Friday, July 24, 2009

Watch CNBC Like SportsCenter: For Entertainment

There is nothing wrong with watching CNBC. It is a great place to get the current prices of indexes and stocks, and the colorful cast can make watching the market look like a football game. Squawk Box, Morning Call, Power Lunch, etc. are fun to watch, and occasionally include interesting guests with interesting ideas.

There are a couple of things to remember when you are watching CNBC:

  1. CNBC is owned by NBC, which is owned by NBC, which is owned by GE. Do you think that you will see on CNBC that GE does not want you to hear? Do you think that anything Jim Cramer says on his popular show Mad Money is anything that could actually help you invest?
  2. CNBC, like any other major media outlet, tends to sensationalize news to keep things interesting. Remember that there is a 24 hour news cycle, and something has to be going on at all times. In this light a story might be developed and dragged out to the point of nausea, all designed to hone you in and distract you.
  3. CNBC is generally very Keynesian and pro-big government. Go to YouTube and pull up any segment that Peter Schiff was on. His ideas of free markets and human action are absolutely lambasted and demeaned. CNBC can also fall into what I call “Fox Newsy” segments, that is, a leftist, and a rightist discussing a topic and shouting each other down. No substance whatsoever, and completely irrelevant because this assumes that there are only two views that matter, and the correct conclusion can be drawn from only one. Complete garbage. But entertaining.

As an aspiring economist, I rarely watch CNBC. I prefer Bloomberg which is slightly more academic and much more palatable to watch. I also read the Wall Street Journal every day, a habit since college. There is nothing wrong with any of these, so long as you take all of these outlets with a grain salt. Do not act on any investment idea based on something you see or read. By the time it hits these outlets, the ideas are more than likely already priced in, and you will get burned. Rather watch and read with the following ideas in mind:

  1. Question everything you see and read!
  2. Apply what you know to be true and challenge the viewpoints of the hosts and guests. This can help you strengthen your own views.
  3. Understand that any “new information” about a stock or company is more than likely priced in at the point it is revealed.
  4. Use mainstream financial media outlets as a resource to find out where to look for opportunity, by doing the exact opposite of what they say on the air or in print. For example, if CNBC reports that there are no opportunities in the Japanese Bond Market worth looking at, go and research the Japanese bond market thoroughly. If they say that a stock is recommended as a sell, investigate it thoroughly because it might be a buy.
  5. Understand that taking a position in a security responsibly takes lots and lots of extensive research. You will get burned thinking that you can trade and profit off of what you saw on CNBC or read in the Wall Street Journal. Annual reports, balance sheets, SEC documents, etc. need to be read and re-read over a period of time longer than a television broadcast.

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