Off Business TV?

I’d like to start this post with a confession. It’s something I’ve been waiting to get off my chest for a while, something that’s really haunted me inside. This is really hard for me to say, but here goes:

Hi, my name is Nelson, and I’m addicted to business television.

Oh man, that feels so much better. You guys have no idea the weight that’s off of me. You see, I am a business TV junkie. In the morning before I go to work, I watch Squawk  Box on CNBC, both to ogle the lovely Becky Quick and because I naturally assumed there would be parrots there. (alas, there are no parrots) After work, I come home usually just in time for Market Call Tonight on BNN, which I usually watch the crap out of while playing on my laptop. In fact, I have CNBC on mute right now as I write this post, only because I wouldn’t get any work done if the volume was up.

So yeah, if business TV was crack, I’d have a very expensive and dangerous addiction. I’d probably be forced to shake down kids for their lunch money or something. But since it isn’t, my business television addiction is harmless, right?

RIGHT?

Perhaps I’d be better served to turn off business TV. Here’s a few reasons why.

It Promotes Short Term Thinking

I’ve you’ve ever watched Mad Money with Jim Cramer, you’ll know exactly what I’m talking about. Jim is a former hedge fund guy, and the way his hedge fund made money is by trading huge amounts of stock over and over again, making small percentage gains each time. As the year went on, Cramer’s hedge fund was able to make money because they had such large amounts of capital. A 1% gain on $100M is a million bucks. A 1% gain on your inadequate $50,000 portfolio isn’t quite as exciting. The professionals will make much more money on small movements than your local Joe investor.

Besides, investing and trading are two very different things. Often, traders won’t even hold a stock overnight. They’ll buy in the morning, hope for a price movement up (or down, depending on what side of the trade they’re on) and then dump the stock later in the day. Traders will do this with dozens of different stocks during the day, trying to exploit things like company earnings, general market sentiment, or technical analysis. Oh, and often they’ll borrow money in an attempt to enhance returns. It’s dangerous being a trader.

Meanwhile, let’s compare that to investing. Some investors focus on value, while others focus on growth. No matter what an investor’s strategy, she’s holding her stocks (or ETFs) for months or years at a time. Not only does this cut down on trading fees, but it encourages research and rational thought before initiating a position. Even though the reasoning is sometimes wrong, most investors can explain in depth the rationality behind their decision.

Business TV Creates A Sense of Urgency

Raise your hand if you watched business TV during the market meltdown of 2008-09. If you didn’t, you missed out on some RIVETING television.

Every time the market plunged, the folks at CNBC were happy to invite on the most pessimistic guests they could find. Predictions of 1930s style depressions were everywhere. The whole financial system was about to collapse. There were people literally going to banks and taking out their cash, because they were scared the cash wasn’t going to be there the next day.

There is no doubt in my mind that business TV had a part in the collapse of both Bear Stearns and Lehman Brothers. It helped create the panic that caused investors to insist on their money, which helped cause the liquidity crisis that brought them down.

There were days in late 2008 I didn’t even go to work because I was too busy watching business television. (Before anyone gets too excited, I was self employed at the time.) It was more exciting than any movie or TV show. It was that compelling.

It’s hard for the average investor to watch all these smart people on TV talk about the problems in the stock market, and not pull their money out. But, as we’re apt to do, they pulled their money out right as the market was beginning to bottom.

Talking Heads Are A Poor Substitute For Your Own Research

Most of the guests on BNN’s Market Call manage mutual funds. Often, these mutual funds will under perform the market, since they’re so big they essentially become index funds with large management fees attached, which will naturally drag returns down.

These guys either want to a) create a sense of urgency behind their favorite stocks or b) get you to be impressed enough to invest in their fund. Either way, it helps them and their fund. It does very little to help the average investor.

If you’re like most people on the personal finance blog-o-net, you’ve abandoned trying to pick stocks in favor for ETFs and their ultra cheap fees. Mutual fund managers depend on small investors to grow their funds. If you blindly invest in a fund because you saw the manager of it on TV, that’s only good for the company managing that fund.

If You Insist on Continuing to Watch…

I’ll admit it, I have no intention to give up watching business TV even after writing this post. And if you love watching too, you don’t really need to give it up. You just need to realize how you react to business TV. If you blindly go out and do what it tells you, then maybe you should flip over to the football game or something. But if you use it as a constant source of inspiration combined as an educational tool to further investigate a company or fund, it can be a valuable tool for any investor.

Do you watch business TV?  Why? How often?

 

26 thoughts on “Should You Turn Off Business TV?

  1. I don’t watch it. Between all of the things I am involved in, I hardly have the time to watch TV for fun (only movies really). You make a good point about how the ‘big dogs’ make more money off unintelligent investors.

  2. I never watch it, but I feel like reading news on the internet can be just as bad as the TV. It’s just a bunch of talking heads, and I’d chalk it up to more of entertainment value than real financial advice value.

  3. Fun post.

    News, for the most part these days, is about hype. You can’t sell or market what you don’t hype.

    I’ve often wondered how much less crap I’d have if I never watched TV. Except for sports and maybe Lang & O’Leary to hear Kevin go off on something or someone :)

  4. I used to watch CNBC but I no longer do because most of the commentary is a sales job in my humble opinion. There are also many companies that are no longer giving financial guidance to Wall Street because of the hypersensitivity of markets to short-term performance.

    1. True, but if they don’t give guidance, analysts will just come up with their own numbers. And then if the company misses those numbers, watch out.

  5. I have to admit that it is a guilty pleasure for me as well! I find Cramer and his viewers particularly hilarious. I don’t watch TV as much as listen to it on my satellite radio. “A big “Boo ya comin to you from ___” hilarious. I find it ironic that Jim is so anti-hedge fund now after he made his killing in the field. Has anyone seen the video of he and Jon Stewart where Stewart makes him cry?

  6. I don’t watch business TV at all either – mainly because I don’t have cable. You can still get many of the business shows online too but they are usually available slightly later instead of being live. I find business TV is much better watched live because the news gets old very quickly :)

    I confess I have watched a few episodes of the Lang & O’Leary exchange online but I’m far from addicted.

    I’m sticking to my ETFs for now. I think you can do better with good stock research and stock picking and good emotional control – but I don’t have the time, patience, or perseverance to dedicate to that.

  7. I think the hosts on these shows should disclose how their portfolios did through out the year, after all they are up close and personal with the “experts”, so in theory they should be able to beat the market!!

  8. Overall the quality of analysis on business TV is incredibly poor. Of than as a source for breaking news, I see no value in it. Even there, it’s easily out-done by many other news services.

    I do disagree with one part of the post though – I don’t think the issue is a short time frame. A short time frame can be fine if everyone agrees that’s what they’re talking about. The frequent problem is that analysis/advice is given without disclosing the time frame. This is presumably intentional since it prevents checking the analysis for accuracy.

  9. Most of the opinion on those show are just opinions that have little basis in reality. While what they say is possible, it’s still a shot in the dark, especially when it’s stock picks…

    For me it’s now just white noise…

  10. I watch it way too much! I LOVE squawk box as it provides both information about a specific company AND macro movements. I can’t get into the other trading shows all that much

  11. I agree 100%. Watching CNBC, Fox Business Channel, or any other business channel is bad for you. It promotes short term thinking and lures you in with fear or hubris. I love when the market is dropping and they have big red boxes of “breaking news: Dow Jones drops 1%!” When the market is up, it’s just the reverse breaking news.

    The best advice is to tune out the “noise” and stay focused on the long term. Short term volatility, while nerve racking, is best ignored.

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